1935 (1) TMI 27 - HC - Income Tax

Summary

Issues:
1. Refusal of the Commissioner to draw up a statement of the case and refer it to the High Court under Section 66(3) of the Indian Income Tax Act, XI of 1922.
2. Dispute regarding the classification of the case under Section 25-A or Section 26 of the Income Tax Act based on the alleged partition and formation of a new firm within a Hindu undivided family.

Analysis:
The judgment pertains to an application under Section 66(3) of the Indian Income Tax Act, XI of 1922, arising from the Commissioner's refusal to draw up a statement of the case and provide his opinion to the High Court. The case involves a business carried out by an individual under a specific style and the claim of a partition within a Hindu undivided family, resulting in the formation of a new firm. The dispute centers around the proper classification of the case under either Section 25-A or Section 26 of the Income Tax Act based on the alleged events within the family.

The Assessee, operating a business in Lahore, claimed a partition within the family, asserting that the family members had separated, and a new firm had been constituted. The Income Tax Officer, however, refused to register the firm, maintaining that despite the alleged separation, the family remained joint throughout the year, falling under Section 25-A rather than Section 26. The Assessee appealed to the Assistant Commissioner, arguing that the case should be dealt with under Section 26 due to the alleged formation of a new firm. The Assistant Commissioner declined to adjudicate on this question, citing the lack of appeal against the Income Tax Officer's findings under Section 26-A.

Subsequently, the Assessee moved the Commissioner, contending that the Assistant Commissioner erred in refusing to determine the applicability of Section 25-A or Section 26. The Commissioner upheld the Assistant Commissioner's decision, stating that no appeal was available on the specific question. The High Court, after hearing arguments from both parties, concluded that the Assessee was entitled to an adjudication on whether a new firm had been constituted, regardless of the potential impact on the Income Tax Officer's decision under Section 26-A. The Court held that the question of which section applied was a valid legal issue, and the Commissioner should have referred it to the High Court.

In light of the above, the High Court accepted the petition, directing the Commissioner to state the case and refer it to the Court for further consideration. The Court clarified that the question of the applicable section was the only issue arising from the Assistant Commissioner's order under Section 31, and no costs were awarded in the circumstances.