KULWANT SINGH TIWANA J. - The question formulated for reference under section 256 (2) of the Income-tax Act referred to this court is as under :
'Whether, on the facts and in the circumstances of the case, the assessment of the assessee as unregistered firm was valid when two of its partners had already been assessed separately in respect of their shares of income from the partnership business ?'
The facts giving rise to this reference are that firm Rodamal Lal Chand of Baba Bakala has five partners. Out of them Lal Chand and Sohan Lal were assessed to income-tax on February 5, 1968, in their individual capacity in respect of their income from the firm for the assessment year 1963-64. The Income-tax Officer simultaneously proceeded to assess the firm, vide separate order dated 26th March, 1968, for the same year. The assessee-firm raised an objection that when the partners have been assessed in their individual capacity for their share income in the firm, the firm could not be legally assessed separately. Their appeals before the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal failed. The assessee-firm then approached this court. On a direction from this court the above-quoted reference was made under section 256 (2) of the income-tax Act.
The argument put forward on behalf of the assessee-firm is the same which was advanced before the Income-tax Appellate Tribunal that once the partner was assessed in his individual capacity for the income from the firm then the firm cannot be assessed again. This argument seems to be inspired from the provisions of the Indian Income-tax Act, 1922 (hereinafter referred to as 'the old Act'), wherein section 3 provided for a choice to the assessing authority in such cases in the following terms :
'Where any Central Act enacts that income-tax shall be charged for any year at any rate or rates, tax at the rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, this Act 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 or the members of the association individually.'
The income-tax Act, 1961 (hereinafter called 'the new Act), which has drastically changed the old Act contains the charging section 4 in place of section 3 of the old Act. The relevant portion of section 4 is as under :
'(1) Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, this Act in respect of the total income of the previous year or previous years, as the case may be, of every person ......'
Unlike its counterpart in the old Act, section 4 of the new Act does not contain in its body the description of the assessable entities. It only prescribes 'the person' for the purpose of tax, which has been further described and classified in section 2(31) of the new Act and is in the following terms :
(i) an individual,
(ii) a Hindu undivided family,
(iii) a company,
(iv) a firm,
(v) an association of persons or a body of individuals, whether incorporated or not,
(vi) a local authority, and
(vii) every artificial juridical person, not falling within any of the preceding sub-clauses'.
At serial No. (iv) of section 2(31) above 'firm' is mentioned as a taxable entity. It includes registered as well as unregistered firm. The counsel for the parties are agreed on this point that after the refusal by the Income-tax Officer to register this firm for the assessment year under reference, firm Rodamal Lal Chand is an unregistered firm.
The description of 'person' in section 2(31) of the new Act makes no distinction between a firm or its partners, association of persons, or body of individuals, whether incorporated or not, or the members of the association or the body individuals in their individual capacity. The charging section of the new Act, that is, section 4, views each category of the taxable entity alike as a distinct and different unit. In the case of a firm it would mean a firm or a partner. Similarly, in the case of an association of persons or body of individuals, it would mean the association of persons or the body individuals or the members. The option given by the word 'or' to the assessing authority, in section 3 of the old Act, to proceed against any out of these has now been withdrawn. When these two provisions, that is section 3 of the old Act and section 4 of the new Act, are juxtaposed and studied in the light of the use of the word 'person' with its definition in section 2(31) of the new Act, a vital shift in the policy of taxation in relation to the taxable entities is revealed. A reference to the individual members of the firm or the association of persons and the word 'or' playing a vital role in giving the option to the assessing authority to either assess the firm, association of persons or partnership or members individually was eliminated from the charging section. A comparative study of both the charging sections, that is, the old and the new, shows that the area of operation has now been widened against a taxable entity which has escaped assessment. The machinery sections of the new Act will come into play for the purpose of assessment of a taxable entity in view of the guidelines provided by a charging section. In my view, the scheme of the Act does not permit the argument, as advanced by Mr. Kohli, advocate, on behalf of the assessee-firm, on the basis of a Division Bench decision of the Patna High Court in Commissioner of Income-tax v. Pure Nichitpur Colliery Company : 101ITR79(Patna) , that the charging section is not the deciding factor. The charging section with its satellite provisions, that is section 2(31) of the new Act, sets the pattern for the assessing authority to operate with the aid of the machinery sections of the Act for the assessment of 'person', defined as a taxable entity, to income-tax. In taxation matters it is a rule that the charging section guides the machinery sections of the Act. With due respect, I cannot fall in line with the judges who decided Pure Nichitpur Colliery Companys case : 101ITR79(Patna) to say that the charging section is not the deciding factor. The tax on an unregistered firm for the assessment year in this case which was 1963-64 was to be determined in accordance with section 183 of the new Act as it stood prior to the Taxation Laws (Amendment) Act, 1970, which came into force on April 1, 1970.
The learned counsel for the assessee-firm cited two decisions of the Supreme Court in Commissioner of Income-tax v. Kanpur Coal Syndicate : 53ITR225(SC) and commissioner of Income-tax v. Murlidhar Jhawar and Purna Ginning and Pressing Factory : 60ITR95(SC) to support his arguments that the assessing authority after the assessment of the partners could not proceed to assess the firm. These cases were decided under the old Act and had interpreted the word 'or' as contained in section 3 of the old Act about the option of the assessing authority to assess the firm or its partners, association of persons or its members authority to assess the firm or its partners, association of persons or its members individually. These judgments are not to much help in the interpretation of the provisions of section 4 of the new Act and, thus, do not render any assistance for determination of the question involved in the reference. Counsel for the parties are agreed that there are only two cases so far reported under the new Act having a direct bearing on the point in issue. Both these cases are decided by two Division Benches of the Patna High Court and in both these cases the Benches have taken diametrically opposite views.
The first case is Pure Nichitpur Colliery Companys case : 101ITR79(Patna) decided on 9th September, 1974. In this case which was of a firm it was held that the assessing authority could not proceed to tax the firm if the income in the hands of the partners individually has been taxed. Reliance in this case mainly was placed on the above referred two Supreme Court cases in Kanpur Coal Syndicates case : 53ITR225(SC) and Murlidhar Jhawars case : 60ITR95(SC) also cited before us by the learned counsel for the assessee-firm, and observation was made that the principle laid down in those cases by the Supreme Court was still a good law. Side by side with this, as referred to by me earlier, the judgment of the Division Bench in this case, that is, Pure Nichitpur Colliery Companys case : 101ITR79(Patna) , was influenced by the observation that the charging section is not the deciding factor. I have not been able to agree with this observation of the Bench in this case. In my view, the judgment does not lay down the correct law because the Supreme Court decisions under section 3 of the old Act cannot be stretched for application to section 4 of the new Act which has done away with the discretion (option) of the assessing authority under the old Act of choice between the firm or their partners, or association of persons or their members.
The other Division Bench case of the Patna High Court is Mahendra Kumar Agrawalla v. Income-tax Officer : 103ITR688(Patna) , which was decided on September 12, 1974, by a different Bench. In this case a view just opposite to pure Nichitpur Colliery Companys case : 101ITR79(Patna) has been taken holding that it is no longer permissible to the assessing authority to elect between a firm, association of persons or its partners or members. The Bench observed as under :
'In the cases referred to above, in the terms of section 3 of the Indian Income-tax Act, 1922, it was held that the Income-tax Officer had the option to assess either of the two units of assessment and once having exercised the option to assess one unit, it was not open to him to assess the other unit. In the charging section 4 of the Income-tax Act, 1961, no such option of election between the two taxable units has been given to the Income-tax Officer and as such he is quite competent to initiate proceedings under section 147 of the Act with a view to tax the income of an assessable unit if it has escaped assessment. I am fully fortified in the above view by a decision of the Supreme Court in the case of Income-tax Officer v. Bachu Lal Kapoor : 60ITR74(SC) .'
In Bachu Lal Kapoors case : 60ITR74(SC) the assessing authority had proceeded against the Hindu undivided family which according to the assessee-firm had broken earlier.
In that case K. Subba Rao J. (as he then was) observed :
'That apart, under section 3 of the Act, in the matter of assessment, there is no question of any election between a Hindu undivided family and a member thereof in respect of the income of the family. If a Hindu undivided family exists, under section 3 of the Act the Income-tax Officer has to assess it in respect of its income. Indeed, under section 14(1) of the Act, any part of income received by its members cannot be assessed over again. While section 3 confers an option on the Income-tax Officer to assess either the association of persons or the members of the association individually, no such option is conferred on him thereunder in the case of a Hindu undivided family, as its existence excludes the liability of its members in respect of the income of the former received by the latter.'
The observations in Bachu Lal Kapoors case : 60ITR74(SC) are attracted to the case in hand. Mahendra Kumar Agrawallas case : 103ITR688(Patna) , in my view, has correctly determined the law on the point.
In view of what has been said and discussed above agreeing with the decision in Mahendra Kumar Agrawallas case : 103ITR688(Patna) , I am to hold that there is no prohibition in section 4 of the new Act to restrain the assessing authority to proceed against the firm which is a taxable entity in respect of the fact that two of its partners had been separately assessed in respect of their share of the income from the partnership business. The position that once the income of an entity has been assessed and taxed in the hands of other taxable entities referred to in section 3 of the old Act no tax could be levied on the first entity cannot prevail under the new Act. The reference is, therefore, answered in the affirmative, in favour of the revenue and against the assessee.
A. S. BAINS J. - I agree.