1. This is a reference made by the Income-tax Appellate Tribunal, Hyderabad Bench, pursuant to the order of this court in I.T.C. Nos. 32 and 33 of 1972, dated March 6, 1974, under Section 256(2) of the I.T. Act, 1961, for the opinion of this court on the following question of law ;

" Whether, on the facts and in the circumstances of the case, the assessment of the association of persons otherwise called as unregistered firm was proper and legal, the members of the association or the partners as they are called, of this association or partnership having been assessed in respect of their share of income from this business of association of persons, otherwise called partnership earlier ?"

2. In order to understand the scope of the question, we will briefly state the material facts admitted or found by the Tribunal which gave rise to the aforesaid question. The respondent-assessee is a firm constituted with 15 partners, consisting of 9 major partners and 6 minors admitted to the benefits of the partnership, under a deed of partnership dated July 16, 1955. One of the partners, Smt. Hussaini Begum, had died on October 6, 1957. . The firm was granted registration under Section 26A of the Indian I.T. Act, 1922 (hereinafter referred to as "the Act "), for the assessment year 1957-58. The firm had filed an application on June 27, 1958, under Section 26A for renewal of registration signed by 8 surviving partners and 3 of the 6 legal heirs of the deceased partner, Hussaini Begum. For the assessment year 1958-59 {corresponding accounting year ended with 31st March, 1958), the firm filed its return of income on May 21, 1960. The partners did not file their returns of income at all. But pursuant to the notices issued by the ITO under Section 34 of the Act, 14 partners filed their returns of income on August 30, 1960, and their assessments were completed on the next day, i.e., on August 31, 1960. The 15th partner, however, filed his return on December 16, 1960, and his assessment was completed on December 31, 1960. The aforesaid assessments of all the partners were regular and final assessments made under Section 23(1) of the Act, subject, however, to the rectification in the total income later on.

3. On March 29, 1963, an order rejecting the claim of the assessee-firm for registration under Section 26A was passed by the ITO who thereupon assessed the firm as an unregistered firm. By its letter dated March 29, 1963, the respondent-assessee objected to the course adopted by the ITO stating that the ITO had already elected to assess the income of the firm in the individual hands of the partners and, therefore, it was no more open to him to tax the income collectively in the hands of the firm. The ITO, rejecting the plea of the assessee, completed the assessment on the same day, i.e., March 29, 1963, treating it as an unregistered firm. The appeals preferred by the assessee before the AAC against the orders of assessments as well as the order refusing registration under Section 26A passed by the ITO were unsuccessful. On further appeals, the Tribunal found that the ITO, before whom the assessment of the firm which had filed its return of income as early as on May 21, 1960, was pending, did not choose to make or complete the assessment of the firm but insisted on the partners firing their returns of income under Section 34 of the Act and the partners having filed their returns, he assessed their share income in their individual hands and passed regular and final orders of assessments of all the individual partners by the end of December, 1960. Hence, the ITO was well aware of the fact that there was a firm of which the said individuals were partners, that the income which he was assessing in their hands was the share income from the said firm, that he had elected to assess the partners individually and that he did not cancel the individual assessments made on the partners even though assessment on the assessee-firm as an unregistered firm was made on March 29, 1963. The Tribunal, therefore, cancelled the assessment made on the assessee-firm as an unregistered firm holding that it was improper and illegal. In view of its finding that the very assessment on the assessee-firm treating it as an unregistered firm was illegal, the Tribunal felt it unnecessary to deal with the other matters relating to the quantum of assessment and the claim of registration of the firm, as the income was already assessed in the hands of the partners individually. Hence, this reference.

4. The contention of Sri P. Rama Rao, learned counsel for the revenue, is that the ITO is empowered to assess the entire income of the firm under Section 23(1) of the Act in the status of an unregistered firm as the earlier assessments made on the individual partners were only provisional but not final. In any event, they were made subject to rectification. This claim of the department is resisted by the assessee contending, inter alia, that it is not open to the ITO to assess the respondent-firm in the status of an unregistered firm having already elected to assess the same income in the hands of the individual partners.

5. Under Section 3 of the Act income-tax shall be charged in respect of the total income of the previous year of every individual, HUF, company, local authority, firm, association of persons or the partners of the firm or the members of the association individually. The firm, be it registered or unregistered; is a separate and independent assessable entity. The partners of the firm and members of the association are also assessable units independently of the firm and association of persons. Therefore, a firm and the individual partners of the firm are two distinct and different assessable entities and income-tax is leviable on either of the two entities in accordance with the provisions of Section 3 of the Act. The partners of a firm may be assessed individually or collectively in the status of an unregistered firm. The income-tax authorities are, however, not competent to seek to assess the same income twice, i.e., once in the hands of the partners individually and again in the hands of the unregistered firm as a unit.

6. Section 23 of the Act provides for regular assessments. Section 23(5) prescribes the mode of assessment on a firm. Section 23(5Xa) enjoins the ITO to determine the total income of each partner of a registered firm including therein his share of its income, profits and gains of the previous year for the purpose of assessment and determine the tax payable by him on the basis of such assessment. In the case of a registered firm, the sum payable by the firm itself shall not be determined by the ITO. Therefore, according to section 23(5)(a), it is sufficient if the total income of the registered firm is determined and thereafter the share income of each partner is allocated. The total income of each partner of the firm shall be assessed after including his share income of the registered firm. Section 23(5)(b) empowers the ITO to assess an unregistered firm as a unit. However, Sub-clause (b) empowers the ITO to proceed in the manner laid down in Clause (a) as applicable to a registered firm, instead of determining the sum payable by the firm itself, if, in his opinion, the aggregate amount of the tax including super-tax, if any, payable by the partners under such procedure would be greater than the aggregate amount which would be payable by the firm and the partners individually if the firm were assessed as an unregistered firm.

7. Section 23B provides for making provisional assessment in advance of regular assessment by the ITO at any time after the receipt of the return made under Section 22. The assessment under Section 23B, which is made in a summary manner, is a provisional assessment of the tax payable by the assessee on the basis of his return. Section 23B(2) provides for a provisional assessment on a partner of the firm in respect of his share in the firm's income, if its return has been received, although the return of the partner himself may not have been received. sub-section (3) of section 23b provides that a firm also may be provisionally assessed under Sub-section (1) as if it were an unregistered firm. According to sub-section (4) of section 23b, there is no right of appeal against the provisional assessment.

8. In the present case, as pointed out earlier, the assessments made on the partners on August 31, 1960, and 31st December, 1960, were regular and final assessments under Section 23(1) but not provisional assessments under Section 23B. The framers of the Act made a clear distinction between a regular and final assessment under Section 23(1) and a provisional assessment under Section 23B. In this case regular assessments under Section 23(1) were made on 31st August, 1960, and 31st December, 1960, when the income of the firm by its return dated May 21, 1960, was known to the ITO and when the assessment of the firm was still pending before him. That apart, the aforesaid assessments on the partners of the firm were made on the basis of the returns filed by them pursuant to the notices issued under Section 34 of the Act.

9. The cumulative effect of the aforesaid admitted facts would leave no doubt in our minds to hold that the assessments made in the instant case by the ITO for the assessment year 1958-59, on the partners of the respondent-firm are not provisional but are regular and final assessments.

10. The submission of the learned counsel for the revenue that they were not final but were only subject to rectification in the total income later on cannot be acceded to. This rectification of the assessment on the partner of a firm would be permitted if the real or true income is known subsequently after determining the 'assessment of the firm. In the present case, the share income of each of the partners of the firm is not in doubt. The income of each partner was known to the ITO at the time of the very assessments themselves since the return of income of the firm was filed even in May, 1960. The ITO has no authority to ignore the assessments already made on the partners under Section 23(1) and subsequently proceed to assess the respondent-firm in the status of an unregistered firm. It is not open to the income-tax authorities to bring the same income twice to tax, once in the hands of the partners and again in the hands of the unregistered firm.

11. This view of ours gains support from the decision of the Supreme Court in CIT v. Murlidhar Jhawar and Purna Ginning and Pressing Factory , wherein it was held that the assessment of the unregistered firm was improper and illegal as two partners of the firm had been assessed in respect of their shares of income from the partnership business. In that case, the ITO had assessed the income of the partners separately and added to their individual income his or her share in the profits of the partnership business. The three partners were not a registered-firm and they could be assessee to tax collectively as an association of individuals or as an unregistered firm if the relation between them was of partners. In these circumstances, the Supreme Court ruled (at p. 98):

" When the Income-tax Officer assessed the three parties separately he unquestionably exercised an option knowing that they had entered into a trading transaction in which they were jointly interested."

12. It was mentioned therein that the joint venture income with M/s. Purna Ginning and Pressing Factory taken provisionally subject to rectification after the assessment of the joint venture was incorporated in the order of the AAC. The court observed that the ITO was aware of the fact that the income of the joint venture was taxable collectively but he thought that he could, in law, in the first instance, make an "assessment provisionally" of the three partners separately and then rectify the assessments later. It approved the finding of the Tribunal that once the option is exercised for assessing the individual partner and including his share of profits in the firm in his assessment, it is not open to the department to assess the same as income of the unregistered firm.

13. The submission of Mr. Rama Rao that the unreported decision of this court in R.C. No. 159/78, dated 21st February, 1979 (Deccan Bharat Khandsari Sugar Factory v. CIT [1980] 123 ITR 802) would support his plea cannot be acceded to. This unreported decision is distinguishable on facts. Therein, the Tribunal held that the registration of the firm was rightly refused and that the assessment of the assessee should be made as an unregistered firm and the firm and partners would have to be assessed as separate taxable entities without any violence to the principle of double taxation in respect of the same income. The Tribunal further held that there was no question of option being exercised by any assessing authority. In those circumstances, this court held that the assessee was not entitled to the benefits of registration and that the assessment as an unregistered firm was proper and legal. Hence, that case would not, in any way, advance the claim of the revenue.

14. For all the reasons stated, our answer to the question is in the negative holding that the assessment on the unregistered firm was improper and illegal in view of the admitted fact that the ITO had already elected and opted to assess the share income of the partners individually knowing fully well that he could assess the assessee in the hands of an unregistered firm if the claim of the assessee for registration under Section 26(A) was ultimately refused. The respondent-assessee shall have the costs of this reference. Advocate's fee Rs. 300.