ORDER
Per Shri J. G. Pendse, Accountant Member – These appeals by the assessees arise out of the separate common orders dated 16-11-1994 of the CIT(A), Madurai. For the sake of convenience the appeals are heard together and disposed of by a common order.
2. The assessees are non-resident. They are partners in two firms namely Messrs. Ramalakshmi Mills and M/s. Gowrishankar Screws. For the asst. years 1991-92 and 1992-93 the assessees derived share income of Rs. 38,546 and Rs. 263 respectively from M/s. Ramalakshmi Mills and Rs. 1,11,079 and Rs. 1,24,143 respectively for the asst. years 1991-92 and 1992-93 from M/s. Ramalakshmi Mills for the asst. years under consideration from M/s. Gowrishankar Screws. The assessees did not include the relevant share income in their returns. However, in the accompanying statements the fact that they were partners in the above firms and their share income were included and it was contended that the share income was not included on the ground that the tax on the income was paid by the respective firm as per section 182(3) of the Act. The Assessing Officer did not accept this contention. Based on the information furnished in the returns he included the relevant share income under section 143(1)(a) by making prima facie adjustments. The Assessing Officer did not indicate any reason for such adjustments. The assessees filed applications under section 154 which were also rejected by the Assessing Officer. While making the adjustments the Assessing Officer also levied additional tax under section 143(1A).
3. On appeal, the CIT(A) upheld the adjustments made by the Assessing Officer for the reasons stated in his appellate orders and also the levy of the additional tax, against which the assessees are in appeal before the Tribunal.
4. The first ground of appeal common for both the asst. years is that the adjustment made does not fall within the scope of section 143(1)(a). The assessees representative stated that the Assessing Officer did not follow the Circular No. 689 dated 24-8-1994 of the CBDT. He further stated that the provisions of section 182(3) require that tax should be assessed on the firm. Hence the assessees were not required to include the same in their returns of income on account of the specific provisions of section 182(3). The Departmental Representative, on the other hand, supported the orders of the authorities below.
5. We have considered the rival submissions. The Circular No. 689 [209 ITR (St.) 75] clearly states that, an incorrect claim, if such incorrect claim is apparent from the existence of other information in the return or the accompanying accounts or documents could be adjusted and certain illustrations have been given. Obviously it is not practicable to include apparent adjustments on account of incorrect claims. One cannot say that the ITO did not consider the Circular fully. Hence this claim of the assessees that the Circular of the Board in question was not considered by the Assessing Officer is hereby rejected.
6. Then we come to the issue of scope of section 143(1A) and as to whether these items fall within the provisions of that section. The provisions of section 143(1A) are restrictive. The assessees share from the registered firms is to be determined in accordance with the provisions of section 182. The provisions of section 182(1) read as under :
182(1) : “Notwithstanding anything contained in sections 143 and 144 and subject to the provisions of sub-section (3), in the case of a registered firm, 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.”
Provisions of section 182(3) read as under :
182(3) : “When any of the partners of a registered firm is a non-resident, the tax on his share in the income of the firm shall be assessed on the firm, at the rate or rates which would be applicable if it were assessed on him personally, and the tax so assessed shall be paid by the firm.”
When the above two sections are read together, it emerges that share of each partner in the income of the firm is required to be included in the total income and assessed to tax. However, in case of a non-resident partner, the demand (the tax on the share of non-resident partner) is required to be assessed on the firm and this tax will have to be taxed at the rate or rates which would be applicable if it were assessed on him personally and such tax shall be paid by the firm.
7. In view of the harmonious interpretation of the provisions of section 182(1) and (3), the assessees share from the registered firms shall be required to be taken into consideration to ascertain the overall tax liability of the assessees and the amount of tax to be paid by the firm.
8. In this connection it would be worthwhile to refer to the provisions of section 143(1)(c) which read as under :
“(c) Where the assessee is a member of an association of persons or body of individuals and as a result of the adjustments made under the first proviso to clause (a) of sub-section (1) in the income or loss declared in the return made by the association or body, as the case may be, or as a result of an order made under sub-section (3) of this section or section 144 or section 147 or section 154 or section 155 or sub-section (1) or sub-section (2) of section 186 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264 or any order of settlement made under sub-section (4) of section 245D passed subsequent to the filing of the return referred to in clause (a), there is any variation in his share in the income or loss of the association or body, as the case may be, or in the manner of inclusion of his share in the returned income, then –
(i) if any tax or interest is found due, an intimation shall be sent to the assessee specifying the sum so payable, and such intimation shall be deemed to be a notice of demand issued under section 156 and all the provisions of this Act shall apply accordingly, and (ii) if any refund is due, it shall be granted to the assessee :”
The above shows that the adjustment regarding the share from the registered firm or Association of Persons fall within the adjustments permitted under section 143(1) (c).
9. A plain reading of section 143(1A) shows that the additional tax is to be levied only with reference to the adjustments made under section 143(1)(a). There is no such provision with reference to the adjustments under section 143(1)(c). It is significant to note that the provisions of section 143 (1A)(b) permits the adjustments to the additional tax levied under various sections, as a consequence of appellate orders, rectification, revision, etc. However, no adjustments are mentioned with reference to the adjustments regarding the income brought to tax being a member of an AOP, etc. It is also significant to note that the variation of the shares in the firm done under section 154 would not attract additional tax, as section 155 is specifically excluded under the provisions of section 143(1A).
10. It may be mentioned here that the assessee had specifically stated that the tax on the income is to be paid by the firm under the provisions of section 182(3). The basic principle of tax is that any additional tax would be attracted only if the tax was payable. In the present case the tax on the income from the firm was not payable by assessees but was payable by the firm in which they are partners. Since the tax itself is not attracted, such income would not attract additional tax also. This is so because of the basic principle that in order to attract tax and additional tax the amount should be brought within the taxability of income to be included. In view of the above, we hold that the additional tax is not attracted in the present case on account of inclusion of share from the registered firms to the assessees income.
11. Regarding the manner of computation of tax on the non-resident the provisions of section 182(3) are clear. It makes eminently clear that the right or rights that would be applicable would be those if it were assessed on him personally. Thus the income is required to be included for tax purposes for the purpose of computation of tax payable by the assessees and that portion of tax which relates to the share from the firms would need to be demanded from the firms. This can be done by the Assessing Officer. Obviously while making such demand from the firms the Assessing Officer will give credit for the tax paid by these firms.
12. For statistical purposes, the appeals are treated as allowed in part.