RAMANLAL MADANLAL Vs. COMMISSIONER OF INCOME TAX CENTRAL

JUDGEMENT

(1.) The assessee is a partnership-firm. It maintained accounts on mercantile system. The relevant previous years for the assessment years 1-965-66, 1967-68 and 1968-69, in respect of which this reference has been made, were calendar years ending on 31st December, 1964, 31st December, 1966, and 31st December, 1967. For the respective three years under assessment, the total income was computed at Rs. 11,081, Rs. 6,314 and Rs. 60,428. For the assessment year 1965-66, the ITO observed in his order that the assessee had not filed any declaration under Section 184(7) of the I.T. Act, 1961, and he proceeded to complete the relevant assessments on the assessee as an unregistered firm. For the two other assessment years, viz., the assessment years 1967-68 and 1968-69, the assessee's status was also taken as that of an unregistered firm. Being dissatisfied with the aforesaid assessments, the assessee-firm appealed to the AAC, who passed a consolidated order on the 28th April, 1971, covering the assessment years 1965-66 to 1968-69. Among the other grounds relating to the additions made in the relevant assessments, the assessee-firm disputed the assessments on the ground that the partners of the firm had already been assessed individually on their respective shares of income from the assessee-firm. It was contended that the ITO was wrong in demanding payment of tax from the assessee as an unregistered firm and it was bad in law inasmuch as the partners were already assessed to tax and there should not have been two assessments over the same income. Following the decision of the Supreme Court in the case of CIT v. Murlidhar Jhawar and Purna Ginning and Pressing Factory [1966] 60 ITR 95, the AAC held that once the ITO had exercised his option and assessed the partners individually he could not thereafter assess the same income in the hands of the firm. It was, therefore, concluded that the ITO went wrong in taxing the same income once again in the hands of the assessee as an unregistered firm. The AAC, however, directed that the assessments should be revised accordingly.

(2.) The revenue preferred appeals from the decision given by the AAC. There were certain preliminary objections taken before the Tribunal with which we need not detain ourselves in view of the question that has been referred to this court. It was submitted on behalf of the revenue that the assessee-firm had been allowed registration for the purpose of income-tax assessments till the assessment year 1964-65 and the ITO was under the belief that there would be continuance of registration as the assessments for all the 12 partners were completed prior to the filing of the returns of income for the relevant assessment years by the assessee-firm. It was submitted that the assessee-firm submitted income-tax returns declaring the status as that of a registered firm for the assessment year 1965-66, and for other assessment years it was that of a firm only. Reliance was placed before the Tribunal on behalf of the revenue on the decision of the Supreme Court in the case of ITO v. Bachu Lal Kapoor [1966] 60 ITR 74, and it was submitted that due to the developments after the completion of the assessments in the case of the partners, the ITO in assessing the firm and its partners could not be said to have exercised his option. On the other hand, on behalf of the assessee it was contended that the said decision was not relevant. The Tribunal found from the records that the partners of the firm had submitted their respective return of income for all the three assessment years disclosing their share of income from the assessee-firm as a registered firm and none of the partners had any interest in any other firm. It was also found that the returns of income for the relevant assessments were filed by the assessee-firm after the completion of the assessments in the case of the partners. Having regard to Section 4 of the I.T. Act, 1961, the Tribunal found that here in this case the partners had sought to be assessed on their individual share of income from the assessee-firm as a registered firm and the said firm was treated as a registered firm till the assessment year 1964-65. The returns of the total income were filed subsequent to the assessments of the partners and no application under Section 184(7) of the I.T. Act was filed for any of the assessment years with which the Tribunal was concerned. Therefore, it was held by the Tribunal that the ITO had acted upon the returns filed by the partners under a belief that the assessee would for those assessment years continue to have the benefit of registration. In view of this, the Tribunal held that the AAC was not justified in his decision that the ITO was wrong in taxing the income of the assessee-firm again in the hands when its partners were already assessed to income-tax over the same income individually. Therefore, the assessments for the years involved in the case of the assessee-firm were restored to that extent and the ITO, who had jurisdiction over the partners, was directed to give effect to the Tribunal's decision in the assessments of the partners for all the three years in accordance with the provisions of Section 86(iii) of the I.T. Act, 1961, if he had not already done, to do it immediately after the completion of the relevant assessments in the case of the assessee-firm.

(3.) On this under Section 256(1) of the I.T. Act, 1961, the Tribunal has referred to this court the following question: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the ITO was justified in taxing the income in the hands of the assessee as an unregistered firm for the assessment years 1965-66, 1967-68 and 1968-69 when its partners were already assessed to income-tax over the same income individually for the aforesaid assessment years ?"