Reopening beyond four years and partner-payment disallowance fail where primary facts were disclosed and distributor collections were independent business receipts.

Reopening for the earlier years was held barred because the notices were issued beyond four years and the assessee had already disclosed the firm's constitution, the distribution arrangement, the commission treatment, and the underlying agreement; absent failure to disclose primary facts, the wider reopening limb could not apply. The commission retained by the distributor-partner was also found not to be a payment of the firm's own income to a partner, because the distributor carried on an independent business and realised the collections in that capacity. On that basis, the overriding title argument and the disallowance rule governing payments to a partner did not apply, and the substantive tax issues were resolved for the assessee.

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Issues: (i) Whether reassessment proceedings for the earlier years were barred by limitation under the reopening provision; (ii) Whether the commission retained by the distributor-partner could be treated as payment by the firm so as to attract the disallowance provision governing payments to a partner.

Issue (i): Whether reassessment proceedings for the earlier years were barred by limitation under the reopening provision.

Analysis: The relevant notices for the first two years were issued beyond four years, so the reopening could survive only if the wider reopening limb applied. The assessee had, however, disclosed the constitution of the firm, the distribution arrangement, the treatment of the commission in the accounts, and the agreement itself was before the Assessing Officer. On those facts, there was no failure to disclose primary facts necessary for assessment.

Conclusion: The reopening was barred, and the finding was in favour of the assessee.

Issue (ii): Whether the commission retained by the distributor-partner could be treated as payment by the firm so as to attract the disallowance provision governing payments to a partner.

Analysis: The distributor carried on an independent film-distribution business in its own right and realised collections in the course of that business. The amounts were not the firm's income in the first instance, nor were they collections received on behalf of the firm. Since the necessary condition that the firm must pay its own income to a partner was absent, the doctrine of diversion by overriding title and the disallowance of commission payments to a partner did not apply.

Conclusion: The commission appropriation did not amount to a disallowable payment by the firm, and the issue was decided in favour of the assessee.

Final Conclusion: The reference was answered in favour of the assessee on the material issues decided, and the department failed on the substantive tax questions considered.

Ratio Decidendi: Section 10(4)(b) applies only where the firm's own income is paid to a partner; amounts realised by an independent distributor in the course of its own business are not the firm's income, and reopening cannot be sustained absent failure to disclose primary facts.

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