COMMISSIONER OF INCOME-TAX versus MANOHARLAL GUPTA AND CO.

Citation: [1996] 1 S.C.R. 175 · Decided: 05-01-1996 · Supreme Court of India · Bench: B.P. JEEVAN REDDY, S.B. MAJMUDAR · Disposal: Appeal(s) allowed

Judgment (excerpt)

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COMMISSIONER OF INCOME-TAX 
A 
V. 
MANOHARLAL GUPTA AND CO. 
JANUARY 5, 1996 
[B.P. JEEVAN REDDY AND S.B. MAJMUDAR, JJ.] 
B 
Income-Tax Act, 1922: 
S. 3--0ption contemplated under-Assessment year 1961-62-
Unre&istered firrn--Assessed by an ITO-Partner Assessed by another 
!To-Partner's assess111e11t order slating that it would be rec:t~fied when the 
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store income report n.f the partner is received from the ITO assessing the 
firm-Held, option under S.3 not exercised by the ITO-Partner could have 
applied for rect(fication~ssessment offir1n held valid. 
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 187 (NT) of 
1~8. 
D 
From the Judgment and Order dated 26.5.76 of the Calcutta High Court 
in l.T.R. No. 158 of 1973. 
KN. Shukla and S.N. Terdol for the appellant. 
Krishna Kumar and Vimal Dave for the Respondent. 
The following Order of the Court was delivered : 
The Calcutta High Court has answered the following question, referred 
at the instance of the assessee, in the negative i.e., in favour of the assessee and 
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against the Revenue. 
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"Whether, on the facts and in the circumstances of the case, the 
Tribunal was justified in holding that the assessment of the assessee as 
an unregistered firm for the assessment year 1961-62 was proper?" 
The assessee is a firm. The assessment in question relates to assessment 
Year 19~2, governed by Indian Income Tax Act, 1922. Since it did not apply 
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for rcgiS!rat1Btt,-lhc Income Tax Officer completed the assessment treating the 
asscssee as a1l~1lr~gistered finn. He co1nputed the total incorne at Rs. 59, 623 
v,ihich included the sum of Rs. 50,000 as income from other sources which was 
agreed Lo by the assessec (See para 3 of statement of case). The assessee's 
appeal to Appellate Assistant Commissioner was dismissed and so was the 
H 
175 
A 
B 
176 
SUPREME COURT REPORTS 
[1996] l S.C.R. 
further appeal to Tribunal. The main and only contention of the assessee before 
both the appellate authorities was : inasmuch as a partner of the assessee-firm, 
Sri Manoharlal, has been assessed on January 31, 1966 including his share 
income from the asscssee-firm in his asset, the assessment made on assessee-
firm on March 23, 1966 was not permissible. Both the appellate authorities 
rejected this contention. They pointed out that while the assessment of Manohar 
Lal partner was made by Income Tax Officer 'A' Ward, Howrah, the assessment 
on the assessee-firm was made by the Income Tax Officer 'C' Ward, Howrah. 
They held that since the assessments on the partner and the firm were made by 
different Income Tax Officers and further because the Income Tax Officer 
making the assessment on partner mentioned clearly that he would rectify the 
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assessment when he receives the share income report of the said partner from 
the Income Tax Officer assessing the firm, it cannot be said that the Income Tax 
Officer has exercised the discretion to tax the partner (as was permitted by the 
1992 Act) or that the assessment on the firm was invalid in law on that account. 
The High Court has answered the question in favour of the assessee merely 
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following their earlier decision in Mis. Hilulustan Mill Stores Supply Company 
v. Com1nissioner of Income Tax, West Bengal, Income Tax Reference No. 10 of 
(1973). Though the High Court has noted elaborately the contentions of the 
counsel for both sides, it rested its decision exclusively on the aforesaid earlier 
(unreported) decision of that Court. Unfortunately, a copy of the said unreported 
decision is not made available to us. We are, therefore, unable to ascertain the 
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precise reasoning on the basis of which the question has been answered by the 
High Court in the negative. We have, however, heard counsel for both the 
parties and we presume that in the opinion of the High Com1, the assessment 
on the firm is invalid for the reason that the share income of a partner was 
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included in his individual assessment which means that the Income Tax Officer 
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has exercised the discretion, the option, available to him under the 1922 Act. 
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H 
In Commissioner of Income Tax v. Atchaiah, (Civil Appeal No. 2573 of 
1977 delivered on December 11, 1995), this Court has dealt with the position 
of law relevant in this behalf under the 1922 and the present Act. Under the 
1922 Act, the Income Tax Officer had an option either to tax the partners of a 
firm or the firm with respect to the income of the firm but once he exercised 
his option one

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