COMMISSIONER OF INCOME TAX Vs. KARKHANA ZINDA TILISMATH

JUDGEMENT

(1.) This is a reference made by the Income-tax Appellate Tribunal, Hyderabad Bench, pursuant to the order of this Court in I.T.C. Nos. 32 and 33 of 1972, dated 6th March, 1974, under section 256 (2) of the Income- tax Act, 1961, for the opinion of this Court on the following question of law:

(2.) In order to understand the scope of the question, we will briefly state the materialfacts admitted or found by the Tribunal which gave rise to the aforesaid question. The respondent-assessee is a firm constituted with 15 partners, consisting of 9 major partners and 6 minors admitted to the benefits of the partnership, under a deed of partnership dated 16th July, 1955. One of the partners Smt. Hussaini Begum, had died on 6th October, 1957. The firm was granted registration under section 26-A of the Indian Income-tax Act, 1922 (hereinafter referred to as "the Act"),for the assessment year 1957-58. The firm had filed an application on 27th June, 1958, under section 26-A for renewal of registration signed by8 surviving partners and 3 of the 6 legal heirs of the deceased partner, Hussaini Begum. For the assessment year 1958-59 (corresponding accounting year ended with 31st March, 1958), the firm filed its return of income on 21st May, 1960. The partners did not file their returns of income at all. But pursuant to the notices issued by the Income-tax Officer under section 34 of the Act, 14 partners filed their returns of income on 30th August, 1960, and their assessments were completed the next day,i.e. on 31st August, 1960. The 15th partner, however, filed his return on 16th December, 1960, and his assessment was completed on 31st December, 1960. The aforesaid assessments of all the partners were regular and final assessments made under section 23 (1) of the Act, subject, however, to the rectification in the total income later on.

(3.) On 29th March, 1963, an order rejecting the claim of the assessee firm for registration under section 26-A was passed by the Income-tax Officer who thereupon assessed the firm as an unregistered firm. By its letter dated 29th March, 1963, the respondent-assessee objected to the course adopted by the Income-tax Officer stating that the Income-tax Officer had already elected to assess the income of the firm in the individual hands of the partners and, therefore it was no more open to him to tax the income collectively in the hands of the firm. The Income tax Officer, rejecting the plea of the assessee, completed the assessment on the same day, i. e., 29th March, 1963, treating it as an registered firm. The appeals preferred by the assessee before the Appellate Assistant Commissioner against the orders of assessments as well as the order refusing registration under section 26-A passed by the Income-tax Officer were unsuccessful. On further appeals, the Tribunal found that the Income tax Officer before whom the assessment of the firm which had filed its return of income as early as on 21st May, 1960, was pending, did not choose to make or complete the assessment of the firm but insisted on the partners filing their returns of income under section 34 of the Act and the partners having filed their returns, he assessed their share income in their individual hands and passed regular and final orders of assessments of all the individual partners by the end of December, 1960. Hence,the Income-tax Officer was well aware of the fact that there was a firm of which the said individuals were partners, that the income which he was assessing in their hands was the share income from the said firm, that he had elected to assess the partners individually and that he did not cancel the individual assessments made on the partners even though assessment on the assessee firm as an unregistered firm was made on 29th March, 1963. The Tribunal, therefore, cancelled the assessment made on the assessee-firm as an unregistered firm holding that it was improper and illegal. In view of its finding that the very assessment on the assessee-firm treating it as an unregistered firm was illegal, the Tribunal felt it unnecessary to deal with the other matters relating to the quantum ot assessment and the claim of registration of the firm, as the income was already assessed in the hands of the partners individually. Hence, this reference.