Registered firm assessment under section 23(5) binds partner taxation; the Department cannot enlarge a partner's liability on a different income figure.
Where a registered firm had been assessed under section 23(5) of the Income-tax Act, 1922 and its total income and partners' shares had already been ascertained, the Department could not, in assessing a partner, adopt a different figure for the same firm's income to enlarge that partner's liability. The court treated section 23(5) as the governing machinery for assessing the firm and its partners for the relevant year, and held that once the firm's total income was determined, that ascertainment bound the partner's assessment for the same accounting year. Partnership income outside the firm's assessed total income could not be separately brought to tax in the partner's hands.
Issues: Whether, after a registered firm's income had been assessed under section 23(5) of the Income-tax Act, 1922 and the partners' shares had been ascertained, the Department could separately assess a partner on a larger amount representing further partnership profits not included in the firm's assessed total income.
Analysis: Section 23(5) provides the statutory machinery for assessment of a registered firm and the consequential assessment of the partners on their respective shares. The Act must be read as a whole, and the charge to tax as well as the computation of total income remain subject to its provisions. Where the Department has itself resorted to section 23(5), assessed the firm, and determined its total income for the relevant year, it cannot in the assessment of a partner treat that very firm's income as having a different total amount and thereby enlarge the partner's liability. The earlier authorities relied upon did not decide this precise situation, because they dealt with different statutory settings or with cases where the firm had not been assessed in the same manner.
Conclusion: The Department could not separately assess the assessee on partnership income which did not form part of the firm's assessed total income under section 23(5). The question was answered in the affirmative, in favour of the assessee.
Ratio Decidendi: Once the Department has assessed a registered firm under section 23(5) and determined its total income, it is bound by that ascertainment for the purpose of assessing the partners for the same accounting year and cannot enlarge a partner's liability by adopting a different total income for the same firm.
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AI Drafter ✕
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