Sudhangshu Sakkar Paul vs Commissioner of Income Tax

Ajit K. Sengupta, J.—In this reference u/s 236(1) of the income tax Act, 1961 (''the Act'') for the assessment years 1980-81 and 1981-82 the following question of law has been referred to this Court:

Whether, on the facts and in the circumstances above, the Tribunal was justified in upholding the action of the ITO in including in the assessee''s total income the share income from the firm when the assessee has not received his share of income from the firm ?

Shortly stated, the facts are that the assessee, an individual, is a partner in the firm Gopinath Paul & Sons which is a registered firm. For the assessment year 1980-81, the ITO added a sum of Rs. 42,853 to the income of the assessee, being the allocated share from the aforesaid firm falling in the assessee''s share. For the assessment year 1981-82 also, the ITO added a sum of Rs. 67,464 to the income of the assessee, being his share of profit from the aforesaid firm.

For both assessment years the assessee appealed to the AAC before whom it was pointed out that the income from the partnership firm and the extent of the assessee''s share in the firm is subject to litigation before the Calcutta High Court and that the assessee had not received any share from the firm. The AAC directed the ITO not to include income from the partnership firm in the total income of the assessee. It was further observed by the AAC that in case the High Court decides that the assessee had ascertained share of profit from the firm, the ITO could rectify his order u/s 154/155 of the Act as per decision of the Calcutta High Court. For the assessment year 1981-82 also the AAC deleted the share income from the firm Gopinath Paul & Sons and directed the ITO to take appropriate action on the decision of the suit pending before the High Court.

Aggrieved by the orders of the AAC, the department came up in separate appeals for both the assessment years before the Tribunal. The Tribunal after considering the rival contentions advanced on behalf of the parties as also the facts on record opined that the ITO was bound to include the share of the assessee in the income of the said firm in his total income for the assessment year 1980-81. The Tribunal observed that for the subsequent assessment year the ITO included the share in the profit of the firm in the total income of the assessee presumably on the basis of the accounts filed by the assessee. The Tribunal was of the view that the lower appellate authority was in error in directing the exclusion of the share of the assessee in the income of the firm from its total income. The Tribunal set aside the order of the lower authority for the two years and restored those of the ITO.

At the hearing Mr. Bhattacharyya, the learned counsel appearing for the assessee, has contended firstly that the Tribunal did not advert to the facts and circumstances of the case in coming to the conclusion as it did. On the basis of the submissions of the counsel appearing for the assessee before the Tribunal the Tribunal recorded its finding that the assessee was maintaining accounts on mercantile basis. He has also submitted that from the order of the Tribunal it would appear that the suit was filed for dissolution of the partnership firm and after the suit was filed there could not be any assessment of the firm as registered firm, nor was there any question of allocation of any income in the hands of the assessee. We are afraid in this advisory jurisdiction we cannot bring in new facts; we are bound by the facts found by the Tribunal. Since none of the findings has been challenged before us, we have to proceed on the basis of the facts found and/or admitted by the Tribunal. However, our answer to the question in this reference on the basis of the facts found by the Tribunal will not prevent the assessee to challenge the assessment order in the case of the firm or the assessment made in this case being without jurisdiction or in excess of jurisdiction if the assessee is so advised and is entitled in law to do so.

The facts which have been found by the Tribunal were that the assessee was maintaining the accounts according to the mercantile system. But the fact remains that the assessment of the firm was made as registered firm, as such the income from the partnership firm is includible in the hands of the assessee, a partner of the firm. That apart, section 182(1) of the Act provided that after the income of the firm has been determined by the ITO, the share of each partner in the income of the firm shall be included in its total income and assessed to tax, accordingly, in the year in which such allocation has been made. In our view, therefore, apart from the fact that the Tribunal proceeded on the footing that the assessee was following the mercantile system of accounting, in terms of section 182(1) such income is includible, being the assessee''s share in the profit of the firm in the total income of the assessee. For the reasons aforesaid, we answer the question in this reference in the affirmative and in favour of the revenue and against the assessee.

There will be no order as to costs.

Banerjee, J. -

I agree.