1. This appeal by the assessee relates to the assessment year 1978-79.
The assessee is a registered firm. The accounting period ended on 31-3-1978. The assessee-firm came into existence by an instrument of partnership executed on 21-2-1973. The partners were R.N. Kandaswamy, R.M. Subramanian and R.M. Srinivasan, all sons of one R. Manickavsa Chetty. It has been stated in the partnership deed that they had formed a sub-partnership in respect of interest in capital, profit, etc., of a firm known as Bharat Sandal Oil Distilleries. Formerly, the partners of the assessee-firm were members of a HUF and were represented by Sri R.M. Kandaswamy in the firm of Bharat Sandal Oil Distilleries (hereinafter referred to as the "larger firm"). Subsequently, there was a partition and Kandaswamy continued to be partner in the larger firm which was constituted by a deed dated 11-6-1965.
2. In the case of the assessee, the share income from the larger firm was taken at Rs. 1,65,906 on a provisional basis. The assessee had claimed before the ITO that the assessee was not liable to pay firm's tax in respect of such income included in its total income because the larger firm had paid tax and what would result would be double taxation. A copy of an order of a Single Member of the Tribunal, Jaipur Bench, in IT Appeal No. 177 (Jp.) of 1976-77 decided on 27-8-1977 was also placed before the ITO. According to the ITO, the facts of that case were different. He further observed that registered firms were subject to tax at concessional rates and it could not be acceded to that the assessee-firm was not liable to tax at all. The assessee-firm, he emphasized, was paying taxes only at a concessional rate and, therefore, he rejected the plea of the assessee.
3. The assessee appealed to the A AC. The A AC referred to the decision in the case of CIT v. Shyam Narain Mehrolra  122 ITR 313 (Cal.) and held that if it logically followed as a result of provisions of particular enactments that double taxation should take place, there was nothing in the Constitution which prevented such double taxation and, therefore, the assessee was not entitled to any relief. He also mentioned that in the present case there was no double taxation in respect of the same income.
4. Before us, the learned counsel referred to the decision of the Supreme Court in Murlidhar Himatsingka v. CIT  62 ITR. 323 and submitted that the concept of sub-partnership had been elucidated by the Supreme Court as under : A sub-partnership is, as it were, a partnership within a partnership ; it pre-supposes the existence of a partnership to which it is itself subordinate. An agreement to share profits only constitutes a partnership between the parties to the agreement. If, therefore, several persons are partners and one of them agrees to share the profits derived by him with a stranger, this agreement does not make the stranger a partner in the original firm. The result of such an agreement is to constitute what is called a sub-partnership, that is to say, it makes the parties to its partners inter se ; but it in no way affects the other members of the principal firm. (p. 329) His contention was that since a sub-partnership is only a partnership within a partnership, it is part of the same entity, viz., the larger partnership, and when the larger partnership paid firm's tax, the sub-partnership was not liable to pay firm's tax in respect of the same income. The learned counsel also relied on the order of the Tribunal which was placed before the ITO.5. The learned departmental representative, on the other hand, submitted that in the same decision viz., Murlidhar Himaisingka (supra) relied on by the learned counsel for the assessee, the Supreme Court had stated as under : ... It seems to us that when a sub-partnership is entered into, the partner changes his character vis-a-vis the sub-partners and the income-tax authorities, although other partners in the original partnership are not affected by the changes that may have taken place. (p. 331) He, therefore, concluded that the partner changed his character vis-a-vis the income-tax authorities and in the hands of the sub-partnership the income was that of a different entity and there could be no double taxation. The learned departmental representative emphasized that double taxation takes place only if the same income is assessed in the hands of the same assessee twice which did not happen in the present case. For support of the proposition that there was double taxation only if the same income is taxed twice in the hands of the same assessee, reference was made to the decision of the Madras High Court in T.N.K. Govindaraju Chetty & Co. (P.) Ltd. v. CIT  51 ITR 731. He also referred to certain discussions in the commentary by Kanga & Palkhivala's The Law and Practice of Income-tax at page 56 to emphasize the point that firm was a different assessable entity, though it was not a separate legal person or a juridical entity.
6. We have considered the rival submissions. In the decision of the Single Member of the Jaipur Bench referred to above, we find that certain statutory provisions relating to the relief to be given in respect of tax paid by a registered firm in allocating the share income, etc., as obtaining in the Income-tax Act were apparently not placed before the Bench. We may also state that the learned counsel for the assessee very fairly placed before us an order of the Hyderabad Bench of the Tribunal in IT Appeal Nos. 1383 to 1385 of 1979 dated 4-8-1980 wherein disposing of an application under Section 154 on a similar point when a similar contention was raised by the assessee, the Tribunal held that the issue was debatable if not without any substance. The Tribunal, in the course of its order, had stated that on the merits also the plea seemed to be without substance. But, the learned counsel had submitted that this should not detract from our decision on the issue with reference to all the arguments addressed before us.
7. Section 67(1)(a) of the income-tax Act, 1961, prescribes the method of computing a partner's share in the income of the firm. It is stated that the apportionment shall be made as under : (a) any interest, salary, commission or other remuneration paid to any partner in respect of the previous year and where the firm is a registered firm or an unregistered firm assessed as a registered firm under Clause (b) of Section 183, the income-tax, if any, payable by it in respect of the total income of the previous year, shall be deducted from the total income of the firm and the balance ascertained and apportioned among the partners ; In the present case, we find that the larger firm was assessed on a total income of Rs. 6,93,590. However, it had paid firm's tax of Rs. 1,75,330. Therefore, the income taken for apportionment was only Rs. 5,18,258 as against the total income of Rs. 6,93,588. R.M. Kandaswamy was apportioned one-third share therein which consisted of business income Rs. 1,62,640, interest Rs. 10,060 and interest on securities Rs. 72, making a total of Rs. 1,72,772. (What has been taken in the present case is only provisional share income.) So, it is clear that the Legislature itself was aware of the fact that the registered firm had to pay tax and the share income when it was apportioned would again be taxed in the hands of the particular partner. Therefore, the Legislature provided for such relief as it considered appropriate, viz., that the firm's tax should be deducted before any apportionment is made. What is taken in the hands of the assessee-firm is only the apportioned share income. Therefore, the statutory relief under Section 67(1)(a) is already given. It is not as if the entire share of the assessed total income of the larger firm has been bodily lifted into the hands of the assessee. Such relief as the Legislature considered appropriate has, therefore, been allowed.
8. The assessee is a separate registered firm different from the larger firm. It is an assessee and separately assessable. The provisions of the relevant Finance Acts that in the case of a registered firm tax shall be levied and thereafter the specified rates at which the tax is to be levied are set out. This is in paragraph C, sub-paragraph (i), of the relevant Finance Act. The assessee being a registered firm, tax has to be levied on its total income at the rates specified in the Finance Act which has reference to the total income of the particular registered firm. It is mandatory that the authorities administering the Income-tax Act have to follow this provision. As long as the provision remains on the statute book, the Tribunal also has to give due effect to the same. It is mandatory, therefore, to levy the tax with reference to the total income of the particular registered firm. That is all that the ITO has done in the present case. It is fully in conformity with the relevant statutory provisions and as such even if it be considered that there is an element of hardship, an appellate body like the Tribunal cannot interfere with the computation as made.
9. We, therefore, come to the conclusion that the plea of double taxation cannot be accepted because no tax has been levied in respect of the same income on the same assessee twice, and further such relief as was contemplated by the Legislature in respect of firm's tax has been granted in working out the apportioned income to be included in the hands of the assessee.