1. This appeal involves a rather ticklish issue. The assessee-company is a partner in two firms, viz., East India Lamps and Components and Unipro Lamp Components. Both the firms were not initially granted registration in their respective assessments. On this basis, the assessee' s share in the two firms was computed accordingly from its income. Subsequently, the firms were granted registration which resulted in the inclusion of a different figure in respect of the shares of the firms in the assessee's income. The ITO, therefore, initiated rectification proceedings under Section 154 read with Section 254 of the Income-tax Act, 1961 ('the Act') to which the assessee's representative objected to as under : The above mentioned firms were assessed as an unregistered firms and the assessee's shares of income were correctly included on that basis. It, therefore, cannot be stated that there is a mistake in the assessment capable of rectification under Section 154 of the Act. It is only for this reason that a special provision, i.e., Section 155(1), has been made to cover a situation like the present one. After quoting Section 155(1), the authorised representatives have contended that the condition precedent to a rectification under the aforesaid section is 'any reduction or enhancement made in the income of the firms'. This condition is not satisfied in the present case as there has been no reduction or enhancement made in the income of the two firms. As such no rectification under Section 155(1) of the Act can, therefore, be made merely because of the grant of subsequent registration in appeal.
The ITO, however, was of the opinion that this objection would lead to an absurd situation. According to the assessee, once the share of a partner in an unregistered firm was assessed, this could not be revised as a result of grant of registration to the firm if there was no change in the income of the firm. The ITO was of the opinion that, even if Section 155(1) of the Act was not technically applicable, he could invoke the provisions of Section 154. The partner's share in the profit of a firm was determined under Section 67 of the Act. Initially the firms having not been granted registration, the share was excluded from their individual income. Following the grant of registration, the share of the assessee had to be included. All these facts were on the record.
It was, therefore, a mistake apparent from the record that the assessee's share in the income of the two firms which had been granted registration had not been computed properly. He, therefore, served formal notice under Section 154 to rectify the mistake. Giving effect to the orders of the Tribunal dated 25-8-1978 and 13-1-1978, he revised the computation of the assessee's income. The said order of the ITO was upheld by the Commissioner (Appeals) on an appeal filed by the assessee. The assessee has, consequently, come up in second appeal before us.
2. We have heard the representatives of the parties at length in this appeal. The assessee's contention raised before us was that the inclusion of its share of income from the two firms on the basis that they were unregistered could not be said to be a mistake apparent from the records having regard to the fact that the grant of registration to these firms was still under challenge by the department. Therefore, the matter being sub judice, the ITO was not competent to assume jurisdiction under Section 154 on the footing that the computation of these shares in the assessee's income on the basis that they were unregistered was a mistake, apparent from the record. In any case, the ITO's action under Section 154 was barred by limitation, inasmuch as it was passed more than four years after the date of the original assessment. According to the assessee, the original date of assessment was 25-3-1975, whereas the present order was passed on 26-10-1980 and was, therefore, apparently time barred.
3. We have carefully considered all the submissions of the assessee and to our mind, there is little force therein. The main weight of the assessee's argument was that there was no reduction or enhancement in the income of the firms by any order under Sections 154, 250, 254, 260, 262, 263 or 264 of the Act within the meaning of Sub-section (1) of Section 155. Nor was it a case of assessment or reassessment of the firm, so that Sub-section (1) of Section 155 was not applicable at all.
To our mind, this is taking too literal a meaning to the words used in this section. As pointed out by the Commissioner (Appeals), the determination of the status of a firm is an integral part of the assessment order. If the status is not determined, the assessment cannot be said to be complete because the amount of tax payable would depend upon the status and the assessment means the computation of income and calculation of tax thereon. A change in the status as a result of an appellate order would, therefore, amount to a change in the taxable income of the partners. In fact, it amounts to a change in the method of computation of tax of the firm because Section 67 prescribes method of computing the partners' shares in the income of a registered firm. But the share which has already been subjected to tax in the hands of the firm as if it were an unregistered one would be liable to be excluded except for rate purpose. The contention of the assessee that the final order in the case of the firm is yet to be passed is also without substance because a final order does not necessarily mean the final order of the highest Court. The firms in which the assessee is a partner have already been granted registration by the orders of the AAC and those orders have been upheld by the Tribunal. The ITO was, therefore, at liberty to amend the orders of an assessment of the assessee as partner in that firm on the basis of the orders of the firms passed under Sections 250 and 254. If there is a fresh order under Section 260, it will be open to the ITO to pass another order under this very provision of law. The later part of Sub-section (1) of Section 155 clearly lays down that the provisions of Section 154 shall, so far as may be, apply to an order amending the order of assessment of a partner with a view to the inclusion of the correct share in his assessment subject to the conditions that the period of four years specified in Sub-section (7) of Section 154 shall be reckoned from the date of the final order passed in the case of the firm. The orders in the cases of the firms of which the assessee is a partner, were passed in Appeal Nos. 519 (Cal.) of 1977-78 and 2978 (Cal.) of 1976-77 on 25-8-1978 and 13-1-1978. It is really those orders which gave rise to the recomputation of the assessee's share and consequent order under Section 155. The present order was passed on 26-12-1980. It can be called to be an order under Section 155(1) read with Section 254, though the provisions of Section 154 shall apply insofar as they may be applicable to the facts, limitation would run accordingly. Obviously, the computation of the assessee's share of profit from the two firms was not in accordance with the order of the Tribunal by which registration was granted to the two firms. If the ITO is debarred from recomputing the assessee's share under Section 155(1), we do not understand as to how the correction will be permissible in law. Each order passed under Sections 154, 250, 254, 260, 262, 263 or 264 has to be considered as a final order till a fresh order varying the same is passed by the higher authority.
4. Accordingly, we are of the opinion that there is no force in this appeal which is, accordingly, dismissed.
5. I entirely agree with my learned brother's reasoning and conclusions. In addition I may observe as follows : "The word 'assessment' in the context of Section 143/144 includes all the various steps by which (1) the total income of a person is determined ; and (2) the tax thereon is computed. In the case of a firm, assessment of its partners is intrinsically interlinked with that of the firm, depending on the status of the firm, viz., whether it is a registered or an unregistered firm. In the case of a registered firm, the assessment is to be computed in terms of Section 182, whereas in terms of an unregistered firm, the assessment is completed in accordance with Section 183. In respect of assessment of an unregistered firm under Section 183, tax on the total income of the firm is payable by the firm itself. The partners pay no tax in respect of their share, except that the share of the partner in such firm's income is includible in his total income for rate purposes under Section 86(iii) read with Section 66. In the case of a registered firm, the firm pays tax at a much reduced rate, and, then the share of each partner in the income of the firm is included in his total income and assessed to tax in his hands.
Section 67 prescribes the method of computing a partner's share.
According to it, any interest, salary, commission or other remuneration paid to any partner is deducted from the total income of the firm. In the case of a registered firm, tax paid by the firm is also deducted from the total income and thus reduced total income of the firm is allocated amongst the partners in accordance with their profit sharing ratios and to such allocated profits, the interest, salary, etc., paid to a partner by the firm, which had been excluded as above is added.
The resultant figure is the share of a partner in the registered firm.
In the case of an unregistered firm, however, the tax paid by the firm is not deducted from the total income of the firm before allocation of the income amongst the partners in accordance with Section 67. The above difference may be illustrated by an example. Let me suppose that the income of a firm is Rs. 1,00,000, salaries, etc., paid to partners aggregate to Rs. 20,000 and the tax payable by it as registered firm is Rs. 10,000. Then, for the purpose of distributing the income of the firm amongst the partners, the income of the registered firm will be Rs. 1,00,000-(Rs. 20,000 + Rs. 10,000), i.e., Rs. 70,000. If the said firm be unregistered, the firm's income to be distributed amongst the partners would be Rs. 1,00,000-Rs. 20,000, i.e., Rs. 80,000. If there were two partners of the firm with equal shares and salaries, etc., the share of each of them will be Rs. 35,000 if the firm is a registered firm and it will be Rs. 40,000 if the firm is an unregistered firm." 6. From the above, it will be seen that even though the total income of the firm in both the cases, as determined under Section 143/144 of the Act, remains the same, viz., Rs. 1,00,000, (1) the tax imposed would be different if the firm is registered than what it would be if the firm is unregistered and (2) the shares of partners would be different, with different tax implications.
7. The assessment of a firm is, thus, not a one-step procedure as in the case of other persons. It is a two-steps procedure involving, on the one hand, the total income of the firm and tax thereon depending on its status, and, on the other, allocating the firm's income amongst the partners and taxing the partners thereon. The assessee's submissions completely ignore this complicated nature of a firm's assessment.
According to the learned counsel, the word 'assessment' as used in Clause (a) of Sub-section (1) of Section 155 means the assessment of total income of the firm only and not the subsequent steps. This view is apparently against the scheme of the Act regarding the assessment of a firm.
8. The procedure of assessment includes in its ambit the appellate stages also. An order giving effect to an appellate order will also be an assessment of the firm for the purpose of Section 143-Chloride India Ltd. v. CIT  106 ITR 38 (Cal.). The revision of assessment of the firm by the ITO to give effect to the appellate order will, therefore, be an 'assessment' of the firm and if variation is involved in the tax burden of the firm and the share incomes of the partners, it will be a case which will fall squarely within the language of Section 155(1), which stipulates that- Where in respect of any completed assessment of a partner in a firm it is found- (a) on the assessment or reassessment of the firm, or** ** ** ... the share of the partner in the income of the firm ... is not correct, the Income-tax Officer may amend the order... four years...
from the date of the final order passed in the case of the firm.
9. In the present case, the reassessment of the firm, consequent to the order of the Commissioner (Appeals) has been done, as pointed out by my learned brother, some time in 1978, changing the total income of the partners including that of the assessee. The rectification in the assessee's case under Section 155(1)(a) in 1980 is, thus, within time.
10. The assessee's appeal, therefore, has no merit and deserves to be rejected, as has already been done by my learned brother. I respectfully agree with him.