VOLKART BROTHERS Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) THIS is a petition under article 226 of the Constitution of India challenging the orders of rectification under section 154 of the Indian Income-tax Act made on February 8, 1965, by the respondent of the assessments of the petitioner No. 1 firm for the assessment years 1958-59, 1960-61, 1961-62 and 1962-63 and for quashing the said orders and the subsequent notices of demand issued in pursuance thereof dated February 9, 1965. The petitioners Nos. 2 and 3 are the two partners of the petitioner No. 1 firm and the firm as well as the partners are being assessed in India as non-residents. The petitioner-firm was duly registered under the Indian Income-tax Act, 1922, and also under the Income-tax Act of 1961. In the original assessments of the firm for the relevant assessment years with which we are concerned, the assessments were made on the slab relates applicable to registered firms in the respective Finance Acts. In the individual assessments of the partners their respective shares in the income of the firm were included and assessed at the maximum rate of non-residents. On February 1, 1965, the petitioner-firm was served with a notice dated January 29, 1965, by the respondent intimating to it that in its assessments for the assessment years 1958-59, 1960-61, 1961-62 and 1962-63 there were mistakes apparent from the record inasmuch as the firm had not been charged at the maximum rates of income-tax under section 17(1) of the Act of 1922, corresponding to section 113 of Act of 1961, and he, therefore, proposed to rectify the assessment and enhance the tax under section 154 of the Indian Income-tax Act of 1961. The petitioners replied to the said notice contending that there was no mistake either apparent or otherwise in the said assessments and consequently the Income-tax Officer had no power to invoke his jurisdiction under section 154 of the Act. The respondent did not accept the said contentions and rectified the assessments for the said years by applying the provisions of section 17(1) of the Act of 1922 to the assessments of the firm and followed the said orders made by him by issuing notices of demand on February 9, 1965. The present writ application has thereafter been filed by the petitioners on February 26, 1965, complaining of the said rectification orders and the notices of demand following them and praying for the quashing of the said orders and notices of demand and for prohibiting the respondent from taking any further action in pursuance thereof.

(2.) THE contentions of the petitioners are firstly that the original assessments made on the firm did not suffer from any mistake and, secondly, at any rate, the mistake alleged by the respondent, viz., that section 17(1) was not applied in making the assessments of the firm cannot be regarded as a mistake apparent from the record.

(3.) BY the Finance Act of 1956 for the first time a provision was made for levying a tax on the registered firm itself on its total income, and since thereafter by the subsequent Finance Act a tax on the registered firm itself in respect of its income has been continued to be levied. It may, however, be pointed out that the main and substantial scheme in the matter of assessment of registered firms, viz., to compute the total income of the firm and determine the shares of the individual partners in the firm and thereafter take the said shares to the individual assessments of the individual partners and tax them in their hands along with their other income has not been abandoned. The entire income of the registered firm as computed is taken to the individual assessments of the partners and taxed there and it is in addition thereto that a further tax is levied on the firm itself. This obviously involves a double taxation to a certain to a certain extent and it appears that certain reliefs in respect thereof have been made available to the partners. It may also be pointed out that, whereas the computed total income of the firm, which is taken to the assessment of the individual partners, gets subjected not only to income-tax but also to super-tax in the hands of the partners, the new levy of tax on the registered firm itself is confined only to income-tax and not to super-tax and the relates at which the new levy is imposed on the firm are also very low compared with the rates which apply to the income when taken to the individual assessments of the partners. It will thus be seen that the new levy brought in by the Finance act of 1956 and continued by the subsequent Finance Act in the case of registered firms is not the substantial levy of income-tax on the income of the registered firm, which still continues to be taxed in the hands of the individual partners, but more or less a sort of a token levy in addition to the main and substantial tax.