1974 (10) TMI 7 - HC - Income Tax

Partners in Unregistered Firm are Distinct Assessable Units to Avoid Double Taxation

Hindusthan Mill Stores Supply Co. Versus Commissioner Of Income-Tax, West Bengal I

The High Court of Calcutta ruled in a case concerning the validity of assessments for the assessment years 1960-61 and 1961-62 involving an unregistered ... Gift Tax, Valuation Date Issues:Validity of assessments for assessment years 1960-61 and 1961-62, Interpretation of s. 3 of the Indian I.T. Act, 1922, Application of s. 4(1) of the I.T. Act, 1961, Jurisdiction of assessing officers, Double taxation, Relevance of s. 35(5) in assessment of unregistered firms.Analysis:The High Court of Calcutta addressed the issue of the validity of assessments for the assessment years 1960-61 and 1961-62 in a case involving an unregistered firm. The Court considered the provisions of s. 3 of the Indian I.T. Act, 1922, which correspond to s. 4(1) of the I.T. Act, 1961. The Court highlighted that partners of a firm are treated as separate assessable units to prevent double taxation. Referring to the decision in CIT v. Murlidhar Jhawar, the Court emphasized that income cannot be taxed twice, once in the hands of partners and again in the hands of the unregistered firm. The Court analyzed the assessment order of the ITO for the assessment year 1960-61, which indicated the awareness of the existence of the firm and pending assessment by another ITO. The Court concluded that the assessment on the firm was not valid due to the assessment of partners by a different officer, emphasizing the substantive provisions of the I.T. Act.The Court rejected the revenue's argument that the assessment order on the firm was valid because the assessing officer had not exercised an option due to jurisdictional differences. The Court held that the liability to be taxed should not vary based on the jurisdiction of different officers. The Court emphasized that if the revenue chooses to proceed in a certain manner, it must align with the provisions of the Act. Referring to s. 35(5), the Court concluded that it did not authorize the revenue to assess the firm after partners had already been taxed. The Court cited decisions in support of its conclusion, including Girdhari Lal Laxman Prasad v. CIT and CIT v. P. P. Johny. Ultimately, the Court answered the question in the negative, in favor of the assessee, and directed each party to bear their own costs.In a separate judgment, Judge Pyne concurred with the decision of the Court. The comprehensive analysis provided by the High Court of Calcutta clarifies the interpretation of relevant provisions of the I.T. Act and emphasizes the principles to prevent double taxation in cases involving unregistered firms.