Per Shri B. V. Venkataramaiah, Accountant Member - Shri M. S. Manvi as karta of his HUF was partner in three firms. The share income belonged to the HUF. There was a partition in the family on 19-10-1971.
Subsequent to this partition, another partnership firm was formed in which the coparceners of the erstwhile family became the partners. The income of the firm was the share income from the three firms, earlier referred to in which Shri Manvi formerly represented the HUF but now represents the coparceners. The firm was also granted registration. The income of the firm was divided between the partners and taxed in their hands.
2. An argument was raised before the ITO that the income of the firm is not taxable as it has already been taxed in the hands of the other firms and so it amounted to double taxation. This was negatived by the ITO."The contention is obviously not acceptable. Shri M. S. Manvi was a partner in three registered firms during the relevant year. The share incomes of Shri Manvi from these firms have been assessed by the ITO in the impugned order in the hands of a sub-partnership firm M. S. Manvi.
Clearly a firm cannot be made a partner in another firm. It is also clear from the relevant partnership deed that Shri M. S. Manvi has been made a partner in the firms in his individual capacity only. Therefore, in the ordinary course the share incomes from the three firms should have been assessed on M. S. Manvi in his individual status. What the individual does with the income after the receipt thereof is only an application of the income. But apparently the ITO did not assess the income on the individual in view of he diversion of the income by overriding title, i.e., under an agreement of sub-partnership. In such cases the income becomes assessable in the hands of the sub-partnership and this is what the ITO has done. I cannot agree with the representatives view that in such cases the shares income should not be assessed at all. The appeal is, therefore, dismissed." 4. The argument raised before the authorities below was repeated before us. The learned departmental representative relied upon the order of the authorities below : Having heard both sides, we hold that the appeal filed by the assessee should fail. Shri M. S. Manvi is partner in three firms, namely, karnataka Theatres, Karnataka Enterprises and Vijay Textiles. Earlier the share income was being assessed in the hands of the HUF. After partition, the share income does not go to Shri Manvi exclusively but to all the coparceners. The coparceners for their own convenience decided to have the share income assessed in the hands of a firm and then got it distributed as partners of the second firm. The argument that the sub-partnership also has paid tax and, therefore, there is double taxation is not tenable. Having formed the sub-partnership, it is not possible to avoid paying the registered firms tax. If the assessee wanted to avoid tax paid by the sub-partnership, it could have straightway offered the appropriate shares of the coparceners from the three firms originally consolidated in the hands of M. S. Manvi for direct assessment in the hands of the respective coparceners. Having chosen to first consolidate share incomes in the hands of the sub-partnership and then to divide it, the firm cannot say that it is doubly taxed. Moreover, when the tax paid by the registered firm is allowed as a deduction in the hands of the partners before allocation of share income to the partners, the charges of double taxation fails.
In the result, the appeal is dismissed.