1977 (7) TMI 43 - HC - Income Tax

High Court rules assessment on unregistered firm post individual partner assessment illegal. Income-tax Act provisions clarified.

Commissioner Of Income-Tax, Madras II Versus Blue Mountain Engineering Corporation

Commissioner Of Income-Tax, Madras II Versus Blue Mountain Engineering Corporation - [1978] 112 ITR 839, 1978 CTR 142 Issues Involved:1. Legality of the assessment on the unregistered firm after an earlier assessment on one of the partners.2. Applicability of the Indian Income-tax Act, 1922, versus the Income-tax Act, 1961.3. Existence of the Income-tax Officer's option to assess either the firm or its partners individually.Issue-wise Detailed Analysis:1. Legality of the assessment on the unregistered firm after an earlier assessment on one of the partners:The primary issue was whether the assessment made on the assessee-firm as an unregistered firm, after an earlier assessment was made on one of the partners, was legally sustainable. The Tribunal had previously held that such an assessment on the unregistered firm could not be sustained. The High Court examined various precedents, including the Supreme Court's decisions in Commissioner of Income-tax v. Kanpur Coal Syndicate and Commissioner of Income-tax v. Murlidhar Jhawar and Purna Ginning and Pressing Factory, which discussed the option available to the Income-tax Officer to assess either the firm or the partners individually. The Court concluded that the assessment on the unregistered firm, after an earlier assessment on one of the partners, was not legal.2. Applicability of the Indian Income-tax Act, 1922, versus the Income-tax Act, 1961:The Court analyzed whether the legal principles established under the Indian Income-tax Act, 1922, applied to cases under the Income-tax Act, 1961. The learned counsel for the Commissioner argued that the provisions of the 1961 Act were different and thus the decisions under the 1922 Act should not apply. However, the Court found that the provisions of the 1961 Act did not materially alter the legal position regarding the option to assess the firm or its partners. The Court referred to the Patna High Court's decision in Commissioner of Income-tax v. Pure Nichitpur Colliery Company, which supported the view that the option still existed under the 1961 Act.3. Existence of the Income-tax Officer's option to assess either the firm or its partners individually:The Court discussed the historical context and judicial interpretations of the Income-tax Officer's option to assess either the firm or its partners. The Supreme Court in Commissioner of Income-tax v. Kanpur Coal Syndicate had held that section 3 of the 1922 Act impliedly gave an option to the appropriate authority to assess the total income of either the association of persons or the members individually. The Court noted that the 1961 Act, despite some changes in phraseology, did not intend to alter this legal position. The Court also considered the practical implications and potential anomalies of not recognizing this option, such as tax evasion and administrative difficulties. Ultimately, the Court agreed with the Patna High Court's decision in Pure Nichitpur Colliery Company, affirming that the Income-tax Officer had the option to assess either the firm or its partners, but not both.Conclusion:The Court reframed the question to clarify the issue and answered it in the negative, holding that the assessment made on the assessee-firm as an unregistered firm, after the assessment made earlier in the case of one of the partners, was not legal. The respondent was entitled to costs, and the counsel's fee was set at Rs. 50.