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Chittaluri Peda Venkata Subbaiah Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Hyderabad
Decided On
Judge
Reported in(1983)6ITD507(Hyd.)
AppellantChittaluri Peda Venkata Subbaiah
Respondentincome-tax Officer
Excerpt:
.....an aop which, according to the ito himself, had come into existence after the dissolution of the firm. receiver, it was claimed, could not represent the assessee. it was under these circumstances that it was claimed that the assessee could not be shut out from filing an appeal. the assessee also sought to argue at length on merits. the learned departmental representative, on the other hand, claimed that the assessment was made on the receiver appointed by the court. according to him, he alone could be a party. he claimed that it was open to the ito to treat a return allegedly filed by a dissolved firm as a firm when the same persons rightly constituted an aop.however, he claimed that the appeal should have been filed only by the receiver inasmuch as the assessment was made on the.....
Judgment:
1. This is an appeal filed by Shri Chittalurj Peda Venkata Subbaiah of Nandyal objecting to the order of the Commissioner (Appeals), Hyderabad, dismissing his appeal in limine as not maintainable.

2. The assessee was a partner in the firm of Chittaluri Peda Venkata Subbaiah and Co. of Nandyal along with two others. It was also registered. However, one of the partners filed a suit for dissolution of the firm in January 1974 and a receiver was appointed on 7-3-1974 in pursuance of the suit. The accounting year of the firm is the financial year with the result that there was no continuing firm in existence for the assessment year 1975-76. The assessee all the same sought registration for both these years while the ITO treated the assessee as an AOP. The assessment for the assessment year 1975-76 came up for adjudication before this Tribunal in IT Appeal No. 1822 (Hyd.) of 1979, dated 4-9-1981, wherein it was held that the firm stood dissolved on January 1974 when the suit was filed. While it upheld the stand of the revenue that there was an AOP, it took the view that there could not be a single assessment as an AOP. For the assessment year 1976-77, the assessment was made on the official receiver. It is not clear as to who filed the return. However, it is clear that notice under Section 143(2) of the Income-tax Act, 1961 ('the Act') was served both on the official receiver and the present appellant as the assessee. During the hearing also, it was the assessee along with his authorised representative who were heard. The assessment was made as AOP on Rs. 1,70,780 as it represented the capital gains on the sale of the property taken over by the receiver. The assessee's appeal reiterated his earlier stand asking for treatment as a registered firm and sought separate assessment even as AOP. The first appellate authority, however, dismissed the appeal on the ground that it was not open to Shri Chittaluri Peda Venkata Subbaiah who had signed the appeal form to have filed an appeal on behalf of a firm which did not exist. When he wanted to dismiss it as not maintainable, the assessee pointed out that the assessee's stand at the time of appeal was that it was a registered firm. It was only later that the Tribunal's order was received. Even in terms of the Tribunal's order, the assessment cannot stand. If the first appellate authority felt that there was any irregularity about the appeal, the assessee wanted an opportunity to amend the form of appeal. The first appellate authority, however, did not consider it necessary to allow any such amendment as in his view it was not capable of being amended, since it was filed on behalf of a defunct firm. Proper remedy, according to him, was for the assessee to have filed another appeal as a member of the association and asked for condonation of the delay with reference to the present appeal before him. It is in this view he dismissed the appeal as not maintainable. The learned Counsel for the assessee claimed that the assessee was aggrieved by the order as he was a member of the association even according to the ITO's own judgment. It is the assessee's case that notwithstanding the suit, the assessee is entitled to registration. While that was the position, the assessee could not be prevented from filing an appeal as a firm. If the firm was non-existent, it was claimed that it was not open to the ITO to convert the firm's return into that of an AOP. If it was open to the ITO to treat the assessee as an AOP without a return, it was claimed that it was certainly open to the first appellate authority similarly to entertain an appeal filed by the selfsame assessee, whether it be a firm or an AOP. It was contended that there was no question of there being a receiver for an AOP which, according to the ITO himself, had come into existence after the dissolution of the firm. Receiver, it was claimed, could not represent the assessee. It was under these circumstances that it was claimed that the assessee could not be shut out from filing an appeal. The assessee also sought to argue at length on merits. The learned departmental representative, on the other hand, claimed that the assessment was made on the receiver appointed by the Court. According to him, he alone could be a party. He claimed that it was open to the ITO to treat a return allegedly filed by a dissolved firm as a firm when the same persons rightly constituted an AOP.However, he claimed that the appeal should have been filed only by the receiver inasmuch as the assessment was made on the receiver. He also sought to justify the assessment on merits. He claimed that the earlier order of the Tribunal would not be a bar to a correct assessment on the AOP directly in this year in the facts and circumstances of the case.

3. We have carefully considered the records as well as the arguments.

The return as well as the registration application were purportedly on behalf of the firm. If, in the opinion of the ITO, there was no firm, he would ordinarily pass an order to that effect. The aggrieved party claiming the status of the firm would certainly be entitled to agitate the question before the appellate authorities. Any other view would deprive the assessee of his valuable right of appeal conferred under Section 246 of the Act including the right of appeal specifically on the question of status under Clause (c) of Sub-section (1) of Section 246. We are, therefore, unable to concur with the finding of the first appellate authority that the appeal could not be entertained merely because the Tribunal had held for an earlier year that there was no firm in the eye of law on identical facts. It must be remembered that the position was the same for the immediately preceding year in the sense that the accounting year for that year started from 1-4-1974 while the firm, according to the Tribunal's order, stood dissolved in March 1974. All the same, the then first appellate authority rightly entertained the appeal and the matter came to the Tribunal for further adjudication. Hence, the assessee is rightly aggrieved by a different order on jurisdiction for this year. However, the view of the first appellate authority appears to be that since the order of the Tribunal holding that there was no firm available to him when he took up the appeal, the appeal becomes non-maintainable during the year. This finding of the Tribunal on merits, would be a matter for consideration only during the course of hearing of the appeal and not at the admission stage. As pointed out by the learned Counsel for the assessee, the assessee itself did not have the benefit of the Tribunal's order at the time of filing appeal. The Tribunal, after all, while holding that there was no firm in existence during the accounting year also held that there could not be a single assessment as an AOP in the facts of the assessee's case. No doubt, the first appellate authority held out a hope of valid appeal if the assessee chose to file an appeal as a co-owner, i.e., as a member of AOP as assessed by the ITO. By the same logic which prompted him to reject the appeal by the assessee as a partner, he would have to reject the appeal as a member because the Tribunal had held that there was no AOP either. If such logic were accepted, an illegal order would stand merely because of its illegality while the taxpayer will not be immune from recovery on the basis of such order. We cannot obviously accept such logic. Even granting that there was an AOP, we are not very much impressed from the facts on record that the official receiver appointed by the Court for the purposes of dissolution of a firm could validly represent an AOP which had allegedly come into existence with the self-same partners on its dissolution in March 1974. For the purpose of argument even if we were to hold that such an assessment on the official receiver as representing the AOP is valid, such an assessment could be justified, if at all, only with reference to Section 160 of the Act. In this case, Shri Chittaluri Peda Venkata Subbaiah as per records has certainly been treated as a member of the AOP as an erstwhile partner. He had filed the necessary papers including the application for registration and he was heard during the assessment. As pointed out on behalf of the assessee before the first appellate authority, he was also expected to meet the demand. It stands to reason that the receiver is not expected to pay the money out of his own pocket. He can be paying any demand only on behalf of the person/persons whom he represents. Section 161 of the Act requires that the representative-assessee should be assessed 'in like manner and to the same extent' as the beneficial owner.

Section 246 gives the right of appeal to 'any assessee' who may be aggrieved with an order of the ITO. It has been repeatedly held that a "person beneficially entitled to the income is nevertheless an assessee within the meaning of the section and has, therefore, a right of appeal". A member of a disrupted family or a dissolved firm or AOP, a beneficiary of a trust or a non-resident could all file appeals though the assessment itself may not have been made on them. It is because they are interested in the outcome of the assessment directed against the representative-assessee. Number of citations are available in any standard commentaries to this effect and these were cited by the learned Counsel. The Supreme Court in the case of CIT v. Ambala Flour Mills [1970] 78 ITR 256 held that one Debi Parshad who filed returns in different capacities could file appeals in individual capacity and "maintain the appeals. . .because by the order of the Appellate Assistant Commissioner, it was directed that he may be personally assessed by the Income-tax Officer in respect of the income of Ambala Flour Mills" though the assessments themselves were annulled by him. It referred to its own earlier decision in ITO v. Murlidhar Bhagwan Das [1964] 52 ITR 335 (SC), wherein it was, no doubt, held that the words 'any person' in second proviso to Section 34(3) of the Indian Income-tax Act, 1922, must be confined "to a person intimately connected in the assessment with the assessments of the year under appeal". The 'aforesaid sense' is clarified by the Supreme Court with reference to the scope of the subject-matter of appeal as under in Murlidhar Bhagwan Das' case (supra): . . . The expression 'any person' in its widest connotation may take in any person, whether connected or not with the assessee, whose income for any year has escaped assessment; but this construction cannot be accepted, for the said expression is, necessarily circumscribed by the scope of the subject-matter of the appeal or revision, as the case may be. That is to say, that person must be one who would be liable to be assessed for the whole or a part of the income that went into the assessment of the year under appeal or revision. If so construed, we must turn to Section 31 to ascertain who is that person other than the appealing assessee who can be liable to be assessed for the income of the said assessment year. A combined reading of Section 30(1) and Section 31(3) of the Act indicates the cases where persons other than the appealing assessees might be affected by orders passed by the Appellate Commissioner.

Modification or setting aside of assessment made on a firm, joint Hindu family, association of persons, for a particular year may affect the assessment for the said year on a partner or partners of the firm, member or members of the Hindu undivided family or the individual, as the case may be. In such cases though the latter are not eo nomine parties to the appeal, their assessments depend upon the assessments on the former. The said instances are only illustrative. It is not necessary to pursue the matter further. . .

.

In assessee's case before us, Shri Chittaluri Peda Venkata Subbaiah who signed the appeal papers as appellant claimed to be the main partner in the alleged firm which filed the return as well as the registration application. According to the ITO also, it is the self-same erstwhile partners who constituted the AOP in respect of the self-same source of income offered in the assessment. Whether as a partner as claimed by him or as a member of AOP as assumed by the ITO or as a person entitled to be assessed on his share of the income from the assets of the erstwhile firm in his own separate assessment as concluded by the Tribunal, he is intimately and vitally connected with the outcome of the proceedings under the Act. In fact, he becomes intimately connected as 'any person' entitled to object to the order in the illustration given by the Supreme Court in the extract reproduced earlier. Further, he brought to the notice of the first appellate authority that he was expected to meet the disputed demand as well. A denial of the right of appeal under these circumstances is, therefore, not only manifestly unjust but also not warranted by law. We also do not consider it necessary that the form of appeal would require to be amended as offered by the assessee before the first appellate authority in order to have the appeal admitted. Whatever might be the description of his capacity in the form of appeal, the fact remains that Shri Chittaluri Peda Venkata Subbaiah has a right of appeal and is an appellant. His description, whether be it as a partner or member, has to be reckoned with reference to the subject-matter of appeal. There are no difficulties about identification of Shri Chittaluri Peda Venkata Subbaiah in this case as a person interested in the assessment of the income arising out of sale of a building belonging to the erstwhile firm at Kurnool in the name of Chittaluri Peda Venkata Subbaiah and Co., Nandyal, of which he was a partner. Incidentally, it was claimed on behalf of the assessee that the official receiver died shortly after the assessment and that no other receiver has been appointed in 'his place. This, in our opinion, would make no difference to our conclusion as it should be presumed that the office of the official receiver continued without any interruption. Our conclusion is based on the fact that whether the assessment was made on the official receiver rightly or wrongly, it is open to the appellant, Shri Chittaluri Peda Venkata Subbaiah as a person interested in the assessment, to agitate against such assessment. It is a right specifically conferred on him under Section 246. In this view, we have to set aside the order of the first appellate authority and direct him to admit the appeal and deal with the same in accordance with law. Arguments were addressed by both sides on merits. But, we do not propose to deal with them as we cannot obviously go into them when the first appellate authority has dismissed the appeal in limine and not on merits.

4. In the result, the appeal is allowed. The first appellate authority is directed to admit the appeal and to deal with the same in accordance with law.


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