TaxTMI 
TaxTMI 
TaxTMI 
1955 (2) TMI 9
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....,16,543 was included in the assesee's total income by the Incometax Officer. JUDGMENT CHAGLA, C.J. - A rather unusual question arises on this reference. On the findings of fact to which we shall presently draw attention the assesse has been found to be a partner of an unregistered firm, and he has been assessed to tax on his share of profits in that firm. The unregistered firm has not been assessed and the contention of the assessee is that his assessment is illegal inasmuch as the unregistered firm of which he is a partner was not assessed to tax. Now, it appears that the assessee at the relevant time was a director of the International Bank of India Ltd. The accounting year was from the 1st of April, 1944, to the 31st of March, 1945, and the assessment year 1945-46, and in this year of account he and two others Nanjibhai Khalidas Mehta and Chunilal Khushaldas engaged in a joint venture to operated on the Stock Exchange, and as a result of this joint venture the persons made a profit of Rs. 2,73,130. The assessee's share out of this profit was Rs. 1,16,543. It appears that Nanjibhai had an account in this bank, and as a director of this bank the assessee withdrew from that acc....
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....company and local authority, and every firm and other association of persons or the partners of the firm or the members of the association individually. Therefore an individual can be assessed to tax, a partnership in which the individual is a partner can be assessed to tax, and section 3 does not provide that when there is a partnership only the firm can be taxed and not the partners of that firm. Far from so providing, the section makes it clear that even where there is a firm which can be assessed to tax, a partner of that firm can also be an assessee for the purposes of the Act. Mr. Palkhivala has emphasised the fact that the assessment to tax upon any one of these entities must be in accordance with and subject to the provisions of the Act. Therefore, not only must there be no prohibition in the Act against any one of these assessees being assessed to tax in any particular case but also the assessment must be in accordance with the provisions of the Act. But all that we wish to point out is that in the charging section itself, far from there being a prohibition against a partner of a firm assessed to tax, there is a legislative fiat as it were in favour of the Income-tax depa....
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....case it would be a question on fetch individual assessee and the rights of each individual assessee. Where there is a prohibition or there is an obligation or a condition precedent, no question of prejudice can arise nor is the question of prejudice relevant. If there is a prohibition the taxing authorities cannot act contrary to the legislative mandate. If there is an obligation the taxing department must carry out that obligation. If there is a condition precedent the condition precedent must be satisfied. But in the absence of these provisions, as we have said, it would then be for us to scrutinise each case of assessment and if the assessee contends that prejudice has been caused to him then it would be for us to consider whether the assessment should be upheld or not. Perhaps it will be better to deal with the point of prejudice straightaway. As far as this assessee is concerned it is not suggested, and it cannot be suggested, that any prejudice whatever has been caused to the assessee by the mode of assessment adopted by the taxing authorities. We have a case here, very unusual, of the assessee complaining of the unregistered firm not being assessed when throughout these pro....
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....In the first place attention is drawn to the definition of the "previous year" contained in section 2 (11) (ii) and what is pointed out is that in the case of a partner of a firm the "previous year" in respect of the share of the income, profits and gains of the firm must be the same as the previous year determined for the assessment of the income, profits and gains of the firm. Now, it is clear that the object of this definition was to prevent the assessee from having a separate previous year in his own assessment with regard to his share of the profits of a firm of which he was a partner. Undoubtedly, some support is given to Mr. Palkhivala's argument by the fact that the expression used by the legislation is "as determined for the assessment of the income, profits and gains of the firm." But there would be no difficulty in determining the previous year of a firm of which the assessee was a partner without necessarily subjecting the firm to assessment. But, in our opinion, it would be over emphasising the importance of this definition which deals with a limited subject and of which the object is clear, to suggest that the only inference that can be drawn from this definition is t....
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.... the partner would have a cause for complaint and he would be prejudiced by the procedure followed by the department. Attention is then drawn to section 18 (5) which confers the right of grossing up and the deduction of tax, and it is stated that if any shares or securities were owned by the firm the partner would be deprived of that right. It is also pointed out that a partner of an unregistered firm would have no right to carry forward and set off the loss of the previous year. Now, these are all instances of actual prejudice which might be caused in particular instances, and as we have already observed these are cases which must be dealt with when they arise and relief would be given if we are satisfied that the procedure followed is a procedure which is likely to add to the burden of taxation of the assessee. Then we come to the real section which deals with the assessment of a firm and that is section 23 (5). It is important to note that section 23 (5) only applies when the assessee is a firm. It has no application when the assessee is a partner of a firm or an individual. Therefore if the department is assessing a partner of a firm as an assessee that partner cannot require....