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 March 6, 1974, under Section 256(2) of the I.T. 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 material facts 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 July 16, 1955. One of the partners, Smt. Hussaini Begum, had died on October 6, 1957. . The firm was granted registration under Section 26A of the INdian I.T. Act, 1922 (hereinafter referred to as "the Act "), for the assessment year 1957-58. The firm had filed an application on June 27, 1958, under Section 26A for renewal of registration signed by 8 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 May 21, 1960. The partners did not file their returns of income at all. But pursuant to the notices issued by the ITO under Section 34 of the Act, 14 partners filed their returns of income on August 30, 1960, and their assessments were completed on the next day, i.e., on August 31, 1960. The 15th partner, however, filed his return on December 16, 1960, and his assessment was completed on December 31, 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.) UNDER Section 3 of the Act income-tax shall be charged in respect of the total income of the previous year of every individual, HUF, company, local authority, firm, association of persons or the partners of the firm or the members of the association individually. The firm, be it registered or unregistered; is a separate and independent assessable entity. The partners of the firm and members of the association are also assessable units independently of the firm and association of persons. Therefore, a firm and the individual partners of the firm are two distinct and different assessable entities and income-tax is leviable on either of the two entities in accordance with the provisions of Section 3 of the Act. The partners of a firm may be assessed individually or collectively in the status of an unregistered firm. The income-tax authorities are, however, not competent to seek to assess the same income twice, i.e., once in the hands of the partners individually and again in the hands of the unregistered firm as a unit.