Law:

Section:

Section 4 of Income-tax Act, 1961 – Income – Chargeable as – Assessment years 1965-66, 1967-68 and 1968-69 – Whether partners of an unregistered firm as well as firm itself cannot be taxed twice, in other words, in case of an unregistered firm and its partners there can not be simultaneous taxation – Held, yes – Whether, therefore, where ITO had assessed partners of unregistered assessee firm individually, he could not thereafter assess same income in hands of assessee – firm – Held, yes FACTS In the absence of any declaration under section 184(7), the ITO completed the assessments for the relevant assessment years on the assessee as an unregistered firm. On appeal, the AAC held that once the ITO had exercised his option and assessed the partners individually, he could not thereafter assess the same income in the hands of the assessee-firm. He accordingly directed to ITO to revise the assessments. On revenue's appeal, the Tribunal held that the ITO had acted upon the returns filed by the partners under a belief that the assessee would for those assessment years continue to have the benefit of registration. In view of this, the Tribunal held that the AAC was not justified in his decision that the ITO was wrong in taxing the income of the assessee-firm again in the hands when its partners were already assessed to income-tax over the same income individually. On reference: HELD Under the Indian Income-tax Act, 1922, in the case of an unregistered firm once the partners had been assessed, the firm could not be assessed or vice versa. The only difference material for the present purpose was the difference in the language of section 3 of the 1922 Act and section 4 of the 1961 Act. The other scheme of taxation in respect of partners and the firm or members of the association of persons remained the same. The partners of an unregistered firm until the amendment by Taxation Laws (Amend.) Act, 1970, were considered to be distinct assessable units both under the Indian I.T. Act, 1922, and under the I.T. Act, 1961. Therefore, one income in the hands of two assessable units as the same income should not normally be made to suffer taxation twice unless the clear intention of…

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