COMMISSIONER OF INCOME TAX Vs. NARAINDAS DWARKADAS

JUDGEMENT

(1.) This reference is made at the instance of the revenue under Sec. 66(1) of the Indian Income Tax Act, 1922 (hereinafter referred to as "the Act"). The question of law referred for our determination is whether, on the facts and in the circumstances of the case, could it be said that the Income Tax Officer had validly reopened the assessments of the firm, M/s. Naraindas Dwarkadas, for the assessment years 1951 -52 and 1952 -53.

(2.) As the question shows, the reference relates to the assessment years 1951 -52 and 1952 -53, for which the relevant previous years are Samvat years 2006 and 2007. The partnership -firm of Messrs. Naraindas Dwarkadas consists of three partners, one of the partners being Bhagwandas Naraindas. The sources of income of Bhagwandas Naraindas during the relevant years were two : (1) his individuals share income from the firm of Messrs. Naraindas Dwarkadas, and (2) dividends. For the assessment years 1951 -52 and 1952 -53, Bhagwandas filed returns of his personal income declaring his status as that of resident and ordinarily resident and he was accordingly assessed by the Income Tax Officer at the ordinary rates applicable to a resident and ordinarily resident.

(3.) After the initial orders of assessment were made the Income Tax Officer came to know that Bhagwandas had left for the United Kingdom for higher medical studies on August 31, 1949, and was out of India till December 2, 1958. In the opinion of the Income Tax Officer, Bhagwandas should have been assessed in the status of a non -resident and at the maximum rate because he had not filed the requisite declaration prescribed by Sec. 17(1) of the Act. Since the original assessments were not made on that footing the Income Tax Officer reopened the assessments of Bhagwandas under Sec. 34. Pursuant to the notices issued under Sec. 34, Bhagwandas filed two returns showing his status as that of a non -resident. In the course of these reassessment proceedings Bhagwandas also filed a declaration as required by Sec. 17(1). Such declaration was filed on January 20, 1960. Since the declaration was filed much after the prescribed time, Bhagwandas made a request for condonation of delay by the Income Tax Officer in filing of the declaration. The Income Tax Officer declined to condone the delay and accept the declaration and he completed the assessments by bringing to tax the individual income of Bhagwandas at the maximum rate applicable to a non -resident. Aggrieved by the order of the Income Tax Officer Bhagwandas went in appeal against these orders of revised assessments. In the course of the hearing of these appeals it was contended by Bhagwandas that inasmuch as he was a non -resident his share of profit from the firm should have been assessed on the firm under the second proviso to Sec. 23(5)(a) and not on him directly and that accordingly the reassessment orders made upon him were bad in law. This contention of Bhagwandas was accepted by his order dated March 20, 1961, he cancelled the revised assessments passed against Bhagwandas personally pursuant to notices under Sec. 24. Simultaneously, by this order the Appellate Assistant Commissioner directed the Income Tax Officer that the income of the nonresident partner, Bhagwandas, should be assessed on the firm in which he was a partner and at the rate applicable to a non -resident.