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PETITIONER: STATE OF U.P. & ANR.

       Vs.

RESPONDENT: RAZA BULAND SUGAR CO. LTD., RAMPUR

DATE OF JUDGMENT27/02/1979

BENCH: KAILASAM, P.S. BENCH: KAILASAM, P.S. SARKARIA, RANJIT SINGH REDDY, O. CHINNAPPA (J)

CITATION:  1979 AIR 1104            1979 SCR  (3) 419  1979 SCC  (3)  96

ACT:      U.P.   Agricultural   Income-tax   Act   (1948)-S.   18 Assessment of  tax-If could  be made  against partners  of a firm without  issuing notice  to the firm. Plea not taken at the first instance-If could be raised later.

HEADNOTE:      Two joint  stock companies entered into agreements with a former  Princely State  for the grant of agricultural land on payment of fair and equitable land revenue. Later the two companies formed  into a  partnership firm. On the merger of the State  with the  Union of India, the Assessing Authority under the U.P. Agricultural Income-tax Act issued notices to the two  companies to  submit their  returns of agricultural income, which the companies did.      In writ  petitions filed  by the  companies challenging the  assessment   orders,  the   High  Court   accepted  the contention that  since the  lands were  neither assessed  to land revenue  nor were  they assessed  to any  local rate or cess as  required by  s. 2(a)  of the  Act,  they  were  not assessable to agricultural income-tax and remanded the cases to  the   Assessing  Authority  for  determination  of  this question.      Before the Assessing Authority, on remand the companies raised for  the first  time the  contention  that  since  no notice had  been issued  to the  firm  of  which  they  were partners,  the   assessment  was   invalid.  The   Assessing Authority rejected  this contention.  He also  held that the lands satisfied the requirements of s.2(a).      In writ  petitions filed  by the two companies a single Judge of  the High  Court upheld  the  contention  that  the Assessing Authority  committed an  error of law in assessing the two  partners without  assessing the firm. This view was affirmed by a Division Bench on appeal.      On further  appeal to  this Court it was contended that in the  absence  of  a  prohibition  in  the  Act,  the  two companies could be validly assessed to tax without assessing the firm.      Allowing the appeal, ^      HELD: 1.  The Assessing  Authority was  not in error in

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assessing tax  on the returns submitted by the two companies and therefore the argument that assessment of the companies, without assessing  the  firm,  was  not  legal,  is  without substance. [425 H-426 A]      2. "Person"  defined in the section means an individual and includes a firm or a company. [423 G]      3.  There   is  nothing  in  the  Act  prohibiting  the Assessing  Authority  from  proceeding  against  individuals forming a  partnership. Section  18 enables the authorities, while proceeding with assessment of a firm or a company, not to 420 determine the  tax payable by the firm or the company but to proceed to  determine the agricultural income of each member of the firm. The provisions do not apply to a case where the returns were  submitted by  the partners  and the assessment made on  that basis.  The section  would  be  applicable  if assessment proceedings  against a  firm are  stopped and the share of  the individual  is  to  be  determined  under  the provisions of s. 18. [424 F]      4. The  well established  position under the Income-Tax Act (Central Act) with regard to assessment of firms is that where a  firm has  not made  a return  it  is  open  to  the department to  assess a  partner directly  in respect of his share  of   the  firm’s  income  without  resorting  to  the machinery provided  under the  Act  and  without  making  an assessment on  the firm,  the only prohibition being against double taxation. [424 H]      C.I.T. v.  Murlidhar Jhawar  & Purna Ginning & Pressing Factory, 60 ITR 95 SC; referred to.      5. Secondly, the plea that assessment proceedings ought to have  been taken  against the firm, was not taken by them in the  first instance either before the Assessing Authority or before  the High Court. This plea cannot be allowed to be taken at  a  later  stage.  The  assessees  submitted  their returns on the basis of their respective incomes. [425 F-426 A]      6. The  Assessing Authority  has correctly  come to the conclusion that  the agreement  between the parties provided for payment of land revenue. [426 F-G]

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil Appeal No. 2281 of 1969      Appeal by  Special Leave  from the  Judgment and  Order dated 6th  December, 1965  of the  Allahabad High  Court  in Special Appeal No. 978/62.      Shiv Pujan Singh and M. V. Goswami for the Appellant.      B. P. Maheshwari and Suresh Sethi for the Respondent.      The Judgment of the Court was delivered by      KAILASAM, J.-This  appeal is  by the  State of  U.P. by special leave granted by this Court against the judgment and order of  the High  Court at Allahabad in Special Appeal No. 978 of 1962.      Two companies,  the Raza  Sugar Co. Ltd. and the Buland Sugar Co.  Ltd., were  incorporated under  the Rampur  State Companies Act,  1932. Messrs.  Govan Brothers  (Rampur) Ltd. were the  common managing  agents of  the two  companies. On 10th May, 1933 the Raza Ltd. and on 11th December, 1934, the Buland Ltd. entered into agreements with the erstwhile State of Rampur.  The agreements  provided that  the Rampur  State should grant  to the  companies leases  of the  agricultural land  with   adequate  irrigation  facilities  suitable  for

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cultivation of  sugar-cane. The  companies were  required to pay fair  and equitable  land revenue which was to be agreed upon by the com- 421 panies and the Rampur State. On 5th May, 1935, a partnership deed was  a executed  by the  Raza Ltd.  and the Buland Ltd. constituting a  partnership firm  of the  two  companies  in equal shares  known as  the Agricultural Company, Rampur. In the year  1939 the  Rampur State  leased 2,000 acres of land and in  the year  1946 another  2,000 acres  of land  to the Agricultural Company,  Rampur. In  1949 the  State of Rampur acceded to  the Union of India and was merged with the State of Uttar  Pradesh with  effect from  Ist December, 1949. The Rampur State  had agreed  to exempt  the Raza  Ltd. and  the Buland Ltd. from all taxes for a period of 15 years from the date of commencement of their business.      The U.P. Agricultural Income Tax Act was applied to the areas which  formed part of the erstwhile State of Rampur on Ist July, 1950. The Assessing Authority issued notices under section 16(4) of the U.P. Agricultural Income Tax Act to the Raza Ltd.  and the  Buland Ltd.  for furnishing  returns  of their agricultural  incomes for  the years 1357 F to 1361 F. It may  be noted  that the  notice was  not  issued  to  the Agricultural Company,  Rampur. The  Raza Ltd. and the Buland Ltd.  submitted   their  returns.  The  Assessing  Authority assessed the  two companies  to agricultural  income-tax for the years  concerned.  The  companies  preferred  an  appeal against  the   assessment  to  the  Commissioner,  Rohikhand Division, and  also filed  writ petition No. 2385 of 1959 in the High  Court  of  Allahabad  challenging  the  assessment orders. On  17th April,  1961 the  writ petition was allowed and the  order of  assessment was  quashed with  a direction that fresh  assessments may  be made.  The Commissioner also directed the  Assessing Authority  to make fresh assessments in the  light of  the observations made by the High Court in its judgment  dated 17th  April,  1961,  allowing  the  writ petition No. 2385 of 1959.      When the  Assessing Authority  started fresh hearing in pursuance of  the order  of the  High Court an objection was raised with regard to the assessability of the two companies on  the   ground  that  no  notice  had  been  sent  to  the Agricultural  Company,   Rampur.  The   Assessing  Authority negatived the plea and assessed the Raza Ltd. and the Buland Ltd. for  the years  1357 F to 1361 F and also for the years 1362 F  to 1363  F.  Against  the  order  of  the  Assessing Authority the  two companies  which in  the meantime  became amalgamated as the Raza Buland Sugar Co. Ltd., Rampur, filed a writ  petition No.  1982 of  1962 in  the  High  Court  of Judicature at  Allahabad and  prayed for the quashing of the assessment  order   dated  29th  June,  1962,  made  by  the Assessing Authority  against the  Raza Ltd.  and the  Buland Ltd. for the assessment years 1357 F to 1363 F. 422      The writ  petition was  heard by  a single Judge of the High Court  who by his order dated 4th October, 1962 allowed the writ petition on the ground that the Assessing Authority committed an  error of  law in assessing the two partners of the Agricultural Company, Rampur, and not assessing the firm as such.  Aggrieved by  the order  the State  filed  Special Appeal No. 978 of 1962 before the Division Bench of the High Court at  Allahabad. The Division Bench of the High Court by its order  dated 6th  December, 1965,  dismissed the Special Appeal. An  application for  leave to  appeal to the Supreme Court was  dismissed by  the High Court. The appellants then preferred Special  Leave Petition  No. 1724  of 1969 to this

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Court and  on the  leave being  granted this  appeal is  now before us.      The main  contention that  has been raised before us by the appellants  is that  there being  no express prohibition under the U.P. Agricultural Income Tax Act an assessment can be validly  and legally  made on the individual partners, in the present  case  the  two  companies,  without  proceeding against the  firm. It  was pleaded  that the  tax  could  be assessed either  on the  partnership firm or on the partners invididually and  that the  view of  the High Court that the tax can only be recovered from the firm is erroneous.      The facts  of the  case disclose  that on  receipt of a notice by the Assessing Authority under section 16(4) of the U.P. Agricultural  Income Tax  Act, the  two companies  Raza Ltd. and the Buland Ltd. submitted their returns relating to the income of the two companies. In the return it was stated that the  income was  half of  the income  received from the partnership firm,  the  Agricultural  Company,  Rampur.  The assessment was  made  on  the  basis  of  the  returns.  The assessment was questioned before the Commissioner and in the writ petition  before the  High Court  of Allahabad  on  the ground that  the lands were neither assessed to land revenue in the  United Provinces nor were they subject to local rate or  cess  assessed  and  collected  by  an  officer  of  the Provincial Government.  This contention  was accepted by the High  Court   which  directed  the  Assessing  Authority  to determine the  question whether  the lands  were assessed to land revenue,  in the  United Provinces or they were subject to local  rate or  cess assessed and collected by an officer as required  under section  2(a) of  the  U.P.  Agricultural Income Tax  Act, 1948.  After remand the Assessing Authority found that the lands from which the income accrued satisfied the requirements  of the  section. For the first time before the Assessing  Authority the  point was  raised that  as  no notice was issued to the partnership firm, the partners i.e. two companies cannot be proceeded with for assessment of the tax. When this plea was rejected by the 423 Assessing Authority  the matter was taken up before the High Court, first  before a  single Judge  and  then  before  the Division Bench,  which accepted  the contention  of the  two companies and  held that  in the  absence of  notice to  the partnership firm proceedings cannot be taken against the two companies for assessment of the tax.      The relevant  provisions  under  the  United  Provinces Agricultural Income-Tax  Act, 1948,  may be noticed. Section 2(5)  defines   "Assessee"  as  meaning  a  person  by  whom agricultural income-tax  is payable.  "Company"  is  defined under section  2(8) as  meaning a  company as defined in the Indian Income-tax  Act, 1922.  The  Indian  Income-tax  Act, 1922, section 2(5A) defines a company as follows:-      "(5A) "company" means-           (i)  any Indian company, or           (ii) any association,  whether incorporated or not                and whether Indian or non-Indian, which is or                was assessable  or was  assessed as a company                for the assessment for the year ending on the                31st day of March, 1948, or which is declared                by general  or special  order of  the Central                Board of  Revenue to  be a  company  for  the                purposes of this Act;" "Firm" is defined in section 2(9) as having the same meaning assigned to  it in the Indian Partnership Act, 1932. Section 4 of  the Indian Partnership Act, 1932, states that "Persons who have  entered into  partnership  with  one  another  are

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called individually  ’partners’ and  collectively a firm and the name  under which their business is carried on is called the ’firm  name’". "Person"  is defied  in section  2(11) as meaning an  individual or association of individuals, owning or holding  property for himself or for any other, or partly for his  own benefit  and partly for that of another, either as  owner,  trustee,  receiver,  manager,  administrator  or executor or  in any capacity recognized by law, and includes an undivided  Hindu family,  firm or  company but  does  not include a  local authority.  It may  be noted  that  by  the definition  the   word  "person"  means  an  individual  and includes a  firm or  a company.  The liability of the person whether he  be an individual, partner or the company for the agricultural income-tax  is therefore  beyond question.  The only point  that is  raised in this case is as to when there is a  registered  firm  of  which  the  two  companies  were partners the  assessment proceedings cannot be taken against the  two   partners,  namely   the  two  companies,  without proceeding against the 424 firm. In  support of  this contention section 18 of the U.P. Agricultural Income  Tax Act was strongly relied on. Section 18 confers the power to assess individual members of certain firms,  associations   and  companies.  Sub-section  (1)  of section 18 enables the Assistant Collector with the previous approval of  the Collector  of the disrict concerned to pass order under  the circumstances  stated in  the sub-Sec. that the sum  payable as  agricultural income-tax  by the firm or association shall not be determined, and thereupon the share of each  member in  the agricultural  income of  the firm or association shall  be included  in  his  total  agricultural income for  the purpose  of his  assessment thereon. Section 18(2) states  that under certain circumstances the Collector may, with  the previous  approval of the Commissioner of the area concerned,  pass an  order  that  the  sum  payable  as agricultural  income-tax   by  the   company  shall  not  be determined and  thereupon the  proportionate share  of  each member in  the agricultural  income of  the company, whether such agricultural income has been distributed to the members or not,  shall be  included in the total agricultural income of such  member for  the purpose  of his assessment thereon. The submission  of the  learned counsel  for the  respondent which was  accepted by  the  High  Court  was  that  if  the Agricultural  Income-tax   authorities  wanted   to  proceed against the  individual members  of the  firm they  ought to have taken  proceedings  under  section  18(1)  and  in  the absence of  such proceedings  the partners, in this case the two companies,  could not  have  been  proceeded  with.  The argument thus  presented though  looks attractive  does  not stand scrutiny.  There is  nothing in  the provisions of the Act prohibiting  the  Assessing  Authority  from  proceeding against the  individuals forming the partnership. Section 18 enables the authorities while proceeding with the assessment of a  firm or  a company not to determine the tax payable by the firm  or  the  company  but  proceed  to  determine  the agricultural  income   of  each   member  of  the  fir.  The provisions do  not apply  to a  case where  the returns  are submitted  by  the  partners,  as  in  this  case,  and  the assessment made on that basis. The section would undoubtedly be applicable  if assessment  proceeding against the firm is stopped and  the share of the individual is to be determined under the  provisions of  section 18.  Our attention was not drawn to  any provision  in the  Act  which  would  bar  the income-tax   authorities   from   proceeding   against   the individual partners on the returns submitted by the partners

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as such.  Under the  Indian Income-tax  Act it has been held that where  a firm has not made a return and has not offered its income  for assessment,  the  Department  may  assess  a partner directly  in respect  of his  share  of  the  firm’s income without resorting to the machinery provided under the Act and  without making  an assessment  on the firm, (CIT v. Murlidhar Jhawar & Purna Ginning 425 & Pressing  Factory(1). It  has been  further held that once the Department  has exercised  its option  and assessed  the partners individually  it cannot  thereafter assess the same income in  the hands of the firm as an unregistered firm. It is not  necessary for us to refer to the distinction that is maintained under the Income-tax Act between a registered and unregistered firm  for no  such  distinction  is  maintained under  the  U.P.  Agricultural  Income  Tax  Act.  The  only prohibition is  against double  taxation. In  this  case  no assessment proceedings have been taken against the firm much less any tax imposed on it. The principle that is applicable in tax  statutes is that the income is subject to tax in the hands of  the same person only once. Thus, if an association or a  firm is taxed in respect of its income the same income cannot  be  charged  again  in  the  hands  of  the  members individually and  vice versa.  The trust  income  cannot  be taxed in  the hands  of the settlor and also in the hands of the trustee  or beneficiary  or in  the hands  of  both  the trustee as well as the beneficiary. These principles are, of course, subject  to any  special provision  enabling  double taxation in the statute. In the circumstances, we are unable to share  the view of the High Court that without proceeding against the  firm the  Assessing Authority  was in  error in proceeding against the two partners of the firm on the basis of the returns submitted by them.      There is  yet another objection to the upholding of the plea of  the respondents.  Apart from submitting the returns their only plea in the earlier writ petition before the High Court was that the lands did not satisfy the requirements of the provisions  of the  U.P. Agricultural  Income Tax Act in that they  were not  assessed to  land revenue in the United Provinces nor  were they subject to local rate or cess. This plea was  accepted but  the High  Court remanded  it for the determination of  the question whether the land was assessed to land  revenue or  was subject  to local rate or cess. The plea that  the assessment  proceedings ought  to  have  been taken against  the firm  was not  taken. This plea cannot be allowed  to  be  taken  in  proceedings  after  remand.  The objection was  taken only  before  the  Assessing  Authority after remand.  It is true that in the proceedings before the Assessing Authority  the assessment  relating to  two  Fasli years  1362  and  1363  which  did  not  form  part  of  the proceedings before  the High  Court was  also taken  up. But here again  the returns  were submitted by the two companies on  the   basis  of   their  respective   income.   In   the circumstances, it  cannot be  said that  the tax authorities were in error in assessing a tax on the returns submitted by the two companies. The plea, therefore, that the 426 assessment  on   the  two   companies,  in  the  absence  of proceedings against  the firm  of which  the companies  were partners, is not legal cannot be upheld.      The second  contention that  was raised  before us  was that it  has not been established that the lands were either assessed to  land revenue  in the  United Provinces  or were subject to  local rate  or cess assessed and collected by an officer of the Provincial Government. As the Single Judge of

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the High  Court and  the Division  Bench of  the High  Court accepted the  plea of  the  assessees  that  the  assessment proceedings against  them could  not be sustained because of the failure  of the  authorities to take proceedings against the firm,  they considered  it unnecessary  to go  into this question. It  is unfortunate  that this aspect of the matter was not  considered either  by the  Single Judge  or by  the Division Bench  of the  High  Court.  We  do  not  think  it desirable to  remit the  case to  the  High  Court  for  the determination of  this question  as the matter has been long pending. This  plea has  been elaborately  considered by the Assessing Authority  which has  pointed out  that agreements with the  Raza Sugar  Co. Ltd. and the Buland Sugar Co. Ltd. show that it was stipulated that the Rampur State shall from time to  time grant  to the  Company lease  of  agricultural land. It  was further provided that such fair equitable land revenue as  may be  agreed between  the Rampur State and the Company shall  be payable  in respect of such land and shall be subject  to revision  by agreement  every 15  years.  The lease also  provided that fair and equitable water rates and cesses shall  be payable  in respect of the land. In section 4(7) of  the U.P.  Land Revenue Act it is mentioned that the word "Mal  Guzari" will be applicable where it has been duly assessed or has been determined by means of an auction or by any other  means. On  a consideration  of all  the  relevant facts the  Assessing Authority  came to  the conclusion that the agreement  in  favour  of  the  companies  provided  for payment of  land revenue  and the  word "rent"  used in  the leases has  to be  considered in  relation to  the  original agreements and  as  such  it  is  seen  that  the  agreement provided for  payment of  land revenue.  The learned counsel appearing for  the respondents  was unable  to challenge the correctness of  the finding of the Assessing Authority. On a consideration of  all the  facts that were placed before the Assessing Authority,  we do  not  see  any  reason  for  not accepting the  conclusion arrived  at by the Authority. This issue also we find against the assessee.      In the  result we hold that the High Court was in error in coming  to the conclusion that the assessment proceedings against the respon- 427 dent were unsustainable. We set aside the judgment and order of the  High Court  and restore  the order  of the Assessing Authority. N.V.K.                                       Appeal allowed. 428