GNANAM AND SONS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference under S. 66(1) of the Indian IT Act, 1922, and the following two questions have been referred to us by the Tribunal of Bombay :

(2.) THE facts leading to this reference are briefly these. A firm, consisting of four partners, styled Gnanam and Sons, Colombo, is carrying on business in Colombo. This firm is an admittedly resident and ordinarily resident firm in the taxable territories. Of the four partners, three are also admitted to be resident in India. One of the partners, Kumaraswamy, is a non -resident, and his share income was computed at Rs. 3,667 for the asst. year 1951 -52 and Rs. 4,337 for the asst. yr. 1952 -53. The ITO took proceedings under S. 34 of the Act after obtaining the prior sanction of the CIT and made orders of assessment on the firm under the second proviso to S. 23(5)(a). In making these assessments, he calculated the tax payable by the application of S. 17 of the Act, which provides for the levy of the tax at the maximum rate. The assessee, the firm, appealed to the Asstt. CIT and to the Tribunal unsuccessfully. Thereupon an application for reference was made with the result that the matter is now before us.

(3.) THIS line of argument appears to be simple, but it seems to us that on a close reading of the section, the expected result cannot possibly follow. Sec. 23 of the Act, which relates to assessment, provides for the assessment of the total income of the assessee, and for the determination of the tax payable by him in sub -ss. (1), (3) and (4). The special case of a firm is dealt with in Sub -S. (5). Sub -s. (5)(a) deals with registered firms and (5)(b) deals with unregistered firms. It is admitted that this firm is a registered firm. The relevant part of S. 23(5) reads :