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PETITIONER: COMMISSIONER OF INCOME-TAX

       Vs.

RESPONDENT: MANOHARLAL GUPTA & COMPANY

DATE OF JUDGMENT:       05/01/1996

BENCH: JEEVAN REDDY, B.P. (J) BENCH: JEEVAN REDDY, B.P. (J) MAJMUDAR S.B. (J)

CITATION:  1996 SCC  (7) 160        JT 1996 (1)   108  1996 SCALE  (1)116

ACT:

HEADNOTE:

JUDGMENT:                          O R D E R      The Calcutta  High Court  has  answered  the  following question, referred  at the  instance of the assessee, in the negative i.e.,  in favour  of the  assessee and  against the Revenue.      "Whether,  on   the  facts  and  in  the      circumstances of  the case, the Tribunal      was  justified   in  holding   that  the      assessment  of   the  assessee   as   an      unregistered  form  for  the  assessment      year 1961-62 was proper?"      The assessee  is a  firm. The  assessment  in  question relates to  Assessment  Year  1961-62,  governed  by  Indian Income  Tax   Act,  1922.   Since  it   did  not  apply  for registration,  the   Income  Tax   Officer   completed   the assessment treating the assessee as an unregistered firm. He computed the  total income at Rs.59,623/- which included the sum of  Rs.50,000/- as  income from  other sources which was agreed to by the assessee (see para 3 of statement of case). The assessee’s  appeal to  Appellate Assistant  Commissioner was dismissed and so was the further appeal to Tribunal. The main and  only contention  of the  assessee before  both the appellate authorities  was: inasmuch  as a  partner  of  the assessee-firm, Sri  Manoharlal, has been assessed on January 31, 1966  including his  share income from the assessee-firm in his  asset, the assessment made on assessee-firm on March 23, 1966 was not permissible. Both the appellate authorities rejected this  contention. They  pointed out  that while the assessment of  Manoharlal partner  was made  by  Income  Tax Officer ’A’  Ward, Howrah,  the assessment  on the assessee- firm was  made by  the Income  Tax Officer ’C’ Ward, Howrah. They held  that since the assessments on the partner and the firm were  made by different Income Tax Officers and further because the  Income Tax  Officer making  the  assessment  on partner  mentioned   clearly  that   he  would  rectify  the

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assessment when  he receives  the share income report of the said partner from the Income Tax Officer assessing the firm, it cannot  be said that the Income Tax Officer has exercised the discretion  to tax  the partner (as was permitted by the 1922 Act)  or that the assessment on the firm was invalid in law on  that  account.  The  High  Court  has  answered  the question in  favour of  the assessee  merely following their earlier  decision  in  M/s.  Hindustan  Mill  Stores  Supply Company v.  Commissioner of  Income Tax. West Bengal (Income Tax Reference  No.10 of  1973). Though  the High  Court  has noted elaborately  the contentions  of the  counsel for both sides, it  rested its  decision exclusively on the aforesaid earlier (unreported)  decision of that Court. Unfortunately, a copy of the said unreported decision is not made available to us.  We are,  therefore, unable  to ascertain the precise reasoning on  the basis  of  which  the  question  has  been answered by  the  High  Court  in  the  negative.  We  have, however, heard  counsel for  both the parties and we presume that in the opinion of the High Court, the assessment on the firm is  invalid for  the reason  that the share income of a partner was  included in  his  individual  assessment  which means  that   the  Income  Tax  Officer  has  exercised  the discretion, the option, available to him under the 1922 Act.      In Commissioner of Income Tax v. Atchaiah (Civil Appeal No.2573 of  1977 delivered on December 11, 1995), this Court has dealt  with the  position of law relevant in this behalf both under  the 1922 Act and the present Act. Under the 1922 Act, the  Income Tax Officer had an option either to tax the partners of a firm or the firm with respect to the income of the firm  but once he exercised his option one way, he could not obviously  bring the  same amount to tax in the hands of the other. Under the present Act, however, no such option is available to  him. This  appeal is governed by the 1922 Act, which means  that the Income Tax Officer did have an option. The only  question is  whether he had exercised that option? We think  not. The  assessment on  the partner was completed earlier i.e.,  on January  31, 1966.  That was  done by  the Income Tax Officer ’A’ Ward while the assessment on the firm was made  by the  Income Tax  Officer ’C’ Ward, on March 23, 1966. The  order of  assessment dated  January 31,  1966  on partner reads:      "Return  field.   Notice   u/s.   143(2)      complied  with.  It  is  stated  by  the      assessee that  all this  business income      is  taken   over  by   the   firm   M/s.      Manoharlal  Gupta   &  Company  and  his      individual  income  is  from  that  firm      only. Assessee  has shown  his income at      Rs.982/-. This  is accepted for the time      being. It  will be  rectified  when  the      report  form  the  I.T.O.  concerned  is      received."      The order of assessment on the firm, made by Income Tax Officer ’C’  Ward (at pages 8 to 10 of the paper book ) does not in  any manner  indicate that  the assessing officer was aware, even  distantly, that  the partners  of the firm have been already  assessed with  respect to  their share  income from this  firm. Indeed the Tribunal has said that it had no information whether  or when any other partner was assessed. Coupled with  this is  the express recital in the assessment order relating  to the  partner referred  to above.  In  the light of the above circumstances, we are of the opinion that the Tribunal  was justified  in concluding  that the  option contemplated by  Section 3 of the 1922 Act was not exercised by the  Income Tax  Officer  in  this  case  and  hence  the

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assessment made  on the  firm was not invalid. (The partner, Manoharlal, could  have applied  for  rectification  of  his assessment order  as provided  expressly  in  the  order  of assessment itself.)      Certain decisions  were brought to our notice but it is not necessary to deal with them since they turn on their own facts.  The   question  arising  herein  is  really  one  of inference to  be drawn from the facts found by the Tribunal. We find  Tribunal’s opinion  sound and valid. The High Court has not  disturbed the  facts found  by  the  Tribunal.  The reasoning on  the basis  of which  it has disagreed with the Tribunal  is  not  evident  from  the  order,  as  mentioned hereinbefore.      For the  above reasons,  the  appeal  is  allowed.  The judgment of  the High  Court is  set aside  and the question referred is  answered in the affirmative, i.e., in favour of the Revenue and against the assessee. No costs.