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Hindusthan Mill Stores Supply Co. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberI.T.R. No. 10 of 1973
Judge
Reported in[1979]116ITR681(Cal)
AppellantHindusthan Mill Stores Supply Co.
RespondentCommissioner of Income-tax
Excerpt:
- .....place, calcutta, and it is stated to have no other source of income. it is also stated that the firm is assessed in dist. iii(i), calcutta, and the assessment of the firm has not yet been completed.seen audited profit and loss account and balance-sheet of hindusthan mill stores supply co., calcutta and kanpur, as audited by m/s. r.v. aiyer& co., of 8/2, hastings street, calcutta, for the accounting year ending dewali 2015, i.e., 31st october, 1959. the book figure shows that 0-4-0 share of profit allocated to shri h. b. amin amounted to rs. 10,049 against the total profit of the firm amounting to rs. 40,196.....assessed as above under section 233 on rs. 11,249 as per book figure. this is subject to rectification under section 35 later.'4. it appears, therefore, that the ito was aware.....
Judgment:

Sabyasachi Mukhakji, J.

1. In this reference under Section 256(1) of the I.T. Act, 1961, the following question has been referred to this court:

'Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the AAC was not justified in annulling the assessments for the assessment years 1960-61 and 1961-62 ?'

2. It appears that the assessee is a firm. We are concerned in this reference with two assessment years 1960-61 and 1961-62. Assessments for both the years were made on the assessee-firm in the status of unregistered firm onthe 31st March, 1965, and 31st March, 1966, respectively. The assessee's applications under Section 26A of the Indian I.T. Act, 1922, were rejected by separate orders. A number of grounds had been taken by the assessee in appeal against this assessment before the AAC, At the time of hearing of the appeal, however, an additional ground was taken contesting the validity of the assessments on the ground that since the ITO had chosen to assess the partners separately on their respective share income as was evident from the assessments made on the partner, H. B. Amin, the assessments made on the assessee-firm in the status of an unregistered firm were not valid in law. The AAC allowed the assessee to raise the additional ground and accepted the assessee's submission. In the further appeal before the Tribunal on behalf of the revenue, it was contended that the AAC was not justified in considering the additional ground without complying with the requirements of Section 250{5) of the I.T. Act, 1961. The Tribunal rejected this contention. No question of law, however, has been referred on this aspect of the matter and we need not deal with the reasons given by the Tribunal for its decision. The other argument on behalf of the revenue before the Tribunal was that the AAC was not justified in annulling the assessments. It appears that the assessee-firm came into existence in 1956-57 and the assessments were made in the status of registered firm up to and including the assessment year 1959-60. The ITO assessing the partner, H.B. Amin, was not the same ITO having jurisdiction over the assessment of the assessee-firm. It was argued that the ITO had not exercised any option in assessing the firm or the partners and, therefore, there was no scope for the revenue to exercise the option to assess the firm. The Tribunal was, however, unable to accept this contention and held in favour of the assessee (sic). The Tribunal, therefore, set aside the order of the AAC and restored the appeals to his file with a direction that the AAC should consider the other grounds of appeal against the assessee and decide the appeals afresh in accordance with law.

3. It is the propriety of the aforesaid decision of the Tribunal which is the subject-matter of challenge in the question referred to us. Section 3 of the Indian I.T. Act, 1922, which corresponds to Section 4(1) of the I.T. Act, 1961, provides that where any Central Act enacts that income-tax should be charged for any assessment year at any rate or rates income-tax at that rate or those rates shall be charged for that assessment year in accordance with and subject to all the provisions of the relevant Act in respect of the total income of the previous year of every individual, Hindu undivided family, company and local authority and other firm or other association of persons or the partners of the firm or the members of the association individually. Therefore, in the charging provisions of the statute, partners of the firm as such have been treated as separate assessableunits in order to avoid the mischief of double taxation. It has, therefore, to be seen that one income does not suffer taxation at the hands of two taxable units. In the case of unregistered firms as in the instant case where the partners of the firm had been subjected to assessment in respect of the same year in respect of the same income, the firm cannot be assessed. This principle seems to be well settled by the decision of the Supreme Court in the case of CIT v. Murlidhar Jhawar and Puma Ginning and Pressing Factory : [1966]60ITR95(SC) . There the Supreme Court held that the partners of an unregistered firm might be assessed individually or they might be assessed collectively in the status of an unregistered firm; the ITO could not, however, seek to assess one income twice, once in the hands of the partners and again in the hands of the unregistered firm. In that case before the Supreme Court it had been contended on behalf of the revenue that the ITO making the first assessment on the three parties to the joint venture was not informed that the three parties constituted an unregistered firm and, therefore, the ITO was in law competent to assess the entity which was in truth liable to be assessed to tax and in making the earlier order of assessment he could not be deemed to have exercised an option which precluded him from assessing the income of the three parties as an unregistered firm. The Supreme Court observed at page 97 of the report that in the case of ITO v. Bachu Lal Kapoor : [1966]60ITR74(SC) , in dealing with the claim made by the ITO to assess the income in the hands of an HUF after assessing the income in the hands of the members on the footing that the family had severed, the exercise of the option to do one or the other of the two alternatives open to an officer assumed knowledge on his part of the existence of the two alternatives. The Supreme Court, however, in the instant case of CIT v. Murlidhar Jhawar and Purna Ginning and Pressing Factory : [1966]60ITR95(SC) observed that it was not possible to accept the plea that the ITO was not in possession of information relying on which it could be said that he assessed the three partners collectivelly as unregistered firm. Therefore, in the instant case, we have to see the basis upon which the ITO proceeded. It appears from the assessment order of the ITO, A-Ward, Hooghly, in the case of Himangsu B. Amin for the assessment year 1960-61, as follows:

'Assessee's authorised representative, Shri G. Ghosh, appeared and the case was discussed. It is declared that the assessee has no other source of income besides 0-4-0 share of profit in the firm, M/s. Hindusthan Mill Stores Supply Co. of 2, Saklat Place, Calcutta, and it is stated to have no other source of income. It is also stated that the firm is assessed in Dist. III(I), Calcutta, and the assessment of the firm has not yet been completed.

Seen audited profit and loss account and balance-sheet of Hindusthan Mill Stores Supply Co., Calcutta and Kanpur, as audited by M/s. R.V. Aiyer& Co., of 8/2, Hastings Street, Calcutta, for the accounting year ending Dewali 2015, i.e., 31st October, 1959. The book figure shows that 0-4-0 share of profit allocated to Shri H. B. Amin amounted to Rs. 10,049 against the total profit of the firm amounting to Rs. 40,196.....

Assessed as above under Section 233 on Rs. 11,249 as per book figure. This is subject to rectification under Section 35 later.'

4. It appears, therefore, that the ITO was aware that there was a firm and he was aware that this firm was being assessed by the ITO, Dist. III(I), and was also aware that this assessment had not taken place. With this knowledge the revenue chose to assess other partners. Now it appears that in the case of the subsequent year two of the partners were assessed by the same officer having jurisdiction over the firm. On behalf of the revenue counsel contended that, as the officer who had assessed the partner in question was not the officer who had jurisdiction to assess the firm, he was not called upon to exercise the option as such. It was, therefore, suggested that the assessment order was valid on the firm. The liability to be taxed in certain contingency depends upon the substantive provisions of the I.T. Act, in this case under Section 3 of the 1922 Act and Section 4(1) of the 1961 Act. That liability, in our opinion, cannot be made to vary from person to person simply because they are under jurisdiction of different officer or the same officer, when it is said that if there is one source of income to be taxed in two hands and if it had been subject to tax in one hand it cannot be again subject to tax at the other hand it should not depend whether the same officer or different officers are assessing the different assessable units. In such a case, we must see if the revenue has chosen to proceed in a particular manner, then whether he has jurisdiction to act in a manner which will be contrary to the provisions of s. 3 of the Act. In view of the pronouncement of the Supreme Court and in the facts as recorded in this case, we are of the opinion that the assessment on the firm could not have been made. Counsel for the revenue drew our attention to Section 35(5) and drew our attention to the decisions in the case of ITO v. T.S. Devinatha Nadar : [1968]68ITR252(SC) and in the case of Second Addl. ITO v. Atmala Nagaraj : [1962]46ITR609(SC) . In the case of an unregistered firm, in view of the observations of the Supreme Court as mentioned before and in the contingency that has happened, we are unable to accept that Section 35(5) is the authority for giving the revenue a right to assess again the firm after the partners constituting the firm had been subjected to tax. This conclusion of ours is in consonance with the decisions in the case of Girdhari Lal Laxman Prasad v. CIT : [1968]70ITR853(All) and CIT v. P. P. Johny : [1969]73ITR459(Ker) .

5. In the aforesaid view of the matter, the question referred to us is answered in the negative and in favour of the assessee.

6. Each party will pay and bear their own costs.

Pyne, J.

7. I agree.


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