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

In the account year ending November 6, 1953 Murlidhar Jhawar, Panalal Lahoti and Govindbai carried on business in groundnut, cotton and cotton-seed. In the year of assessment 1954-55 the Income-tax Officer, Nanded brought to tax a third share in Rs. 51, 280 computed as profits from the business in the hands of each of the three parties, and thereafter he called upon Murlidhar to submit a return of the "income of the joint venture" on the footing that the parties thereto constituted an unregistered firm. Murlidhar complied with the requisition and submitted in November 1957 a return, but later applied to with draw it by application dated December 18, 1957. The Income-tax Officer rejected the application for withdrawal of return and completed the assessment of the three parties to the joint venture under S. 23 (3) of the Income-tax Act, 1922 in the status of an unregistered firm and computed the income of the joint venture at Rs. 80,925. In appeal to the Appellate Assistant Commissioner the order passed by the Income-tax Officer was confirmed. In second appeal, the Income-tax Appellate Tribunal set aside the order of the Appellate Assistant Commissioner. The Tribunal held that the Income-tax Officer had the option to assess the individual parties to the joint venture, and he having exercised that option it was not open to him thereafter to reassess the same income collectively in the hands of the three parties to the joint venture in the status of an unregistered firm. But on a concession made by counsel for the three parties, the Tribunal directed that the assessment be "rectified so as to restore the status quo ante."2. The Tribunal submitted a statement of the case and referred the following question to the High Court of Judicature aton the facts and in the circumstances of the case the assessment of the unregistered firm was proper and legal, the two partners of this partnership having been assessed in respect of their shares of income from this partnershipHigh Court recorded an answer in the negative

Reasoning: 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.