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TMI Blog1988 (1) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... uted by the five partners are more or less in the proportion of the share of profits as per the deed of partnership as stated on page 27 of the paper book. This firm had applied for registration under the u/s. 184 of the Act and the registration was granted to the firm. The share of profit allocated in the name of the assessee who joined as trustee of the specific trust was also determined as provided u/s. 158 and u/s. 182 of the Act. The trust being specific, share of each of the beneficiaries of the trust in the income of the trust was assessed in the hands of beneficiaries of the trust directly, prior to the assessment order dated 16th March, 1979 passed in the case of the trust. While taking up the assessment on the basis of return filed by the trustees of the specific trust the Income-tax Officer recorded a finding that the income arose to the trust by virtue of transfer of income without the transfer of assets from which the income arose and, therefore, the provisions of sec. 60 were applicable. Besides, on the basis of the an order of the Tribunal in the case of K. T. Doctor [IT Appeal No. 760 (Ahd.) of 1976-77, dated 27-7-1977] the income was required to be treated as perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his personal capacity. (iii) The assessment of the firm viz. M/s Darshan Traders had been completed u/s. 143(3) of the Act vide order dated 13th October, 1976 and the registration to the firm had been granted. Of course, against the protective orders passed in the case of the trust the trustees had preferred an appeal to the AAC and the same was rejected because the appeal was not maintainable protective assessment. This position had become final. (iv) The assessments in the cases of beneficiaries had been finalised either u/s. 143(1) or u/s. 143(3) of the Act vide various orders in December 1977 and December 1978. Therefore, the Income-tax Officer now could not change the stand. (v) On the basis of the provisions contained in sec. 161(2) of the Act it was contended that no amount could be included in the income of the trust. (vi) Besides, the decision of the Tribunal in the case of K. T. Doctor [IT Appeal No. 760 (Ahd.) of 1976-77, dated 27-7-1977] had been reversed by the Gujarat High Court in K. T. Doctor v. CIT [1980] 124 ITR 501. 3.1 After considering the submissions and evidence laid before him the AAC held that the Income-tax Officer was not justified in adding the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same having been accepted in the case of the firm how can the Income-tax Officer now be permitted to take a stand which is totally contrary to stand taken earlier. In support of this submission a decision in ITO v. Thakershi Chunilal Parikh [1987] 23 ITD 505 (Ahd.) was also pressed into service. On similar lines a decision of the Bombay Tribunal in IT Appeal No. 5773 (Bom.) of 1986 reported in November 1987 Issue of Ahmedabad Chartered Accountants Journal was also placed before us. It was further stated that the beneficiaries having been already assessed earlier was also a point going in favour or the assessee. 6. We have gone through the orders passed by the authorities below and have also considered the material to which our attention was drawn together with the submissions made at the Bar. In our opinion, the controversy dragged before us by the revenue appears to be a consequential issue. It is consequential in the sense that the controversy has a bearing on the findings recorded in the assessment proceedings of the partnership firm where the assessee has joined in the capacity as a trustee. The grievance raised by the Revenue emanates from the lace of comprehension rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m between its partners in the case of registered firm are not complete until all the steps have been taken by the Income-tax Officer and each one of those steps must be held to be a step in the proceedings for assessment of the firm. It should also be said that as the scheme of the Act goes section 182 comes into operation after the total income of the firm is computed or assessed u/s. 143 [see Seth Badridas Daga v. CIT [1949] 17 ITR 209 (PC)]. Where the firm is assessed as registered firm and the income of the partners ascertained the partners are liable to pay tax and their share apportioned along with other income if any. 6.2 On completing the assessment of the firm the Income-tax Officer is required to intimate such allocation as provided u/s. 158 which reads as under : "158. Whenever a registered firm is assessed, or an unregistered firm is assessed, under the provisions of clause (b) of section 183, the Income-tax Officer shall notify to the firm by an order in writing the amount of its total income assessed and the apportionment thereof between the several partners." On the above basis the allocation of the income of a registered firm forms the basis of assessment of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Having clarified this position we should also keep in mind the settled position of law that business carried on by firm is business carried on by partners. The profits and assets of the firm belong to the partners collectively. Therefore, the business assets of the partnership firm is held by the partners jointly with the trust partner. It would, therefore, be manifestly clear that when the order is made by the Income-tax Officer registering the firm the matter passes out of the realm of procedural law into one of substantive law because certain special rights are conferred on registered firms so far as the assessment is concerned as is clear from the provisions of sec. 182 of the Act. At this point of time it would also be borne in mind that this position will preclude the applications of provisions contained in sec. 60 for the purposed of making an assessment u/s. 143(3) of the Act. 6.5 Now let us see how in this case the assessment should have proceeded. The Income-tax Officer assessing the partnership firm in which the trust is a partner is really a genuine partner or not. i.e., to say whether the share of profits shown to have come to the trust partner really could belong to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade by the firm's Income-tax Officer. Accordingly, he embarked upon fresh enquiries as he thought fit ignoring totally the finding recorded by the assessing Income-tax Officer in the case of firm and intimation regarding allocation of profits given to the respective Income-tax Officers in the cases of partners of firms as provided in section 158 of the Act. This way he tended to blur the line separating consequential step from virgin sphere of enquiry. This approach only generated unnecessary hardships and wastage of time and energy at various levels adding to costs. The scheme of the Income-tax Act is such that the administration has to be devised in such a manner, with proper systems of communication and co-ordinate among various assessing wards that repetitive inquiries causing innumerable hardships to all and addition to the expenditure are kept at low ebb by providing effective supervisory and corrective systems at various important work levels. Not only that but because of the complex nature of the various provisions in the Act it must also be ensured that the Officers are imparted full knowledge about the ways in which the administration is to be carried out and on limitatio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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