RAJENDRA NATH MUKERJEE Vs. COMMISSIONER OF INCOME-TAX

JUDGEMENT

(1.) On 8 November 1930, the income-tax officer for District V. Calcutta, made an assessment order on Burn and Co., an unregistered firm carrying on business in Calcutta, assessing them to income-tax and supertax for the year 1927-28, under S. 23 (1), Income-tax Act, 1922. The main question in the present appeal, in which the individual partners of Burn and Co. are the appellants, is whether it was competent to make this assessment on the firm after the expiry on 31 March 1928 of the year in respect of which the assessment was made. The explanation of the delay in making the assessment is as follows: It appears that towards the end of the year 1926-27 the partners of the registered firm of Martin and Co., which also carried on business in Calcutta, purchased the business and assets of Burn and Co. The purchase was effected not by or on behalf of the firm of Martin and Co., but by the partners of that firm as individuals who contributed funds for the purpose proportionally to their shares in Martin and Co. and became partners in Burn and Co. with the same shares therein as they held in Martin and Co. In the year 1927-28 Martin and Co. was a registered firm while Burn and Co. was unregistered. Under the Income-tax Act registered and unregistered firms are differently taxed in various important respects.

(2.) On 7 April 1927 the income-tax officer of District I issued a notice to Burn and Co. under S. 22 (2) calling for a return of their total income for the year to 31 March 1927, with a view to assessing them for the year 1927-28. A similar notice was issued to Martin and Co. on 8 April 1927, by the income-tax officer of District II. When they issued these separate notices the income-tax officers were unware that the business of Burn and Co. had been bought by the partners of Martin and Co. On 24 September 1927, Martin and Co. made a return of their total income in compliance with the notice issued to them in April, and and on 13th January 1928, Burn and Co. made their return. Meantime the purchase of the business of Burn and Co. by the partners of Martin and Co. having come to the knowledge of the income-tax authorities, Burn and Co's, file was transferred to the officer dealing with District II, and on 25 February 1928, he made an assessment on Martin and Co. in respect of the combined incomes returned by Martin and Co. and Burn and Co. on the footing that the business of Bum and Co. had become a branch of the business of Martin and Co.

(3.) Martin and Co. appealed against this assessment, and after sundry procedure, which need not be detailed, the High Court, on 16 May 1930, held that the income of a registered firm cannot for the purposes of the Act be aggregated with the income of an unregistered firm, but that the income of each must be separately assessed, irrespective of the fact that the persons interested in the profits of both concerns are the same. Before pronouncing this decision, the High Court had, by a reference back to the Commissioner, ascertained that the business of Burn and Co. bad been bought, not with any funds belonging to Martin and Co., but with other funds belonging to individuals what were the partners in Martin and Co., and that the intention of the purchasers was to embark on a separate venture unconnected with Martin and Co. In consequence of this decision the assessment which had been made on Martin and Co. was amended by the elimination therefrom of the income returned by Burn and Co., and on 8 November 1930, an assessment, being the assessment under appeal, was made on Burn and Co., on their income as returned by them on 13 January 1928. The partners of Burn and Co. appealed against this assessment to the Assistant Commissioner, by whom it was confirmed. They then, under S. 66 (2), required the commissioner to refer certain questions of law to the High Court. The questions as framed by the Commissioner and referred by him, were as follows : " 1. Whether the assessment made under S.23 (1) on the petitioners on 6 November 1930, for the year 1927-28 in pursuance of the notice under S. 22 (2), issued on them on 7 April 1927, was a legal assessment ? 2. Whether proceedings can now lie against Messrs. Burn and Co. in view of the fact that final and conclusive assessments have now been made on Messrs. Martin and Co. and on their individual partners ? 3. Upon a true construction of the Indian Income Tax Act must not any assessment be completed within the year of assessment or in the event of such assessment not being so completed, is not the only remedy open to the income-tax authorities to proceed under S.34 ?"