Case: Commssioner Of Income-Tax, Bombay,South Poona Vs. Murlidhar Jhawar &amp; Purna Ginning Andpressing Factory, Dhar

On the terms of the Section the tax can be levied on either of the said two entities according to the provisions of the Act."The same principle would apply to the case of assessment of partners individually of an unregistered firm. The partners may be assessed individually or they may be assessed collectively in the status of an unregistered firm: the Income-tax Officer cannot however seek to assess the one income-twice once in the hands of the partners and again in the hands of the unregistered firm.4. Mr. Viswanatha Sastri for the Department contends that the Income-tax Officer making the first assessment of the three parties to the joint venture was not informed that the three parties constituted an unregistered firm and therefore the Income-tax Officer was in law competent to assess the entity which was in truth liable to be assessed to tax, and in making the earlier order of assessment he cannot be deemed to have exercised an option which precluded him from assessing the income of the three parties as an unregistered firm. It is true as pointed out by this Court in a recent judgment: Income-tax Officer, A-Ward, Lucknow v. Bachulal Kapoor, C. A. No. 638 of 1961, dated 14-12-1965: (AIR 1966 SC 1148 ) that in dealing with a claim made by the Income-tax Officer to assess income into the hands of a Hindu undivided family, after assessing it in the hands of the members on the footing that the family was severed the "exercise of the option to do one or other of the two alternatives open to an officer assumes knowledge on his part of the existence of two alternatives". But on the materials before the Court we are unable to accept the plea that the Income-tax Officer was not in possession of information relying on which, if he desired, he could have assessed the three parties collectively as an unregistered firm. There is no warrant for the assumption which counsel for the Department asks us to make, that information about the true state of affairs was not with the Income-tax Officer when the first assessment was made by him.5. The transactions in various commodities were carried on by Pannalal and Govindbai who were partners of Messrs. Purna Ginning and Pressing Factory and by Murlidhar. The Income-tax Officer had assessed the income of the three parties separately and added to the individual income of each party his or her share in the profits of the joint venture. The Income-tax Officer had information that the three parties, two of whom were members of a registered trading firm, had effected transactions in groundnut, cotton and cotton-seed. Apparently returns in respect of these trading transactions were separately made and a third share was included in the individual assessment of each of the three parties. Apart from an association of individuals or a firm, the Income-tax Act does not recognize a collection of individuals as an entity capable of being assessed to tax. The three parties were not a registered firm, and they could be assessed to tax collectively as an association of individuals or as an unregistered firm if the relation between them was of partners. When Income-tax Officer assessed the three parties separately he unquestionably exercised an option knowing that they had entered into a trading transaction in which they were jointly interested. The departmental authorities have not chosen to place before the Court the returns made by the three parties. and even the orders of assessment individually made against the three parties by the Income-tax Officer are not before this Court. Only the final order of the Income-tax Officer which directs:"Add : Joint venture income with Messrs. Purna Ginning and Pressing Factory taken provisionally subject to rectification after the assessment of the joint venture,"is incorporated in the order of the Appellate Assistant Commissioner.6. It is common ground that the assessment made by the Income-tax Officer was not a "provisional assessment" within the meaning of S. 23B. It would be reasonable to hold that the income of three parties was assessed under S. 23 (3) of the Income-tax Act for the income was earned in commercial transactions in different commodities. The Income-tax Officer in assessing the income of the joint venture could not have proceeded without scrutinizing the accounts and other relevant documentary evidence and without determining the shares of the three parties to the joint venture. In determining the shares of the three parties, he had also to determine the contractual relation which gave rise to the right to a share in the profit. Again the order of the Income-tax Officer clearly indicates that he was cognizant of the fact that the income of the joint venture was taxable collectively, but he thought that he could in law in the first instance make an "assessment provisionally" of the three parties separately and then rectify the assessment later. In so holding the Income-tax Officer may have committed an error of law, but he does not appear to have laboured under an ignorance of facts. A survey of the contention raised before the departmental authorities, the Tribunal and the High Court makes that inference irresistible. The Income-tax Officer who made the assessment under challenge did not state that when the first assessment was made, the facts which had a bearing on the true relationship between the three parties were not placed, and it was not even argued before the Appellate Assistant Commissioner and the Tribunal that those facts were not placed before the Income-tax Officer. That Tribunal held, relying upon J. C. Thakkar v. Commr. of Income-tax, (1955) 27 ITR 658 : (S) AIR 1955 Bom 34) and Joti Prasad Agarwal v. Income-tax Officer, B-Ward, Mathura, (1959) 87 ITR 107 (AIR 1959 All 456) , that once the option is exercised for assessing the individual partner and including his share of profits in the firm in his assessment, it is not open to the Department to assess the same income as income of the unregistered firm.7.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]But on the materials before the Court we are unable to accept the plea that the Income-tax Officer was not in possession of information relying on which, if he desired, he could have assessed the three parties collectively as an unregistered firm. There is no warrant for the assumption which counsel for the Department asks us to make, that information about the true state of affairs was not with the Income-tax Officer when the first assessment was made bysame principle would apply to the case of assessment of partners individually of an unregistered firm. The partners may be assessed individually or they may be assessed collectively in the status of an unregistered firm: the Income-tax Officer cannot however seek to assess the one income-twice once in the hands of the partners and again in the hands of the unregisteredfrom an association of individuals or a firm, the Income-tax Act does not recognize a collection of individuals as an entity capable of being assessed to tax. The three parties were not a registered firm, and they could be assessed to tax collectively as an association of individuals or as an unregistered firm if the relation between them was of partners.It is common ground that the assessment made by theOfficer was not a "provisional assessment" within the meaning of S. 23B. It would be reasonable to hold that the income of three parties was assessed under S. 23 (3) of theAct for the income was earned in commercial transactions in different commodities. TheOfficer in assessing the income of the joint venture could not have proceeded without scrutinizing the accounts and other relevant documentary evidence and without determining the shares of the three parties to the joint venture. In determining the shares of the three parties, he had also to determine the contractual relation which gave rise to the right to a share in the profit. Again the order of theOfficer clearly indicates that he was cognizant of the fact that the income of the joint venture was taxable collectively, but he thought that he could in law in the first instance make an "assessment provisionally" of the three parties separately and then rectify the assessment later. In so holding theOfficer may have committed an error of law, but he does not appear to have laboured under an ignorance of facts. A survey of the contention raised before the departmental authorities, the Tribunal and the High Court makes that inference irresistible. TheOfficer who made the assessment under challenge did not state that when the first assessment was made, the facts which had a bearing on the true relationship between the three parties were not placed, and it was not even argued before the Appellate Assistant Commissioner and the Tribunal that those facts were not placed before theOfficer. That Tribunal held, relying upon J. C. Thakkar v. Commr. of(1955) 27 ITR 658  : (S) AIR 1955 Bom 34) and Joti Prasad Agarwal v.d, Mathura, (1959) 87 ITR 107 (AIR 1959 All 456)  , that once the option is exercised for assessing the individual partner and including his share of profits in the firm in his assessment, it is not open to the Department to assess the same income as income of the unregistered firm.