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TMI Blog1986 (2) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... 82,957 from the assessment of the assessee for the assessment year 1959-60 ? " The second question, quoted above, related to the assessment year 1959-60, which had given rise to Tax Case No. 23 of 1975. That case was disposed of earlier on March 21, 1977, by a Bench presided over by D. P. Sinha and C. N. Tiwary JJ. The order of that date reads as follows : " 3. 21-3-77-It is submitted by learned counsel for the Income-tax Department that the matter has now been settled and the tax case will not be proceeded with and that it may be permitted to be withdrawn. The prayer is allowed and the Reference Application No. 23/75 is permitted to be withdrawn." We are unable to appreciate how a reference by the Department could be withdrawn by one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee retired from the partnership and she relinquished her share in favour of Indra Jitendra Narain Singh, son of the assessee. While the assessee was a partner, i.e., before June 27, 1957, she had advanced substantial sums of money to the firm from time to time. On March 31, 1957, her loan to the firm stood at Rs. 16,58,781. In terms of the partnership agreement, if any of the partners advanced any loan, he would be entitled to interest on the advances. On the basis of the credits of the assessee to the firm, the Income-tax Officer added interest on the said sum of rupees sixteen lakhs odd during the assessment year 1957-58. The interest was calculated at Rs. 86,817. The loans were written off by the assessee on March 31, 1957, lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ook a different view of the matter. It held that since the assessee had relinquished her claim to interest, the addition of interest on the credits of the assessee could not be sustained. The Tribunal further held that since there was no stipulation for payment for interest on the sums advanced by the assessee to the firm after she had retired from the partnership, the assessee had no claim to interest and, therefore, no interest accrued to her. The addition of interest during the assessment year 1959-60 was also liable to be quashed. Thus, the assessee succeeded on both counts before the Tribunal. The Revenue being dissatisfied with the order of the Tribunal moved the High Court for reference under section 256(1) of the Income-tax Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disclaimer of interest by compromise before the Calcutta High Court took place much after 1958-59. The time relevant for ascertaining whether the said sum of Rs. 23,575 had accrued to the assessee or not was March 31, 1958. Till that date, there was no disclaimer or relinquishment by the assessee. It is thus obvious that interest had accrued to the assessee on April 1, 1958, in regard to the sums advanced to the firm. If the assessee chose not to charge interest which had accrued to her on April 1, 1958, that relinquishment would amount to a gift. Once interest had accrued to an assessee (following the mercantile system of accounting), the assessee becomes accountable to tax. In that view of the matter, the fact that the assessee by comprom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I am of the view that the reasoning of the Tribunal is fallacious for the reason that no allocation to the partners could have been done. In this connection, it is relevant to point out once again that the partnership had been assessed as an unregistered firm. Allocation of profits is done only in the case of registered firms. In CIT v. Murlidhar Jhawar and Purna Ginning and Pressing Factory [1966] 60 ITR 95, the Supreme Court held that partners of an unregistered firm may be assessed individually or they may be assessed collectively in the status of an unregistered firm. It follows, therefore, that assessment of the firm is not a pre-requisite for assessment of a partner in an unregistered firm. The position in law is that where a partners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed, the Income-tax Officer may proceed to assess the total income of each partner of the firm including his share of its income, profits, gains of the previous year. The Income-tax Officer may thus determine the tax payable by each partner on the basis of such assessment. In this behalf, the provisos to clause (a) of sub-section (5) shall apply to the assessment of partners of unregistered firms as they would apply to those of registered firms. Having done that, sub-section (6) of section 23 of the Indian Income-tax Act of 1922, enjoined the Income-tax Officer to notify to the firm in writing the total income on which the determination has been based and the apportionment thereof among the several partners. Thus, a partner may be assessed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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