1980 (6) TMI 11 - HC - Income Tax

Summary

Issues:
Assessment of income as an association of persons, Double taxation concern, Validity of assessment made on the assessee as an association of persons.

Analysis:
The case involved a reference at the instance of the Commissioner of Income-tax, West Bengal-II, regarding the assessment year 1964-65. The firm, M/s. C. Ratan & Co., had a contract with Sri S. N. Agarwalla for import/export business, which was initially treated as a joint venture. However, the Income Tax Officer (ITO) later considered it an association of persons and assessed the income accordingly. The Assessing Officer (AO) made assessments for the years 1963-64 and 1964-65 on the association of persons, leading to a dispute (para 1).

The Appellate Assistant Commissioner (AAC) reversed the ITO's decision, citing that the income had already been assessed in the hands of the partners individually, and thus, the assessment on the association of persons would result in double taxation. The AAC relied on the principle established by the Supreme Court in the case of CIT v. Murlidhar Jhawar and Purna Ginning Pressing Factory [1966] 60 ITR 95 (para 2).

The Income Tax Department appealed to the Tribunal, arguing that the share of profit from the association of persons had not been assessed earlier. The Tribunal, however, noted that the assessment on M/s. C. Ratan & Co. had been made under section 143(3) of the Income Tax Act, which constituted a regular assessment. The Tribunal upheld the AAC's decision, emphasizing that the inclusion of the share in the firm's assessment amounted to a regular assessment (para 3).

The Tribunal's decision was challenged, and the High Court considered the argument raised by the revenue regarding the assessment of the share from the association of persons in the firm's assessment. The Court examined relevant case law, including CIT v. N. M. Raiji [1949] 17 ITR 180 and CIT v. Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589 (SC), to assess the validity of the assessment made on the association of persons. The Court concluded that the assessment on the assessee as an association of persons was invalid, as the income had already been assessed in the hands of the partners, aligning with the principle against double taxation (para 4).

In conclusion, the High Court upheld the Tribunal's decision, ruling in favor of the assessee and emphasizing that the assessment on the association of persons was invalid due to the income already being taxed in the hands of the partners. The Court clarified that the inclusion of the share in the firm's assessment constituted a regular assessment, thereby preventing double taxation (para 5).