COMMISSIONER OF INCOME-TAX VS CHANDRA SHEKHAR PAWAN KUMAR NOTE 160, P.
1997 P T D 261
[220 ITR 145]
[Supreme Court of India]
Present: B P. Jeevan Reddy and S.B. Majmudar, JJ
COMMISSIONER OF INCOME-TAX
versus
MANOHARLAL GUPTA & CO.
Civil Appeal No. 187 (NT) of 1978, decided on 05/01/1996.
Income-tax---
----Firm---Partner---Assessment---Unregistered firm---Option under Act of 1922 to assess partners of firm---Assessment of one of partners provisionally with specific statement that it would be rectified later---Subsequent assessment of firm by different ITO ---No option exercised to assess partners---Assessment of, firm was valid---Indian Income-tax Act, 1922, S.3.
Under the Indian Income-tax Act, 1922, the Income Tax Officer had an option either to tax the partners of a firm or the firm with respect to the income of the firm but once he exercised his option one way, he could not obviously bring the same amount to tax in the hands of the other. Under the Income Tax Act, 1961, however, no such option is available to him.
Held, accordingly, on the facts, that for, the Assessment year 1961-62, the assessment on one of the partners of the assessee firm was completed earlier i.e. on January 31, 1966. That was done by the Income Tax Officer, "A" Ward, while the assessment on the firm was made by the Income-tax Officer "C" Ward, on March 23, 1966. The order of assessment dated January 31, 1966, supecifically stated that the return was accepted for the time being and that it would be rectified when the report from the Income Tax Officer concerned was received. The order of assessment on the firm did not indicate that the assessing Officer was aware that the partners of the firm had been already assessed with respect to their share income from the firm. The Tribunal had said that it had no information whether or when any other partner was assessed. In the light of the above circumstances, the tribunal was justified in concluding that the option contemplated by section 3 of the 1922 Act was not exercised by the Income Tax Officer in this case and hence the assessment made on the firm was valid.
ITO v. Ch. Atchaiah (1996) 218 ITR 239 (SC) and Hindusthan Mill Stores Supply Co v. CIT (1979) 116 ITR.681 (Cal.) ref.
S.N. Terdol for Appellant
JUDGMENT
B.P. JEEVAN REDDY, J.---The Calcutta High Court has answered the following question, referred at the instance of the assessee, in the negative i.e. in favour of the assessee and against the Revenue:
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessment of the assessee as an unregistered firm of the assessment year 1961-62 was proper?"
The assessee is a firm. The assessment in question relates to the Assessment year 1,961-62, governed by the Indian Income-tax Act, 1922 Since it did not apply for registration, the Income Tax Officer completed the assessment treating the assessee as an unregistered firm. He computed the total income at Rs.59,623 which included the sum of Rs.50,000 as income from other sources which was agreed to by the assessee (see paragraph 3 of the statement of case). The assessee's appeal to the Appellate Assistant Commissioner was dismissed and so was the further appeal to the Tribunal. The main and. only contention of the assessee before both the appellate authorities was inasumch as a partner of the assessee firm, Sri. Manoharlal, has been assessed on January 31, 1966, including his share income from the assessee firm in his income, the assessment made on the assessee firm on March 23, 1966, was not permissible. Both the appellate authorities rejected this contention. They pointed out that while the assessment of Manoharlal, Partner, was made by the Income Tax Officer, "A" Ward, Howrah, the assessment on the assessee firm was made by the Income Tax Officer, "C" Ward, Howrah. They held that since the assessments do the partner and the firm were made by different Income Tax Officers and further because the Income Tax Officer making the assessment on the partner mentioned clearly that he would rectify the assessment when he receives the share income report of the said partner from the Income Tax Officer assessing the firm, it cannot be said that the Income Tax Officer has exercised the discretion to tax the partner (as was permitted by the 1922 Act) or that the assessment on the firm was invalid in law on that account. The High Court has answered the question in favour of the assessee merely following their earlier decision in Hindusthan Mill Stores Supply Co v. CIT (1979) 116 ITR 681 (Cal.) (Income-tax Reference No. 10 of 1973). Though the High Court has noted elaborately the contentions of counsel for both sides, it rested its decision exclusively on the aforesaid earlier (unreported) decision of that Court. Unfortunately, a copy of the said unreported decision is not made available to us. We are, therefore, unable to ascertain the precise reasoning on the basis of which the question has been answered by the High Court in the negative. We have, however, heard counsel for both the parties and we presume that in the opinion of the High Court, the assessment on the firm is invalid for the reason that the share income of a partner was included in his individual assessment which means that the Income Tax Officer has exercised the discretion, the option, available to him under the 1922 Act.
In ITO v. Ch. Atchaiah (1996) 218 ITR 239 (Civil Appeal No.2513 of. 1977, delivered on December 11, 1995), this Court has dealt with the position of law relevant in this behalf both under the 1922 Act and the present Act. Under the 1922 Act, the Income Tax Officer had an option either to tax the partners of a firm or the firm with respect to the income of the firm but once he exercised his option one way, he could not obviously bring the same amount to tax in the hands of the other. Under the present Act, however, no such option is available to him. This appeal is governed by the 1922 Act, which means that the Income Tax Officer did have an option. The only question is whether he had exercised that option. We think not. The assessment on the partner was completed earlier i.e., on January, 31, 1966. That was done by the Income Tax Officer "A" Ward, while the assessment on the firm was made by the Income Tax Officer, "C" Ward, on March 23, 1966. The order of the assessment, dated January 31, 1966, on partner reads:
"Return filed notice under section 143(2) complied with. It is stated by the assessee that all this business income is taken over by the firm, Messrs Manoharlal Gupta & Company, and his individual income is from that firm only. The assessee has shown his income at Rs.982. This is accepted for the time being. It will be rectified when the report from the Income Tax Officer concerned is received. "
The order of assessment on the firm, made by the Income-tax Officer, "C" Ward (at pages 8 to 10 of the paper book), does not in any manner indicate that the assessing officer, was aware, even distantly, that the partners of the firm have been already assessed with respect to their share income from this firm. Indeed, the Tribunal has said that it had no information whether or when any other partner was assessed. Coupled with this, is the express recital in the assessment order relating to the partner referred to above. In the light of the above circumstances, we are of the opinion that the Tribunal was justified in concluding that the option contemplated by section 3 of the 1922 Act was not exercised by the Income Tax Officer in this case and hence the assessment made on the firm was not invalid. (The partner, Manoharlal, could have applied for rectification of his assessment order as provided expressly in the order of assessment itself).
Certain decisions were brought to our notice but it is not necessary to deal with them since they turn on their own facts. The question arising herein is really one of inference to be drawn from the facts found by the Tribunal. We find the Tribunal's opinion sound and valid. The High Court has not disturbed the facts found by the Tribunal. The reasoning on the basis of which it has disagreed with the Tribunal is not evident from the order, as mentioned hereinbefore.
For the above reasons, the appeal is allowed. The judgment of the High Court is set aside and the question referred is answered in the affirmative, i.e., in favour of the Revenue and against the assessee. No costs.
M. B. A./1166/FT Appeal allowed