INCOME-TAX APPELLATE TRIBUNAL Vs. MOHANLAL HIRALAL

JUDGEMENT

(1.) THIS case arises on a reference made by the Income-tax Appellate Tribunal, Bombay Bench, under Section 66(1), Income-tax (Amendment) Act (7 of 1939). The question, which has been submitted to this Court is as follows: "Whether on the facts of the case the applicant was entitled, under proviso 3 to Section 4(1), Income-tax Act, to deduct Rs. 4500 from his share of the income in the firm included in his own total income in conformity with Section 23(5)(a) of the Act." The non-applicant, Mohanlal Hiralal, is a partner of the firm of Nainsukh Kaniram which has its head office at Kamptee in British India. Among its several branches there is one at Rajnandgaon in an Indian State. It is not disputed that the whole firm is one entity carrying on business at different places. The Income-tax Officer, Nagpur, assessed the firm on a total income of Rs. 51,090 including in it the income of the Rajnandgaon branch as well as the rest of the branches. In computing the income of the foreign branch, he made the statutory deduction of Rs. 4500 in accordance with proviso 3 to Section 4(1), Income-tax Act, and determined the net assessable income to be Rupees 5097. The non-applicant's contention was that instead of making a statutory deduction from the total foreign income of the firm such a deduction should be made from the share of each partner so that each of the partners may have the benefit of a deduction of Rupees 4500. The Appellate Tribunal rejected the contention on the ground that the computation of the income of the firm is to be made just as in the case of an individual assessee up to the stage of working out the total assessable income, that it was only after that was done that a direct assessment becomes permissible in the case of a registered firm upon the shares of each partner as provided by Section 23(5)(a) of the Act and consequently that the statutory deduction should be made when the total assessable income of the firm is calculated and not when the tax is levied upon each of the partners.

(2.) AFTER having heard the parties at some length we have come to the conclusion that the view taken by the Appellate Tribunal is right. Section 23, Income-tax Act, sets out the mode of assessment. As a general rule applicable to all classes of assessees the Income-tax Officer is required to assess the total income of the assessee and to determine the sum payable by him on the basis of such return: see Section 23, Sub-sections (1), (3) and (4). That is so when the assessee is the person who is charged with the income-tax. But an exception is made in Clause (5) of Section 23 in the case of a registered firm. The relevant part of the section runs as follows: Notwithstanding anything contained in the foregoing Sub-sections, when the assessee is a firm and the total income of the firm has been assessed under Sub-section (1), Sub-section (3) or Sub-section (4), as the case may be; (a) in the case of a registered firm, the sum payable by the firm itself shall not be determined but the total income of each partner of the firm, including therein his share of its income, profits and gains of the previous year, shall be assessed and the sum payable by him on the basis of such assessment shall be determined.

(3.) ON behalf of the non-applicant reliance is placed on Section 3, Income-tax Act, and it is argued that inasmuch as the income-tax is charged on the partner, his share of the income pf the firm could alone form the basis of the assessment. Section 3 referes, no doubt, to the total income of the partners of the firm but it also speaks of the total income of a firm. The ingredients of the total income are specified in Section 4 and the mode of ascertaining it is laid down in Section 23, Income-tax Act. It cannot be overlooked that both Sections 3 and 4 say that they have to be read "subject to the provisions of this Act" which includes Section 23 of the Act. Sections 3 and 4, when so read qualified by Section 23, furnish a conclusive answer to the non-applicant's argument. We answer the question referred to us in the negative. The non-applicant will pay the costs of the applicant. Counsel's fee Rs. 50.