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Mangat Ram Hazari Mal and Another Vs. Commissioner of Income-tax, Punjab. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtPunjab and Haryana High Court
Decided On
Case NumberIncome-tax Reference No. 14 of 1963
Reported in[1968]67ITR788(P& H)
AppellantMangat Ram Hazari Mal and Another
RespondentCommissioner of Income-tax, Punjab.
Cases ReferredChiranji Lal v. Commissioner of Income
Excerpt:
- sections 100-a [as inserted by act 22 of 2002], 110 & 104 & letters patent, 1865, clause 10: [dr. b.s. chauhan, cj, l. mohapatra & a.s. naidu, jj] letters patent appeal order of single judge of high court passed while deciding matters filed under order 43, rule1 of c.p.c., - held, after introduction of section 110a in the c.p.c., by 2002 amendment act, no letters patent appeal is maintainable against judgment/order/decree passed by a single judge of a high court. a right of appeal, even though a vested one, can be taken away by law. it is pertinent to note that section 100-a introduced by 2002 amendment of the code starts with a non obstante clause. the purpose of such clause is to give the enacting part of an overriding effect in the case of a conflict with laws mentioned with the.....shamsher bahadur j. - the petitioner, at whose instance this reference has been made by the income-tax appellate tribunal, is the firm of mangat ram-hazari mal kuthiala, which was constituted by a deed of partnership executed on 5th july, 1951, between mangat ram, hazari mal, kirori mal and m/s. radha kishan kewal ram, harkishan lal, radha kishan and kewal kishan. the petitioner filed a return in respect of the assessment year 1953-54 on 18th of june, 1953, and simultaneously an application was made to the income-tax officer concerned under section 26a of the indian income-tax act, 1922 (act 11 of 1922) (hereinafter called the act), for registration of the firm. the application under section 26a made on 18th of june, 1953, was signed by hazari mal mangat ram, kirori mal as individual.....
Judgment:

SHAMSHER BAHADUR J. - The petitioner, at whose instance this reference has been made by the Income-tax Appellate Tribunal, is the firm of Mangat Ram-Hazari Mal Kuthiala, which was constituted by a deed of partnership executed on 5th July, 1951, between Mangat Ram, Hazari Mal, Kirori Mal and M/s. Radha Kishan Kewal Ram, Harkishan Lal, Radha Kishan and Kewal Kishan. The petitioner filed a return in respect of the assessment year 1953-54 on 18th of June, 1953, and simultaneously an application was made to the Income-tax officer concerned under section 26A of the Indian Income-tax Act, 1922 (Act 11 of 1922) (hereinafter called the Act), for registration of the firm. The application under section 26A made on 18th of June, 1953, was signed by Hazari Mal Mangat Ram, Kirori Mal as individual partners and Harkishan Lal, on behalf of the firm Radha Kishan-Kewal Kishan. A considerable time elapsed before the order of assessment was made on 26th of March, 1958. Before the assessment order, a further application was made on 10th of February, 1958, for registration under section 26A of the Act and this was signed by the three individual partners and the four partners of the firm Radha Kishan-Kewal Kishan, seven persons in all. On 26th of March, 1958, the application under section 26A was refused and on the same day an order was passed by the Income-tax Officer assessing the petitioner as an unregistered firm under section 23 (3) of the Act in respect of the accounting year ending with 30th June, 1952. The salient features of this assessment order, so far as the present reference is concerned, are that the petitioner, which was carrying on the business of forest lessees, was assessed on an income of Rs. 1,81,770 out of which Rs. 1,62,963 was the income declared to which, inter alia, was added a sum of 6,800 said to have been paid to Harkishan Lal, partner, as salary. The total assessable income was found to be Rs. 1,81,770 and the tax demanded from the petitioner was Rs. 1,15,500.

From the order of assessment two separate appeals were filed before the Appellate Assistant Commissioner, one directed against the order rejecting the application for registration under section 26A of the Act and the other from the order of assessment itself and these were dismissed on 12th March, 1960. It does not seem to have been disputed that the business of the petitioner as forest lessees terminated on 30th June, 1954, though the information about its discontinuance, accordance to the finding of the Appellate Assistant Commissioner in his order, annexure 'C', was given to the assessing authority for the first time on 17th February, 1959, after the assessment had been completed on 26th March, 1958. Again, the petitioner filed two separate appeals before the Income-tax Appellate Tribunal. The one relating to registration was dismissed on 20th of December, 1961, and the other one, in which the assessment itself was questioned, was disposed of on 23rd of February, 1962. We are no longer concerned with the appeal which was dismissed by the Appellate Tribunal on 20th of December, 1961, with regard to the refusal of the Income-tax Officer to register the petitioner firm under section 26A of the Act.

In the assessment appeal, the Appellate tribunal found that no valid partnership could have been formed, one of the partners, Radha Kishan-Kewal Kishan, being itself a firm. The registration of the firm itself having been declined by the assessing authority, there was no justification, in the opinion of the Tribunal, to have made the assessment on the petitioner as an unregistered firm, the petitioner being unable to retain its status of a firm. The conclusion was supported by the ruling of the Supreme Court decision in Dulichand Laxminarayan v. Commissioner of Income-tax, where it was held that no question of registration could arise under section 26A of the Act of a partnership which purports to be between individuals and firms. The Tribunal further proceeded to determine the question about the correct status of the petitioner-assessee and reached the following conclusion :

'We, therefore, hold that a firm is a person and that the correct status of the assessee is that of an association of persons. We direct the Income-tax Officer to substitute this status.'

In the appeal to the Tribunal, an objection which had been taken before the assessing authority relating to the disallowance of the sum of Rs. 6,800 paid as salary to Harkishan Lal, was not permitted to be raised, as the question had not been specifically mentioned in the grounds of appeal before the Appellate Assistant Commissioner, who had accordingly declined to entertain it at the time of hearing, being in his opinion 'an after-thought.' The other matters, which were disposed of by the assessing authority, the Appellate Assistant Commissioner and the Appellate Tribunal, need not be referred to, as we are not called upon to make any determination in regard to them.

Aggrieved by the order of the Appellate Tribunal of 23rd of February, 1962, the petitioner applied to it to make a reference about certain questions of law to the High Court. The Tribunal, by it order of 8th March, 1963, has referred the following questions of law for decision of the High Court and it appears from the statement of the case that the suggestions of the assessee made for the formulation of these questions had been accepted. The questions are :

'(1) Whether, on the facts and circumstances of the case, the Tribunal was competent to consider the question of the correct status of the assessee ?

(2) If the answer to the above is in the affirmative, whether on the facts and circumstances of the case, the assessees status is association of persons ?

(3) Whether, on the facts and circumstances of the case, the Tribunal rightly upheld the Appellate Assistant Commissioners refusal to allow raising of an additional ground regarding disallowance of Rs. 6,800 paid as salary to Shri Hakishan Lal ?'

It has been contended very vehemently by Mr. Kaushal, the learned counsel for the assessee, that the Appellate Tribunal had no jurisdiction to travel beyond the grounds taken before it in appeal, that alone being the subject-matter of appeal. It is submitted that all that the assessee had asked of the appellate authorities was to give their judgment regarding the validity of the assessment made by the Income-tax Officer and nothing more. If the conclusion was reached, as indeed it was, that the assessee could not be treated as a firm at all, the assessment had to be annulled. The Tribunal, as the counsel submit, had no warrant or justification to direct the Income-tax Officer to substitute the status of the assessee. It may be stated at once that section 3 of the Act, which is the charging provision, says that :

'..... income-tax shall be charged..... in respect of the total income of the previous year of every individual, Hindu undivided family, company and local authority, and of every firm and other association of persons or the partners of the firm of the members of the association individually.'

The Income-tax Officer, though he refused to permit registration under section 26A of the Act, all the same made the assessment on the petitioner as an unregistered firm. In the opinion of the Appellate Assistant Commissioner, the Income-tax Officer was justified in so doing because the assessee itself had represented and submitted a return as a firm. The Appellate Tribunal, holding that the assessment was not possible on the assessee as an unregistered firm, has held that the 'correct status of the assessee is that of an association of persons' and had directed 'the Income-tax Officer to substitute this status.'

In order to examine the contention of Mr. Kaushal, the relevant provisions with regard to appeals may be briefly adverted to. Section 31 deals with the powers of an Appellate Assistant Commissioner and under sub-section (3) this authority may :

'(a) confirm, reduce, enhance or annual the assessment, or (b) set aside the assessment and direct the Income-tax Officer to make a fresh assessment after making such further inquiry... or the Appellate Assistant Commissioner may direct, and the Income-tax Officer shall thereupon proceed to make such fresh assessment, and determine where necessity the amount of tax payable on the basis of such fresh assessment...'

Sub-section (4) says :

'Where as the result of an appeal any change is made in the assessment of a firm or association of persons or a new assessment of a firm or association of persons is ordered to be made, the Appellate Assistant Commissioner may authorise the Income-tax Officer to amend accordingly any assessment made on any partner of the firm or any member of the association.'

The Appellate Tribunal empowered to hear appeals against the order of the Appellate Assistant Commissioner, under sub-section (4) of section 33, 'may, after giving both parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit, and shall communicate any such order to the assessee and to the Commissioner.' According to a recent decision of the Supreme Court in Hukumchand Mills Ltd. v. Commissioner of Income-tax, the term 'thereon' has been interpreted to restrict the jurisdiction of the Tribunal to the subject-matter of the appeal. At page 237, it was observed by Mr. Justice Ramaswami, speaking for the court, that :

'... the words pass such orders as the Tribunal thinks fit include all the powers (except possibly the power of enhancement) which are conferred upon the Appellate Assistant Commissioner by section 31 of the Act.'

Mr. Kaushal has relied on some decisions of the Bombay High Court for the proposition that the subject-matter of the appeal is confined strictly to the grounds raised by the appellant or such matter which can be raised by leave of the Tribunal. In Commissioner of Income-tax v. T. M. Bhumarddi, it was held by the division Bench of Tendolkar and Desai JJ. that it was not open to the Commissioner to raise for the first time a new case before the Tribunal when the assessees were the appellants, and in supporting the decision of the Appellate Assistant Commissioner appealed from, the Commissioner of Income-tax may no doubt support it on any ground other than the one on which the Appellate Assistant Commissioner based his decision. But such a ground must arise on the record of the assessment proceedings and must have been raised on behalf of the department at some stage in the proceedings. What can be spelled out from the ruling of this decision is that a new ground which takes the other party by surprise cannot be raised before the Appellate Tribunal. That proposition cannot be disputed. What has to be borne in mind is that it had been actively canvassed, as is apparent from its order of 23rd February, 1962, that the appellant-firm before the Tribunal should have been assessed as an 'association of persons'. Paragraph 6 of the judgment of the Tribunal states thus :

'This brings us to the question of the correct status of the assessee. The clear consequences of the Tribunals finding that no valid partnership has come into existence is that the assessee could not be assessed in the status of a firm.'

After a discussion of this matter, the Tribunal reached the conclusion that the assessee could not be assessed as an unregistered firm. The Tribunal then proceeded to determine the question about the proper status of the assessee and both sides presented their respective points of view. The Tribunal reached the conclusion that the correct status of the assessee is that of an association of person. It is interesting to observe that both before the Tribunal and the Appellate Assistant Commissioner a point was raised that no appeal could lie from the order of the Income-tax Officer assigning a definite status to the assessee. This proposition was contended for on behalf of the revenue and the assessee stoutly opposed it. It was upheld by both these authorities that an appeal could lie and the appellate authority could consequently determine what actually the status of the assessee should be. Indeed, if the contention of Mr. Kaushal prevails that the status of an assessee as fixed by the Income-tax Officer is either to be accepted or rejected, there would hardly be any point left in the appeal. If the Income-tax Officer is found to have incorrectly determined the status of the assessee, the Appellate Tribunal is not bound to stop there and say that the tax not being recoverable on that status has become irrecoverable altogether.

In Pokhraj Hirachand v. Commissioner of Income-tax, another Bench of Tambe and Desai JJ. of the Bombay High Court had an occasion to examine the scope of 'subject-matter of the appeal' under sub-section (4) of section 33 of the Act. It was observed that the 'subject-matter of the appeal before the Tribunal is the grounds of appeal raised by the appellant in his memorandum of appeal, the grounds which the Tribunal allows him to raise and the contentions raised by the respondent before the Tribunal in support of the order made by the Appellate Assistant Commissioner by challenging the adverse finding against him.' The ruling of this decision, in my opinion, does not preclude the Appellate Tribunal from examining the contention which was raised before it the assessee could be assessed as an association of persons. Both the parties to the dispute put their respective points of view and it was never objected on behalf of the assessee before the Tribunal that the Appellate tribunal could not determine for itself what the actual status of the assessee was. In Motor Union Insurance Co. Ltd. v. Commissioner of Income-tax, a Bench of Chief Justice Stone and Kania J. observed that :

'... the word thereon used in section 33 (4) only means on the appeal which must mean on the grounds raised in the appeal. Read in that way, the sub-section [33 (4)] only gives power to the Appellate Tribunal to give its decision and pass orders in respect of all grounds urged...'

The Bench further observed that :

'... the Tribunal is not obliged to rest its decision on the grounds urged by the appellant; it recognizes the principle that the judgment of the lower court may be supported on any ground, even though it is not raised in the memorandum of appeal.'

The Bench was concerned only with the point that the Tribunal could not suggest another mode of assessment altogether.

A wider view of the appellate powers of the tribunal has been taken by the Supreme Court in Commissioner of Income-tax v. McMilland & Co. Speaking of the powers of the Income-tax Officer, it was observed by Mr. Justice Das that the methods of accounting arrived at by the Income-tax Officer is not clothed with finality and is not excluded from review by the Appellate Assistant Commissioner and, in reviewing the order, the appellate authority can exercise the same powers which the Income-tax Officer could exercise. No doubt, the courts in that case were concerned with the method of accounting in section 13 of the Act and especially the proviso which authorised the Income-tax officer to determine the income on his own computation where no regular method of accounting had been adopted by the assessee. Though the scope of the decision was comparatively narrow, the observations made by their Lordships of the Supreme Court are of the widest amplitude, when it was stated that the appellate authority can exercise the same powers which the Income-tax Officer could have exercised. That such powers were not confined to the method of computation in section 13 but extended to other spheres as well, is clear from the observations made by the Bench that the 'Commissioner of Income-tax may, acting under the provisions of section 33B, interfere with any order of the Income-tax Officer, including a determination under the proviso to section 13, provided the other conditions of the section 13, provided the other conditions of the section are fulfilled.' The Supreme Court also approved of the decision of Chief Justice Chagla and Tendolkar J. in Narrondas Manordas v. Commissioner of Income-tax, in which it was held that the 'powers conferred upon the Appellate Assistant Commissioner by the Income-tax Act are much wider than the powers of an ordinary court of appeal.' In the view of Chief Justice Chagla, speaking for the court, the competence of the Appellate Assistant Commissioner 'is not restricted to examining those aspects of the assessment which are complained of by the assessee, but ranges over the whole assessment, and it is open to him to correct the Income-tax Officer not only with regard to a matter raised by the assessee in the appeal but also with regard to a matter which has been considered by the Income-tax Officer and determined in the course of the assessment.' In another Supreme Court decision in Commissioner of Income-tax v. Kanpur Coal Syndicate, it was held that the Appellate Assistant Commissioner has plenary powers in disposing of an appeal. The scope of his powers is conterminous with that of the Income-tax Officer. In that case, the Appellate Tribunal had given directions of the appropriate authority to cancel the assessment made on an association of persons and gave a direction to the Income-tax Officer to assess the members individually. In the instant case, the Income-tax Officer, as also the appellate authorities had considered the question of the status of the assessee and before the Tribunal the matter was actively debated by both the sides. In the circumstances, it would be a travesty to say that the determination of the proper status of the assessee did not form a subject-matter of the appeal.

Mention may also be made of a Division Bench judgment of Chief Justice Desai and Manchanda J. in Chiranji Lal v. Commissioner of Income-tax, where it has held that the Tribunal under section 33 (4) of the Act' has power to alter the status and determine the correct status in which the assessee is to be assessed provided that there is material on record justifying such action'. In the case before the Allahabad High Court it fell for determination whether a direction given by the Tribunal that the label of the assessments, which was individual, should be corrected to Hindu undivided family was justifiable and Manchanda J., speaking for the court, said at page 723 that :

'Section 33 (4) of the Act gives the Tribunal very wide powers to pass such orders as it thinks fit. The Tribunal certainly had the necessary jurisdiction to do this provided there is material on the record to determine the correct status in which a party should be assessed.'

Now, the Income-tax Officer and the appellate authorities were in possession of all the available material. The three individual partners and the four partners of Radha Kishan Kewal Kishand had submitted a signed application under section 26A on 10th February, 1958, that the firm should be registered under section 26A. Every one of the persons concerned was present before the Tribunal and the question to be resolved was whether the assessee could be assessed as an unregistered firm or an association of persons It cannot be contested that an organisation of persons to produce wealth has to be assessed either as a firm or an association of persons under section 3 of the Act, company and local authorities being separate assessment units. If the assessee cannot be treated a firm, obviously the assessment has to be made as an association of persons.

Mr. Kaushal has strongly relied on the Supreme Court decision in Duli Chand Laxminarayan v. Commissioner of Income-tax for the proposition that the assessee is not an association of persons. This authority of the Supreme Court was the subject-matter of debate before all the assessing authorities and it was on the basis of the decision embodied in it that registration was declined. The ration decidendi of Duli Chands case is that a firm is not a person and as such is not entitled to enter into a partnership with another firm or Hindu undivided family or individual. The basis of the decision is the definition in section 4 of the Indian Partnership Act, 1932, which says that :

'Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.

Persons who have entered into partnership with one another are called individually partners and collectively a firm, and the name under which their business is carried on is called the firm name.'

Chief Justice Das, speaking for the court, observed that the definition of the word 'person' in sub-section (42) of section 3 of the General Clauses Act, to include 'any company or association or body of individuals whether incorporated or not' will exclude its application to that definition in section 4 of the Indian Partnership Act because the general concept of partnership firmly established in both English and Indian Systems of law is that 'a firm.... who constitute the firm'.

In Dulichands case, the Supreme Court has nowhere laid down that the association of persons cannot include a partnership firm. In other words, the definition of 'persons' in the General Clauses Act, though repugnant to the definition of this word in section 4 of the Partnership Act is in harmony with the proposition that a firm can be a constituent member of an association of persons. The position is made clear by the definition of 'person' in sub-section (31) of section 2 of the Income-tax Act, 1961, clause (v) of which says that, 'an association of persons...' is included in the definition of 'person'. In Mian Channu Factories Union v. Commissioner of Income-tax, a Division Bench of Sir James Addison and Abdul Rashid JJ. held that 'since a firm is only a group of individuals and one firm cannot be a member of another firm, the union was not a 'firm' within the meaning of the Income-tax Act, but it was liable to be assessed as an association of individuals.' It may be mentioned that upto 1939 the charging section, inter alia, refers to 'association of individuals' and after that date the nomenclature is changed to 'association of persons' to make it more compendious. In Commissioner of Income-tax v. Krishna Reddy, a Division Bench of Umamaheswaram and Kumarayya JJ. of the Andhra Pradesh High Court held that a partnership having been formed to carry of Abkari business, which was in contravention of law, was void, but as the partners had joined with the common purpose of earning profits, they were assessable as 'association of persons' on the profits. This ruling was intended to cover those cases where registration of a partnership under section 26A could not be made and the unregistered partnership was made liable as a single unit under 'association of persons'. The concept of 'association of person' was discussed by the Supreme Court in Commissioner of Income-tax v. Indira Balkrishna. 'The association of persons', as observed by Mr. Justice Das, speaking for the court, 'as used in section 3 of the Income-tax Act means as association in which two or more persons join in a common purpose or common action, and as the words occur in a section which imposes a tax on income, the association must be one the object of which is to produce income, profits or gains.' In that particular case, three co-widows were assessed as a single unit in the status of an 'association of persons'. The Supreme Court approved the definition given by Costello J., in In re B. N. Elias, that :

'When we find..... that there is a combination of persons formed for the promotion of joint enterprise.... then I think no difficulty arises whatever in the way of saying that..... these persons did constitute an association....' A Division Bench of Chief in Justice Rajamannar and Yahya Ali J. of the Madras High Court in Mohamad Abdul Kareem and Co v. Commissioner of Income-tax, said that the words 'other association of persons' in section 3 have to be construed in their plain ordinary meaning and not ejusdem generis with the word 'firm' immediately preceding or the other words going before that word. An association which produces income, profits or gains is assessable to tax by force of section 3. The decision in Mian Channus case (of the Lahore High Court) was approved by the Division Bench and it was held that two firms and a Hindu undivided family could not constitute themselves into a firm within the meaning of the Income-tax Act but the larger group formed thereby was liable to be assessed as an 'association of individuals'.

Mr. Kaushal has placed very strong reliance on a judgment of the Calcutta High Court in Maharaja Bikram Kishore of Tripura v. Province of Assam, delivered by Chief Justice Harries and Mukherjee J. In that case, the Maharaja of Tripura, the ruler of an Indian State, was asked to make a return of agricultural income for the year 1939-40. An objection was raised by his general attorney that the necessity of filing such a return did not arise as the property of the Maharaja or of the Tripura State in Assam was part of the State property and, therefore, not assessable to the Assam agriculture income-tax. The property was large zemindary known as the Chakla Roshanabad situate within the Province of Assam, and the Agricultural Income-tax Officer, accepting the position presented on behalf of the Maharaja of Tripura, refrained from making any assessment. Subsequently, the income was treated as one which had escaped assessment and was re-assessed as income of the State as an 'association of individuals'. The Appellate Assistant Commissioner, in appeal, however, amended the assessment making the Maharaja personally the assessee. It was held by the High Court that the State of Tripura apart from the ruler has no juridical existence, the ruler being the source of all authority within its boundries. It was further held that the Assistant Commissioner in appeal had made 'an entirely new assessment upon a new assessee and his act can in no way be described as confirmation, reduction, enhancement or annualment of the assessment'. The assessment was accordingly set aside on the ground that the Appellate Assistant Commissioner had no jurisdiction to alter an assessment made buy the Agricultural Income-tax Officer on the Tripura State into an assessment on the petitioner-ruler personally as no proceedings were started and no notices were served under the Act on the petitioner himself personally.

It is contended by Mr. Kaushal, on the strength of this ruling, that the Appellate Tribunal, in substituting the status of an assessee as an 'association of persons' for an unregistered firm, in effect has made a new assessment on a new assessee and the order is, therefore, unsustainable. We do not think that a new assessment has been made or a new assessee has been created. It had always been the matter of canvass before all the assessing authorities whether the assessee was a firm or an association of persons and in substituting the one status for the other the Appellate Tribunal has not brought a new assessee into existence. Its constituent members had always been before the assessing authorities and all the persons of the association, seven in all, had made a signed application before the Income-tax Officer for registration of the firm. In this view of the matter, no prejudice can be deemed to have been suffered and it is impossible to take the view that the assessee in the present case becomes exempt from assessment altogether, which in effect would be the result, if the contention of Mr. Kaushal is sustained. Mr. Kaushal has also pressed upon us that, if the Appellate Tribunal was so minded, it should have directed the Income-tax Officer to make the change and it could not of itself make a substitution in the status of the assessee. What the Appellate Tribunal has done is to confirm the assessment which has been made by the Income-tax Officer only with the modification that the status of the assessee would be changed to that of an association of persons. The consequential changes would have to be made by the Income-tax Officer himself. We do not think that the course adopted by the Appellate Tribunal is in breach of any statutory requirement. In the Allahabad case of Chiranji Lal v. Commissioner of Income-tax, the High Court approved the action of the Tribunal which had directed that label of the assessments, which was individual, should be corrected to Hindu undivided family. The Supreme Court also in Commissioner of Income-tax v. Kanpur Coal Syndicate, had observed that the Appellate Assistant Commissioner has plenary powers in disposing of an appeal, and the scope of his powers is conterminous with that of the Income-tax Officer. The direction given by the Appellate Tribunal for the substitution of the assessees status, far being in breach of the statutory requirement of section 33 (4), indeed conforms to the provisions of section 31 (4) dealing with the powers of an Appellate Assistant Commissioner, with whom the powers of a tribunal have been equated save for a minor modification by the Supreme Court in the case of Hukumchand Mills Ltd.

Finally, the Appellate Assistant Commissioner should have allowed the assessee to raise the objection with regard to the item of Rs. 6,800. While this could not be allowed if the assessee is held to be a partnership firm, as salary paid to one of its partners cannot be regarded as an allowance, different considerations may prevail in the case of an association of persons. When the status is being altered, we think that the justice of the case requires that the objection of the assessee should be taken into consideration.

Accordingly, our answers to the first two questions referred to us for disposal are in the affirmative and that of the third one in the negative. There would be no order as to costs of this reference.

P. C. Pandit J. - In this case, a group of persons trading under the name and style of Messrs. Magnet Ram Hazari Mal filed their return of income for the assessment year 1953-54 (account year ending June 3, 1952) as a firm constituted under the deed of partnership dated July 5, 1951. It appears that, prior to the assessment year in question, this firm was being assessed in the status of a registered firm under a different instrument of partnership with a different constitution. An application was, therefore, made under section 26A of the Income-tax Act, 1922, for the renewal of registration for the year in question so that assessment might be completed on the new firm also as registered firm. The Income-tax Officer found that there was no valid partnership created by the deed of partnership dated July 5, 1951, because it was between three individuals and a firm as such. Having held that, instead of completing the assessment on the group as an association of persons as he should have done, the Income-tax Officer assessed them as an unregistered firm. This was obviously incorrect. Curiously enough, this inconsistency escaped notice of the Appellate Assistant Commissioner also, who, on appeal, confirmed the assessment in the status fixed by the Income-tax Officer. On second appeal, however, of the Income-tax Officer to substitute the correct status of the assessee as an association of persons.

The main question in this reference, which was hotly mooted before us, was as to whether the Appellate Tribunal was right in adopting that course. According to the counsel for the assessee, the Tribunal could either affirm the assessment in the status returned by the Income-tax Officer and the Appellate Assistant Commissioner or quash it altogether holding that it was wrongly made. It could not maintain the assessment with the modification made by it. It was, however, contended on behalf of the revenue that it was too narrow a view of the powers of the Appellate Tribunal and that the Tribunal, like the Appellate Assistant Commissioner, could correct any error not only with regard to a matter which had been raised by the Income-tax Officer and determined in the course of assessment. It was further pointed out that in the instant case the question of the status of the assessee was always in issue right up to the Tribunal, in as much as it was the contention of the assessee that it should be assessed as a registered firm. As this status was being denied to it on the ground that the instrument of partnership did not bring about a valid firm under the Partnership Act, the assessee replied by saying, 'then why treat me as a firm at all I am not an assessable entity in any sense.' To this the revenue said : 'No, you are an association of persons. You are an assessable entity. The Income-tax Officer erred in labeling you as an unregistered firm.' The Tribunal rightly agreed with the submission of the revenue and ordered that the label should be corrected.

Learned counsel for the assessee then argued that the Tribunal should have remanded the case to the Income-tax Officer for fresh assessment in the status of association of persons. Whether, in a particular case, remand would be the proper order depends on the circumstances of each case. The Tribunal has the power to correct an error in the manner just and proper in the circumstances of the case. I am satisfied that in this case the Tribunal acted rightly in ordering the correction of status and upholding the assessment in the corrected status. No prejudice has been caused to the assessee. It was not denied that, for the purposes of taxation, an unregistered firm and an association of persons are treated alike. Whether the assessee is taken as one or the other, it would consist of the same partners who signed the second application for registration dated February 10, 1958, a little over a month before the assessment order was passed. They were parties to the proceedings before the income-tax Officer and in the two appeals they were agitating a certain status for themselves collectively. Admittedly, they were associated together for earning income and sharing it among themselves. The question of their collective status was fully argued before the Tribunal, which arrived at a correct decision after hearing both sides. The only difference that could possibly be made to the computation of the total income of the assessee was being set right by the answer prepared by my learned brother to question No. 3. I am, therefore, of the view that the Tribunal was right in the course it took. With these observations, I agree with my learned brother Shamsher Bahadur J.


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