1. The learned Income-tax Appellate Tribunal, Jaipur, Bench, Jaipur, has referred the following question of law to this court, on an application of the assessee :
' Whether, on the facts and in the circumstances of the case, the Tribunal was justified in not confirming the order of the Appellate Assistant Commissioner holding that the assessment made in the status of an association of persons as against the status of firm shown in the assessee's return was void ?'
2. The facts giving rise to this reference briefly stated are that for the assessment year 1968-69, the assessee, M/s. Munilal Shivnarain (hereinafter called 'the assessee'), filed a voluntary return declaring income of Rs. 19,867. The assessee also filed an application in Form No. 11, along with the original partnership deed dated July 17, 1969. On a scrutiny, the ITO found that the assessee was not a genuine partnership firm. The grounds on which this finding was arrived at by the ITO are not relevant for our present purpose. The ITO, therefore, refused to register the firm under Section 185 of the I.T. Act. He thereupon proceeded to assess the assessee in its status as an association of persons and finalised the assessment. The assessee filed two appeals before the AAC, one against the order refusing to register the firm and the other against the assessment itself. The AAC accepted the appeal against the assessment order holding that if the ITO was of the opinion that the assessee could not be granted registration, he should have taken its status as an unregistered firm and not as an association of persons without issuing fresh notice in the status of an association of persons and giving adequate opportunity of hearing to the assessee. He was further of the view that in assessing the assessee as an association of persons, the ITO exceeded his jurisdiction. He, therefore, set aside that order. As a consequence, in the appeal against the order refusing to register the firm, the learned Appellate Assistant Commissioner held that the order under Section 185 of the Act was also void.
3. Being aggrieved by the orders of the learned AAC, the Department filed two appeals before the Tribunal.. The learned members of the Tribunal heard the two appeals together and by their order datedSeptember 20, 1973, they allowed both the appeals, set aside the orders of the AAC, and sent back the matter to the AAC, with a direction 'to consider whether the finding of the ITO that the firm was not genuine is correct or not. If the Appellate Assistant Commissioner comes to the conclusion that the firm was genuine and all the formalities as required under the law for the grant of registration were completed, he may pass an order accordingly. In case he finds that the finding of the Income-tax Officer regarding the non-genuineness of the firm was correct, in that case, he may hold that the status of the firm was rightly taken as that of an association of persons. Then the Appellate Assistant Commissioner should decide the quantum appeal in accordance with law.'
4. The assessee thereupon moved two applications before the. Tribunal for referring the following questions to this court :
'Whether, on the facts and in the circumstances of the case, the order passed by the Income-tax Officer under Section 143(3) of the Income-tax Act, 1961, in the status of an ' association of persons' in pursuance of the voluntary return submitted by the applicant, in the status of 'firm', was void and without jurisdiction
Whether, on the facts and in the circumstances of the case, the order under Section 185 of the Income-tax Act, 1961, passed by the learned Income-tax Officer holding that the status of the assessee should be taken as an association of persons, was void and without jurisdiction '
5. After hearing the parties, the learned Tribunal, however, referred one question to this court as stated above.
6. We have heard, the learned counsel for the parties and have gonethrough the record.
7. It may at once be stated that since the question whether the firm was genuine or not, has been left open to be decided by the learned AAC, we are not required to go into it and the only question which requires to be considered is whether, in the circumstances of the case, assuming that the assessee is not a genuine firm as held by the ITO, the assessment of the assessee could have been made taking its status as an association of persons. We shall now proceed to consider this question.
8. As we are concerned with the assessment year 1968-69, we have to take into consideration the provisions of the I.T. Act of 1961. The charging section under this Act is Section 4(1), which reads as under :
'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 theprovisions of, this Act in respect of the total income of the previous year or previous years, as the case may be, of every person.'
9. Thus, income-tax is charged under this Act on a person. The term 'person' has been defined by Section 2(31) of the Act as follows :
' ' person ' includes :
(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.'
10. Therefore, the ITO can assess any of the entities falling within the term ' person ' and if any assessee is aggrieved of the status taken by the ITO while assessing him, he can challenge that order under Section 246(c) of the Act. However, in the case of individuals, who are also members of an association of persons or are partners in a firm, the discretion of the ITO in assessing them is restricted by Section 86. According to that section, income-tax shall not be payable by an assessee in respect of the following :
' (iii) if the assessee is a partner of an unregistered firm, any portion of the assessee's share in the profits and gains of the firm computed in the manner laid down in Section 67 on which income-tax is payable by the firm.........
(v) if the assessee is a member of an association of persons, or a body of individuals other than a Hindu undivided family, a company or a firm, any portion of the amount which he is entitled to receive from the association or body on which income-tax has already been paid by the association or body. '
11. Therefore, when the assessee in this case claims to be a firm, the individual members or partners of that firm cannot be assessed as individuals and if it is found that, as a matter of fact, there is no firm, then the only status in which they can be assessed is association of persons. Reference in this connection may be made to CIT v. Murlidhar Jhawar and Puma Ginning & Pressing factory : 60ITR95(SC) wherein it has been observed as under (p. 98) :
'Apart from an association of individuals or a firm, the Income-tax Act does not recognise a collection of individuals as an entity capable of being assessed to tax. The three parties were not a registered firm, andthey could be assessed to tax collectively as an association of individuals or as an unregistered firm if the relation between them was of partners.'
12. Now, as already stated above, for the purpose of this reference, we have to assume that there is no genuine firm and, therefore, the relations between the persons, who are assessees in this case, cannot be said to be those of partners and, therefore, the only status in which they can be assessed is that of an association of persons. However, this was not the position under the Act of 1922. There the charging Section 3 provided as under :
' Where any Central Act enacts that income-tax shall be charged for any year at any rate or rates 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 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.'
13. It may be noted that under that Act, the ITO was given discretion either to assess the firm or the partners, an association of persons or members of the association individually but as already stated above, such a discretion is not available now to the ITO. Under Section 4(1) of the Act of 1961, the assessment has to be made in respect of every person as defined under Section 2(31) and in that definition, partners and members of the association do not find a place. In other words, under the new Act, a partner or a member of an association is assessable separately as an individual and the firm or the association is assessable separately but the discretion whether to assess such member or partner as a separate individual, has been restricted by Section 86(ii). Under the old Act of 1922, no appeal was provided against the order of the ITO regarding change of status of the assessee under Section 30 of that Act whereas now Section 246(c) provides such an appeal.
14. In these circumstances, when it is found that- the assessee is not a genuine firm and relationship of partners does not exist between the individuals, the only status in which this collection of individuals can be assessed is that of an association of persons. When there is no relationship of partners between these individuals, there is no question of their being assessed in the status of an unregistered firm because the sine qua non of a firm is the relationship of partners between the individuals in the collection of persons. In the absence of such a relationship, a collection of persons cannot be termed as a firm and when there is no firm, it cannot be assessed even as an unregistered firm.
15. The position under the W.T. Act is also similar to the position which existed under the old I.T. Act of 1922. There, under Section 3, wealth-tax has to be charged on the wealth of every individual, HUF and company and not on person as tinder Section 4(1) of the I.T. Act of 1961. No appeal against the order changing the status of the assessee is provided under Section 23 of that Act.
16. The position that emerges after a comparative study of the provisions of the I.T. Act of 1961 and the Indian I.T. Act of 1922 as also the W.T. Act is that under the I.T. Act of 1961, the ITO can assess a person in a status other than the one in which the assessee had filed his or its returns, and if the assessee is aggrieved of the assessment in that status, he can file an appeal against the order challenging his or its status. That being so, it is not necessary for the assessing authority to issue any notice under Section 139(2) or Section 142 or even Section 143 of the Act of 1961 to the assessee.
17. The position will be further clear from the provisions of Section 143 of the I.T. Act, 1961. Under Section 143(1), an assessment can be made without even calling the assessee if the ITO accepts the return. If the assessee objects to such an assessment on account of a change of status, he can do so under Section 143(2). Clause (f) of the Explanation appended to Section 143(3)(b) provides that an assessment under Sub-section (1) shall be deemed to be incorrect, inadequate or incomplete in a material respect, if the status in which the assessee has been assessed under Sub-section (1) is different from the status in which the assessee is properly assessable under this Act. This clearly goes to show that the ITO has 'jurisdiction' to assess a person in a status other than the one in which he has filed his return and if the assessee is dissatisfied from the assessment made under Section 143(1), he can object to it under Sub-section (2) of that section or he may file an appeal as provided under Section 246(c).
18. The learned counsel for the assessee had, however, contended that under Section 186(3) of the Act of 1961, it is provided that if registration is cancelled, the assessee has to be assessed as an unregistered firm and, therefore, the same analogy should be applicable when registration is refused. But, in our opinion, this contention cannot be accepted. The cancellation of the registration under Section 186(3) presupposes that at a particular time, there was a firm and the assessment had been made in the status of a firm and, therefore, when the registration is cancelled, the law provides that the assessment may be amended on the footing that the firm is an unregistered firm, but where from the very beginning, the finding is that there is no firm at all, then the question of assessing it even as an unregistered firm would not arise.
19. The learned counsel then referred to CWT v. Ridhkaran and CWT v. J. K. Srivastava and Sons : 142ITR183(All) . We need not discuss these authorities in detail as they do not relate to assessment under the I.T. Act of 1961 and are therefore, not at all applicable.
20. For the reasons stated above, we are clearly of the opinion that the question referred to us deserves to be answered in the affirmative, i.e., against the assessee and in favour of the Revenue. We answer the question accordingly.