COMMISSIONER OF INCOME-TAX, BOMBAY, SOUTH POONA vs. MURLIDHAR JHAWAR & PURNA GINNING AND PRESSING FACTORY, DHARMABAD

CIVIL APPEAL No. 327/1965Supreme Court[1966] 3 S.C.R. 21907 January 1966Bench: 3 JudgesAuthor: K. SUBBA RAO, J.C. SHAH, S.M. SIKRI5 pages
AI SummaryDismissed

What were the facts?

For the accounting year ending November 6, 1953, Murlidhar, Pannalal, and Govindbai carried on business jointly. The Income-tax Officer (ITO), Nanded, assessed each party's third share of Rs. 51,280 profits and then requested Murlidhar to file a return for the 'income of the joint venture' as an unregistered firm. Murlidhar filed a return in November 1957 but later applied to withdraw it, which the ITO rejected. The ITO completed the assessment of the joint venture at Rs. 80,925 under Section 23(3) of the Income-tax Act, 1922, treating the parties as an unregistered firm. The Appellate Assistant Commissioner confirmed this order. The Income-tax Appellate Tribunal set aside the order, holding that the ITO, having initially assessed the individual parties, could not reassess the same income as an unregistered firm. However, on concession, the Tribunal directed rectification to restore the status quo ante. The High Court, on reference, answered the question in the negative, and the Revenue appealed.

What did the Supreme Court hold?

The Supreme Court held that the assessment of the unregistered firm was not proper or legal. The Court reasoned that Section 3 of the Indian Income-tax Act, 1922, treats an association of persons and its individual members as distinct assessable entities. The ITO has the option to assess partners individually or collectively as an unregistered firm, but cannot assess the same income twice. The Court rejected the Revenue's argument that the ITO was unaware of the unregistered firm status during the initial assessment. It found that the ITO had information about the joint transactions and the parties' relationship. By assessing the three parties separately, the ITO had exercised an option. The Court noted that the departmental authorities did not provide the returns or individual assessment orders, making it difficult to ascertain the exact information available to the ITO. The Tribunal's reliance on precedents like I. C. Thakkar v. Commissioner of Income-tax and Joti Prasad Agarwal & Others v. Income-tax Officer, B-Ward Mathura, was affirmed. The appeal was dismissed.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the assessment of the unregistered firm was proper and legal, given that the two partners had already been assessed in respect of their shares of income from this partnership business? Assessee's contention (implied from Tribunal's and High Court's decision): The Revenue's contention (as argued by Mr. Viswanatha Sastri): The ITO, when making the initial assessment of the three parties, was unaware that they constituted an unregistered firm. Therefore, he was legally competent to assess the entity that was truly liable for the tax and had not exercised an option that precluded him from assessing the income as an unregistered firm. The Department argued that the ITO could assess the income collectively as an unregistered firm because he was not informed of the true nature of the relationship during the first assessment. The Department also argued that the initial assessment was not an exercise of an option that prevented a subsequent assessment as an unregistered firm, as the ITO lacked knowledge of the alternatives.

Which sections of the Income-tax Act were involved?

Section 3,Section 23(3),Section 23B

AI-generated summary — verify with the full judgment below

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 con- D 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 o

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 3

All 264 judgments and leading authorities on Section 3 →

Recent GST High Court judgments

Search GST case law →