THE COMMISSIONER OF INCOME TAX VISAKHA. V. M/S BHANU ENTERPRISES KAKINADA

RC/86/1999

AI Insights

The case involves an unregistered firm that was assessed as such by the Income Tax Officer, despite the partners filing returns that included income from the firm, which were processed without objection. The Tribunal initially upheld the firm's unregistered status, referencing a previous High Court judgment and a CBDT circular. However, the Supreme Court's decision in Atchaiah's case, which clarified the treatment of unregistered firms under the Income Tax Act, 1961, led to a re-evaluation of the Tribunal's decision. The High Court of Andhra Pradesh, upon reviewing the matter, decided to remand the case back to the Tribunal for further examination in light of the Supreme Court's ruling.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 742181 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 11-06-2014
• Assessment Year: misc
• Other Referred Cases: CIT Vs. Karkhana Zinda Tilismath (123 ITR 814), I.T.O. Vs. Ch. Atchaiah (Vol.218 ITR 239 SC), B.R. Constructions (202 ITR 222)
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: HIGH COURT
• Assessee Lawyers: S R ASHOK
• Keywords: Assessment; Income Declaration; Income Tax; Registered firm; Tax Levy; Unregistered firm
• Section: 256

Judgement Text

"THE HON’BLE SRI JUSTICE L. NARASIMHA REDDY AND THE HON’BLE SRI JUSTICE T. SUNIL CHOWDARY REFERENCE CASE No.86 of 1999 JUDGMENT: (Per LNR,,J) This reference, under Section 256 of the Income Tax Act, is made by the Income Tax Appellate Tribunal, Hyderabad Bench-A (for short ‘the Tribunal’), at the instance of the Commissioner of Income Tax, Visakhapatnam. The respondent is an unregistered firm, undertaking certain commercial activities. For the assessment year 1986-87, the partners of the firm filed returns, not only showing the income derived from other sources, but also the income from the firm. The Income Tax Officer, however, sought to assess the firm as an unregistered one. An objection was raised stating that once the returns filed by the partners showing the income from the firm were processed and tax was levied, no independent assessment can be made against the firm. The Assessing Authority did not accept the contention and assessed the firm as an unregistered one. The firm i.e., the respondent preferred an appeal before the appellate authority, and it was allowed. Assailing the order of the appellate authority, the Assessing Authority preferred an appeal before the Tribunal. Through its order, dated 28.02.1996, the Tribunal dismissed the appeal, following the judgment of this Court in CIT Vs. Karkhana Zinda Tilismath (123 ITR 814) as well as the Circular, dated 24.08.1966, issued by the Central Board of Direct Taxes. Therefore, the Revenue wanted the Tribunal to frame a question and refer it to this Court for answer. The request was acceded to and the following questions are framed: 1) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in treating the assessee as a registered firm? 2) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in applying the judgment of the A.P. High Court in the case of Karkhana Zinda Tilismath (123 ITR 814) and B.R. Constructions (202 ITR 222)?” Sri S.R. Ashok, learned Senior Counsel for the Income Tax Department, submits that whatever may have been the justification for the Tribunal in setting aside the order of assessment, following the judgment of this Court in Karkhana Zinda Tilismath’s case, the matter needs to be reconsidered, in view of the judgment of the Supreme Court in I.T.O. Vs. Ch. Atchaiah[1]. The record discloses that the respondent was not served with notice in this R.C. Having regard to the nature of disposal, which we propose to give to this case, it is felt and necessary to await service of notice, at this length of time. Under the Income Tax Act, the registered firm, on the one hand, and the unregistered firm, on the other hand, are dealt with differently, at least, from the point of view of the quantum of tax. As regards the unregistered firm, a semblance of presumption or election was provided. In case the partners of an unregistered firm submit returns and show the income earned from the firm and the declarations are processed, without any objection as to the inclusion of the income from the firm, a presumption is drawn to the effect that the firm is treated as a registered one. As a consequence, the department would be precluded from assessing the firm separately, as an unregistered one. The law, in this regard, was laid by this Court in Atchaiah’s case. That very judgment was carried in appeal to the Supreme Court. Their Lordships of the Supreme Court took note of the relevant provisions of the Indian Income Tax Act, 1922 and the Income Tax Act 1961. It was held that the option to assess either an individual or an association of persons like the firm was provided for only under the Indian Income Tax Act, 1922. It was also observed that under the Income Tax Act, 1961, which is now in force, the processing of a return of the association or an individual, who incidentally is a partner of an unregistered firm, does not preclude the authority from assessing the firm also, as an unregistered one. Therefore, the view taken by the Tribunal cannot be treated as correct, in view of the judgment of the Supreme Court in Atchaiah’s case. The question as to whether the respondent can be assessed as an unregistered firm, at this stage, would require a factual verification, namely, whether it is in existence at all, and if so, in what form. This would be possible, if only the matter is remanded to the Tribunal. We, therefore, answer the questions framed by the Tribunal in the negative and in favour of the department. We, however, remand the matter to the Tribunal for fresh consideration and disposal, in the light of the judgment of the Supreme Court in Atchaiah’s case, provided the respondent firm is still in existence or is otherwise amenable to assessment. The Reference Case is, accordingly, disposed of. There shall be no order as to costs. The miscellaneous petitions filed in the reference case shall stand disposed of. _____________________ L. NARASIMHA REDDY, J ____________________ T. SUNIL CHOWDARY, J 11th June, 2014 cbs THE HON’BLE SRI JUSTICE L. NARASIMHA REDDY AND THE HON’BLE SRI JUSTICE T. SUNIL CHOWDARY R.C.No.86 of 1999 11th June, 2014 cbs [1] (1996) (Vol.218) ITR 239 (SC) "