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TMI Blog1944 (9) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... ok the party of the third part as a partner in the said business and whereas the parties are desirous of recording by these presents the constitution of the firm. .. . Then there are set out various rights and duties of partners, and finally the shares of the partners in the profits and losses of the business, which shows the applicant as being entitled to 6-2/3 annas share, his brother P. P. Mistry to 5-1/3 annas share, and his son Kaikhushroo to four annas share. Mr. Setalvad admits that it is not open to him, having regard to the terms of the reference, to say that that document ought never to have been registered at all on the ground that it is not a document constituting a firm, and it is agreed that no such point can be taken before us. Now, the firm was in fact registered under Section 26-A of the Act, and that section is as follows:- (1) Application may be made to the Income-tax Officer on behalf of any firm, constituted under an instrument of partnership specifying the individual shares of the partners, for registration for the purposes of this Act and of any other enactment for the time being in force relating to income-tax or super-tax.'' Rules ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the point is : Whether the Crown was bound by the registration under Section 26-A ? It is to be observed that there is nothing in that section itself, which directs that the matter cannot be reopened, or which prevents any further investigation by the Income-tax Officer with the object of seeing whether any income of the taxpayer has escaped assessment; nor has our attention been drawn to any other section of the Act which expressly so says. We have been referred to two cases, to which some reference must be made. The first case comes from Sind : Kirpaldas Motandas v. Commissioner of Income-tax [1942] 10 ITR 505. That case was not a fully argued case as the report is of the refusal of a rule. But at p. 507 Mr. Justice Weston says this: We have been shown no section in the Income-tax Act which lays down that the registration of a firm operates to estop the Income-tax authorities from taxing asses sees who actually receive the profits of that firm, and although a question of estoppel may be said to be a point of law, yet, when, as in this case, it is a point of law to which the answer appears so evident, we think we should properly exercise the discretion granted to us under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee profits representing the share of Re. 0-10-8 in full. The assessee must pay the costs. Kania, J.-In this matter the applicant and his brother had formed a partnership prior to April 1, 1937. In the deed executed on November 15, 1937, it is put on record that the applicant's son Kaikusbroo was admitted as a partner in the firm, that is treated as admitted from April 1, 1937. That instrument was presented for registration under Section 26-A and the firm has been registered by the Income-tax Officer. In the course of the assessment proceedings the firm and its partners were first assessed. The assessment of the firm was completed on February 6, 1939. The personal assessment of the applicant was completed on March 4, 1939. The Income-tax Officer, having considered that certain income of the firm had escaped assessment, issued notices under Section 34 of the Act on the firm and all its partners on March 20, 1940. In the original assessment of the firm, the Income-tax Officer had set out the amount which he determined was the income of the firm and assessed it as a registered firm. In that assessment order the names of the three partners with their respective shares as menti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal did not go into the question in detail, because it considered itself bound by the decision in Kirpaldas Motandas's case (supra). In that case one Bhojraj, who was a partner according to the instrument of partnership, had a nine annas share. The Income-tax Officer found that Bhojraj held the share for the benefit of the joint family, and the Income-tax Officer assessed the members of the joint family for their individual interest in this nine annas share, as income which had accrued to them individually. Objection was raised to this on the ground that the firm was registered, and Bhojraj was shown as a partner with a nine annas share. It was, therefore, contended by the members of the joint family that the Income-tax Officer had no authority to go behind that registration and inquire if they had any interest in the nine annas share. The Chief Court of Sind thought this inarguable, because there was nothing in the Act to prevent the Income-tax Officer from assessing the income of an individual who, according to law, is deemed to have earned a particular income. The application for a rule was refused. The contention was raised in that case by an outsider and not a partner w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; and as the tax levied on the registered firm is at the maximum rate of income-tax, the partner has the right under Section 48 to claim a refund, if the partner's individual assessment was not liable to be taxed at the highest rate of income-tax. Under Section 3 it is clear that the individual is liable to be assessed for his total income. The only effect of Section 26-A is that the firm becomes a registered firm, and the partners thereof get the benefit of Section 55 and Section 48(2), if they are applicable to their individual case. Counsel for the assessee relied on Section 23(4), which provides a penalty of cancellation of the registration, if the firm does not comply with the notice served by the Income-tax Officer under that sub-section. That, however, does not in any way affect the individual liability of partners' If the registration is cancelled under Section 23(4), or for any other reason, the firm ceases to get the advantage prescribed by Section 55 and the individual partners lose the benefit of being assessed under the caption registered firm Apart from that, the cancellation of registration does not appear to inflict any disability on the registered f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the individual partners. In doing so he traced the income which had escaped assessment, and included in the individual assessment of the partner the proportionate share which, in his opinion, had escaped assessment. It was contended on behalf of the assessee that this was not permissible, because until the firm was reassessed the Income-tax Officer had no right to include a larger figure in the individual partner's assessment. This was also a case of a registered firm. This contention was negatived by the Court. Rankin, C.J., (as he then was) observed as follows (p. 210) :- To collect the tax effectively, without unnecessary inconvenience to the subject, without inconsistency in result and without unnecessary duplication of work on the part of the Income-tax authorities, it is obvious that the profits of the registered firm should be ascertained as a whole before assessment is made upon the individual partners. But I can find nothing in the Act to say that the firm is to be assessed first, still less that the assessment on the firm is to operate as a sort of estoppel in favour of the individual partners... While both firm and individuals are liable to the tax by the plain ..... X X X X Extracts X X X X X X X X Extracts X X X X
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