# C. I. T v. M. J.P. FACTORY (Shah,],)

- **Citation:** [1966] 3 S.C.R. 219
- **Court:** Supreme Court of India
- **Decided:** 1966
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/c-i-t-v-m-j-p-factory-shah-3698
- **Pages:** 5

## Headnote

220
SUPREME COURT RBPOllTS
[1966] 3 S.C.R.
Appeal from the judgment and order, dated July 4, 1962 of
A
the Bombay High Court in IJicome-tax Reference No. 46 of
1960.
A. V. Viswanatha Sastri, N. D. Karkhanis, R.H. Dhebar and
R. N. Saclzthey, for the appellant.
Bishan Narain, B. R. L. Iyengar, S. K. Mehta and K. L.
B
Mehta, for the respondent.

## Text

220
SUPREME COURT RBPOllTS
[1966] 3 S.C.R.
Appeal from the judgment and order, dated July 4, 1962 of
A
the Bombay High Court in IJicome-tax Reference No. 46 of
1960.
A. V. Viswanatha Sastri, N. D. Karkhanis, R.H. Dhebar and
R. N. Saclzthey, for the appellant.
Bishan Narain, B. R. L. Iyengar, S. K. Mehta and K. L.
B
Mehta, for the respondent.
The Judgment of the Court was delivered by
Shah, J. In the account year ending November 6, 1953
Murlidhar Jhawar, Pannalal Lahoti and Govindbai carried on
business in groundnut,
cotton and cotton-seed.
In the year
C
of assessment 1954-55 the Income-tax Officer, Nanded, brought
10 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 conD
stiluled an unregistered firm.
Murlidhar complied with the
requisition and submitted in November 1957 a return, 1 but later
applied 10 withdraw 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 join I venture under s. 23 (3) of the Income-tax Act, t 922 in
E
!he status of an unregistered firm and computed the income of tl1e
join! 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
F
assess the individual parties to the joint venture, and he having
exercised that option it was not open to him there!tfter to reassess
the same income colleclively in the hands of the three parties to
the joint venture in the status of an unregistered firm.
Bui on a
concession made by counsel for the three parties, the Tribunal
directed that the assessment be "rectified so as to restore the status
G
quo ante."
The Tribunal submiued a statement of the case and referred
1he 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 partnefship
ff
,
•
•
•
'
,l
~
~
'
•
\
1
"
).
~
t
\
A
B
c
f)
C. I. T. V. M. J.P. FACTORY (Shah,],)
221
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.
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 Commissioner of Income-tax, U.P. v.
Kanpur Coal Syndicate(') observed at p. 228 :
"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 cases 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
E
however seek to assess the one income twice--once in the hands
of the partners and again in the hands of the unregistered firm.
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 conF
stituted 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
G recent judgment: Income-tax Officer,
A-Ward, Lucknow v.
Bachulal Kapoor( 2 ) : that in dealiug with a claim made by the
Income-tax Officer to assess income into the hand~ 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
H
assumes knowledge on his part of the existence of two alternatives". But on the materials before the Court we are unable
(I) '3 I.T.R. 225 : [1964] 8 S.C.R 85.
(2) [1966] 3 S.C.R. 68.
222
SUPRl!ME COURT REPORTS
[1966] 3 S.C.R.
to accept the plea that the Income-tax Officer wlis not in posses·
sion of infonnation 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.
The transactions in various commodities were carried on by
Pannalal and Govindbai who were partners of Messrs.
Purna
Ginning & Pressing Factory and by Murlidhar. The Income-iax
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,
couon 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 patties were not a
registered fim1, 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 the Income-tax
Officer assessed the three parries separately he unquestionably
exercised an option knowing that they had entered into a trading
transaction in which they were jointly interested.
The depart·
mental authorities have not chosen to place before the Court the
returns made by the three parties, and even the orders of assessment individually made agaiJist 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
A
B
c
D
with Messrs. Puma Ginning and Pressing Factory taken pmvi·
sionally subject to rectification after the assessment of the joint
venture" is incorporated in the order of the Appellate Assistant
(!,)
Commissioner.
It is common ground that the assessment made by
the
Income·taK Officer was not a "provisional assessment" within the
meaning of s. 23B.
It would be reasonable to hold that the
income of the 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
•
" ;
J
•
r
• ,,
~
'
~
•
•
j
J
• '
• '
B
c
D
E
C. I. T. v. M J. P. FACTOllY (Shah, }.)
223
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 ~he 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 assessments later. In so holding the Incometax 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 contentions 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. The Tribunal held, relying
upon 1. C. Thakkar v. Commissioner of Income-tax(') and }oti
Prasad Agarwal &
Others v. Income-tax Officer, B-Ward
Mathura(2), 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.
The appeal therefore fails and is dismissed with costs.
(I) "J:1 I.T.R. 658.
(2) 37 I.T.R. 107.
Appeal dismissed.