Case: Income-Tax Officer, Tuticorin Vs. T. S. Devinath Nadar &amp; Ors

The respondent along with his four brothers were partners of a registered firm carrying on business in gunnies. The assessment of the firm for the year l943-44 was completed on January 22, 1946 and the share Income of each partner was determined at Rs. 8,265. The assessment of the respondent as individual was completed on January 24, 1946 wherein was included his income from the partnership just noted. Subsequently, the assessment of the firm was reopened by proceedings under S. 34 (1) (a) of the Act and a sum of Rs. 90,000 was added to the income of the firm liable to be brought to tax. The notice under S. 34 was issued on September 11, 1952 and the reassessment of the firm took place of May 30, 1959. On July 24, 1959 notice under S. 35 (5) of the Act was served on the respondent for rectification of his assessment as an individual. The rectification was ultimately ordered to be made on August 31, 1959. The respondent applied to the High Court for quashing the said order.          3. When the matter came to be beard by the High Court of Madras, there were already three reported decisions of this Court bearing on the interpretation of S. 35 (5) of the Act. In the last of these decisions, a doubt had been cast as to the correctness of the two earlier decisions but the High Court felt that the decision in Second Addl. Income-tax Officer v. Atmala Nagaraj, 1962-46 ITR 609   (SC)being, the second decision of this Court in point of time, was fully applicable to the cases before it and in view of the matter the order of rectification was quashed. Hence these appeals.

Reasoning:
7. Applying the above principles, we find that the aim of the legislation was to bring into line the assessment of the individual partner with that of the firm. It was well known that in many cases a firms final assessment dragged on for years while the assessments of the individuals composing of it were completed long before the assessment of the firm itself because in the case of individuals the matter was fairly simple It does not stand to reason that if the assessment of the firm is completed long after that of the individual by reason of proceedings under S. 34 or otherwise, the discrepancy in the income of the partner as shown by the assessment of the firm and as an individual should continue or be deft untouched and the obvious and logical course should be to rectify the assessment of the individual on the basic of the final assessment of the firm. Sub-s. (5) of S. 35 is only a step in that direction but the legislature in its wisdom thought it beet that assessments of individuals which had taken place before the final order in the assessment of the firm should not be disturbed except within four years therefrom. Under tax-Income-tax Act, 1922 a final assessment could not be altered except under proceedings sanctioned by S. 34 or S. 35 of the Act within the limits of time thereby prescribed. Leaving aside for a moment the point of time when sub-s. (5) came into the statute book, on a plain reading of the provision it appears to us that the legislature intended that the finding as to the non-inclusion of the proper share of the partner in the profit or loss of the firm in the assessment of the partner should excite the power of rectificationAs we have already said, sub-section (5) becomes operative as soon as it is found on the assessment or re-assessment of the firm or on any reduction or enhancement made in the income of the firm that the share of the partner in the profit or loss of the firm had not been included in the assessment of the partner or if included was not correct. The completion of the assessment of the partner as an individual need not happen after April 1, 1952. The completed assessment of the partner is the subject matter of rectification and this may have preceded the above mentioned date. Such completion does not control the operation of the sub-section. In the result, we find ourselves unable to concur in the decision or the reasoning in Atmala Nagrajs case, 1962-46 ITR 609   (SC). Any opinion of Hidayatullah, J. even with the above qualification merits the highest respect. After giving very anxious consideration to the views expresses by the reamed Judge, we still hold that by sub-s. (5) of S. 35 the legislature intended that rectification should be made on the finding as to the incorrectness of the assessment of the firm after the provision was introduced in the statute book, viz., 1st April, 1952. There would have been nothing unjust or inequitable in the legislature directing that rectification of the assessment of the partner should always follow the assessment or re-assessment of the firm made finally. On the other hand we think rectification of the partners assessment should logically follow the re-assessment or modification of the firms assessment. Otherwise, there would be an unaccounted-for divergence between a persons assessment as an individual and his assessment as a partner of a firm. But the legislature, in our opinion, did not intend to disturb completed assessment of partners except within the period of time indicated earlier in this judgment and unless the finding as to the incorrectness of the firms assessment was made after the terminus a quo above mentioned.