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Ram Parshad Nand Lal and ors. Vs. Central Board of Revenue, New Delhi and anr. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtPunjab and Haryana High Court
Decided On
Case NumberCivil Writ (Appln.) No. 275 of 1955
Judge
Reported inAIR1956P& H161; [1956]29ITR428(P& H)
ActsIncome Tax Act, 1922 - Sections 31(4), 33, 35, 35(1) and 35(5); Constitution of India - Article 226; Code of Civil Procedure (CPC) , 1908
AppellantRam Parshad Nand Lal and ors.
RespondentCentral Board of Revenue, New Delhi and anr.
Appellant Advocate C.L. Aggarwal, Adv.
Respondent Advocate S.M. Sikri, Adv. General and; H.R. Mahajan, Adv.
DispositionPetition allowed
Excerpt:
.....like the present one must be deemed to be a mistake apparent from the record under this provision of law. the department has refused to make the consequential charges flowing from the order of the appellate assistant commissioner dated 13-3-1953. it is true that the assessment of the firm's income was cancelled on the ground of limitation, but it is a curious argument that for this reason the department should not be compelled to implement the order of the appellate assistant commissioner when he failed to make the necessary order under section 31 (4) of the act......the only question that requires decision in this case is whether, after the assessment of the firm's income has been cancelled, the assessment of the income of the individual partners can be corrected so as to exclude the income from the firm.4. under section 23(1), income-tax act the incomeof an assessee is to be assessed and then the amountof the tax is to be determined in accordance withlaw in force during the assessment year. under.section 23 (5) (a) when the assessee is a firm registeredunder the income-tax act, then the net income ofthe firm is to be assessed but the amount of taxis not to be determined.the share of each partner of such a firm in the net income is to be assessed as his individual income under that heading and then along with any other income of the individual.....
Judgment:
ORDER

Bishan Narain, J.

1. This is a petition under Article 226 of the Constitution for issue of a writ in the nature of 'mandamus' directing the respondents to give effect to the order of the Appellate Assistant Commissioner, Income-tax, Ambala, dated 13-3-1853 & to refund the tax illegally charged by the Income-tax Department.

2. The facts of the case briefly are these. Ram Parshad, Nand Lal, Arjan Das and Hardwari Lal sons of Lakhpat Rai constituted a joint Hindu family residing in Moga Mandi, District Ferozepore where they carried on business. In 1941 it appears that there was partition in the family and the brothers separated. Ram Parshad and Nand Lal then entered into a contractual partnership and carried on their business at Moga in the name of firm Ram Farshad-Nand Lal.

Arjan Das and Hardwari Lal formed a firm styled as Lakhpat Rai-Arjan Das and carried on business at Talwandi. In this petition we are concerned only with firm Ram Parshad Nand Lal and its partners Ram Parshad and Nand Lal who had equal shares in the firm. For the assessment year 1944-45 all the four brothers were assessed as members of the joint Hindu family by the Income-tax Officer by his order dated 31-1-1947.

Appeals were taken against this order and ultimately the Income-tax Tribunal by its order dated 24-7-1950 held that the two partnership firms were separate and therefore their partners should be assessed separately. In pursuance of this order Ram Parshad and Nand Lal in their individual capacity as well as on behalf of their firm filed separate returns on 7-7-1951 under Section 22 income-tax Act.

'It may be stated here that the firm Ram Par-shad-Nand Lal was registered for the purposes of the Income-tax Act as provided in Section 26-A of the Act. The Income-tax Officer, Perozepore, by his order dated 13-8-1951 assessed total 'income of the firm at Rs. 22,038/-, and allocated Rs. 11,029/-to each of the two partners. On the same day he assessed the income of each brother in his individual capacity at Rs. 165/- (income from house property) and Rs. 11,029/- (share of profit from the firm), making it a total income of RS. 11,194/- and calculated tax on this amount.

The tax was deposited on 15-9-1951. An appeal, however, was taken to the Appellate Assistant Commissioner, under Section 30 of the Act, against the assessment of the income of the registered firm Ram Parshad-Nand Lal. The Appellate Assistant Commissioner cancelled the assessment of the firm by his order dated 13-3-1953 on the ground that it was not completed within the time allowed by law.-He, however, passed no order under Section 31(4) for amendment, of the assessment of the individuals constituting the firm. He neither exercised nor refused to exercise the discretion vested in him under this provision of law.

Ram Parshad and Nand Lal then applied to the Income-tax authorities that the order of the Appellate Assistant Commissioner be implemented under Section 35 of the Act. This relief, however, was refused to them; hence the present petition under Article 226 of the Constitution.

3. The only Question that requires decision in this case is whether, after the assessment of the firm's income has been cancelled, the assessment of the income of the individual partners can be corrected so as to exclude the income from the firm.

4. Under Section 23(1), Income-tax Act the incomeof an assessee is to be assessed and then the amountof the tax is to be determined in accordance withlaw in force during the assessment year. Under.Section 23 (5) (a) when the assessee is a firm registeredunder the Income-tax Act, then the net income ofthe firm is to be assessed but the amount of taxis not to be determined.

The share of each partner of such a firm in the net income is to be assessed as his Individual income under that heading and then along with any other income of the individual partner his total income is to be assessed and the amount of tax payable on this total income by him must then be determined. Under the second proviso to Section 30(1) of the Act, a partner may appeal against the assessment of the firm's income or its apportionment and need not appeal against the assessment of his individual income in respect, of matters decided in the order of assessment relating to the firm.

Section 31(4) lays down that if any change is made in the assessment of the firm the Appellate Assistant Commissioner may authorise the Income-tax Officer to amend accordingly the individual assessment of the partners of the firm. The assessee has a right to appeal to the Appellate Tribunal if the assessment by the Appellate Assistant Commissioner is objected to, and the provision corresponding to Section 31(4) is found in Section 33(5) of the Act.

5. In the present case an appeal was filed under Section 30(1), but the Appellate Assistant Commissioner did not make any order under Section 31(4). He neither exercised the power under Section 31(4) nor did he refuse to do so. He just ignored it and did not advert to it in his order. Neither the firm nor any of its partners filed as appeal under Section 33 of the Act. Instead the partners applied under Section 35 of the Act for rectification of the mistake and for the relief which was not granted to them under Section 31(4) of the Act.

The Income-tax authorities, however, refused to grant this relief with the consequence that while the assessment of the income of the firm had been cancelled yet on that income of the firm its partners have been made to pay the income-tax. The position is anomalous, but before me it has been strongly urged on behalf of the Income-tax authorities that the partners of the firm are not entitled to this relief and the question arises if the position taken up by the respondents is in accordance with law.

6. The arguments advanced on behalf of the respondents are that no order was passed by the Appellate Assistant Commissioner under Section 31(4) and as no appeal was filed against his order dated 13-3-1853, this order has become final and no discretion can be exercised now under this provision of law. It is further argued that this mistake cannot be considered an error apparent from the record under Section 35(1) of the Act.

It Is conceded that under Section 35(5) it would be such an error but it is argued that this sub-section was introduced by Act 25 of 1953 which was passed on 24-5-1953 and as the assessment relates to the year 1944-45 this sub-section cannot be given retrospective effect and be made applicable to this case particularly when the legislature while making Act 25 of 1953 retrospective limited that period to 1-4-1952 under Section 1(2) of the Act.

7. It was not argued before me that the partners did not make a valid application under Section 35 to the proper authorities and it was assumed in the course of arguments that the application which was made by the petitioners was valid. I have already said that the Appellate Assistant Commissioner failed to exercise his power under Section 31(4).

This is obviously an error and it would not be difficult to hold it to be apparent from the record and in spite of the partners' failure to appeal under Section 33 of the Act, it would be open to the Appellate Assistant Commissioner or the Commissioner to apply Section 35(1) and grant the necessary relief. This matter, however, need not be pursued further as I am of the opinion that the petitioners are clearly entitled to the required relief under Section 35 of the Act. Sub-section (5) of section 35 reads:

'35(5). Where in respect of any completed assessment of a partner in a firm it is found on the assessment or re-assessment of the firm or on any reduction or enhancement made in the income of the firm under Section 31, Section 33, Section 33-A, Section 33-B, Section 66 or Section 66-A that the share of the partner in the profit or loss of the firm has not been included in the assessment of the partner or, if in-eluded is not correct, the inclusion of the share in the assessment or the correction thereof, as the case may be, shall be deemed to be a rectification of a mistake apparent from the record within the meaning of this section, and the provisions of Sub-section (1) shall apply thereto accordingly, the period of four years referred to in that sub-section being computed from the date of the final order passed in the case of the firm.'

Thus the mistake like the present one must be deemed to be a mistake apparent from the record under this provision of law. The rectification is to be made within four years and these four years are to be computed from the date of the final order passed in the case of the firm.

The final order cancelling the assessment of the firm's income was made on 13-3-1953 and thus the rectification in the assessment of the individual partners' income can be made till March 1957 either on the application of the petitioners or on his own motion by the Commissioner or the Appellate Assistant Commissioner.

It is true that each assessment year is a separate and a self-contained period and the law which is to be applied to each individual year is the one in force in that year. This, however, does not affect the applicability of Sub-section (5) of Section 35 to the assessment year 1944-45. Admittedly, Act 25 of 1953 came into force on 1-4-1952. The present mistake was made by the Appellate Assistant Commissioner in his order dated 13-3-1953.

Section 35(5) provides the limitation for rectification of the mistake in four years from the date of the final order, i.e. 13-3-1953. It follows that the petitioners can take advantage of this sub-section to get the mistake rectified which was made in 1953. Section 35(1) or Section 35(5) has nothing to do with any particular assessment year and can be invoked only to rectify a mistake whenever it be made provided the necessary rectification is made within four years.

Even if the matter had been a little doubtful I would have construed Section 35(1) and Section 35(5) so as to enable the petitioners to get the order of the Appellate Assistant Commissioner implemented by rectification of the mistake. I, therefore, hold that the mistake by the Appellate Assistant Commissioner in his order dated 13-3-1953 is an error apparent from the record and can be and should be rectified under Section 35(1) read with section 35(5).

8. It was finally argued that in the exercise of my discretion I should not interfere in these proceedings under Article 226 of the Constitution. There is no substance in this argument. An obvious injustice has been done to the petitioners. The department has refused to make the consequential charges flowing from the order of the Appellate Assistant Commissioner dated 13-3-1953.

It is true that the assessment of the firm's income was cancelled on the ground of limitation, but it is a curious argument that for this reason the department should not be compelled to implement the order of the Appellate Assistant Commissioner when he failed to make the necessary order under Section 31 (4) of the Act.

After all the firm's assessment of income was cancelled in accordance with law and the petitioners are seeking only consequential relief. It appears to me that this is eminently a case in which this Court should interfere under Article 226 of the Constitution.

9. The result is that this petition is accepted and an order in the nature of a writ is passed directing the respondents to rectify the mistake in the assessment of the partners in view of the order of the Appellate Assistant Commissioner dated 13-3-1953 and to revise the assessment of the individual partners and to refund the tax charged from them in accordance with law. The respondents shall pay the costs of this petition.

10 Counsel's fee Rs. 100/-.


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