Tambe, J.:— At the instance of the Commissioner of Income-tax, the Tribunal has referred to us the following question under sub-section (i) of section 66 of the Indian Income-tax Act:

“Whether on the facts and in the circumstances of the case the assessment of the unregistered firm was proper and legal, the two partners of this partnership having been assessed in respect of their shares of income from this partnership business?”

2. The facts giving rise to this reference in brief are: One Murlidhar Jhawar carried on business in the purchase and sale of groundnuts in association with the two partners of the firm called Purna Ginning and Pressing Factory. The business was conducted in accordance with the arrangements between the partners. The conduct of the business was in the hands of Murlidhar. This business venture lasted for a few months in the accounting year ending with 6th November, 1953. We are here thus concerned with the assessment year 1954-55. In the assessment proceedings of partners the profit of the venture as disclosed amounted to Rs. 51,280. The respective shares in the said income from this venture were assessed and brought to tax in the hands of Murlidhar and the two partners of Purna Ginning and Pressing Factory and the three assessments of these persons were completed on gth March, 1957. At the end of the assessment order, the Income-tax Officer made the following note: “Joint venture income with Messrs. Purna Ginning and Pressing Factory taken provisionally subject to rectification after the assessment of the joint venture.” It appears that, at the instance of the Income-tax Officer, Murlidhar voluntarily submitted in November, 1957, a return of the income of the joint venture, but soon on 18th December, 1957, he withdrew the return. The Income-tax Officer, however, proceeded and completed the assessment of the firm under section 23(3) of the Act in the status of an unregistered firm. He computed the income of the joint venture at Rs. 82,925 and brought it to tax in the hands of the firm. Inter alia, an objection was raised to this assessment by the partners on the ground that the income of the joint venture having been already taxed in their hands, it was not open to the Income-tax Officer to tax it again in the hands of the firm, but the same was overruled by the Income-tax Officer. The appeal filed by the firm against the assessment also failed. The firm filed a further appeal before the Tribunal. Before the Tribunal, the firm reiterated its aforesaid contention and further contended that the department was in error in holding that the assessment of the income of the joint venture in the hands of its partners was not final but provisional. The Tribunal accepted the contention of the appellant. It held that the department, having assessed the individual partners and having included their respective shares of profit in the joint venture in their individual assessments, could not again assess the unregistered firm. In support of its conclusion, the Tribunal placed reliance on a decision of this court in J.C Thakkar…Applicant; v. The Commissioner Of Income-Tax, Central, Bombay* [1955] 27 I.T.R 658. and the decision of the Allahabad High Court in Joti Prasad Agarwal v. Income-tax Officer, B-Ward, Mathura [1959] 37 I.T.R 107.. On an application made by the Commissioner of Income-tax, the aforesaid question has been referred to us.

3. Mr. Joshi, learned counsel for the department, raised two contentions before us—firstly, that there is nothing in the provisions of the Income-tax Act that prohibits the income-tax authorities from assessing the income of an unregistered firm in its hands even after having assessed the respective shares of profit of the different partners in their hands, and, secondly, that, at any rate, on the facts of this case, the assessment of the partners was only a provisional assessment, the department reserving to itself a right to assess the income in the hands of the firm.

4. On the first aspect of the question, Mr. Joshi's argument is that the firm is a separate and distinct unit of assessment as contradistinguished from its partners. Each unit is liable to pay tax. sub-section (5) of section 23 gives the department a right to tax the firm and that right is not taken away by any of the provisions of the Act. It is only when the firm is assessed in accordance with the provisions of section 23(5), and the profits of the firm are taxed in” the hands of the partners, then the department would be prohibited from charging the same in the hands of the firm. In the instant case, no assessment under section 23(5) was made on the firm and, therefore, the assessment of the individual partners does not come in the way of the department from charging to tax the income of the firm in the hands of the firm. Mr. Joshi also says that the provisions of sub-section (5) of section 35 recognize the right of the department to assess a firm even after the completion of the assessment of its partners. He places reliance on the decision in Meka Venkatappaiah v. Additional Income-tax Officer, Bapatla and the following observations in Talipatigala Estate v. Commissioner of Income-tax: “But it cannot be said”that the assessment of an individual partner in a particular year is a bar to the assessment of the firm for that year.” We have no hesitation in accepting the argument of Mr. Joshi that an unregistered firm and its partners are two distinct assess-, able entities for the purposes of the Income-tax Act. But we find considerable difficulty in accepting the contention of Mr. Joshi that the department has a right to assess the income of an unregistered firm in the hands of the firm, when the same had been assessed and brought to tax in the hands of its partners. Section 3 is the charging section, and omitting its unnecessary parts, it reads: “Where any Central Act enacts that income-tax shall be charged for any year at any rate or rates, tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, this Act in respect of the total income of the previous year of every firm and other association of persons or the partners of the firm or the members of the association individually.” It would be noticed that, under this section, income-tax in respect of the income of the firm is chargeable in the hands of either of the firm or of the partners of the firm and not in the hands of both. The section, in our view, gives an option to the department to choose. It may choose to tax the income in the hands of the firm or it may choose to tax it in the hands of its partners in accordance with their respective shares. But it is implicit in the section that, once the choice is made to tax either the firm or the partners, it is no more open to the department to go behind it and claim to assess the other. Mr. Joshi however contends that the provisions of section 3 are subject to the provisions of the Act. sub-section (5) of section 23 empowers the department to tax the firm. That right is in no manner taken away by section 3. We are unable to accept this argument. In our opinion, the provision of sub-section (5) of section 23 does not confer a right on the department to bring to tax the income of the firm both in the hands of the partners as well as the firm. On the other hand, in our view, the provisions of sub-section (5) of section 23 come into play when the department proceeds to assess the income of the firm in the hands of the firm and that section deals with the procedure that has to be followed when the assessee is a firm. The material part of sub-section (3) of section 23, as it then stood, reads:

“(5) Notwithstanding anything contained in the foregoing subsections, when the assessee is a firm and the total income of the firm has been assessed under sub-section (1), sub-section (3) or sub-section (4), as the case may be,—

(a) in the case of a registered firm, the sum payable by the firm itself shall not be determined but the total income of each partner of the firm, including therein his share of its income, profits and gains of the previous year, shall be assessed and the sum payable by him on the basis of such assessment shall be determined;

(b) in the case of an unregistered firm, the Income-tax Officer may instead of determining the sum payable by the firm itself proceed in the manner laid down in clause (a) as applicable to a registered firm, 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.”

5. It would be seen that the sub-section has application when the department proceeds to assess the firm, i.e, when the assessee is a firm. The procedure is, firstly, the income of the firm, both registered and unregistered, has to be computed—in the case of a registered firm there is no option to the department, but the respective shares of the partners in the said computed amount of profits have to be taxed in the hands of the respective partners; in the case of an unregistered firm, however, there is still an option left open to the department. It may either choose to tax the income of the firm in the hands of the firm or it may bring to tax the respective shares of the partners in the income in their hands if the requisite conditions are fulfilled. The sub-section however is not a condition precedent for bringing the income to tax in the hands of the partners, if the department otherwise chooses to do so. It is therefore not possible to accept the contention of Mr. Joshi that it is only when the procedure laid down in sub-section (5) of section 23 is followed by the department then alone it would be prohibited from taxing the same income in the hands of the firm. The view taken by us finds support in the decision of this court in J.C Thakkar…Applicant; v. The Commissioner Of Income-Tax, Central, Bombay*, on which reliance has been placed by the Tribunal. In that case, the question arose before this court in exactly the opposite way. The share in the profits of an unregistered firm was, in the assessment of its partner, included in his total income, and was brought to tax in his hands. The assessee, i.e, the partner, inter alia, contended that the said share of profits could not be included in his total income without assessment being made on the firm. In other words, the contention raised was that, without following the procedure prescribed in sub-section (5) of section 23, a partner could not be taxed in respect of his share to the profits in the firm. The stand of the department in that case was exactly opposite to the stand taken here. It was contended on behalf of the department that it was perfectly open to the department to include in the total income of a partner his share of profits and bring it to tax in his hands without following the procedure prescribed in sub-section (5) of section 23. The contention of the department was accepted and it was held that the Income-tax Act advisedly and clearly gives an option to the income-tax authorities either to assess the unregistered firm and then proceed to assess each individual partners of that firm or not to assess the unregistered firm at all but to assess each individual partner and include his share of the profits in the firm in his assessment and, in this view of the matter, the assessment of the partner was held valid. At page 661 of the report, Chagla C.J observed:

“The first section to which we must look naturally is the charging section which is section 3, and unless the legislature has provided for a partner of an unregistered firm being liable to pay income-tax, the assessee's contention must be accepted. Now, as has often been pointed out, the assessable entity under the Income-tax Act is different from a legal entity. The object of the Income-tax Act is to spread its net wide and to include in that net every person and every association of persons, however that association may have been constituted. Therefore we find that what is subjected to tax under section 3 is the total income of the previous year of every individual, Hindu undivided family, company and local authority, and every firm and other association of persons or the partners of the firm or the members of the association individually. Therefore an individual can be assessed to tax, a partnership in which the individual is a partner can be assessed to tax, and section 3 does not provide that when there is a partnership only the firm can be taxed and not the partners of that firm.”

6. Chagla C.J further, at page 667 of the report, observed:

“In our opinion the Income-tax Act advisedly and clearly gives an option to the income-tax authorities either to assess the unregistered firm and then proceed to assess each individual partner of that firm or not to assess the unregistered firm at all but to assess each individual partner and his share of the profits in the firm for his assessment.”

7. We are in respectful agreement with the view. The material part of sub-section (5) of section 35 is in the following terms:

“(5) Where in respect of any completed assessment of a partner in a firm it is found on the assessment or reassessment of the firm… that the share of the partner in the profit or loss of the firm has not been included in the assessment of the partner or, if included, is not correct, the inclusion of the share in the assessment or the correction thereof, as the case may be, shall be deemed to be a rectification of a mistake apparent from the record within the meaning of this section, and the provisions of sub-section (1) shall apply thereto accordingly, the period of four years referred to in that sub-section being computed from the date of the final order passed in the case of the firm.”

8. It is true that this sub-section envisages a case where the assessment of the firm gets completed after assessment of its partners. But we are unable to read in the sub-section anything which confers a right on the department to bring to tax the income of the firm in the hands of the firm after its having been brought to tax in the hands of its respective partners. All that is provided in the section is that in such a case, if on the completion of the assessment of the firm it is found that any income of the firm has not been correctly included in the income of its partners, the necessary rectification in that matter be made in the partners' assessment: as if it was a mistake apparent from the record. The decisions on which reliance is placed by Mr. Joshi, in our opinion, are also not of any assistance to the revenue and are distinguishable on facts. The question that arose in Meka Venkatap-paiah v. Additional Income-tax Officer, Bapatla was one under section 18A(3) of the Act. Section 18A relates to advance payment of income-tax. Sub-section (3) provides that “any person who has not hitherto been assessed shall, before the 15th day of March in each financial year, if his total income of the period which would be the previous year for an assessment for the financial year next following is likely to exceed the maximum amount not chargeable to tax in his case by two thousand five hundred rupees, send to the Income-tax Officer an estimate of the tax payable by him on that part of his incometo which the provisions of section 18 do not apply” Failure to observe the said sub-section rendered the person concerned to pay penal interest. A penal interest was levied on the assessee. Before the High Court, it was, inter alia, contended by the assessee that he was not liable to pay penal interest under section 18A(3) as until immediately before that assessment year, he was a partner in a firm which was assessed to income-tax as an unregistered firm and, therefore, it could not be said that “he had not hitherto been assessed” within the meaning of section 18A(3). This contention was not accepted by the High Court on the ground that the unregistered firm was a distinct assessable entity and was different from the assessee who was a partner of that firm and the assessee was a person “who had not hitherto been assessed” within the meaning of section 18A(3) of the Act. This decision is only an authority for the proposition that an unregistered firm and its partners are two distinct entities under the Income-tax Act. We have already stated that with this proposition we have no quarrel. The other decision is also distinguishable on facts. In that case, in the assessment of only one of the partners of the partnership his share in the profits of an unregistered firm was included in his total income and brought to tax and, thereafter, the department proceeded to assess the unregistered firm as a distinct entity and to bring its income to tax in its hands. On these facts, it has been held that the assessment of a partner was not a bar to the assessment of the firm. We are here concerned with a case not where one of the partners has been assessed, but where the entire income of the firm had been assessed and brought to tax in the hands of all its partners. The decision, therefore, in our opinion, would have no application to the facts of the present case. Apart from it, we may say that the ratio deducible from the decision in Joti Prasad Agarwal v. Income-tax Officer, B-Ward, Mathura appears to run counter to the view taken in this case. In our judgment, therefore, the first contention of Mr. Joshi should fail.

9. It is next to be considered whether on the material on record it can be said that the department had finally exercised its option of assessing the partners. It is the contention of Mr. Joshi that the department had not exercised its option finally when it assessed the partners. At that time, the department was not aware whether the firm was a registered firm or an unregistered firm. It also did not know what the extent of its profits were. The department, therefore, was not in a position to make an option and the assessments of the partners were made subject to the reservation of the right of the department to proceed to assess the firm and bring the income of the firm to tax in its hands. It is indeed true that the assessment of the partners was made subject to certain reservations. But, in view of the endorsement of the Income-tax Officer on the assessment order, it is difficult to hold that the right to tax the income of the firm in the hands of the firm was reserved by the department. In our view, on reading the endorsement all that can be said is that the department had not finally accepted the income, namely, Rs. 51,280 as the income.of the firm, when it proceeded to assess the partners in respect of the income of the firm and had reserved to themselves the right to ascertain the extent and the true income of the firm and make the necessary rectification in the assessment orders of the partners. Therefore, all that was open to the department to do was to compute the income of the firm and make necessary adjustments in accordance with its conclusions. To that the assessee had raised no objection. The second contention raised by Mr. Joshi also, therefore, in our judgment, fails.

10. Our answer to the question referred to us, therefore, is that, on the facts and in the circumstances of the case, the assessment of the unregistered firm in the sense that the income has been charged to tax in its hands was not proper and legal, the two partners of this partnership having been assessed in respect of their shares of income from this partnership business.

11. The department shall pay the costs of the assessee.

12. Order accordingly.