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Rowlatt J. in Commissioners of Inland Revenue v. Frank Bernard Sanderson 8 T. C. 38, 44, 45. (1921) in a classic dictum illustrated the two stages of passage of money in his inimitable words as under :

” It is often said, but not always understood, that in income-tax the same income is not taxed twice. That means that you cannot tax it more than once on one passage of the money in the form of one sort of income. If a man earns £ 100 by his profession and gives it to his son to clothe himself, or to his daughter, for the year, the son or the daughter does not pay income tax ; there is only one passage of the money in the form of that income. If a man earns £ 100 and pays it to somebody else for services rendered in a trade or profession by that other person, the sum of £ 100 enters upon another passage, in another form of income, and therefore attracts income tax again. ”

The Supreme Court however in the case of Jain Brothers Vs. Union of India (77ITR107) held that the facile analogy of passage of money given by Rowlatt J. as per infra will not carry the matter further where the statute has made an express provision for the income of the firm and the income in the hands of the partners being both liable to tax. The Apex Court in referring to the firm-partner tax scheme held that 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.

In the past so far as registered firms were concerned the tax payable by the firm itself has to be assessed and the share of each partner in the income of the firm was to be included in his total income and assessed to tax accordingly. However the statute did provided for an appropriate relief provision as well as differential tax treatment.

Following the Apex Court exception rule the Rajasthan High Court in the case of CIT v. Sriram Jagannath (250ITR689) held the assessment of different persons in respect of the same income would not absolve one from liability to be taxed. In this case it was found that the income actually belonged to the assessee who made certain transactions allegedly in the name of other persons and actually diverted his profits to other persons. The assessee claimed that the other persons have already submitted the returns in respect of such income and have also been assessed on the basis of declaration submitted by them. The High court did not find any taste in this argument and said that they are not concerned with the remedies which the other person may follow.

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