Anti-double-taxation principle bars assessment of partner's income in firm, and CBDT circulars bind tax officers.

Income already assessed in the hands of a partner cannot again be taxed in the hands of the same persons as an unregistered firm unless a statute clearly permits such double taxation; the stated principle is that the same share income should not be subjected to repeated assessment. The CBDT circular dated 24 August 1966 is described as binding on income-tax authorities under section 119(1) of the Income-tax Act, 1961, and must be followed even if it is beneficial to the assessee or expressed more broadly than the strict legal position. The noted effect is to prevent inconsistent assessment and support the assessee's benefit under the circular.

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Issues: (i) Whether, after the partner of a firm has been assessed, the firm can still be taxed as an unregistered firm under the Income-tax Act, 1961. (ii) Whether the CBDT circular dated 24 August 1966 was binding on the Income-tax Officer and entitled the assessee to its benefit.

Issue (i): Whether, after the partner of a firm has been assessed, the firm can still be taxed as an unregistered firm under the Income-tax Act, 1961.

Analysis: The governing principle is that the same income cannot be taxed twice in the hands of the same persons. The earlier Supreme Court decision on the point was treated by the Board as applicable under the 1961 Act as well, and the court found no special provision authorising double taxation of the same share income both in the hands of the partner and again in the hands of the firm. The difference in language between the 1922 Act and the 1961 Act did not alter the effect of the binding circular and the settled anti-double-taxation principle.

Conclusion: The firm could not be assessed again as an unregistered firm in respect of the same income after the partner had already been assessed; the answer was in favour of the assessee.

Issue (ii): Whether the CBDT circular dated 24 August 1966 was binding on the Income-tax Officer and entitled the assessee to its benefit.

Analysis: Under section 119(1) of the Income-tax Act, 1961, orders, instructions and directions issued by the Board are binding on income-tax authorities. The circular was treated as a benevolent administrative direction meant to guide assessment procedure and to prevent the same income from escaping or being subjected to inconsistent assessment. Even if the circular stated the legal position in a manner that went beyond the strict legal position, it remained binding on departmental and had to be followed.

Conclusion: The circular was binding on the Income-tax Officer and the assessee was entitled to its benefit; the answer was in favour of the assessee.

Final Conclusion: Both referred questions were answered against the revenue, and the assessment made in the hands of the firm could not stand in the manner sought by the department.

Ratio Decidendi: In the absence of a statutory provision permitting double taxation, income already assessed in the hands of a partner cannot again be taxed in the hands of the firm, and binding CBDT circulars issued under section 119(1) of the Income-tax Act, 1961 must be followed by the tax authorities even if they are beneficial to the assessee.

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