The Income-tax Officer cannot assess the same income twice - once in the hands of the partners and again in the hands of the unregistered firm.

Judgement

SHAH, J. : 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 at Bombay:

"Whether on 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 partnership business?"

The High Court recorded an answer in the negative. With certificate granted by the High Court, this appeal has been preferred.

3. Under S. 3 of the Indian Income-tax Act, income-tax is charged in respect of the total income of the previous year of every individual, Hindu undivided family, company and local authority, and of every firm and other association of persons or the partners of the firm or the members of the association individually. This Court in Commr. of Income-tax, U. P. v. Kanpur Coal Syndicate, (1964) 53 ITR (SC) 225 observed at p. 228 (of ITR):

"The section (S. 3) expressly treats an association of persons and the individual members of an association as two distinct and different assessable entities. 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 judgement: Income-tax Officer, A-Ward, Lucknow v. Bachulal Kapoor, C. A. No. 638 of 1961, dated 14-12-1965 that in dealing with a claim ma