Consequential amendment of partner's assessment on firm reassessment upheld; private indemnity cannot override statutory tax liability.
A partner's completed assessment can be amended consequentially when the firm's reassessment shows that the partner's share income was omitted or incorrectly included, because the liability turns on the position during the relevant previous year and not on retirement before rectification. Private relinquishment or indemnity arrangements do not displace statutory income-tax liability or bar amendment against the tax authority. The corresponding rectification power under the 1961 Act was treated as materially the same as the earlier provision under the 1922 Act, so application of section 155 to give effect to the firm's reassessment was upheld and the challenges were rejected.
Issues: (i) Whether the assessment of a retired partner could be amended under section 155 of the Income-tax Act, 1961 on the basis of the reassessment of the firm made under section 147 of that Act; (ii) whether the deed of relinquishment and deed of indemnity relieved the petitioner from the statutory tax liability so as to bar amendment of his assessment; (iii) whether the matter could be governed only by section 35(5) of the Indian Income-tax Act, 1922 and not by section 155 of the Income-tax Act, 1961.
Issue (i): Whether the assessment of a retired partner could be amended under section 155 of the Income-tax Act, 1961 on the basis of the reassessment of the firm made under section 147 of that Act.
Analysis: The power under section 155 extends to correcting a partner's completed assessment when reassessment of the firm shows that the partner's share income was omitted or incorrectly included. The relevant scheme of sections 187 and 189 treats reassessment as part of assessment, and the change in the constitution of a firm or the retirement of a partner does not prevent reassessment of the firm or the consequential amendment of the partner's assessment for the relevant accounting period. The liability depends on the position during the previous year, not on whether the person remained a partner on the date of reassessment or rectification.
Conclusion: The amendment under section 155 was valid, and this issue was decided against the petitioner.
Issue (ii): Whether the deed of relinquishment and deed of indemnity relieved the petitioner from the statutory tax liability so as to bar amendment of his assessment.
Analysis: The liability to income-tax is a statutory liability and cannot be displaced by private agreements between the partners. Neither section 155 nor the apportionment scheme in section 187 is made subject to a private indemnity. The indemnity and relinquishment deeds could not operate against the tax authority, and section 32(2) of the Indian Partnership Act, 1932 did not discharge the petitioner's liability to the department.
Conclusion: The private documents did not bar the tax authority from amending the assessment, and this issue was decided against the petitioner.
Issue (iii): Whether the matter could be governed only by section 35(5) of the Indian Income-tax Act, 1922 and not by section 155 of the Income-tax Act, 1961.
Analysis: The powers under the old Act and the 1961 Act to rectify a partner's assessment consequential to assessment or reassessment of the firm were substantially the same. No legal infirmity was shown in applying the corresponding provision of the 1961 Act to give effect to the reassessment of the firm.
Conclusion: The contention was rejected, and the issue was decided against the petitioner.
Final Conclusion: The writ petitions failed because the partner's assessment could validly be amended consequential to the firm's reassessment, and private indemnity arrangements could not defeat the statutory tax liability.
Ratio Decidendi: A partner's completed assessment may be rectified consequentially on the reassessment of the firm for the relevant previous year, and private agreements cannot override statutory tax liability.
TaxTMI 
AI Drafter ✕
TaxTMI 
