K.N. Seth, J. - (1.) THE petitioner is a legal practitioner. On April 1, 1973, the petitioner and another advocate, Shri Har Gopal Malik, constituted a partnership firm, M/s. Malik and Company, Thaparnagar, Meerut, to carry on legal profession. THE share of the petitioner was 40 per cent, and that of Sri Har Gopal Malik 60 per cent. THE firm was registered under the I.T. Act (hereinafter referred to as "the Act") and continued till March 31, 1978. For the assessment years 1974-75 to 1978-79 (five years) the ITO assessed the firm and the share of the partners in the firm was separately assessed to tax. THE petitioner filed applications before the ITO under Section 154 of the Act for the years 1974-75 to 1977-78 for rectification of the assessments. It was pleaded that excess tax had been recovered from the petitioner inasmuch as tax had been recovered from the registered firm as well as from him individually on the same income. THE assessment for 1978-79 was sought to be revised by the Commissioner under Section 264 of the Act. THE ITO rejected the four applications under Section 154 of the Act. THE petitioner filed revisions under Section 264 of the Act. THE Commissioner, however, dismissed the revisions by his order, dated February 2, 1982, on the ground that the matter did not fall within the ambit of Section 264 of the Act, since it challenged the constitutional validity of a statute.
(2.) THE stand taken by the petitioner is that the firm was not a legal person. It is only a forum for the partners to function. For the sake of convenience the Legislature decided to make the firm provisionally, and the partners finally the assessees. THE income of the registered firm when allocated in the hands of the partners was nothing but receipt of distributed income and not income within the meaning of Section 2(24) of the Act, and when the income of a registered firm was by operation of law diverted towards the partners, nothing was left in the hands of the firm and the firm as such had no income. THE tax recovered from the firm had to be refunded to the partners and the petitioner was entitled to credit thereof to the extent of his share in the firm, i.e., 40 per cent. Income is always taken in its ultimate and not in its proximate stage. THE allocation of the firm's income in the hands of the partners as taxable income is thus void. It is also asserted that double assessment is not possible. THE provisions of Sections 67 and 182 warranting assessment of partners' share income in the firm are void being violative of Articles 14, 19(1)(f) and 19(1)(g) of the Constitution. In this connection it was stressed that Sections 67 and 182 of the Act create obvious discrimination between members of registered partnership firms and members of Hindu undivided families, partners of unregistered firms and associations of persons. It is unjust, unreasonable and against the fundamental concept of justice and fair play. THE petitioner has prayed for quashing the order of the Commissioner of Income-tax, dated February 2, 1982 and to declare that Sections 67 and 182 of the Act and the related provisions are ultra vires the Constitution being violative of the petitioner's right under Articles 14, 19(1)(f) and 19(1)(g) of the Constitution. It has also been prayed that the I.T. authorities be directed to compute the tax payable by the petitioner after deducting the amount paid by the partnership firm to the extent of 40 per cent. Section 4 of the Act imposes income-tax upon a person in respect of his total income. Section 2(31) enumerates the categories of assessees who fall within the definition of the word " person ". An analysis of Section 4 indicates that, (i) income-tax is to be charged at the rate or rates fixed for the year by the annual Finance Act; (ii) the charge is on every person, including the assessable entities enumerated in Section 2(31); (iii) the income taxed is that of the previous year and not of the year of assessment; and (iv) the levy is to be on the total income of the assessable entity computed in accordance with and subject to the provisions of the Act. The charge is on every " person ", which, under Section 2(31), includes, (i) an individual, (ii) a Hindu undivided family, (iii) a company, (iv) a firm, (v) an association of persons or a body of individuals, whether incorporated or not, (vi) a local authority, and (vii) every artificial juridical person not falling within any of the preceding clauses. Beaumont C. J. In re Patiala State Bank [1941] 9 ITR 95 (Bom), observed that (p. 112) " income-tax is a tax on a person in relation to his income......The tax is not made a charge on the income upon which it is levied ". Each of the assessable entities enumerated in Section 2(31) is a distinct entity and can be taxed as such in accordance with and subject to the other provisions of the Act. The Act has made provisions relating to the assessment of registered firms. Section 67 of the Act provides for the method of computing a partner's share in the income of the firm. Section 182 of the Act, which deals with the assessment of registered firms, lays down that after assessing the total income of the firm, (i) the income-tax payable by the firm itself shall be determined, and (ii) the share of each partner in the income of the firm shall be included in his total income and assessed to tax accordingly. Section 86(iii), on the other hand, makes a provision that tax is not payable by a person who is a partner of an unregistered firm in respect of that portion of the income of the firm upon which tax is payable by the firm. Thus, specific provisions have been made in the Act relating to the income of a registered firm as well as that of an unregistered firm. Similar provisions have been made relating to income distributed by a company to its shareholders out of the income earned by the company. The charging section is subject to these provisions of the Act.
(3.) LEARNED counsel placed reliance on the decision of this court in Joti Prasad Agarwal v. ITO [1959] 37 ITR 107 (All). That case related to an association which was formed under a scheme formulated by the District Collector for distribution of khandsari sugar at controlled rates. The members contributed varying amounts towards the working capital of the association. Out of the 30 members of the association, 23 were assessed to income-tax and in their individual assessments their respective shares of the profits earned by the association during that period were included and the tax levied thereon was paid by them. Later, the ITO initiated assessment proceedings and assessed the income of the association in its hands. Some of the members thereupon applied to the High Court for relief against the order of assessment on the association. This court held that once the income of the association was charged to income-tax in the hands of the members individually and the assessments of the members remained valid assessments, there could be no fresh assessment of the income in the hands of the association. It was observed (p. 111): " Section 3 of the Act, which is the main charging section, only talks of charging the income of certain persons and does not talk of income-tax being charged on persons. This implies that the charge is to be levied on an income only once. Whether it is to be charged in the hands of one person or another can certainly be determined under Section 3 and other relevant provisions of the Income-tax Act. Section 3 is clear enough to indicate that the same income cannot be charged repeatedly in the hands of different persons or in the hands of the same person." Reliance was also placed on the decision of the Supreme Court in CIT v. Murlidhar Jhawar and Puma Ginning and Pressing Factory [1966] 60 ITR 95. In that case three persons carried on business. The ITO taxed a third share computed as profits from the business in the hands of each of the three parties. Thereafter, he assessed them in the status of an unregistered firm computing the income of the joint venture. The AAC confirmed the order passed by the ITO. The Tribunal held that the ITO had the option to assess the individual parties to the joint venture, and he having exercised that option, it was not open to him thereafter to reassess the same income collectively in the hands of the three parties to the joint venture in the status of an unregistered firm. The ITO could not, however, seek to assess the same income twice, once in the hands of the partners and again in the hands of the unregistered firm. Both the cases referred to above arose under the 1922 Act, and related to unregistered firms (and/or association) of persons. No analogy can be drawn between the case of an association of persons or an unregistered firm and the case relating to a registered firm and its partners. The Act specifically provides for assessing the income in the hands of a registered firm and thereafter the share of such income received by the partners. The dictum laid down in the case of an association of persons or an unregistered firm cannot be extended to the case of a registered firm regarding which there is an express provision in the Act.;