HARRIES, C.J. - (1.) THIS is a reference made by the Tribunal at the instance of the CIT, West Bengal, in which the Court is asked to express its opinion upon the following question :-- "Whether in the facts and circumstances of the case the Tribunal was right in holding that in the assessment of the income for the asst. yr. 1938-39, s. 23(5)(a) which was introduced in the Indian IT Act in 1939 was applicable ?"
(2.) THE Tribunal had held that the section was applicable disagreeing with the view of the ITO and the AAC. The assessee was a firm, P. M. Bagchi & Co., which had been in existence for some time though its constitution had changed. In the year 1937 a receiver was in possession of the partnership assets on behalf of the then partners. On 16th Dec., 1937, the receiver sold the right, title and interest of these three partners in the business and the present assessees purchased. The year of assessment is the year 1938-39 the accounting year being 1937-38. There was difficulty in the assessment as the tax authorities claimed that certain income had escaped assessment and should be assessed under s. 34 of the Indian IT Act. Eventually an assessment was made on 31st March, 1943, but it is clear that that assessment was for the assessment year 1938-39. The assessment made was on the total income of the firm, whereas the assessees claimed that the income of the firm should not be assessed but rather the share of profits of each partner in the partner's hands. The assessees relied upon s. 23(5) of the Indian IT Act which, in so far as it is relevant, is in these terms -- " Notwithstanding anything contained in the foregoing sub- sections, when the assessee is a firm and the total income of the firm has been assessed under sub-s. (1), sub-s. (3) or sub-s. (4) as the case may be, (a) in the case of a registered firm, the sum payable by the firm itself shall not be determined but the total income of each partner of the firm, including therein his share of its income, profits and gains of the previous year, shall be assessed and the sum payable by him on the basis of such assessment shall be determined."
(3.) THIS provision was the result of the Income-tax Amendment Act of 1939 which came into force on 1st April of that year. THIS provision therefore was not operative during the asst. yr. 1938- 39 which of course came to an end on 31st March, 1939, that is a day before the amendment came into force. The effect of this amendment was that the income of a registered firm was not assessed to tax separately. What was assessed was the total income of each partner including his share of the profits of the partnership.;