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Commissioner of Income-tax Vs. C. Ratan and Co. and S.N. Agarwalla - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 256 of 1973
Judge
Reported in(1980)18CTR(Cal)173,[1981]128ITR39(Cal)
ActsIncome Tax Act, 1961 - Section 143(3)
AppellantCommissioner of Income-tax
RespondentC. Ratan and Co. and S.N. Agarwalla
Appellant AdvocateB.K. Bagchi and ;Ramchandra Prasad, Advs.
Respondent AdvocateDebi Pal and ;A.K. Roychowdhury, Advs.
Excerpt:
- .....assessments on the association of persons and rejected the various arguments of the assessee. the income assessed for the assessment year 1964-65 in the status of an association of persons was rs. 45,917.3. the assessee filed an appeal before the aac. the aac agreed with the ito that the business belonged to a separate entity, an association of persons. it was, however, argued before him that the income earned by the firm and sri s. n. agarwalla had already been assessed in their individual hands much earlier than the date when it was assessed in the hands of the association of persons and, therefore, the assessment made on the association of persons was illegal in view of the principle laid down by the supreme court in the case of cit v. murlidhar jhawar and purna ginning & pressing.....
Judgment:

Sudhindra Mohan Guha, J.

1. This reference at the instance of the Commissioner of Income-tax, West Bengal-II, under Section 256(1) of the I.T. Act, 1961, relates to the assessment year 1964-65, for which the relevant previous year ended on Dewali, 1963.

2. M/s. C. Ratan & Co., a partnership firm, had entered into a contract with one Sri S. N. Agarwalla to carry on the business of import/export, the latter having a half share. This was claimed to be a joint venture which was also accepted by the income-tax authorities in the earlier years and the respective shares were assessed in the hands of the firm as well as of Sri S. N. Agarwalla separately as shares from a joint venture. In the assessment year 1963-64, the ITO held that it was not a case of joint venture as regular business had been carried on from. 1951 to 1965. Being of the opinion that it was a case of association of persons between the firm and Sri Agarwalla, he called upon this new entity to file a return of income. Returns showing 'nil' incomes for the assessment years 1963-64 and 1964-65 were filed under protest on the ground that the business belonged to a joint venture and there was no separate entity. The ITO, however, made the assessments on the association of persons and rejected the various arguments of the assessee. The income assessed for the assessment year 1964-65 in the status of an association of persons was Rs. 45,917.

3. The assessee filed an appeal before the AAC. The AAC agreed with the ITO that the business belonged to a separate entity, an association of persons. It was, however, argued before him that the income earned by the firm and Sri S. N. Agarwalla had already been assessed in their individual hands much earlier than the date when it was assessed in the hands of the association of persons and, therefore, the assessment made on the association of persons was illegal in view of the principle laid down by the Supreme Court in the case of CIT v. Murlidhar Jhawar and Purna Ginning & Pressing Factory : [1966]60ITR95(SC) . The AAC accepted these facts and cancelled the assessments for both the above years.

4. The ITO appealed to the Tribunal. The only ground raised and argued before the Tribunal on behalf of the department was that the AAC had overlooked that the share of profit from the association of persons was not assessed to tax earlier either in the hands of C. Ratan & Co. or in the hands of Sri S. N. Agarwalla and that the present assessment on the association of persons did not amount to the same income being taxed twice. In the assessment year 1964-65, it was found by the Tribunal that while the assessment on the association of persons was made on October 7, 1968, the assessments on M/s. C. Ratan & Co., the firm, and Sri S. N. Agarwalla were made on August 1, 1968, and March 19, 1969, respectively. It was, therefore, held by the Tribunal that the assessment on M/s. C. Ratan & Co., the firm, was made earlier to the income having been assessed in the status of the association of persons. It was, of course, argued on behalf of the department that in the assessment of M/s. C. Ratan & Co. (firm) the share from the association of persons was taken only for the purpose of rate pending the assessment on the association of persons which meant that it was not actually assessed as contemplated in the decision of the Supreme Court. This argument, of course, was rejected. The Tribunal pointed out that the assessment on M/s. C. Ratan & Co. (firm) had been made under Section 143(3) of the Act. According to Section 2(40) of the Act an assessment made under the above section had to be accepted as a 'regular assessment'. The Tribunal, therefore, held that the inclusion of the share in the assessment of M/s. C. Ratan & Co. (firm) amounted to regular assessment and the department could not be heard to say that it was not so. In the circumstances, it confirmed the order of the AAC.

5. On the aforesaid facts, the following question was referred to this court:

'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessment made on the assessee in the status of an association of persons was invalid ?'

6. The findings of the ITO were reversed by the AAC on the ground that as the income of the appellant had already been assessed in the hands of its partners, the present assessment amounted to the same income being taxed twice. The mode of assessment of a case, as hereunder, is laid down under Section 86(v) of the I.T. Act, 1961. If an assessee is a member of an association of persons, or body of individuals other than an HUF, 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, the income-tax shall not be payable by 'the assessee in respect of such an income. The ratio was enunciated by the Supreme Court in the case of CIT v. Murlidhar Jhawar and Puma Ginning and Pressing Factory : [1966]60ITR95(SC) , to which reference has been made by the AAC. It is held therein that the partners of an unregistered firm might be assessed individually or they may be assessed collectively in the status of an unregistered firm: 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. In the case of Ramanlal Madanlal v. CIT : [1979]116ITR657(Cal) , this Bench also held that once the partners had been assessed, the firm could not be assessed or vice versa.

7. Mr. B. K. Bagchi, the learned advocate appearing for the revenue, does not challenge the principle of assessment enunciated by the Supreme Court. His only contention is that in the assessment of M/s. C. Ratan & . Co. (firm) the share from the A.O.P. was taken only for the purpose of rate pending the assessment on the A.O.P., which meant that it was not actually assessed as contemplated in the decision of the Supreme Court.

8. In support of his contention, he seeks support from the judgment of Chagla C.J. (as he then was) in the case of CIT v. N.M. Raiji [1949] 17 ITR 180. At p. 184 of the report, it is stated that although certain sums may be exempted from taxation, still they may form part of the total income of an assessee in order to determine the rate at which income-tax is payable. Therefore, it follows that the total income of an assessee is not unnecessarily wholly subject to tax. Portions of it may be exempt from taxation and yet may be computed for the purpose of determining the rate at which tax is payable. This principle was enunciated at p. 184 no doubt but in that very case the share of profit of the assessee in the firm was not allowed to be included in the total income of the assessee for ascertaining the rate of income-tax. In the case of K.J. Joseph v. ITO : [1980]121ITR178(Ker) , the Kerala High Court, at pp. 188 and 189, held that no part of the agricultural income is subject to tax. For the purpose of determining the rate at which non-agricultural income is to be taxed, agricultural income is taken into account.

9. As stated earlier, the contention of the department was not accepted by the Tribunal. In its opinion, the assessment on M/s. C. Ratan & Co. (firm) had been made under Section 143(3). In the opinion of the Tribunal, Section 2(40) lays down that the assessment in the above section was to be accepted as 'regular assessment'. Thus, the inclusion of the share in the assessment of M/s. C. Ratan & Co. (firm), according to the Tribunal, amounted to regular assessment. We are not (sitting) in appeal against such a conclusion. So, we need not make any observation as to the propriety or otherwise of such finding. We arc only to answer the question referred to us by the Tribunal.

10. Mr. B. K. Bagchi, the learned advocate appearing for the revenue, contends with reference to the decision in the case of CIT v. Scindia Steam Navigation Co. Ltd. : [1961]42ITR589(SC) that such a point was pressed before the Tribunal and it dealt with it, and as such this question of law would clearly arise out of the Tribunal's order. But the true scope of the reference will have to be ascertained and limited by what appears on the statement of the case. According to Mr. Bagchi, the question referred to us is comprehensive enough to bring the point raised by him within its ambit. But it would appear from the application made by the department before the Tribunal for making a reference that the point raised by Mr. Bagchi was clearly stated in question No. 1 of the three questions suggested by the department. But the Tribunal referred only question No. 2 of the application filed by the department. Thereafter, the department does not appear to have pursued further or in other words there was no application under Section 256(2) of the Act before this court requiring the Tribunal to refer question No. 1 On the matters before us, it cannot be said that the question referred to us is wide enough to include the point raised by Mr. Bagchi. His argument on this point, therefore, cannot be accepted.

11. In the result, we are to answer the question which has been referred to us and in view of the findings arrived at by the Tribunal, we answer the question in the affirmative and in favour of the assessee. There will, however, be no order as to costs.

Sabyasachi Mukharji, J.

12. I agree.


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