K.N. Seth, J.
1. The petitioner is a legal practitioner. On April 1, 1973, the petitioner and another advocate, Shri Har Gopal Malik, constituted a partnership firm, M/s. Malik and Company, Thaparnagar, Meerut, to carry on legal profession. The share of the petitioner was 40 per cent, and that of Sri Har Gopal Malik 60 per cent. The firm was registered under the I.T. Act (hereinafter referred to as 'the Act') and continued till March 31, 1978. For the assessment years 1974-75 to 1978-79 (five years) the ITO assessed the firm and the share of the partners in the firm was separately assessed to tax. The petitioner filed applications before the ITO under Section 154 of the Act for the years 1974-75 to 1977-78 for rectification of the assessments. It was pleaded that excess tax had been recovered from the petitioner inasmuch as tax had been recovered from the registered firm as well as from him individually on the same income. The assessment for 1978-79 was sought to be revised by the Commissioner under Section 264 of the Act. The ITO rejected the four applications under Section 154 of the Act. The petitioner filed revisions under Section 264 of the Act. The Commissioner, however, dismissed the revisions by his order, dated February 2, 1982, on the ground that the matter did not fall within the ambit of Section 264 of the Act, since it challenged the constitutional validity of a statute.
2. The stand taken by the petitioner is that the firm was not a legal person. It is only a forum for the partners to function. For the sake of convenience the Legislature decided to make the firm provisionally, and the partners finally the assessees. The income of the registered firm when allocated in the hands of the partners was nothing but receipt of distributed income and not income within the meaning of Section 2(24) of the Act, and when the income of a registered firm was by operation of law diverted towards the partners, nothing was left in the hands of the firm and the firm as such had no income. The tax recovered from the firm had to be refunded to the partners and the petitioner was entitled to credit thereof to the extent of his share in the firm, i.e., 40 per cent. Income is always taken in its ultimate and not in its proximate stage. The allocation of the firm's income in the hands of the partners as taxable income is thus void. It is also asserted that double assessment is not possible. The provisions of Sections 67 and 182 warranting assessment of partners' share income in the firm are void being violative of Articles 14, 19(1)(f) and 19(1)(g) of the Constitution. In this connection it was stressed that Sections 67 and 182 of the Act create obvious discrimination between members of registered partnership firms and members of Hindu undivided families, partners of unregistered firms and associations of persons. It is unjust, unreasonable and against the fundamental concept of justice and fair play. The petitioner has prayed for quashing the order of the Commissioner of Income-tax, dated February 2, 1982 and to declare that Sections 67 and 182 of the Act and the related provisions are ultra vires the Constitution being violative of the petitioner's right under Articles 14, 19(1)(f) and 19(1)(g) of the Constitution. It has also been prayed that the I.T. authorities be directed to compute the tax payable by the petitioner after deducting the amount paid by the partnership firm to the extent of 40 per cent.
3. Section 4 of the Act imposes income-tax upon a person in respect of his total income. Section 2(31) enumerates the categories of assessees who fall within the definition of the word ' person '. An analysis of Section 4 indicates that, (i) income-tax is to be charged at the rate or rates fixed for the year by the annual Finance Act; (ii) the charge is on every person, including the assessable entities enumerated in Section 2(31)(iii) the income taxed is that of the previous year and not of the year of assessment; and (iv) the levy is to be on the total income of the assessable entity computed in accordance with and subject to the provisions of the Act. The charge is on every ' person ', which, under Section 2(31), includes, (i) an individual, (ii) a Hindu undivided family, (iii) a company, (iv) a firm, (v) an association of persons or a body of individuals, whether incorporated or not, (vi) a local authority, and (vii) every artificial juridical person not falling within any of the preceding clauses. Beaumont C. J. In re Patiala State Bank : [1941]9ITR95(Bom) ' income-tax is a tax on a person in relation to his income......The tax is not made a charge on the income upon which it is levied '. Each of the assessable entities enumerated in Section 2(31) is a distinct entity and can be taxed as such in accordance with and subject to the other provisions of the Act.
4. The Act has made provisions relating to the assessment of registered firms. Section 67 of the Act provides for the method of computing a partner's share in the income of the firm. Section 182 of the Act, which deals with the assessment of registered firms, lays down that after assessing the total income of the firm, (i) the income-tax payable by the firm itself shall be determined, and (ii) the share of each partner in the income of the firm shall be included in his total income and assessed to tax accordingly. Section 86(iii), on the other hand, makes a provision that tax is not payable by a person who is a partner of an unregistered firm in respect of that portion of the income of the firm upon which tax is payable by the firm. Thus, specific provisions have been made in the Act relating to the income of a registered firm as well as that of an unregistered firm. Similar provisions have been made relating to income distributed by a company to its shareholders out of the income earned by the company. The charging section is subject to these provisions of the Act.
5. Learned counsel placed reliance on the decision of this court in Joti Prasad Agarwal v. ITO : [1959]37ITR107(All) . That case related to an association which was formed under a scheme formulated by the District Collector for distribution of khandsari sugar at controlled rates. The members contributed varying amounts towards the working capital of the association. Out of the 30 members of the association, 23 were assessed to income-tax and in their individual assessments their respective shares of the profits earned by the association during that period were included and the tax levied thereon was paid by them. Later, the ITO initiated assessment proceedings and assessed the income of the association in its hands. Some of the members thereupon applied to the High Court for relief against the order of assessment on the association. This court held that once the income of the association was charged to income-tax in the hands of the members individually and the assessments of the members remained valid assessments, there could be no fresh assessment of the income in the hands of the association. It was observed (p. 111):
' Section 3 of the Act, which is the main charging section, only talks of charging the income of certain persons and does not talk of income-tax being charged on persons. This implies that the charge is to be levied on an income only once. Whether it is to be charged in the hands of one person or another can certainly be determined under Section 3 and other relevant provisions of the Income-tax Act. Section 3 is clear enough to indicate that the same income cannot be charged repeatedly in the hands of different persons or in the hands of the same person.'
6. Reliance was also placed on the decision of the Supreme Court in CIT v. Murlidhar Jhawar and Puma Ginning and Pressing Factory : [1966]60ITR95(SC) . In that case three persons carried on business. The ITO taxed a third share computed as profits from the business in the hands of each of the three parties. Thereafter, he assessed them in the status of an unregistered firm computing the income of the joint venture. The AAC confirmed the order passed by the ITO. The Tribunal held that the ITO had the option to assess the individual parties to the joint venture, and he having exercised that option, it was not open to him thereafter to reassess the same income collectively in the hands of the three parties to the joint venture in the status of an unregistered firm. The ITO could not, however, seek to assess the same income twice, once in the hands of the partners and again in the hands of the unregistered firm. Both the cases referred to above arose under the 1922 Act, and related to unregistered firms (and/or association) of persons. No analogy can be drawn between the case of an association of persons or an unregistered firm and the case relating to a registered firm and its partners. The Act specifically provides for assessing the income in the hands of a registered firm and thereafter the share of such income received by the partners. The dictum laid down in the case of an association of persons or an unregistered firm cannot be extended to the case of a registered firm regarding which there is an express provision in the Act.
7. Reliance was also placed on the decision of this court in Addl. CIT v. Smt. Trivem Devi : [1974]97ITR390(All) . In that case, the business premises of the assessee-firm and the residential house of the partners were raided. The books of account and documents recovered indicated that the firm had been concealing its income. Supplementary assessments were made against the firm levying tax on the concealed income. Later, proceedings for levying penalty under Section 271(1)(c) were taken against the firm as well as its partners. It was held that the firm in which the assessee was a partner was a registered firm but, for purposes of imposing penalty, it was treated as an unregistered firm. On the principle of Section 86(iii), which lays down that tax is not payable by a person who is a partner of an unregistered firm in respect of a portion of the income of the firm upon which tax is payable by the firm, penalty could not be imposed on the partners after the firm had been subjected to penalty, following the principle laid down by the Supreme Court in C. A. Abraham v. ITO : [1961]41ITR425(SC) , that a penalty is nothing but an additional tax and the principle contained in Clause (iii) of Section 86 would apply as much to penalty as to tax. The principle laid down in the aforesaid case is not attracted to the present case in view of the specific provisions of the Act referred to earlier.
8. Question similar to the one raised in the present petition came up for consideration before the Mysore High Court in K. V. Adinarayana Setty v. ITO : [1964]52ITR987(KAR) . It was contended that the levy made on him on the basis of a share of income of a firm is an invalid levy and Section 14(2)(aa) of the 1922 Act was void being violative of Article 14 of the Constitution. Section 23(5)(a) clearly enunciated that in respect of the income earned by a registered firm, not only the registered firm is assessable to tax, but also its partner, to the extent of his share in the income of that firm. Dealing with this provision it was observed that Section 23(5)(a) requires the assessing authorities not only to assess the registered firm in respect of its income, but also to assess its partners to the extent of his share in the firm's income, which means Section 23(5){a) is a charging section. Section 3 is a general provision dealing with assessees as a class, whereas Section 23(5)(a) is a special provision, providing for the assessment of registered firms as well as their partners. The fact that both a registered firm as well as its partners received their income from the same source is not a relevant consideration for the purpose of Section 23(5)(a). For the purpose of the Act, a registered firm is an entity by itself. Its income is liable to be taxed in its hands. Similarly, the share of profits realised by the partner of a registered firm has to be deemed as the income of the partner in view of Section 23(5)(a). Therefore, the same is again liable to tax. For the purposes of the Act, a deemed income can also be made the subject-matter of tax: (see CIT v. Bhogilal Laherchand : [1954]25ITR50(SC) ). Whether both the registered firm as well as its partners should be subjected to tax in respect of the same earning is a matter of legislative policy. The court also repelled the contention that Section 14(2)(aa) of the Act was void being in conflict with the equality clause enshrined in Article 14 of the Constitution.
9. The argument that the provisions of Sections 67 and 182 of the Act are discriminatory is wholly untenable. It is true that when a Hindu joint family is assessed to tax, its members are exempt from tax, when an unregistered firm is subjected to tax its partners are exempt from tax, but when it comes to the case of a registered firm, not only the firm is made liable to pay tax, but also its partners are made liable to pay tax. But we must not ignore the fact that while a registered firm is given considerable concessions in the matter of taxation, no such concessions are available either to a Hindu joint family or to an unregistered firm. The provisions of the Act have clearly differentiated a registered firm from other firms as well as from other associations of persons. A clear-cut classification is made between the several units and that classification is made in pursuance of the object of the Act. Such classification is permissible and would not amount to discrimination between several assessable entities coming within the mischief of Article 14 of the Constitution.
10. The decision of the Supreme Court in Jain Brothers v. Union of India : [1970]77ITR107(SC) , provides a complete answer to the argument raised by the petitioner. Dealing with the question of double taxation, the Supreme Court observed (p. 112) ;
' It is not disputed that there can be double taxation if the legislature has distinctly enacted it. It is only when there are general words of taxation and they have to be interpreted, that cannot be so interpreted as to tax the subject twice over to the same tax (vide Channell J. in Stevens v. Durban Roodepoort Gold Mining Co. Ltd. [1907] 5 TC 402 (KB). The Constitution does not contain any prohibition against double taxation even if it be assumed that such a taxation is involved in the case of a firm and its partners after the amendment of Section 23(5) by the Act of 1956. Nor is there any other enactment which interdicts such taxation. It is true that Section 3 is the general charging section. Even if Section 23(5) provides for the machinery for collection and recovery of the tax, once the legislature has, in clear terms, indicated that the income of the firm can be taxed in accordance with the Finance Act of 1956, as also the income in the hands of the partners, the distinction between a charging and a machinery section is of no consequence. Both the sections have to be read together and construed harmoniously. It is significant that similar provisions have also been enacted in the Act of 1961. Sections 182 and 183 correspond substantially to Section 23(5) except that the old section did not have a provision similar to Sub-section (4) of Section 182. After 1956, therefore, so far as registered firms are concerned, the tax payable by the firm itself has to be assessed and the share of each partner in the income of the firm has to be included in his total income and assessed to tax accordingly. If any double taxation is involved, the legislature itself has, in express words, sanctioned it. It is not open to any one thereafter to invoke the general principles that the subject cannot be taxed twice over. '
11. Dealing with its earlier decision in the case of Murlidhar Jhawar and Purna Ginning and Pressing Factory : [1966]60ITR95(SC) , it was observed that the decision in that case could not be of much assistance as it related to an unregistered firm and to an assessment of the accounting year ending November 6, 1953. The provisions which came up for consideration had no parallel to those made in respect of a registered firm by an express amendment of Section 23(5) by the Finance Act of 1956. It was observed that the facile analogy of passage of money given by Rowlatt J. in IRC v. Frank Bernard Sanderson [1921]8 TC 38 (KB) will not carry the matter further where the statute had made an express provision for the income of the firm and the income in the hands of the partners being both liable to tax.
12. In our opinion, the points raised in the petition are devoid of any merit. The petition, accordingly, fails and is hereby rejected.
Petition dismissed.