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TMI Blog1983 (10) TMI 138X X X X Extracts X X X X X X X X Extracts X X X X ..... n pursuance of instructions given by the IAC, Coimbatore, on the basis of the draft orders submitted to him in each case dated 6-3-1982, came to Rs. 1,96,799. Thus, the share income assessed from the firm in the case of each of the assessees exceeded the share income returned by over Rs. 1,00,000. There were certain other minor differences. But if the difference in the share income assessed from the firm is excluded, the remaining amount of difference was fat below Rs. 1,00.000. 2. The return of income in each case was filed on 30-10-1979. Under the provisions of section 153(1)(a)(iii) of the Income-tax Act, 1961 (' the Act ') if no reference had been made to the IAC under the provisions of section 144B of the Act, the assessment in each case should have been completed by 31-3-1982. The assessments were completed only on 8-4-1982 and would be within the period of limitation only if in terms of Explanation 1(iv) to section 153 the period commencing from the date on which the ITO forwarded the draft order in terms of section 144B(1) to the assessee and ending with the date on which the ITO received directions from the IAC under section 144B(4) is excluded. In the present cases, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the ITO to forward a draft assessment order under section 144B to the IAC and, therefore, the extended period of limitation was available and the assessments as made were within time. When the matter came up for hearing in the first instance before the Madras ' C ' Bench, the Members constituting the Bench by an order dated 16-3-1983 made a reference to the President since in their view a decision of the Tribunal relied upon on behalf of the assessee in Satya Narain v. ITO [IT Appeal No. 742 (Chd.) of 1979, dated 21-10-1981] since reported in [1982] 9 Taxman 26 (Chd.), would merit an elaborate examination since the issue involved was one of general importance. The President has, accordingly, constituted this special bench. 5. The learned departmental representative initiated his arguments with reference to the language of the provisions of section 144B(1) which reads as under : " Notwithstanding anything contained in this Act, wherein an assessment to be made under sub-section (3) of section 143, the Income-tax Officer proposes to make any variation in the income or loss returned which is prejudicial to the assessee and the amount of such variation exceeds the amount fixed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment. He supported his contention by referring to the decision in CIT V. Smt. P. Janaki Bai [1973] 87 ITR 645 where it was held by the Andhra Pradesh High Court that the provisions of section 67(3) of the Act were not exhaustive and deductions under sections 30 to 37 of the Act as admissible had to be allowed from the share income apportioned as relating to a particular partner. In that particular case, depreciation was held to be admissible on a hotel building owned by the assessee-partner but used by the firm of which he was a partner. He stated that share income was income from ' business ' and expenditure necessary for earning such income was an admissible deduction from the share income and in this regard reference was made to the decision in CIT v. Ramnik Lal Kothari [1964] 54 ITR 232 (Pat.). Other cases where deductions were held to be permissible from allocated share income were those of the Rajasthan High Court in CIT v. Jabarmal Dugar [1972] 84 ITR 158, where salary of an accountant was held to be admissible, as also the decision of the Patna High Court in CIT v. Alma Ram Modi [1969] 71 ITR 199. In the aforesaid background, the learned departmental representative s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... share income as returned could be included and it had to be rectified having recourse to the provisions of section 155 on completion of the assessment of the firm. According to the learned counsel, no change in the share income of the partner as returned, by making an estimate, could be made till the assessment of the firm was completed and the provisions of section 182 became applicable. In this regard he stated that the legal position was succinctly set out in the commentary on Income-tax Law by Chaturvedi and Pithisaria, Vol. 3, 2nd edition as under : " Assessment of registered firm and its partners.---After the taxable income of a registered firm has been ascertained and computed in the normal manner the procedure laid down in section 182 is followed. The income-tax payable by the firm itself is determined and a demand is made from the firm of the tax due. The share of the firm's taxable income apportioned, to each partner in accordance with the provisions of section 67, is then taken to his respective assessment as an individual. His such share of firm's taxable income is added to the partner's other income and the amount of tax to be levied on such total income is then asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 143(1) In such a case, the ITO has necessarily to have recourse to the provisions of section 143(3) for making the assessment. Section 144B(1) at the cost of repetition, reads as under : " Notwithstanding anything contained in this Act where, in an assessment to be made under sub-section (3) of section 143, the Income-tax Officer proposes to make any variation in the income or loss returned which is prejudicial to the assessee and the amount of such variation exceeds the amount fixed by the Board under sub-section (6), the Income-tax Officer shall, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the assessee." The question that arises is when the assessment is to be made under section 143(3) where the allocated share income is to be substituted in the place of the returned income and the difference between the allocated income and the returned income exceeds Rs. 1,00,000 whether a reference under section 144B has necessarily to be made to the IAC. Section 144B prescribes the procedure to be adopted where there is such a difference ' notwithstanding anything contained in the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion against an order of a subordinate authority is filed, the Commissioner is seized of the whole case ; and he is entitled to correct the errors therein, and pass an order which should have been passed by the subordinate authority, subject to the aforesaid limitation. In the instant case, the net result of the order of the Commissioner is in favour of the petitioner. There is authority for the above position in the decision of the Privy Council in CIT v. Tribune Trust [1948] 16 ITR 214. Dealing with section 33 of the Indian Income-tax Act, 1922, which contains the same provision as section 264(1) of the present Act, the Privy Council stated that an order under section 33 of the Act can be said to be prejudicial to the assessee, only, when he is, as a result of it, in a different or worse position than that in which he was placed by the order . . . ." A Division Bench of the Kerala High Court, in affirming the aforesaid decision referring to the decision of the Privy Council in the case of Tribune Trust observed as under in the case of K.C. Luckose v. ITO, [1976] 105 ITR 418 : " The decision interprets the term ' prejudicial to the assessee '. Going by this interpretation, it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of account maintained by the firm, a cash credit in the account of a partner. He may consider such cash credit independently in the hands of the partner and may come to the conclusion that the partner has not satisfactorily explained the source thereof, and the amount is taxable as income from undisclosed sources in the hands of the partner. Such action could lead to a variation in the income returned by the partner even if he has only returned share income. 11. Even where the assessment of a firm is completed and an allocation of share income made, such allocated income as far as the partner is concerned need not necessarily be the amount which is includible in his individual assessment. The partner could well urge that some part of the income as allocated to him had been diverted by overriding title and be should be assessed only on the net income---See in this regard the decision of the Bombay High Court in Ratilal B. Daftari v. CIT [1959] 36 ITR 18. There could also be cases as contended by the learned departmental representative wherefrom the allocated share income deductions have to be allowed for expenses incurred by the assessee for earning the share income, or deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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