Separate assessment of firm and partners bars double taxation of the same profits after partner-level assessment.

Under the Income-tax Act, 1922, a firm and its partners were treated as distinct assessable entities, so the taxing authority had to choose one unit for charging the firm's profits. Once the same share income had already been assessed in the individual hands of some partners, a later assessment of those profits in the hands of the unregistered firm was not permissible. Section 35 did not authorise a second charge to tax on the same income, and section 35(5) operated only as a machinery provision for adjusting the partner's share after the firm's assessment. Taxation of the same profits twice was therefore not lawful.

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Issues: Whether the income of an unregistered firm could be assessed in the hands of the firm after the share income of some partners had already been assessed in their individual assessments.

Analysis: Section 3 of the Income-tax Act, 1922 treated a firm and its partners as distinct assessable entities and permitted the income of a firm to be charged either in the hands of the firm or in the hands of its individual partners. Once the Income-tax Officer had proceeded to tax the profits in the hands of the individual partners on the footing that those shares were to be brought to charge, the later assessment of the same profits in the hands of the firm was not permissible. The reference to rectification under section 35 did not authorise a second charge to tax on the same income, and section 35(5) was only a machinery provision for correcting the partner's share after the firm's assessment, not a power to impose tax twice on the same profits.

Conclusion: The assessment of the unregistered firm after taxing the same profits in the hands of some partners was not lawful and the answer was in the negative, in favour of the assessee.

Ratio Decidendi: Where the Act treats a firm and its partners as separate assessable entities, the taxing authority must elect one unit for charging the firm's profits and cannot later levy tax on the same profits in the other unit after having already brought them to tax.

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