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Sri Vinayaka Industries Vs. Seventh Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Bangalore
Decided On
Judge
Reported in(1985)11ITD212(Bang.)
AppellantSri Vinayaka Industries
RespondentSeventh Income-tax Officer
Excerpt:
.....him, it was urged that some of the partners have already been assessed to tax on their respective share income from the firm. once the share income is assessed in the hands of the partners, it is no longer open to the ito to make an assessment on the firm itself in the status of an unregistered firm. reliance was placed on the decision of the supreme court in cit v. murlidhar jhawar and purna ginning & pressing factory [1966] 60 itr 95 as well as the board's circulars issued in 1966 and 1972. the commissioner (appeals) held that it is undisputed that in the case of one of the partners, namely, shri manmulji, the share income of rs. 11,884 from the firm was included in his assessment made on 7-2-1981. similarly, in the case of another partner, smt. sitadevi, the share income from the.....
Judgment:
1. The ITO made the assessment on the assessee in the status of an unregistered firm. He held that no application has been filed in Form No. 11A seeking registration of the firm. He did hot accept the acknowledgement produced by the assessee claiming that an application in Form No. 11A has been filed. He took the status as that of an unregistered firm and completed the assessment as per his order dated 31-3-1981. The assessee appealed to the Commissioner (Appeals). Before him, it was urged that some of the partners have already been assessed to tax on their respective share income from the firm. Once the share income is assessed in the hands of the partners, it is no longer open to the ITO to make an assessment on the firm itself in the status of an unregistered firm. Reliance was placed on the decision of the Supreme Court in CIT v. Murlidhar Jhawar and Purna Ginning & Pressing Factory [1966] 60 ITR 95 as well as the Board's circulars issued in 1966 and 1972. The Commissioner (Appeals) held that it is undisputed that in the case of one of the partners, namely, Shri Manmulji, the share income of Rs. 11,884 from the firm was included in his assessment made on 7-2-1981. Similarly, in the case of another partner, Smt. Sitadevi, the share income from the firm was included in her assessment made on 23-3-1981. The order of assessment in the status of unregistered firm has been made on 31-3-1981. The Commissioner (Appeals) held that the ITO has not given any clear finding that the firm has complied with the requirements of the Act and if the assessee has not filed the application in Form No. 11A, it is not entitled to the benefit of registration. The ITO cannot reject the claim for registration on technical grounds. He set aside the assessment order and directed the ITO to give a clear finding whether the assessee-firm fulfilled all the requirements of law in regard to registration. On merits, with regard to the addition made in the assessment, he set aside the assessment for being done afresh. Against the same, the assessee has preferred this appeal.

2. The learned Counsel for the assessee strongly urged that once the ITO has opted to assess the partners' share income from the firm, he cannot assess the firm again. In this connection, he placed reliance on the circulars of CBDT issued in 1966 and 1972 and the decision of the Supreme Court reported in Murlidhar Jhawar and Purna Ginning & Pressing Factory's case (supra). He submitted that since the partners have been assessed on their respective share income prior to the assessment of the firm, the assessment order dated 31-3-1981 in the status of an unregistered firm should be cancelled. The learned departmental representative supported the orders of the lower authorities. He submitted that the decision reported in Murlidhar Jhawar and Purna Ginning & Pressing Factory's case (supra) cannot be applied to the provisions of the Income-tax Act, 1961 ('the Act'). He placed reliance on two decisions.

3. We have considered the rival submissions. It is clear from the order of the Commissioner (Appeals) as well as from the copies of the assessment orders which were placed before us that the partners, namely, Shri Manmulji and Smt. Sitadevi, have been assessed on their respective share income from the firm as per the assessment orders dated 7-2-1981 and 23-3-1981, respectively. The assessment order on the assessee-firm in the status of an unregistered firm was made on 31-3-1981. The ITO, having opted to assess the partners by taxing their proportionate share income from the firm, is precluded from assessing the firm in the status of an unregistered firm. This is well settled by the decision of the Supreme Court in Murlidhar Jhawar and Purna Ginning & Pressing Factory's case (supra). The above decision was rendered under the Indian Income-tax Act, 1922. The question whether the above decision should be applied to the provisions of the Income-tax Act, 1961, was examined by the CBDT which issued a circular dated 24-8-1966.

In Circular No. 75/191/62-IT(J), dated 24-8-1966, it is clarified that although the decision of the Supreme Court in the case of Murlidhar Jhawar and Purna Ginning & Pressing Factory (supra) is under the Indian Income-tax Act, 1922, it will equally apply to the assessments made under the Income-tax Act, 1961. Subsequently, some clarification was sought with regard to the above circular. The CBDT by another Circular No. F. 279/165/72-IT(J), dated 30-6-1972, stated that the views conveyed in the circular dated 24-8-1966 do not call for any modification. Thus, the Board has clearly clarified that the above decision of the Supreme Court equally applies to the assessments made under the Act. It is well settled by the decisions of the Supreme Court in Navnit Lal C. Javeri v. K.K. Sen, AAC [1965] 56 ITR 198 and Ellennan Lines Ltd. v. CIT [1971] 82 ITR 913 that the circulars issued by the CBDT are binding on the Income-tax Department.

4. The decision of the Supreme Court in the case of Murlidhar Jhawar and Purna Ginning & Pressing Factory (supra) has been followed by the Gujarat High Court in Laxmichand Hirjibhai v. CIT [1981] 128 ITR 747 as well as by the Bombay High Court in CIT v. V.H. Sheth [1984] 148 ITR 169, wherein it was held that the above decision of the Supreme Court would be equally applicable to the assessments made under the Act.

Similar view has been taken by the Madras High Court in CIT v. Blue Mountain Engg. Corpn. [1978] 112 ITR 839, the Patna High Court in CIT v. Pure Nichitpur Colliery Co. [1975] 101 ITR 79, the Calcutta High Court in Ramanlal Madanlal v. CIT [1979] 116 ITR 657 and the Andhra Pradesh High Court in Ch. Atchaiah v. ITO [1979] 116 ITR 675. In all the above decisions, it has been held that once the assessment of a partner of a firm has been made by taxing his share income from the firm, the ITO is precluded from assessing the firm in the status of an unregistered firm, and the decision of the Supreme Court in the case of Murlidhar Jhawar and Purna Ginning & Pressing Factory (supra) would equally apply to the assessments made under the Act.

5. A contrary view has been taken by the Delhi High Court in Sudsons Construction Co. v. Addl. CIT [1983] 140 ITR 634, wherein it was held that there is no bar under the Act against assessing an AOP, even though its members have already been assessed separately in respect of their respective shares of the income of the AOP for the same assessment year.

6. With respect, we follow the above decisions which are in favour of the assessee in preference to the decisions of the Delhi High Court. We hold that the ITO having assessed the partners, namely, Shri Manmulji and Smt. Sitadevi, in respect of their respective share income from the firm in their assessments made on 7-2-1981 and 23-3-1981, respectively, he cannot assess the firm again in the status of an unregistered firm.

Thus, the assessment order dated 31-3-1981 made on the assessee-firm in the status of an unregistered firm is not valid.


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