Law:

Section:

section 4 of the income-tax act, 1961- revenue receipt-whether, after exercising option to assess income in the hands of firm, ito could make additions as revenue receipt in individual assessments of retired partners on the ground that certain amounts accrued as profits to the firm were not shown in the firm's account-held, no Facts Under a deed of dissolution of the firm, the assessee partners received Rs. 2,86,100 and Rs. 45,064 respectively. The ITO, having found that certain amounts which had accrued as profits to the firm had not been shown in the firm's account, took the view that the amounts distributed to the assessee partners included unaccounted profits of the firm. He, accordingly, made an addition of Rs. 73,276 and Rs. 27,481 respectively in the total income of the assessees and taxed as revenue receipt in their hands. The AAC, however, reduced the addition to Rs. 65,200 and Rs. 24,482 respectively. The Tribunal held that since the ITO exercised option to assess the firm, he ought to have proceeded on the basis of the assessment of the firm and ought not have included the amounts in the individual assess- ments of the assessees as attributable to their shares which amounts were not included in the profits of the firm. The Tribunal further held that the firm had to be assessed and then only, the shares attributable to the partners were to be brought in their individual assessments. On reference: Held When the ITO had exercised his option to assess the firm in the first instance, the assessment of the firm would be the basis on which the share of the profits of the firm in so far as the partners were concerned, have to be included in their individual assessments. If there was any income of the firm that had escaped assessment, the proper procedure was to take action for its re-assessment and to revise the assessment of the individual partners on the basis of reassessment. JUDGMENT Srinivasa Iyengar J.-The Income-tax Appellate Tribunal, Bangalore Bench, has referred the following question for decision by this court: Question in I.T.R.C. No. 3/1975 : "Whether, on the facts and circumstances of the case, the Appellate Tribunal is right in law in holding…

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