INCOME TAX OFFICER AGRA Vs. RADHA KRISHANAN

JUDGEMENT

(1.) THE following judgment of the court was delivered by :-

(2.) A business of manufacture and sale of tents was commenced in 1940 in the name and style of Messrs Jawahar Tent Factory, Agra, in partnership. There were four partners in the firm-Jawahar Lai, Shiam Lal, Radha Raman and Radha Krishan. Jawahar Lal represented his Hindu undivided family and his share in the profit & loss was -/8.00 (eight annas) in a rupee. The share of other partners was -/12/8 (two annas eight pies) each. The firm was registered under s. 26A of the Indian Income-tax Act, 1922, and tax was assessed on The income of the firm in accordance with s. 23 (5) (a) of the Act. The partnership was, according to the Income-tax Officer, dissolved on 23/10/1946.

(3.) SECTION 23(5) of the Income-tax Act, as it stood at the material time, read as follows : `(5) Notwithstanding anything contained in the foregoing sub-sections, when the assessee is a firm and the total income of the firm has been assessed under Ss. (1), subsection (3), or Ss. (4) as the case may be.(a) in the case of a registered firm, the sum payable by the firm itself shall not be determined but the total income of each partner of the firm, including therein his share of its income, profits and gains of the previous year, shall be assessed and the sum payable by him on the basis of such assessment shall be determined Provided Provided further Provided also (b) in the case of an unregistered firm, the Income-tax Officer may instead of determining the sum payable by the firm itself proceed in the manner laid down in clause (a) applicable to a registered firm, if in his opinion, the aggregate amount of the tax including supertax, if any, payable by the partners under such procedure would be greater than the aggregate amount which would be payable by the firm and the partners individually if the firm were assessed as an unregistered firm. The machinery for assessment to tax the income of a firm in the relevant years of assessment may be noticed. A firm under the Income-tax Act is a unit of assessment; and the income of the firm is computed as that of the unit irrespective of whether the firm is registered or unregistered, after the income of the firm is computed if the firm is registered under S. 26A the share of each partner in the income of the firm is determined and is added to his other income and the total income so computed is brought to tax. If the firm is unregistered, the tax payable by the firm is, except when the Income-tax Officer otherwise directs in the interests of revenue, determined as in the case of any other entity, and demand for tax is made on the firm itself. The result is that if the firm is registered tax is collected from the partners individually and there is no levy of tax against the firm. If the firm is unregistered, the tax may, unless other wise directed, be levied against the firm. In either case, the machinery Set up by s. 23 (5) is for assessment of tax payable on the income of the firm. The income of the firm is computed, buttax is assessed on that income on the partners or the firm, according as the income is of a firm registered or unregistered. Counsel for the Income-tax Officer contended that even though by S. 23(5) (a) a provision was made for assessment to tax of the total income of each member of a registered firm by adding to his separate income the share of the profits of the firm, it is the firm which is assessed to tax, and if the tax attributable to the share in the income of the firm of a partner cannot be recovered from him, it may be recovered from his other partners.