HAZARI RAM MOHAN RAM Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference under section 66(1) of the Income-tax Act. The question which has been referred for the opinion of the court is :

(2.) THE assessee is a Hindu Undivided family. It was assessed for the assessment year 1953-54 but without the inclusion in that assessment of it share income from firm known as Paras Nath Oil Mills. In the course of the assessment of the subsequent year the Income-tax Officer came into possession of information that the assessee had started business in partnership under the name and style of Paras Nath Oil Mills in the accounting year relating to the assessment year 1953-54 and had realized a portion of its income from its share of the income of the partnership business. Accordingly, proceedings were taken against the assessee under section 34 of the Income-tax Act and the share income of the assessee from the firm was included in its assessment.

(3.) LEARNED counsel next referred to the provisions of section 23(5) of the Income-tax Act and urged that they indicate the at first the total income of a registered firm has to be computed and then the tax in the case of a registered firm was to be largely assessed in the hands of the firm itself or if the Income-tax Officer was of the opinion that it was not advantageous to the Revenue to tax the income in the hands of the firm, then on the partners. This provision also does not indicate what is to happen where, without assessment being levied on the firm, the income of the partner in sought to be assessed in the assessment of the partner. Sub-section (5) of section 23 has nothing to do with the assessment of an individual. A partner does not cease to be an individual. Section 23 is the general machinery section for computation of income and for bringing that income to charge. There is nothing in the various sub-section of section 23 to exclude the operation of that machinery in the case of an individual who may also happen to be a partner until the income which such individual derives from the firm has first been assessed in the hands of the firm. Section 23(5) only lays down how an assessment against a firm is to be made and when such an assessment is made what happens in the course of that assessment to the share in the income of the partners and the liability of the partners in respect of their share income.