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TMI Blog1955 (2) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... the Incometax Officer. JUDGMENT CHAGLA, C.J. A rather unusual question arises on this reference. On the findings of fact to which we shall presently draw attention the assesse has been found to be a partner of an unregistered firm, and he has been assessed to tax on his share of profits in that firm. The unregistered firm has not been assessed and the contention of the assessee is that his assessment is illegal inasmuch as the unregistered firm of which he is a partner was not assessed to tax. Now, it appears that the assessee at the relevant time was a director of the International Bank of India Ltd. The accounting year was from the 1st of April, 1944, to the 31st of March, 1945, and the assessment year 1945-46, and in this year of account he and two others Nanjibhai Khalidas Mehta and Chunilal Khushaldas engaged in a joint venture to operated on the Stock Exchange, and as a result of this joint venture the persons made a profit of Rs. 2,73,130. The assessee's share out of this profit was Rs. 1,16,543. It appears that Nanjibhai had an account in this bank, and as a director of this bank the assessee withdrew from that account a sum of Rs. 1,30,000 and credited out of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other association of persons or the partners of the firm or the members of the association individually. Therefore an individual can be assessed to tax, a partnership in which the individual is a partner can be assessed to tax, and section 3 does not provide that when there is a partnership only the firm can be taxed and not the partners of that firm. Far from so providing, the section makes it clear that even where there is a firm which can be assessed to tax, a partner of that firm can also be an assessee for the purposes of the Act. Mr. Palkhivala has emphasised the fact that the assessment to tax upon any one of these entities must be in accordance with and subject to the provisions of the Act. Therefore, not only must there be no prohibition in the Act against any one of these assessees being assessed to tax in any particular case but also the assessment must be in accordance with the provisions of the Act. But all that we wish to point out is that in the charging section itself, far from there being a prohibition against a partner of a firm assessed to tax, there is a legislative fiat as it were in favour of the Income-tax department if they chose to assess a partner and n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al assessee and the rights of each individual assessee. Where there is a prohibition or there is an obligation or a condition precedent, no question of prejudice can arise nor is the question of prejudice relevant. If there is a prohibition the taxing authorities cannot act contrary to the legislative mandate. If there is an obligation the taxing department must carry out that obligation. If there is a condition precedent the condition precedent must be satisfied. But in the absence of these provisions, as we have said, it would then be for us to scrutinise each case of assessment and if the assessee contends that prejudice has been caused to him then it would be for us to consider whether the assessment should be upheld or not. Perhaps it will be better to deal with the point of prejudice straightaway. As far as this assessee is concerned it is not suggested, and it cannot be suggested, that any prejudice whatever has been caused to the assessee by the mode of assessment adopted by the taxing authorities. We have a case here, very unusual, of the assessee complaining of the unregistered firm not being assessed when throughout these proceedings he stoutly maintained that there wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he definition of the "previous year" contained in section 2 (11) (ii) and what is pointed out is that in the case of a partner of a firm the "previous year" in respect of the share of the income, profits and gains of the firm must be the same as the previous year determined for the assessment of the income, profits and gains of the firm. Now, it is clear that the object of this definition was to prevent the assessee from having a separate previous year in his own assessment with regard to his share of the profits of a firm of which he was a partner. Undoubtedly, some support is given to Mr. Palkhivala's argument by the fact that the expression used by the legislation is "as determined for the assessment of the income, profits and gains of the firm." But there would be no difficulty in determining the previous year of a firm of which the assessee was a partner without necessarily subjecting the firm to assessment. But, in our opinion, it would be over emphasising the importance of this definition which deals with a limited subject and of which the object is clear, to suggest that the only inference that can be drawn from this definition is that there is an implied prohibition agains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plaint and he would be prejudiced by the procedure followed by the department. Attention is then drawn to section 18 (5) which confers the right of grossing up and the deduction of tax, and it is stated that if any shares or securities were owned by the firm the partner would be deprived of that right. It is also pointed out that a partner of an unregistered firm would have no right to carry forward and set off the loss of the previous year. Now, these are all instances of actual prejudice which might be caused in particular instances, and as we have already observed these are cases which must be dealt with when they arise and relief would be given if we are satisfied that the procedure followed is a procedure which is likely to add to the burden of taxation of the assessee. Then we come to the real section which deals with the assessment of a firm and that is section 23 (5). It is important to note that section 23 (5) only applies when the assessee is a firm. It has no application when the assessee is a partner of a firm or an individual. Therefore if the department is assessing a partner of a firm as an assessee that partner cannot require the department to follow the procedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat he was a partner and that he had made profits out of a joint venture, he should not have been assessed at all until the unregistered firm had been assessed. In our opinion the Income-tax Act adversely and clearly gives an option to the Income authorities either to assess the unregistered firm and then proceed to assess each individual partner of that firm or not to assess the unregistered firm at all but to assess each individual partner and his share of the profits in the firm for his assessment. But, as we have said before, the choice must be carefully exercised and the department must always remember that in exercising the choice it is not in any way prejudicing the assessee or depriving him to the right or adding to the burden of taxation which he has to pay. Therefore, in our opinion, the assessment made in the case is not illegal. The question put to us is not with reference to any provision of the Act but is widely framed whether the assessment is legal or not, and as we do not find any illegality in the assessment arising out of any provision of the Act we must declare the assessment to be legal and answer the question submitted to us in the affirmative. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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