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Commissioner of Income-tax, Bombay City-vii Vs. V.H. Sheth and Others - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Application No. 108 of 1983
Judge
Reported in(1984)41CTR(Bom)380; [1984]148ITR169(Bom); [1984]17TAXMAN190(Bom)
ActsIncome Tax Act, 1961 - Sections 256(2)
AppellantCommissioner of Income-tax, Bombay City-vii
RespondentV.H. Sheth and Others
Excerpt:
- .....or a member of an association has been made by taxing directly his proportionate share from the firm or association, the ito is precluded from assessing the firm in the status of an unregistered firm or an association of persons. the circular clarifies that although the supreme court's aforesaid decision is under the indian i.t. act, 1922, the board is advised that it will equally apply to assessments made under the i.t. act, 1961.3. this circular set out in the above paragraph is binding on the i.t. department as per the decisions of the supreme court in the cases of navnit lal c. zaveri v. k. k. sen, aac of i.t. : [1965]56itr198(sc) and ellerman lines ltd. v. cit : [1971]82itr913(sc) . in view of this, it is clear that the ito was not entitled, in the facts and circumstances of the.....
Judgment:

Kanta J.

1. This is an application under s. 256(2) of the I.T. Act, 1961, for directing the income tax Appellate Tribunal to refer to this court for determination the three questions set out in paragraph 5 of the application. The main question is whether the ITO was entitled to tax the respondent-assessee as an association of persons. The assessment year involved is 1976-77. The order of assessment taxing the assessee as an association of persons was passed on March 20, 1979. Prior to that, the same ITO had assessee the three members of the said association as individuals and taxed their shares in the same income in their capacity as individuals. It may be pointed out thet Mr. V. V. Sheth, one of the members, was assessed on February 8, 1979, Mr.

2. V. H. Sheth, the another member was assessed on August 31, 1978, and Mrs. Jayaben Seth, the third members, was assessee on February 30, 1979. As per the Circular of the Central Board of Direct Taxes issued on August 24, 1966, and set out in the judgment of the Gujarat High Court in Laxmichand Hirjibhai v. CIT [1981] 128 ITR 747, the effect of the decision of the Supreme Court in CIT. v. Murlidhar Jhawar and Purna Ginning and Pressing Factory : [1966]60ITR95(SC) , is that once the ITO assesses directly an assessee on his share of income from an association of persons or firm, it is not open to him to assess the same income again in the hands of the association of persons or firm. In other words, once the assessment of a partner or a member of an association has been made by taxing directly his proportionate share from the firm or association, the ITO is precluded from assessing the firm in the status of an unregistered firm or an association of persons. The circular clarifies that although the Supreme Court's aforesaid decision is under the Indian I.T. Act, 1922, the Board is advised that it will equally apply to assessments made under the I.T. Act, 1961.

3. This Circular set out in the above paragraph is binding on the I.T. Department as per the decisions of the Supreme Court in the cases of Navnit Lal C. Zaveri v. K. K. Sen, AAC of I.T. : [1965]56ITR198(SC) and Ellerman Lines Ltd. v. CIT : [1971]82ITR913(SC) . In view of this, it is clear that the ITO was not entitled, in the facts and circumstances of the case, to tax the assessee as an association of persons. In view of this conclusion, question No. 1 sought to be referred becomes academic because the same position would prevail whether the revised return was valid or not.

4. In the result, the rule is discharged with costs.


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