1968 (4) TMI 11 - HC - Income Tax

Firm - assessment - It is not legal to make an assessment on an unregistered firm after some of its partners have already been assessed to tax on their share income from the firm

Summary

Issues:
1. Validity of assessing the firm after individual partners' income tax assessment.
2. Validity of initiating assessment proceedings against a dissolved firm.

Analysis:
The judgment delivered by the High Court of Allahabad addressed two key issues referred by the Income-tax Appellate Tribunal. The first issue pertained to the validity of assessing a firm after the income tax assessment of its individual partners. The second issue revolved around the initiation of assessment proceedings against a dissolved firm for the year 1956-57.

The case involved Messrs. Hari Om Company, Kanpur, a dissolved firm, for the assessment year 1956-57. Initially, the Income-tax Officer assessed the partners individually before proceeding to assess the firm as a whole. The firm objected to this sequential assessment, arguing that assessing the firm after individual partners was not legally permissible. Despite the firm's objection, the Income-tax Officer proceeded to assess the firm as an unregistered entity, rejecting the firm's claim for registration.

The Tribunal's decision was crucial in this case. While the Tribunal allowed registration of the firm, the department did not accept this decision, leading to further appeals. The Tribunal ultimately dismissed the firm's appeal, prompting the firm to seek reference to the High Court under section 66(1) of the Indian Income-tax Act, 1922.

Regarding the first issue, the department argued that since the Tribunal ordered registration of the firm, the assessment should proceed based on the firm's registered status. However, the Tribunal's observation indicated that the department was not willing to acknowledge the firm's registration. Therefore, the High Court proceeded with the assumption that the assessment was for an unregistered firm after individual partners' assessment.

Citing precedents such as Joti Prasad Agarwal v. Income-tax Officer B-Ward, Mathura and Commissioner of Income-tax v. Murlidhar Jhawar, the High Court emphasized that once the income of the association was taxed in the hands of individual members, there should be no fresh assessment of the income at the association level. The court reiterated that the Income-tax Officer cannot assess the same income twice, in both individual partner and unregistered firm capacities.

Referring to the decisions of the court and the Supreme Court, the High Court ruled in favor of the assessee on the first issue, stating that assessing the firm after individual partners were already assessed was not permissible. The second issue regarding the validity of initiating assessment proceedings against a dissolved firm was not pressed by the assessee, leading to no specific ruling on that matter.

In conclusion, the High Court answered the first question in the negative, favoring the assessee, and did not provide an answer to the second question. The judgment concluded by stating that each party would bear its own costs in the reference.