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Ballabhdas Ishwardas Vs. Commr. of Inc.-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 179 of 1970
Judge
Reported in[1979]116ITR685(Cal)
AppellantBallabhdas Ishwardas
RespondentCommr. of Inc.-tax
Cases ReferredJ.S. Parkar v. V.B. Palekar
Excerpt:
- .....the 26th february, 1960, on a total income of rs. 2,32,158 and the demand notice was served on the assessee-firm on 7th march, 1960. the assessee filed an appeal before the aac challenging certain disallowances. the appeal was allowed partly. thereafter, there was a further appeal before the tribunal. certain contentions about disallowances were made there with which we are not concerned in this reference.2. it was submitted at the time of the hearing of the appeal before the tribunal that the assessee-firm consisted of two partners, ballabhdas agarwal and ishwardas agarwal. for the assessment year 1955-56, the two partners had duly submitted their returns showing an estimate of share income from the assessee-firm as the assessments on the partners had been completed on the 14th.....
Judgment:

Sabyasachi Mukharji, J.

1. The assessee is a firm registered under the Indian I.T. Act, 1922. It carries on business of railway catering contracts. The reference relates to the assessment year 1955-56, the previous year being calendar year 1954. The assessment was completed on the 26th February, 1960, on a total income of Rs. 2,32,158 and the demand notice was served on the assessee-firm on 7th March, 1960. The assessee filed an appeal before the AAC challenging certain disallowances. The appeal was allowed partly. Thereafter, there was a further appeal before the Tribunal. Certain contentions about disallowances were made there with which we are not concerned in this reference.

2. It was submitted at the time of the hearing of the appeal before the Tribunal that the assessee-firm consisted of two partners, Ballabhdas Agarwal and Ishwardas Agarwal. For the assessment year 1955-56, the two partners had duly submitted their returns showing an estimate of share income from the assessee-firm as the assessments on the partners had been completed on the 14th November, 1959. Therefore it appears that before the assessment on the firm, the assessments on the partners comprising the firm had been completed.

3. In the premises, it was submitted that the ITO was incompetent to make the assessment on a firm after having chosen to make an assessment on the partners individually. This ground had not originally been taken in the grounds of appeal and the assessee submitted that he should be permitted to raise ah additional ground of appeal to the following effect:

'That the Income-tax Officer having made the assessments on the individual partners of the appellant firm and having thus exercised the option given to him by Section 3 of the Income-tax Act, 1922, he was incompetent to make the assessment on the firm and the assessment is, therefore, void and should be annulled.'

4. It Was urged that the additional ground involved a pure question of law which needed no investigation into facts, and in the interest of justicethe assessee should be permitted to raise the said ground. The same was objected to by the revenue and the Tribunal, for the reasons mentioned in its order, declined to permit the additional ground. The Tribunal stated that if the additional point on the question of law involved no new evidence of investigation into fresh facts, the Tribunal would have been justified in permitting the party to raise the ground but in this case the Tribunal came to the conclusion that new ground sought to be raised required fresh facts. The Tribunal was of the opinion that there was no justification for the assessee for not raising the contention before the A AC or raising it in the original ground of appeal before the Tribunal. The Tribunal stated that there was nothing on the record to show that the assessments on the partners had been completed earlier to the assessment under appeal. The assessee wanted the Tribunal to admit the copy of the assessment order dated 14th November, 1959, relating to Ballabhdas Agarwal and another of the same date relating to the HUF styled Ishwardas and Sons. The Tribunal observed that from this order it was not clear that the ITO, assessing the parties, knew that these assessees were partners of the assessee-firm or that he had exercised an option not to assess them but to assess the firm itself. It was contended that the reference to Eshwardas and Sons in the assessment order for 1955-56 sought to be produced was wrong and further that when the assessments for 1956-57 and 1957-58 were rectified consequent on the completion of the assessments of the firm, the name of the firm was stated to be Ballabhdas Ishwardas. The Tribunal was of the opinion that the real position could only be found from investigating and looking into the records. The Tribunal, therefore, concluded that there was no justification for the assessee not to have raised this contention and declined to allow this contention to be raised for the first time as an additional ground. Since the additional ground had been argued before the Tribunal in extenso, the Tribunal considered the ground and was of the opinion that the position of an unregistered firm and an association of persons were almost similar but the same was different from that of a registered firm. The Tribunal was, therefore, of the opinion that there was provision in the Act for rectification of the assessment 'of the partners on the completion of the assessment of the firm and, therefore, it could not be accepted that once the partners had been assessed, there could not be assessment of the firm. In the aforesaid view of the matter, the Tribunal was of the opinion that even on the merits the additional ground sought to be raised by the assessee was liable to be rejected. In the premises, the Tribunal rejected the appeal on those grounds.

5. In the aforesaid circumstances, under Section 66(1) of the Indian I.T. Act, 1922, the Tribunal has referred the two questions of law to this court, namely :

'(1) Whether, on the facts and in the circumstances of this case, the Tribunal was right in declining to permit the assessee to raise the additional ground or let in any additional evidence sought to be introduced to support the ground ?

(2) If the answer to the first question is in the negative, whether, on the facts and in the circumstances of this case, the Tribunal was right in holding that the assessment made on the firm was valid in law, when both the partners had already been assessed on their shares of profit derived from the firm ?'

6. So far as the first question is concerned, it is well settled that whether to admit additional evidence or not is a matter, more or less for the Tribunal or an appellate court in its discretion to determine. Normally, no question of law arises on the exercise of the discretion by the Tribunal or an appellate court in such matters. Reliance may be placed for this proposition on the decision of the Supreme Court in the case of Manji Dana v. CIT : [1966]60ITR582(SC) . Where, however, the discretion of the Tribunal or an appellate court on the point of additional ground is exercised on extraneous or irrelevant consideration, a question of law might arise. In order to administer justice an appellate court or a Tribunal might admit an additional ground or new grounds on points of law provided such grounds do not require investigation of any new facts or entering into new controversies, so far as the facts are concerned. These principles are well settled. Reliance may be placed on the decision of the Judicial Committee in the case of Attorney-General of the Colony of Fiji v. J.P. Bayly Ltd., AIR 1950 PC 73, Town Municipal Council, Athani v. Presiding Officer, Labour Court, Hubli, : (1969)IILLJ651SC and B.R. Bamasi v. CIT : [1972]83ITR223(Bom) and so far as admitting additional points on the question of law is concerned, this principle has also been recognised in several decisions in income-tax matters, i.e., the case of Gangadas Sarda v. CIT : [1956]29ITR799(Patna) , Byramji & Co. v. CIT , J.S. Parkar v. V.B. Palekar : [1974]94ITR616(Bom) and in the case of Kalekhan Mohd. Hanif v. CIT : [1972]86ITR196(MP) . The question in each case is, therefore, whether the point sought to be raised is a question of law and whether the point requires investigation or admission of new facts not on the records. The fact that this is a question of law cannot be disputed. The Tribunal has held that this requires investigation of new facts. The Tribunal has stated that the order of the ITO was not available and only certain copies were produced. From such copies it did not appear that the persons who had been assessed on the 1.4th November, 1959, were the partners of the assessee-firm but it was pointed out that the name was mistaken. The Tribunal has stated that as to the submissions made by the assessee the evidence to this extent was not available. Strictlyspeaking, the Tribunal was right in saying so and that position cannot be disputed. But it appears to us that whether these persons had been assessed or not in the original assessment order could have been found without much difficulty and by calling for the original assessment order from the department and that would not have really, in the facts and circumstances of the case, amounted to investigation of such new facts which would have disentitled, in the interest of justice, admission of the additional ground. Therefore, though there was a discretion on the part of the Tribunal and strictly speaking and technically the original assessment order was not there and that there was a mistake in the assessment order in the names of the partners who had been assessed on the 14th November, 1959, we are of the opinion that these facts could have been easily found out from the records of the department and from that point of view it might be stated that it would have been a more proper exercise of the discretion on the part of the Tribunal to have admitted this additional ground. But, as mentioned before, normally, in a matter like this, the Tribunal has, a discretion and from a strict legal point of view we would not say that in this case the discretion of the Tribunal was improperly exercised. The question No. 1, therefore, has to be answered in the affirmative and in favour of the revenue.

7. The important question, however, is the second question on the merit, whether the assessee's contention was right or wrong. Counsel for the assessee contended before us that once there was an assessment of the partners as in this case on the 14th November, 1959, the revenue had exercised option under Section 3 of the Indian I.T. Act, 1922, and, therefore, there could not be an assessment on the firm itself again. In this connection, it would be relevant to refer to the different changes from time to time of the position of assessment of the firm and its partners under the Indian I.T. Act, 1922. Prior to its amendment by the Amendment Act, 1939, Section 23(5) was in the following terms :

'If a member of a registered firm or any person who being a minorhas been admitted to the benefits of partnership in such firm, satisfies theIncome-tax Officer or other authority appointed by the Central Government in this behalf that the rate of income-tax applicable to his totalincome of the previous year was less than the rate at which income-tax hasbeen levied on the profits or gains of the firm of that year, or that his totalincome of the previous year was below the minimum chargeable withincome-tax he shall be entitled to a refund on his share of those profits orgains calculated at the difference between those rates or at the rate atwhich income-tax has been levied, as the case may be.'

8. Thereafter, after the Amendment Act of 1939, Section 23(5) as it stood before amendment by the Finance Act, 1956, was as follows :

'(5) Notwithstanding anything contained in the foregoing sub-sections, when the assessee is a firm and the total income of the firm has been assessed under Sub-section (1), Sub-section (3) or Sub-section (4), as the case may be,--

(a) in the case of a registered firm, the sum payable by the firm itself shall not be determined but the total income of each partner of the firm, including therein his share of its income, profits and gains of the previous year, shall be assessed and the sum payable by him on the basis of such assessment shall be determined......

(b) in the case of an unregistered firm, the Income-tax Officer may, instead of determining the sum payable by the firm itself, proceed in the manner laid down in Clause (a) as applicable to a registered firm, if, in his opinion, the aggregate amount of the tax including super-tax, if any, payable by the partners under such procedure would be greater than the aggregate amount which would be payable by the firm and the partners individually if the firm were assessed as an unregistered firm.'

9. The position, however, has substantially altered since the amendment by the Finance Act, 1956. But we are not concerned with the said position in the relevant assessment year. Counsel for the assessee drew our attention to the relevant definition of a partner of a registered firm and an unregistered firm and also the firm under the Indian I. T. Act, 1922. He also drew our attention to the provisions of Section 14(2) and Section 35(5) and contended that the determination of tax liability was a procedural part and, therefore, the fact that in the case of an unregistered firm the liability might be different in respect of the partner from that in the case of a registered firm was merely a question of procedural rights of the parties and did not affect the liability to be charged under Section 3 of the Indian I.T. Act, 1922. Reliance in this connection was placed on several decisions, namely, in the case of CIT v. P.M. Bagchi & Co. : [1951]20ITR33(Cal) , in the case of CIT v. Amritlal Bhogilal & Co. : [1958]34ITR130(SC) and in the case of ITO v. Radha Krishan : [1967]66ITR590(SC) . Basing his submission on this point counsel further submitted that it had been held by the Supreme Court in the case of CIT v. Kanpur Coal Syndicate : [1964]53ITR225(SC) , that Section 3 of the Indian I. T. Act, 1922, impliedly gave an option to assess the total income of either an association of persons or the members of the association individually, but it did not specify the particular officer who could exercise that option. It was further held that it was in the first instance for the ITO to exercise that option. This was part of the process of assessment. Where, however, the ITO assessed theassociation of persons instead of the members individually an appeal lay under Section 30 to the AAC who under Clause (b) of Section 31(3) had power to set aside the assessment and direct the ITO to assess the members individually. Counsel drew our attention to the observations of the court at page 228 of the report where the Supreme Court noted the provisions of Section 14(2) of the Act and observed that under the Act an assessment could be made on an association of persons as a unit or alternatively, on the individual members thereof in respect of their respective shares of the income and the Supreme Court further held that Section 3 impliedly gave an option to an appropriate authority to assess the total income of either the association of persons or the members of such association individually. Reliance was placed on the decision in the case of CIT v. Murlidhar Jhawar and Purna Ginning and Pressing Factory : [1966]60ITR95(SC) , where three persons who carried on business in groundnut, cotton and cotton seed were each assessed to tax on a third share in Rs. 51,280 computed as profits of the business for the assessment year 1954-55. Thereafter, the ITO assessed them in the status of an unregistered firm computing the income of the joint venture. The Tribunal held that the ITO had the option to assess the individual parties to the joint venture and he having exercised that option, it was not open to him thereafter to reassess the same income collectively in the hands of the three parties to the joint venture. It was 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. It was further held that the ITO could not, however, seek to assess the one income twice--once in the hands of the partners and again in the hands of the unregistered firm. Counsel for the assessee contended that the authority of this decision was equally applicable to the case of a registered firm. Counsel submitted that Section 23(5) made certain procedural difference between a registered firm and an unregistered firm and even if in such a case the proviso to Section 23(5) gave an option to the ITO it had been held by the Supreme Court that once an option had been exercised by assessing an individual number of an unregistered firm, the firm itseli could not be subsequently subjected to tax because that would, as the Supreme Court stated, amount to double taxation. Reliance in this connection was placed on the decision of, the Supreme Court in the case of CIT v. Kanpur Coal Syndicate : [1964]53ITR225(SC) referred to hereinbefore. In this connection it is necessary to refer to the provisions of Section 35(5) of the Act which provides as follows:

'Where in respect of any completed assessment of a partner in a firm it is found on the assessment or reassessment of the firm or on any reduction or enhancement made in the income of the firm under Section 31, Section 33, Section 33A, Section 33B, Section 66 or Section 66A that the shareof the partner in the profit or loss of the firm has not been included in the assessment of the partner or, if included, is not correct, the inclusion of the share in the assessment or the correction thereof, as the case may be, shall be deemed to be a rectification of a mistake apparent from the record within the meaning of this section, and the provisions of Sub-section (1) shall apply thereto accordingly, the period of four years referred to in that sub-section being computed from the date of the final order passed in the case of the firm. '

10. The section itself is in our opinion sufficient to warrant the conclusion that there can be completed assessment of the partners and there can be an assessment on the firm thereafter. If it be accepted that there cannot be in law assessment on the firm, after the assessment on the partners, then Section 35(5) would become almost nugatory. It was contended by the counsel for the assessee that the Supreme Court had expressed the opinion that in the case of an unregistered firm it could not be proceeded against after the partners comprising the firm had been subjected to assessment. In this connection, it is significant to refer to Sub-clause (a) of Section 23(5) of the Act as it stood at the relevant time. In the case of a registered firm the tax payable by the firm itself was not to be determined but what was expected was that the share of the partners including the share of the income, profits and gains of the previous year should be 'assessed' when there has also been assessment of the firm under Sub-sections (1), (2), (3) and (4) of the Act. But in the case of an unregistered firm there is a possibility of exercising the option as contemplated in Clause (b) of Section 23(5) of the Act, It is to meet such a contingency that Section 35(5) of the Act in our opinion had been introduced. It would not be in harmony to read any of the provisions of the statute as redundant unless we are driven to that conclusion. As a matter of fact the language of Section 23 of the Act does not warrant the acceptance of the submission urged on behalf of the assessee. The Supreme Court's decision is also not on this point. Section 35(5) and Section 14(2) are pointers to the contrary. The effect of Section 23(5) and Section 35(5) of the Indian I.T. Act, 1922, was that the assessment proceedings with regard to a registered firm might continue for the purpose of computation and even for determining the share of the partners, the appropriate proceedings can be taken for rectification of the mistake, if any, in the assessment of the share income of the partners under Section 35(5) of the Act. Reference in this connection may be made to the decision of the Rajasthan High Court in the case of CIT v. Chaganlal Durga Prashad and the decision of the Madhya Pradesh High Court in the case of Kalekhan Mohd. Hanif v. CIT : [1972]86ITR196(MP) , but these decisions dealt with the position of Sub-section (5) of Section 23 as it stood after the amendment in 1956. But for the reasons mentioned before, we are of the opinion thatthe Tribunal on merits has come to a correct conclusion. In this connection, so far as the scope of Section 35(5) is concerned, we may note the decision in the case of ITO v. T.S. Devinatha Nadar : [1968]68ITR252(SC) . That case, however, dealt with the situation as to at what point of time the effect of Section 35(5) came into operation.

11. Strictly speaking, the answer to the second question, in view of the answer given to the first question, is not necessary but as the question was argued we have expressed our views thereon, and we hold that in any event the decision of the Tribunal on merits is right. The second question need not be answered.

12. Each party will pay and bear its own costs.

Janah, J.

13. I agree.


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