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TMI Blog1952 (10) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... and that Dwarkadas had a 12 annas share in that business. From the decision of the Appellate Assistant Commissioner an appeal was preferred to the Tribunal. The Tribunal confirmed the opinion and the decision of the Appellate Assistant Commissioner that the business of Vasantsen Dwarkadas was the business of Purshottam Laxmidas, but it reduced the profits ascertained by the Income-tax Officer and confirmed by the Appellate Assistant Commissioner of Vasantsen Dwarkadas from ₹ 62,752 to ₹ 32,752 ; and the question that has been submitted to us is whether in the assessment of Dwarkadas it is competent to the Income-tax Department to include his 12 annas share on the sum of ₹ 32,752. Now, in the return of Dwarkadas he had shown an income of ₹ 1,23,299 and in this income was included the sum of ₹ 38,788 as being the profit coming to his share in the firm of Purshottam Laxmidas, and the question is whether Dwarkadas is liable to pay tax over and above the income of ₹ 1,23,299 on the 12 annas share in the profits of ₹ 32,752, which is ₹ 24,564. The contention of the asses-see before the Tribunal which was accepted by the Tribunal wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etation of this section. One view is that sub-section (5) of Section 23 only deals with the assessment of a firm and when a firm is being assessed the procedure laid down in that sub-section must be followed. There is nothing in sub-section (5) which prevents the Department from assessing an individual and in the assessment of that individual including partnership profits which did not form part of the total income of the firm when the firm was assessed under Section 23(5)(a). It is also contended that it is open to the Department, without assessing the firm at all, to assess the individual partners, ascertain the profits of the firm, and to tax each individual partner in respect of his share. It is urged that Section 23(5) is only a machinery laid down by the Income-tax Act for the assessment of registered firms under sub-clause (a) and unregistered firms under sub-clause (b). If the Income-tax Department avails itself of that machinery it must follow the provisions contained in those sub-clauses. But there is no compulsion upon the Department to adopt that machinery. It may ignore it completely, may not assess a firm at all, and may proceed to assess individual partners. It is fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax on their share and it was not open to them to claim any exemption under Section 4 on the ground that they were not ordinarily resident or not resident . Their Lordships rejected the argument put forward on behalf of the assessees that the provisions of Section 4 limiting the liability of persons not resident or not ordinarily resident in British India must be applied universally so as to qualify or even override any subsequent provision in the Act dealing with a particular kind of income which is so framed as to exclude this limitation, and in rejecting this argument their Lordships pointed out that that argument neglected the opening words of Section 4, viz., subject to the provisions of this Act , and contradicted the principle that the Act must be read as a whole. Then their Lordships go on to say : In their Lordships' view the question in this case is whether the provisions of the Act which deal with partnership income can be reconciled with an intention to exclude from the total income of partners not resident or not ordinarily resident in British India a part of their share of the firm's income in respect of income accruing to the firm from outside British ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aining the profits of the firm otherwise than by the machinery laid down by Section 23(5). We would prefer to limit and restrict our decision to the facts of this present case. The salient feature of the reference before us is that the firm of Purshottam Laxmidas has been assessed, profits have been ascertained, and the shares of the partners have also been ascertained and entered in their individual assessments, and the short and narrow question that arises for our determination is whether it is open to the Income-tax Department, having ascertained the total income of a firm, which in this case happens to be a registered firm, under Section 23(5), to in effect vary the total income by assessing a partner of that firm on a larger profit of the firm than was ascertained when assessing the firm under Section 23(5), because undoubtedly if the assessee is to be assessed on the income of ₹ 24,564 as representing the profits of Purshottam Laxmidas he would be assessed on partnership profits which did not form part of the total income of Purshottam Laxmidas ascertained by the Department under Section 23(5). It is difficult for us to understand how it is possible for the Department t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered firm was liable to pay tax like any other assessee. The liability to pay tax in respect of the profits of a registered firm was both upon the registered firm and the individual partner. The relief to the individual partner was given by means of a rebate provided for under Section 14 of the old Act. There were no provisions similar to Section 23(5) and it is in the light of the law as it then was that the observations of the learned Chief Justice of the Calcutta High Court should be read and appreciated. The learned Chief Justice at page 210 says : 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 an estoppel in favour of individual partners . This would be perfectly true, with respect, in reference to the law with regard to firms and partners under the old Income-tax Act. The liability was conjoint both upon the firm and the assessee. But when we turn to the scheme of the present Act, there is no liability to pay upon the firm at all and the liability is only upon the partners and that liability is fixed by Section 23(5). Further, with respect, the question as to what effect should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 62,752 and subsequently reduced to ₹ 32,752 and the share of the assessee in that firm was ₹ 24,564. Therefore the total income of Vasantsen Dwarkadas being determined, the procedure under Section 23(5) was followed and Dwarkadas has no answer to the claim for tax made by the Department. In advancing this argument Sir Nusserwanji unfortunately overlooks what the findings of facts are as recorded in the statement of the case submitted to us. It is perfectly true that the case of the assessee was that Vasantsen Dwarkadas was a firm separate from the firm of Purshottam Laxmidas, and that whereas Purshottam Laxmidas had two partners, the firm of Vasantsen Dwarkadas had three partners and he actually applied to have that firm registered. The Income-tax Officer refused to register the firm and held that Dwarkadas was the sole proprietor of Vasantsen Dwarkadas and Vasantsen Dwarkadas was not a partnership firm. When the matter went to the Appellate Assistant Commissioner, what he held was, as already stated, that the business of Vansantsen Dwarkadas belonged to the firm of Purshottam Laxmidas and Dwarkadas as a partner of Purshottam Laxmidas had a 12 annas share in that fi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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