1952 (10) TMI 50 - HC - Income Tax

Court rules department cannot tax partner separately on unassessed profits exceeding firm's total income.

Commissioner of Income-tax Versus Dwarkadas Vassanji

Commissioner of Income-tax Versus Dwarkadas Vassanji - [1953] 23 ITR 109 Issues Involved:1. Whether the Income-tax Department can include the 12 annas share of profits amounting to Rs. 24,564 in the assessment of Dwarkadas Vassariji, over and above his declared income of Rs. 1,23,299.2. Interpretation and application of Section 23(5) of the Income-tax Act in the context of assessing partnership profits.3. The validity of assessing individual partners separately on partnership profits not included in the firm's total income as determined under Section 23(5).Issue-wise Detailed Analysis:Issue 1: Inclusion of 12 Annas Share in Dwarkadas Vassariji's AssessmentThe core issue is whether the Income-tax Department can include an additional 12 annas share of profits, amounting to Rs. 24,564, in Dwarkadas Vassariji's assessment over his declared income of Rs. 1,23,299. Dwarkadas Vassariji was a partner in Purshottam Laxmidas with a 12 annas share. The firm Vasantsen Dwarkadas, which was assessed at Rs. 62,752, was deemed by the Income-tax Officer to belong to Dwarkadas Vassariji. The Appellate Assistant Commissioner and the Tribunal concluded that Vasantsen Dwarkadas was actually the business of Purshottam Laxmidas, and Dwarkadas had a 12 annas share in this business. The Tribunal reduced the assessed profits of Vasantsen Dwarkadas from Rs. 62,752 to Rs. 32,752. The question was whether the Income-tax Department could include Dwarkadas's 12 annas share of Rs. 24,564 in his assessment.Issue 2: Interpretation and Application of Section 23(5)Section 23(5) of the Income-tax Act deals with the assessment of firms. Sub-clause (a) specifies that for a registered firm, the total income of each partner, including their share of the firm's income, profits, and gains, should be assessed individually. The assessee argued that once the firm's total income was ascertained and the partners' shares were determined, no additional partnership income could be added to an individual partner's assessment. The Department contended that it could assess individual partners on partnership profits not included in the firm's total income as determined under Section 23(5)(a).Issue 3: Validity of Separate Assessment of Individual PartnersThe assessee's contention was supported by the Privy Council's decision in Seth Badridas Daga and Another v. Commissioner of Income-tax, which held that once a firm is assessed under Section 23(5) and the partners' shares are determined, the partners are liable to pay tax on their share, and no additional assessment can be made on individual partners. The Privy Council emphasized that the Act must be read as a whole, and the assessment of partnership income under Section 23(5) could not be overridden by other provisions.The High Court decided not to address the broader question of whether the Department could assess individual partners without assessing the firm under Section 23(5). Instead, it focused on the specific facts of this case, where the firm of Purshottam Laxmidas had already been assessed, its total income determined, and the partners' shares ascertained. The Court concluded that it was not permissible for the Department to assess Dwarkadas on a larger profit than the total income of Purshottam Laxmidas as determined under Section 23(5).Conclusion:The High Court held that since the firm of Purshottam Laxmidas had already been assessed and its total income ascertained, it was not open to the Department to separately assess Dwarkadas on his partnership income which did not form part of the firm's total income as determined under Section 23(5). The answer to the question submitted was in the affirmative, meaning the Department could not include the additional 12 annas share of Rs. 24,564 in Dwarkadas's assessment.