9911796707
|
Home
Issues Involved:
1. Legality of assessing an unregistered firm after assessing its partners. 2. Whether the assessment of partners was provisional or final. Issue-wise Detailed Analysis: 1. Legality of assessing an unregistered firm after assessing its partners: The primary question referred to the court was whether the assessment of an unregistered firm was proper and legal after the two partners had already been assessed on their shares of income from the partnership business. The court examined the provisions of the Indian Income-tax Act, particularly focusing on section 3 and sub-section (5) of section 23. The court recognized that an unregistered firm and its partners are distinct assessable entities under the Income-tax Act. However, it emphasized that section 3, the charging section, allows income-tax to be charged on the income of the firm either in the hands of the firm or its partners, but not both. The court stated, "It would be noticed that, under this section, income-tax in respect of the income of the firm is chargeable in the hands of either of the firm or of the partners of the firm and not in the hands of both." The court further clarified that once the department chooses to tax either the firm or the partners, it cannot later claim to assess the other. The court held, "It is implicit in the section that, once the choice is made to tax either the firm or the partners, it is no more open to the department to go behind it and claim to assess the other." The court also examined sub-section (5) of section 23, which deals with the procedure for assessing the income of a firm. It concluded that this sub-section does not permit the department to tax the income of the firm both in the hands of the partners and the firm. The court stated, "The sub-section however is not a condition precedent for bringing the income to tax in the hands of the partners, if the department otherwise chooses to do so." The court supported its view by referring to the decision in J. C. Thakkar v. Commissioner of Income-tax [1955] 27 ITR 658, which established that the Income-tax Act gives the department an option to assess either the unregistered firm or its partners. The court also distinguished the present case from other decisions cited by the department, noting that the facts in those cases were different. 2. Whether the assessment of partners was provisional or final: The second issue was whether the assessment of the partners was provisional, allowing the department to later assess the firm. The department argued that it had not exercised its option finally when it assessed the partners, as it was not aware of the firm's registration status or the extent of its profits. The department contended that the assessments of the partners were made subject to the reservation of the right to assess the firm and bring the income to tax in its hands. The court acknowledged that the assessment of the partners was made with certain reservations. However, it found that the endorsement by the Income-tax Officer on the assessment order did not reserve the right to tax the income of the firm in the hands of the firm. The court stated, "In our view, on reading the endorsement all that can be said is that the department had not finally accepted the income, namely, Rs. 51,280 as the income of the firm, when it proceeded to assess the partners in respect of the income of the firm and had reserved to themselves the right to ascertain the extent and the true income of the firm and make the necessary rectification in the assessment orders of the partners." The court concluded that the department's reservation was limited to ascertaining the true income of the firm and making necessary adjustments in the partners' assessments. Therefore, the department could not later assess the firm separately. The court held, "Therefore, all that was open to the department to do was to compute the income of the firm and make necessary adjustments in accordance with its conclusions. To that the assessee had raised no objection." Conclusion: The court answered the question in the negative, stating that the assessment of the unregistered firm was not proper and legal, as the two partners had already been assessed on their shares of income from the partnership business. The court ordered the department to pay the costs of the assessee.
|
