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Miscellaneous Judicial Case No. 787 of 1959, decided on 10th March 1961.

Income tax Act (XI of 1922)-----

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S. 18 A (I) Advance tax-Unregistered firm Partner Assessment-- Assessment of un- registered firm, whether "last assessment of partner" for purposes of advance tax Notice issued by Income tax Officer based on assessment of firm-Validity.

The assessee was the partner of a firm. For the assessment year 1949 50 there was an assessment of income tax upon the firm in the status of an unregistered firm on September 30, 1950. The assessments of the assessee and his partner for the same assessment year were also completed on the same date. For the assessment year 1950-51 the partnership was treated as an unregistered firm and assessment of the firm was made for this assessment year in the status of an unregistered firm under section 23 (4) on the 28th April 1951. On the 23rd of July 1951, a notice was issued to the assessee under section 18 A (1) of the Income tax Act, 1927. for advance payment of income tax on the basis of the assessment order dated the 30th of September 1950, for the assessment year 1949-50. The assessee contended before the Income tax Appellate Tribunal that the issue of the notice under section 18 A (1) of the Income tax Act ought to have been trade on the basis of the assessment of the unregistered firm on the 28th April 1951, for the assessment year 1950-51.

'The question for determination was whether under section 18 A(l) "last assessment of the assessee" was that assessment trade for the year 1949-50 on the 30th September 1950, or the assessment of the unregistered firm for the assessment year 1950-51 made on the 28th April 1951.

Held, under the law of income tax a partnership firm is different from the members composing it and is a separate assessable entity ; and there is no distinction in this respect between a registered firm and an unregistered firm. Therefore, the assessment of the unregistered firm cannot be treated as assessment of the partner within the meaning of section 18 A(1) of the Income tax Act and the notice issued by the Income tax Officer under section 18 A(l) of the Income tax Act calling upon the assessee to pay advance tax for the assessment year 1952 53 on the basis of his income for the assessment year 1949 50 was legally valid notice.

Commissioner of Income tax v. A. W. Figgies & Co. (1953) 24 I T R 405 (S C) and Meka Venkatappaiah v. Additional Income-tax Officer, Bapatla (1957) 32 I T R 274 fol.

STATEMENT OF CASE

By this application, the assessee requires the Appellate Tribunal to refer certain questions of law said to arise out of the order dated March 12, 1959, in I. T. A. No. 9417 of 1957 58. Inasmuch as, in our opinion, questions of law do arise out of the aforesaid order, we hereby draw up an agreed statement of the case and refer it to the High Court under section 66(1) of the Indian Income tax Act.

2. The applicant, Misrilal Jain, is a partner of the firm, Messrs Jain Petrol Supply Co., Hazaribagh, having eight annas share, which is the only source of income of the assessee. The other partner is Sri Kanhaiyalal Jain having the remaining eight annas share. The assessment year under consideration is 1952-53.

3. In response to a notice under section 18 A(1) for payment of advance tax for the assessment year 1952 53, the applicant submitted estimate of the tax payable by him on the basis of a total income of Rs, 10,000 only and paid Rs. 700 as tax thereon. The estimate under section 18-A(2) was filed on November 30, 1951. Subsequently, the applicant filed a return for his total income at Rs. 10,546 but he was eventually assessed at Rs. 38,773. The Income tax Officer held that the assessee had deliberately filed a false estimate with the view to evade payment of proper advance tax. He started a proceeding under section 18-A(9) read with section 28 and imposed the penalty of Rs. 2,500. The Appellate Assistant Commissioner confirmed the penalty.

4. In this case, the assessment of Messrs Jain Petrol Supply Co. for the assessment year 1949 50 was made in the status of a registered firm and it was completed on September 30, 1950. Assessments of the partners, namely, the applicant and Kanhaiyalal Jain for the same assessment year were also completed on the same date (September 30, 1950). There was no assessment on the partners after that date and before the issue of the notice under section 18 A(1). For the assessment year 1950-51 the assessment on Messrs Jain Petrol Supply Co. was completed in the status of an unregistered firm under section 23(4) on April 28, 1951. The notice under section 18 A(l), which is Annexure "A" hereto forming part of the case, was issued on July 28, 1951, on the basis of the income of the applicant as assessed for the assessment year 1949 50 by the Income tax Officer by his order dated September 30, 1950.

5. When the notice under section 18 A(l) was issued by the Income tax Officer on July 28, 1951, the latest completed assessment of the income of the assessee was for the assessment year 1949 50 and, as already noted, the Income tax Officer called upon the assessee to pay tax on the basis of his income for that year. For that year the total income of the applicant was assessed at Rs. 40,731 and an advance tax of Rs. 10,247-4-0 was demanded from the assessee. The applicant's contention was that when the notice under section 18 A(1) was issued by the Income tax Officer on July 23, 1951, the assessment of the firm, Jain Petrol Supply Co., had already been completed for the assessment year 1950-51 and as the assessment was made in the status of an unregistered firm no tax was payable by the applicant personally with regard to his share income and hence there should have been no demand of advance tax from him. In fact, however, the applicant had submitted an estimate of his income and paid advance tax.

6. The Tribunal was unable to accept the contention raised by applicant. The Tribunal held for the reason mentioned in its order dated March 19, 1959, that the total income of the firm for the assessment year 195051 was not at all material for service of demand notice under section 18 A(1). The Tribunal concurred with the decision of the Appellate Assistant Commissioner that the notice of demand issued was a valid one. The order of the Income tax Officer, Appellate Assistant Commissioner and Appellate Tribunal are Annexures "B", "C" and "D" hereto respectively forming parts of the case.

7. On the above facts the following questions of law arise out of the order of the Tribunal.

"(1) Whether on the facts of the case, the notice issued by the Income tax Officer under section 18 A(1) calling upon the applicant to pay advance tax for the assessment year 1952-53 on the basis of his income for the assessment year 1949-50 was a valid notice

(2) If the above question is answered in the negative, whether the penalty on the basis of an invalid notice is maintainable in law "

Kanhalyaji and Rameshwar Prasad for the Assessee.

R. J. Bahadur for the Commissioner.

In this case the assessee, Misrilal Jain, is the partner of a firm called Messrs Jain Petrol Supply Company, Hazaribagh. The assessee has eight annas share in this firm and the other partner, Kanhaiya Lal Jain, has the remaining eight annas share. In the present case we are concerned with the assessment year 1952 53. It appears that for the assessment year 1949 50 there was an assessment of income tax upon Jain Petrol Supply Company in the status of unregistered firm. This assessment was made on the 30th of September 1950.

The assessments of the partners, namely, the assessee and Kanhaiyalal Jain, for the same assessment year were also completed on the same date. For the assessment year 1950 51 the partnership was treated as an unregistered firm. The assessment of Jain Petrol Supply Company was made for this assessment year in the status of an unregistered firm under section 23(4) of the Income tax Act on the 28th of April 1951. On the 23rd of July 1951, a notice was issued against the assessee under section 18 A(1) of the Income tax Act for advance payment of income tax on the basis of the assessment order dated the 30th of September 1950, for the assessment year 1949 50. It was contended on behalf of the assessee before the Income tax Appellate Tribunal that the issue of the notice under section 18 A(l) of the Income tax Act ought to have been made on the basis of the assessment of the unregistered firm on the 28th of April 1951, for the assessment year 1950 51. It was submitted on behalf of the assessee that the issue of the notice under section 18A (i) on the basis of the assessment order dated the 30th September 1950, for the assessment year 1949 50 was legally invalid. The argument was rejected by the Income tax Appellate Tribunal and the appeal of the assessee was dismissed. Under section 66(1) of the Income tax Act the Income tax Appellate Tribunal has stated a case on the following question of law for the opinion of the High Court.

"(1) Whether on the facts of the case, the notice issued by the Income tax Officer under section 18-A(1) calling upon the applicant to pay advance tax for the assessment year 1952 53 on the basis of his income for the assessment year 1949-50 was a valid notice

If the above question is answered in the negative, whether the penalty on the basis of an invalid notice is maintainable in law "

With regard to the first question the argument put forward by learned counsel on behalf of the assessee is that the assessment of income tax for the assessment year 1950-51 of the unregistered firm on the 28th of April 1951, should be treated to be the latest assessment of income tax upon the assessee within the meaning of section 18 A(1) of the Income tax Act, and the view taken by the Income tax Appellate Tribunal on this point is erroneous. In our opinion there is no warrant for this argument. Section 18 A((), the interpretation of which is a controversy in this case, reads as follows

"18 A. Advance payment of tax. (1)(a) In the case of income in respect of which provision is not made under section 18 for deduction of income tax at the time of payment, the Income-tax Officer may, on or after the 1st day of April in any financial year, by order in writing, require an assessee to pay quarterly to the credit of the Central Government on the 15th day of June, 15th day of September, 15th day of December and 15th day of March in that year, respectively, an amount equal to one quarter of the income tax and super tax payable on so much of such income as is included in his total income of the latest previous year in respect of which he has been assessed, if that total income exceeded the maximum amount not chargeable to tax in his case by two thousand five hundred rupees. Such income tax and super tax shall be calculated at the rates in force for the financial year in which he is required to pay the tax, and shall bear to the total amount of income tax and super tax so calculated on the said total income the same proportion as the amount of such inclusion bears to his total income or, in cases where under the provisions of subsection (1) of section 17 both income tax and super tax or super tax are chargeable with reference to the total world income, shall bear to the total amount of income tax and supertax which would have been payable on his total world income of the said previous year had it been his total income the same proportion as the amount of such inclusions bears to his total world income . . . . . "

The questions for determination in this case is whether under section 18 A(1) the last assessment of the assessee should be treated to be the assessment made by the Income tax Officer for the year 1949-50 on the 30th of September 1950, or whether the assessment of the unregistered firm for the assessment year 1950-51 made on the 28th of April 1951, should be treated as the assessment within the meaning of this section. It is manifest that section 18 A(1) empowers the Income tax Officer to require advance payment of tax from the assessee of an amount equal to one quarter of the income tax and super tax payable "on so much of such income as is included in his total income of the latest previous year in respect of which he has been assessed". On behalf of the assessee it was pointed out that under section 14(2) of the income tax Act the tax is not liable to be paid by an assessee if he is a partner of an unregistered firm, in respect of any portions of his share in the profits and gains of the firm on which tax has already been paid by his firm. In our opinion the provisions of section 14(2)(a) have no bearing on the questions presented for determination in the present case. It is well-established that under the law of income tax a partnership firm is different from members composing it and is a separate assessable entity. It is true that under the Partnership Act a partnership firm is not a legal person. But for the purpose of income tax a firm is regarded as a separate entity having a separate status and existence apart from individual partners who carry on the business of the firm. This view is borne out by the decisions of the Supreme Court in Commissioner of Income tax v. Figgies & Company ((1953) 24 I T R 405 (S C)) and also of the Andhra Pradesh High Court in Meka Venkatappaiah v. Additional Income tax Officer, Bapatla ((1957) 32 I T R 274) It is therefore manifest that the firm is a separate assessable entity under the Income tax Act and there is no distinction in this respect between a registered firm and an unregistered firm. We are of opinion in the present case that the assessment of the unregistered firm for the year 1950 51 made on the 28th of April 1951, cannot be treated as assessment of the partner, Misrilal Jain, within the meaning of section 18 A(1) of the Income tax Act.

For the reasons given above we hold that in the facts and circumstances of the case the notice issued by the Income tax officer under section 18 A(l) of the Income tax Act calling upon the assessee to pay advance tax for the assessment year 1952 53 on the basis of his income for the assessment year 1949 50 was a legally valid notice.

We accordingly answer the first question referred by the Income tax Appellate Tribunal against the assessee and in favour of the income tax department. In view of our answer to the first question, it follows that the second question of law does not arise in this case. The assessee must pay the costs of this reference Hearing fee Rs. 250.

Questions answered accordingly.

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