S.K. Mal Lodha, J. - (1.) THE Income-tax Appellate Tribunal, Jaipur Bench, Jaipur (hereinafter referred to as "the Tribunal"), has referred the following questions for our opinion : "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the firm constituted as M/s Alisher Contractors is not liable to pay any tax on its income ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the levy of tax on the sub-partnership is tantamount to double taxation ?"
(2.) THE assessee (non-petitioner) is a registered firm. THE assessment year in question is 1973-74. It filed its return declaring an income of Rs. 35,140. Alisher and Bhanwar Singh took excise contract of country liquor for Bhadra for the period May 1, 1972, to March 31, 1973. Alisher had not sufficient finances and as such he entered into a sub-partnership agreement with one Shafi Mohd., contractor. THE partnership agreement dated October 12, 1972, has been submitted as annexure A. Relevant portion of that agreement reads as under : "...Whereas both the partners of the main firm, viz., Shri Alisher, the first party, and Shri Bhanwar Singh, were to arrange finances for the business of the main firm and whereas the first party has little finances of its own and approached the second party for his share of finances for the business of the main firm and whereas the second party agreed to finance the first party to enable him to finance the main firm to the extent of his share on the condition that the first party shall give to the second party 50% of his share of profit in the main firm in lieu of his making available, necessary finance and whereas in view of this mutual benefits, the parties have agreed to enter into sub-partnership in relation to 50% share of the first party in the said main firm." Clauses 3 and 5 of the partnership deed dated October 12, 1972, are as under : "(3) That the subject-matter of sub-partnership shall be 50% share in the partnership firm, M/s. Bhanwar Singh Alisher, constituted under the partnership deed dated 12th October, 1972, falling to the share of Alisher. (5) That the 50% share of Alisher in the profit and loss of the business of the firm, M/s Bhanwar Singh Alisher, country liquor contractors, Bhadra, shall be equally divided amongst the said parties." It is thus clear that Alisher had no finance and, therefore, he entered into a sub-partnership agreement with Shafi Mohd., contractor. Shan Mohd., contractor, was to provide necessary finances for and on behalf of Alisher and in consideration thereof, Shafi Mohd. was to be paid by Alisher 50% of the share of profit in the main firm. It is not in dispute that Shafi Mohd. provided finance to the extent of Rs. 92,000. The Income-tax Officer by his order dated June 28, 1975, found that it was a case of sub-partnership between Alisher and Shafi Mohd. Regarding the share of Alisher in the firm, M/s. Bhanwar Singh Alisher, Bhadra, he computed the total income as under : JUDGEMENT_534_ITR159_1986Html1.htm In appeal, it was submitted on behalf of the assessee, that it was a case of double taxation on the assessees, for, he is not liable to pay tax on the amount on which he had already paid the tax. The Appellate Assistant Commissioner, vide his order dated March 8, 1976, observed as under : "Apparently, when the income of the original firm has been taxed, the share will be taxed in the hands of the partner and not again in the hands of the sub-partnership. Taxing the share of the original firm in the hands of the sub-partnership will be double taxation. Accordingly, the tax levied on this sub-partnership firm is not justified. The Income-tax Officer can only tax the share income which is 50% each in the case of the sub-partnership. Accordingly, the tax levied by the Income-tax Officer on this sub-partnership is deleted."
(3.) FURTHER appeal was taken by the Commissioner of Income-tax before the Tribunal. It dismissed the appeal. It will be pertinent to excerpt the following from the order of the Tribunal dated April 27, 1977 : "As such he entered into sub-partnership with Shri Shaffi Mohd. Shri Shaffi Mohd. provided finances on behalf of Shri Alisher for running the business of the main firm. As a result of the sub-partnership, the share of profit which was received by Shri Shaffi Mohd. (sic) from this fact, it is clear that this sub-partnership entered into between Shri Alisher and Shri Shaffi Mohd. helped the main firm in carrying on its business. Shri Alisher has already paid tax according to his share. If Alisher sub-divided his profit with Shaffi Mohd., in my opinion, he will not be required to pay further tax. If Alisher is further required to pay the tax, it would be double taxation on the same income. Thus, in my opinion, the finding of the learned Appellate Assistant Commissioner is quite correct." The Commissioner submitted an application under Section 256(1) of the Income-tax Act, 1961 (No. XLIII of 1961) (for short "the Act "). The Tribunal allowed the application and referred the aforesaid questions. We have heard Mr. B.R. Arora, for the Revenue, and despite service of notice, nobody has appeared on behalf of the assessee. ;