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Punjab Cloth Store Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtDelhi High Court
Decided On
Case NumberIncome Tax Reference Nos. 183, 184, 185, 219, 220 and 221 of 1975
Judge
Reported inILR1978Delhi157B; [1980]121ITR604(Delhi)
ActsIncome Tax Act, 1961 - Sections 2(31)
AppellantPunjab Cloth Store
RespondentCommissioner of Income-tax
Advocates: C.S. Aggarwal,; W. Singh,; B. Kirpal and;
Cases ReferredCommissioner of Income Tax v. Kanpur Coal Syndicate
Excerpt:
income tax act (1961) - sections 2(31) & 4--members of a firm taxed separately on their income form firm--whether firm also taxable.; the assessed m/s. punjab cloth store was treated by income-tax officer as an association of persons under section 2(31) of income tax act, 1961 and taxed for the years 1967-68, 1968-69 and 1969-70 although its members had been taxed separately for their share income from the assessed for those years. the assessed contended that a conjoint reading of section 4 and section 2(31) of the said act shows that members of the assessed having been already assessed in respect of the share income from the firm, the assessed could not be taxed again. further, it was contended that the position of law obtaining under section 3 of the income tax act, 1922 continues.....prithvi raj, j.(1) since common questions of law arise in these petitions it would be appropriate to dispose them of by a single judgment. (2) income tax case no. 183 of 1975 and income tax reference no. 219 of 1975 pertain to the assessment year 1967-68 ; income tax case no. 184 of 1975 and income tax reference no. 220 of 1975 pertain to the assessment year 1968-69 and income tax case 185 of 1975 and income tax reference no. 221 of 1975 pertain to the assessment year 1969-70. the income tax cases arise out of rejection of form no. 12 filed by the assessed along with its returns for the assessment years 1967-68, 1968-69 and 1969-70 seeking registration of the firm while the income tax references arise out of the quantum appears filed by the assessed. (3) the assessed deals in the business.....
Judgment:

Prithvi Raj, J.

(1) Since common questions of law arise in these petitions it would be appropriate to dispose them of by a single judgment.

(2) Income Tax Case No. 183 of 1975 and Income Tax Reference No. 219 of 1975 pertain to the assessment year 1967-68 ; Income Tax Case No. 184 of 1975 and Income Tax Reference No. 220 of 1975 pertain to the assessment year 1968-69 and Income Tax Case 185 of 1975 and Income Tax Reference No. 221 of 1975 pertain to the assessment year 1969-70. The Income Tax Cases arise out of rejection of form No. 12 filed by the assessed along with its returns for the assessment years 1967-68, 1968-69 and 1969-70 seeking registration of the firm while the Income Tax References arise out of the quantum appears filed by the assessed.

(3) The assessed deals in the business of cut pieces and terylene cloth on wholesale basis. For the year 1967-68 (accounting period ending on 18th June, 1966) the assessed filed a return of income along with form No. 12 seeeking continuation of registration under section 184(7) of the Income Tax Act, 1961 (herein called 'the 1961 Act') as it had earlier applied for registration in form Ii along with return filed for the assessment year 1966-67. Since the application of the assassee for registration had been rejected by the Income Tax Officer while passing orders on the return filed by it for the year 1966-67, the Income Tax Officer by his order dated 24th March, 1972, filed the form No. 12 and proceeded to assess the assessed under section 143(2) of the 1961 Act.

(4) The assessed feeling aggrieved by the aforesaid order of the Income Tax Officer filed appeals before the Appellate Assistant Commissioner both against the quantum order passed by the Income Tax Officer and his refusal to register the firm. The present case pertains to the rejection of the assessed's application for registration. At the time the assessed filed the return for the present assessment year (1967-68) it showed the status of the assessed as a firm and the assessed claimed that at that time its claim for registration under section 185 of the 1961 Act for the assessment year 1966-67 was pending before the Income Tax Officer. The claim for registration was rejected by the Income Tax Officer on the ground that there was no genuine firm which order was upheld both by the Appellate Assistant Commissioner and the Income Tax Appellate Tribunal.

(5) In the instant case before the Appellate Assistant Commissioner the stand of the assessed was that it did not file any application for registration of the firm even after the registration was refused for assessment year 1966-67 by the Income Tax Officer as it bona fide entertained a belief that registration for that year would be allowed to it in appeal. It was further contended that after rejecting its claim for registration for the year 1966-67 the Income Tax Officer did not allow an opportunity to the firm to file application for registration for the present assessment year 1967-68, and thus remove the defect of filing form No. 12 only. Considering that the assessed was entitled to be given an opportunity so as to rectify the technical defect in filing form No. 12 in its claim for registration, the appellate Assistant Commissioner treated form 12 filed by the assessed as valid claim for registration for the assessment year 1967-68. In taking this view the Appellate Assistant Commissioner followed the order passed by the Commissioner of Income Tax on 23rd September, 1969, in the case of M/s. Commercial Equipment. The Appellate Assistant Commissioner accordingly accepted the contention of the assessed that the order of the Income Tax Officer filing form 12 amounted to an order passed under section 185 of 1961 Act. He, thereforee, admitted the appeal filed by the assessed against the order of the Income Tax Officer filing form 12. The Appellate Assistant Commissioner admitted the appeal with the observation that the substantial question for consideration in the appeal before him was whether there was a genuine firm or not. The Appellate Assistant Commissioner found that as per partnership deed dated 12th February, 1965, the firm styled as Punjab Cloth Store was formed with effect from 14th December, 1964, by four persons, namely, Ram Avtar Gupta, Mohan Lal, Kamla Devi and Krishna Devi besides admitting minor Sanjay Kumar to the benefits of the partnership and that the concern had opened a bank account on 15th January, 1965, in which the firm was shown as constituted by (1) Ram Avtar Gupta, (2) Lachhu Mal and (3) Shanti Sarup Jain. It was also found that Kamla Devi was brother's wife of Shanti Sarup Jain and minor Sanjay Kumar was the son of Shanti Sarup while Krishna Devi was the wife of the son of Lachhu Mal. The Appellate Assistant Commissioner further noticed that the Tribunal while rejecting the claim of the assessed for registration in respect of the assessment year 1966-67, had upheld the contention of the department that the firm was not a genuine one and in so concluding it took into consideration the declaration made by the assessed firm to the Bank and other circumstances of the case which pointed to the fact that the assessed was not a genuine firm as contemplated in the instrument of partnership dated 12th February, 1965. Before the Appellate Assistant Commissioner the assessed, however, contended that the principles of resjudicata did not apply in the matter and the question be considered afresh. The assessed also filed two affidavits dated 4th September. 1972, by Lachhu Mal and Shanti Sarup Jain before the Appellate Assistant Commissioner, Lachhu Mal in his affidavit stated that he was a partner in firm Jagan Nath Lachhu Mal which firm supplied goods on credit to the assessed and for that reason he got his name inserted for the operation of the bank account of the assessed to safeguard the interests of the firm Jagan Nath Lachhu Mal and the interests of his son's wife, Krishna Devi. Shanti Sarup in his affidavit stated that he gave his name to operate the bank account of the assessed to safeguard the interests of his wife Pushp Lata who had deposited some money with the assessed and also to safeguard the interests of Kamla Devi, the wife of his brother. On the basis of the two affidavits mentioned above it was urged before the Appellate Assistant Commissioner that in the bank the names of Lachhu Mal and Shanti Sarup were given to represent the sleeping partners.

(6) The Appellate Assistant Commissioner took the view that the affidavits could not be admitted as evidence at appeal stage. He, however, noted that the contents of the affidavits were the same which were considered by the Tribunal as arguments during the hearing of the appeal against the assessment order in respect of the year 1966-67, wherein the Tribual had held that the Explanationn of safeguarding the interests by Lachhu Mal and Shanti Sarup was vague and that the constitution of the firm as per deed of the partnership was different from the constitution informed to the Bank. In that case the Tribunal had held that from the examination of the alleged partners it transpired that they were not fully conversant with the affairs of the firm and further that there were no substantial withdrawals in the account of the partners other than Ram Avtar Gupta. In the premises, the Tribunal in that case pertaining to the assessment year 1966-67 had come to the conclusion that there was no genuine firm. The Appellate Assistant Commissioner accordingly held that the position was the same 'during this year as well' and since the firm was formed on 14th Decembtr, 1964, the one disclosed in the deed of partnership dated 12th February, 1965, was found to be not a genuine firm. The Appellate Assistant Commissioner accordingly held that the existence of the same firm as a genuine entity during the previous year could not be accepted and in the result he dismissed the appeal vide order Annexure P/10.

(7) Feeling aggrieved by the aforesaid order of the Appellate Assistant Commissioner, the assessed filed an appeal before the Tribunal. While considering the application of the assessed for registration for the assessment year 1966-67 the Tribunal by its order dated 15th July, 1974, Annexure P/2, dismissed the appeal and took the view that the declaration to the Bank that the firm consisted of S/Shri Lachhu Mal Jain, Shanti Sarup Jain and Ram Avtar Gupta 'was a very material and a very positive circumstance which militated against the existence of the partnership on the terms of the deed dated 12-2-65'. The Tribunal also found that the partners were not fully conversant with the affairs of the partnership. Besidese, it was found that there was no substantial withdrawals except in the account of Ram Avtar Gupta. In examining the genesis of the assessed's business, the Tribunal found that it was started some time in December, 1964, when, according to the Tribunal, the parties apparently had not decided as to who should carry on the business and that in January, 1965, the thinking appeared to be that the business should be claimed as being carried on in partnership by Lachhu Mal Jain, Shanti Sarup Jain and Ram Avtar Gupta but much later an instrument of partnership was drawn up giving an entirely different constitution of the firm. Holding that the onus lay on the assessed to establish that there was a partnership amongst the four different persons mentioned in the partnership deed the Tribunal held that the onus had not been discharged by the assessed. The Tribunal found that the facts and circumstances relating to the assessed's claim for registration for the assessment year under appeal were sub-stantially similar to the facts and circumstances pertaining to the assessment year 1966-67 and that the basis on which the registration or continuation of registration was being sought by the assessed for the year under appeal was the same partnership deed dated 12th February, 1965, which formed the subject-matter of its claim for the assessment year 1966-67. Holding that in order to succeed in its claim for registration under section 185 of the 1961 Act the assessed had to prove both the existence and genuineness of the firm evidenced by the partnership deed, the Tribunal observed that the partnership deed, being, the same which had been adjudicated upon earlier, it followed that the basic facts were similar. The Tribunal accordingly held that its reasoning for the assessment year 1966-67 refusing to register the assessed fully applied to the assessed's claim for the assessment year 1967-6S. Following the reasons given by it in its earlier order dated 14th June, 1972, refusing application of the assessed for the assessment year 1966-67 the Tribunal confirmed the order of the Appellate Assistant Commissioner and in the result dismissed the appeal.

(8) The assessed feeling aggrieved by the aforesaid decisions of the Tribunal filed an application under section 256(1) of the 1961 Act requiring the Tribunal to state the case and refer the following questions to this Court which were said to arise out of its aforesaid order :

'(1) Whether on the facts and in the circumstances found by the Tribunal, there was material to come to the conclusion that the appellants firm was not genuine (2) Whether by merely maintaining bank account in slightly different constitution, the firm should be treated as in genuine under the facts and circumstances of the case (3) Whether on the facts and circumstances of the case the applicant firm had discharged the onus of proving the firm to be genuine (4) Whether the revenue could adopt the status of Aop simultaneously assessing the individual having known interest in the applicants business as partners under section 143 ?'

(9) The Tribunal after hearing the parties and going through the record came to the conclusion by its order dated 18th March, 1975, Annexure P/12. that the questions sought to be referred were concluded by findings of fact recorded by it after appraisal of evidence and material on the record and that for the reasons earlier recorded no questions of law arose for being referred.

(10) It may be mentioned here that since the registration or continuation of registration was claimed on the same basis i.e., the partnership deed dated 12th February, 1965, on which registration was claimed for the assessment year 1966-67 and the facts being identical for the subsequent assessment years with that of the previous assessment year 1966-67, the Tribunal asked the assessed's learned counsel to point out distinguishing features or fresh facts which, according to him, showed that such a firm existed and was genuine. To this the learned counsel for the assessed pointed out that in the subsequent assessment years 1967-68, 1968-69 and 1969-70 the assessed has been shown as an association of persons which showed that the members of the association of persons had joined hands for a common purpose for carrying on the business of wholesale in cloth in the name and style of M/s. Punjab Cloth Store. It was further pointed out that though for the assessment year 1966-67 the Income Tax Officer had treated the assessed as dummy of Jagan Nath Lachhu Mal, the finding of the Income Tax Officer assigning the status of association of persons to the assessed for the subsequent assessment years was inconsistent. The Tribunal dealing with the said contention observed that though the Income Tax Officer's finding treating the assessed as dummy of M/s. Jagan Nath Lachhu Mal had been varied by the Appellate Assistant Commissioner the refusal of the registration of the assesses was confirmed on other grounds, and the fact that the persons who carried on the business styled as M/s. Punjab Cloth Store had been assessed as association of persons would not improve the assessed's case in any way. It was held that in order to succeed in its claim for registration under section 185 of the 1961 Act the assessed had to prove both the existence and genuineness of the firm evidenced by a partnership deed. The said deed being the same which had been adjudicated upon earlier the Tribunal found that the constitution of M/s. Punjab Cloth Store as declared to the bank was of three partners while the constitution given in the partnership deed dated 12th February, 1965 was entirely different and only one person was common in the two constitutions. Having regard to all those facts and circumstances the Tribunal confirmed the refusal of registration or continuation of registration for the assessment years 1967-68 to 1969-70.

(11) We had already discussed in detail in respect of the existence and genuineness of the firm evidenced by the partnership deed dated 12th February, 1965, in our detailed judgment pronounced in Income Tax Case No. 20 of 1975. The claim for registration in the current assessment year 1967-68 and the subsequent two years 1968-69 and 1969-70 being the same on the basis of the aforesaid partnership deed, we do not find any reason and are not persuaded to take a different view. The Tribunal rightly held that the question whether the firm is a genuine one is a question of fact and the first three questions sought to be referred hinge on the said question and that the fourth question which is sought to be referred is not relevant to the question whether the firm was entitled to registration or not. For the reasons on which the Tribunal rejected the application of the assessed we find no impropriety, factual or legal, in the said reasons of the Tribunal. Income Tax Case No. 183 of 1975 is accordingly dismissed, leaving the parties to bear their respective costs.

(12) Facts giving rise to refusal of registration of the assessed under section 185 of the 1961 Act are the same in Income Tax Cases No. 184 and 185 of 1975 except that the assessment years involved in the said cases are 1968-69 and 1969-70. We need not dilate upon the facts once again having considered the same in Income Tax Case No. 183 of 1975. For the same reasons we dismiss these Income Tax Cases, leaving the parties to bear their own costs.

(13) We now proceed to deal with the Income Tax References No. 219 to 221 of 1975.

(14) The Income Tax Officer vide his order dated 24th March, 1972, (Annexure P/4) assessed the petitioner as an association of persons and after arriving at the taxable income of the assesses indicated the share allocation for rate purposes in respect of the various members of the assessed. In appeal before the Appellate Assistant Commissioner the assessed made a grievance of the adoption of status of association of persons by the Income Tax Officer. The Appellate Assistant Commissioner relying on the earlier order of the Tribunal in respect of the assessed's assessment for the year 1966-67 wherein taking note of the following factors, namely, that the constitution of the firm as per deed of partnership was different from the constitution informed to the bank ; that examination of the alleged partners showed that they were not fully conversant with the affairs of the firm; and that there were no substantial withdrawals in the accounts of partners other than Ram Avtar and in view of the findings of the Tribunal that there was no genuine firm, sustained the order of the Income Tax Officer assessing the petitioner in the status of an association of persons. Before the Appellate Assistant Commissioner the assessed sought to sustain its challenge to the order of the Income Tax Officer on the basis of the two affidavits of Lachhu Mal and Shanti Sarup dated 4th September, 1972, which were filed during the course of arguments. We have already noted the contents of the said affidavits in an earlier part of this judgment. The contents of the said affidavits, thereforee, need not be noted here. The Appellate Assistant Commissioner held that the said affidavits of Lachhu Mal and Shanti Sarup were of no assistance to the assessse in that the contents of the affidavits were urged as arguments before the Tribunal, while arguing the appeal against 1966-67 assessment, but did not find favor with the Tribunal, and further that these affidavits could not be admitted as evidence at the appeal stage. Another point urged before the Appellate Assistant Comrnissioner was that the members and partners of the assessed having been charted to tax earlier in respect of the shares from the assessed, no assessment could be made on the assessed subequently in respect of the same income. This contention was rejected on the ground that section 4 of the 1961 Act provides for charging tax in respect of total income of every person. Noticing that seven entities were covered by the word 'person' as defined under section 2(31) of the 1961 Act he held that the Income Tax Officer had no choice to ignore any unit, and that the assessed being a person having income assessable under the Act, could not escape its liability on the ground that its members had been taxed on their share income. The Appellate Assistant Commissioner further held that it would be for the members to apply for relief under section 86 of the 1961 Act for not charging tax on the share income received from the association. Accordingly it was held that the assessment of the association of persons was valid. Another contention urged by way of additional ground before the Appellate Assistant Commissioner was that the status of the assessed was firm as shown in its return and not association of persons and that it should have been assessed on that basis. This contention was rejected holding that the order of the Income Tax Officer refusing to register the assessed on the ground that 'there is no genuine firm' having been confirmed in appeals, the assessed was rightly treated as an association of persons. The Appellate Assistant Commissioner, however, gave some relief in quantum of tax, besides allowing some deduction which aspects need not be noted as they are not relevant for the disposal of the present References.

(15) The assessed feeling aggrieved by the order of the Appellate. Assistant Commissioner, challenged the same in appeal before the Income Tax Appellate Tribunal. Before the Tribunal the contentions raised before the Appellate Assistant Commissioner were repeated. It was urged that the members of the so-called association of persons having been assessed as partners in respect of their shares from the firm, it was not open to the Income Tax Officer to treat the firm as association of persons. Relying on the decision of the Rajasthan High Court in Commissioner of Income Tax v. Chagan Lal Durga Prasad. , it was submitted that the Income Tax Officer on the facts and circumstances of the case was bound to treat the assessed as a registered firm. Further, the distinction drawn by the Appellate Assistant Commissioner between the provision of section 3 of the Income Tax Act, 1922 (herein called 'the 1922 Act') and section 4 of the 1961 Act was unrealistic and uncalled for, and that if the same income was assessed both in the hands of the assessed and its members, it would amount to double taxation causing great hardship in that the assessed would not be able to get any relief under section 86 of the 1961 Act nor would section 154 of the 1961 Act apply in having the assessments on the partners rectified.

(16) Repelling the contentions the Tribunal on examining the provision of section 3 of 1922 Act, held that the said section gave an option to an Income Tax Officer either to assess the firm and association of persons or to assess the partners or members of the Association individually at his discretion, but such an option did not find place in section 4 of the 1961 Act; on the other hand this section empowers the Income Tax Officer to assess 'every person'. It was further observed that the categorisation of the persons in section 2(31) of the 1961 Act is not overlapping but exclusive and thereforee a person cannot fall under two categories at the same time. In that view of the matter it was held that no question of option arises under section 4 of the 1961 Act. The Tribunal further held that since a 'person' as defined in section 2(31) includes an individual, a firm and an association of persons besides other categories mentioned therein, section 4, thereforee, empowers the Income Tax Officer to make assessment on every person and an assessment on an individual was not bar to an assessment on the firm or an association of persons. In the present case, the Tribunal noticed the partners themselves returned a particular share income which the Income Tax Officer accepted and assessed them at that income. The Tribunal observed that the double taxation has to be avoided but it could be done by resort to an appropriate provision of law and that under section 155(2) the assessment of the partners could be got rectified. This view the Tribunal held was supported by case Chagan Lal Durga Prasad (supra). The Tribunal disposed of the appeals accordingly.

(17) The Tribunal also allowed certain further concession in quantum of tax which aspect, as already noted earlier, is not relevant for the disposal of these cases. We, thereforee, need not deal with this aspect of the matter.

(18) In the other two Income Tax References, namely, Income Tax References 220 and 221 of 1975 identical questions of law are involved. The said References pertain to the assessment years 1968-69 and 1969-70 respectively. The contentions raised in these References which we have already noted in Income Tax Reference 219 of 1975 being identical, need not be recapitulated.

(19) It may bear mention here that all the six appeals filed by the assessed, viz., three against refusal to register the firm or continuation of registration and the other three appeals relating to assessment years 1967-68, 1968-69 and 1969-70 were diposed of jointly by the Tribunal by a single judgment dated 15th July, 1974 copy Annexure H, at page 33 of the paper book pertaining to Income Tax Reference Nos. 219 to 221 of 1975.

(20) The assessed filed reference applications in all the three quantum appeals praying that certain questions said to be questions of law that arise out of the above-said consolidated order of the Tribunal passed on 15th July, 1974, be referred to the High Court along with statements of the case. On consideration of the facts of the case the Tribunal by its order dated 29th May, 1975, felt that the following common question of law arises in respect of the three quantum appeals : 'Whether the Tribunal was justified in upholding the status of Aop adopted by the Income-Tax Officer in assessing the assessed even though the members of the Aop had been assessed separately in respect of their share income for the assessment years 1967-68, 1968-69 and 1969-70?'

(21) The Tribunal accordingly drawing up the statement of the case, has referred the above-said question to this Court.

(22) Mr. C. S. Aggarwal, learned counsel appearing for the assessed strenuously contended that in refusing to register the assessed as a firm, assessment ought to have been made on the basis of an unregistered firm. Referring to the assessment order of the Income-Tax Officer for the assessment year 1967-68. Annexure 'B', Shri Aggarwal pointed out that having found the net taxable income of the assessed; the Income-Tax Officer had further made share allocation in respect of each of the partners which is a pointer to the fact that the Income- Tax Officer had accepted that the assessed was a partnership of four persons with a minor, Sanjay Kumar, having been admitted to the benefits of the partnership. The Income-Tax Officer, thereforee, in his order, it was contended, has held that the assessed's business was carried on by four persons mentioned in the order having defined share. That being so, it was strongly urged that it was not open to the Income-Tax Officer to make assessment on the assessed as an association of persons. There is no force in this submission. Registration was refused not only because different constitution was given to 'the bank but on an overall consideration of all other cogent and weighty considerations as already noted by us in an earlier part of this judgment on the basis of which it was held that 'there was no genuine I firm'. That being so, it is futile for the assessed to contend that the assessment of it should have been made on the basis of an unregistered firm.

(23) It is equally wrong to contend that the Income-Tax Officer in his order dated 24th March, 1972, Annexure 'B' had accepted that the assessed was a partnership of four persons and that he had made share allocation among them. A perusal of the order clearly shows that the share allocation was made for rate purposes only and not on the basis that the assessed was a partnership of four persons as was sought to be contended-

(24) It was then submitted that the Income-Tax Officer having assessed the members of the Association, it was not open to him to assess the same income in the hands of the assessed describing it as an association of person. The option having once been exercised by the Income-Tax Officer, it was contended, it was beyond his jurisdiction to assess the same income again in the hands of the assessed. Reading section 4 of 1961 Act with section 2(31) of the said Act, goes the argument, it is obvious that no change had been brought about in law as it stood earlier under the provisions of section 3 of 1922 Act. That being so, it was vehemently contended, members of the assessed having been already assessed in respect of the share income from the firm the Income-Tax Officer was not competent again to proceed to assess the firm itself. This argument was sought to be reinforced on the basis of India Army and Police Equipment Factory v. Commissioner of Income-Tax, U.P. : [1970]75ITR693(All) ; Commissioner of Income-Tax Bombay South v. Murlidhar Jhawar and Puma Ginning and Pressing Factory : [1966]60ITR95(SC) ; Commissioner of Income-Tax, Kerala, v. P. P. Johny and another : [1969]73ITR459(Ker) ; Girdhari Lal Laxman Prasad v. Commissioner of Income-tax, U.P. : [1968]70ITR853(All) ; Commissioner of Income-Tax, U.P. v. Kanpur Coal Syndicate : [1964]53ITR225(SC) ; Hari Om Company v. Commissioner of Income-Tax, U.P. : [1969]71ITR584(All) and Joti Prasad Aggarwal and others v. Income- tax Officer, B Ward, Mathura : [1959]37ITR107(All) .

(25) It need hardly be emphasized that the cases relied upon by the learned counsel for the assessed referred to above, deal with the provision and ambit of section 3 of 1922 Act. The said section reads as under:-

'3. Charge of income-tax.-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 individual Hindu undivided family, company and local authority, and of every firm and other association of persons or the partners of the firm or the members of the association individually.'

(26) It would, thereforee, be seen that section 3 which was a charging section in terms indicated that income-tax shall be charged on six categories of persons enumerated in the said section, namely, (1) an individual, (2) Hindu undivided family, (3) company, (4) local authority, (5) every firm or partners of the firm. (6) other association of persons or the members of the association individually. The said section did not contemplate levy of tax both on the firm or its partners and an association of persons or members of the association individually. The section gave an option to the Income-tax Officer to tax either a firm collectively or the partners of the firm and likewise either an association of persons or members of the association individually. Once the Income-Tax Officer had exercised his option of charging tax either on the partners of a firm or members of an association of persons, individually, it was not open to him under the said section to charge tax on the same income in the hands of the firm or association of persons. It was for this reason that in case India Army and Police Equipment Factory (supra), Allahabad High Court held that the word 'or' in section 3 was used in a disjunctive sense which meant that the tax was livable either on the firm or its partners individually but not on both and similarly charge might be imposed either on the association of persons or its members but not on both simultaneously.

(27) Because section 3 of 1922 Act itself contemplated assessment either of the firm or its partners and if the assessed was an association of persons assessment was to be made on either the association or in the alternative on its members, the position in law was that once the income of an association of persons had been charged to income-tax in the hands of its members individually and the assessments were valid assessments, there could be no fresh assessment in the hands of the association.

(28) The question accordingly is whether the position in law remains the same under the 1961 Act or whether a change is contemplated by the provisions of section 4 read with section 2(31) of 1961 Act.

(29) Section 2(31) of the 1961 Act defines the word 'person' and reads as under :-

'Person' includes:- (i) an individual. (ii) a Hindu undivided family, (iii) a company, (iv) a firm, (v) an association of persons or a body of individuals, whether incorporated or not, (vi) a local authority, and (vii) every artificial juridical person, not falling within any of the preceding sub-clauses.'

(30) This section only gives definition of the word 'person' which, among others, besides an individual includes an association of persons or body of individuals whether incorporated cr not, but does not envisage on whom the income-tax shall be leviable.

(31) Relevant provisions of section 4, which is the charging section in the 1961 Act, reads as under :-

'4. (1) Where any Central Act enacts that income-tax shall he charged for any assessment year at any rate or rates, income-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 or previous years, as the case may be, of every person: Provided that where by virtue of any provision of this Act income-tax is to be charged in respect of the income of a period other than the previous year, income-tax shall be charged accordingly.'

(32) It is evident that in terms of this section tax is to be charged on the income of every person. The definition of the word 'person' includes, among others, an individual as a separate entity from an association of persons or body of individuals whether incorporated or not. Section 4 does not in terms say that income-tax shall be charged from an association of persons or members of the association individually as was the position under section 3 of 1922 Act.

(33) The learned counsel for the assessed, however, placed strong reliance on Ch. Atchaiah v. Income-tax Officer, Hyderabad, 1976 Tax. L.R. 369. In that case certain properties were purchased by the petitioner and another. The properties were acquired by the Government. The owners were paid compensation in which they derived profits. The Income-tax Officer assessed the share of capital gain in the individual hands of the petitioner and another. Thereafter he assessed the said income in their joint hands as an association of persons. The petitioner challenged the said assessment contending that the Income-tax Officer having exercised his discretion vested in him to assess the shares in the individual hands of the petitioner and another in respect of the said income, had no jurisdiction to assess the same income in their joint hands as an association of persons. On behalf of the revenue it was contended that under the 1961 Act the Income- tax Officer had no option as was sought to be suggested on the contrary he was obliged to tax the income of 'every person' as enjoined under section 4, and that the individual and an association of persons were two separate entities answering the definition of the term 'person' and as such liable to be taxed separately. Dealing with the contention the Andhra Pradesh High Court observed that there was no warrant for distinction that was sought to be made out under the 1922 Act and 1961 Act. Under section 4 of the 1961 Act, it was observed. income-tax shall be charged in respect of the total income of the previous year or years as the case may be of every person, and that the term 'person' defined under section 2(31) of the said Act includes an individual, a Hindu Undivided family, a company, a firm. an association of persons or a body of individuals whether incorporated or not, a local authority and every artificial juridical person, not falling within any of the preceding sub-sections. However, under section 3 of 1922 Act, it was observed, instead of stating that the tax shall be charged on every person, the categories of assesseds were enumerated in the section itself and one of the categories was an association of persons, but under the 1961 Act instead of enumerating the categories in the body of the section, it is stated that income-tax will be charged on every person and in the definition of 'person' in section 2 the various categories of persons are enumerated. This change in the wording of section 4 of the 1961 Act, it was held, does not affect the legal position and that all the decisions under the 1922 Act were applicable under the 1961 Act. In the premises, the principle enumerated by the Supreme Court in Murli Dhar Jhawar's case (supra) was held to hold good even under the 1961 Act.

(34) With great respect to the learned Judges who decided Ch. Atchaiah's case (supra) we express our inability to subscribe to the view taken in the above noted case. There can be no denying the fact that section 4 of the 1961 Act is the charging section The said section in terms enjoins on an Income-tax Officer to levy tax in respect of the total income of the previous year or previous years, as the case may be, on 'every person' where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates. An individual and an association of persons being separate entities answering the definition of the term 'person' as defined in section 2 of the 1961 Act are liable to be taxed separately in terms of section 4 as already noted in an earlier part of this judgment. The charging section 3 in the 1922 Act envisaged that tax shall be charged at the rate or rates enjoined by any Central Act to charge tax for any year at any rate or rates in respect of the total income of, among other persons enumerated in the said section, on every firm and other association of persons of the partners of the firm or members of the association individually. It is, thereforee, evident that the section in terms provided an election to the Income-tax Officer in the case of a firm and an association of persons, either to levy the tax on it or its members individually but not on both simultaneously. The word 'or' in the above said expression being used in a disjunctive sense succinctly indicated that the tax was livable either on the firm or the association of persons or its members individually but not on the both. In this view of the matter, we are unable to support the view of the Andhra Pradesh High Court in Ch. Atehaiah's case that there was no warrant for reading any distinction in the provision of section 3 of 1922 Act and section 4 of the 1961 Act and we say so with respect to the learned judges deciding the above-said case.

(35) Murlidhar Jhawar's case (supra) relied upon by the Bench in Ch. Atehaiah's case dealt with the provision of section 3 of the 1922 Act in the context of its own facts. In that case the Income- tax Officer brought to tax a third share in income computed as profits from the business in the hands of each of the three parties who carried on business in groundnut, cotton and cotton seed. Thereafter he called upon one of the partners (Murlidhar) to submit a return of the income of the joint venture, on the footing that the parties thereto constituted an unregistered firm and assessed the firm. Appeal against the said order was rejected by the Appellate Assistant Commissioner. In second appeal the Income Tax Appellate Tribunal set aside the order of the Appellate Assistant Commissioner holding that the Income-tax Officer had the option to assess the individual parties to the joint venture, and he having exercised that option it was not open to him thereafter to re-assess the same income collectively in the hands of the three parties to the joint venture in the status of an unregistered firm. On the asking of the revenue the Tribunal submitted a statement of the case referring the question as to whether, on the facts and the circumstances of the case, the assessment of the unregistered firm was proper and legal, despite the partners of the partnership having been assessed in respect of their shares of income from the partnership business. The High Court recorded an answer in the negative. With certificate granted by the High Court the revenue preferred an appeal in Supreme Court. Dealing with the question the Supreme Court following its earlier decision in Commissioner of Income Tax v. Kanpur Coal Syndicate : [1964]53ITR225(SC) , wherein it was observed that section 3 of Indian Income Tax Act, 1922, expressly treats 'an association of persons and the individual members of an association' as two distinct and different assessable entities and that on the terms of the section 'the tax can be levied on either of the said two entities according to the provisions of the Act' held that 'the same principle would apply to the case of assessment of partners individually of an unregistered firm'. It was accordingly held that 'the partners may be assessed individually or they may be assessed collectively in the status of an unregistered firm: the Income-tax Officer cannot, however, seek to assess the one income twice-once in the hands of the partners and again in the hands of the unregistered firm'. The above observations were made on the footing that apart from an asssciation of individuals or a firm, the 1922 Act did not recognise a collection of individuals as an entity capable of being assessed to tax. Since the three parties in that case were not a registered firm, it was held that they could be assessed to tax collectively as an association of individuals or as an unregistered firm if the relation between then. was of partners. It was accordingly held that since the income-tax Officer had 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.

(36) The Supreme Court in the above-mentioned case was dealing with a wholly different proposition than the one which was under consideration in Ch. Atchaiah's case. The other cases on which reliance was placed by the learned counsel for the assessed, and noted above dealt with the provision of section 3 of the 1922 Act. The ratio of the said cases is not applicable to the instant references before us, the said cases accordingly need not be noticed for the purposes of our present order as the question of assessing one income twice does not arise in these references.

(37) Reliance next was placed on Commissioner of Income-tat. Bihar, v. Pure Niehilpur Colliery Company : [1975]101ITR79(Patna) . In that case the Patna High Court was dealing with the case of an unregistered firm. It was in that background that the Court observed that the option of the Income-Tax Officer under section 183 of the 1961 Act is either to determine the tax payable by the firm itself on the basis of the total income of the firm under clause (a) or to tax the partners if, in his opinion, the aggregate amount of the tax payable by them if the firm were treated as a registered firm would be greater than the aggregate amount of the tax which would be payable by the partners individually by adding the share income for the purpose of rate only. It was in this context that the Court observed that the Income Tax Officer had the option in the case of an unregistered firm either to tax the total income in the hands of the firm, treating it as a separate entity, or to tax the share income in the hands of the partners but he could not do both in that neither the charging section 4 nor any other provision of the 1961 Act empowered him to do so.

(38) The above case dealt with an entirely different question and is of no assistance to the petitioner. It pertained to the assessment of an unregistered firm which was a genuine one but in the instant references, the assessed firm is not a genuine firm.

(39) The grievance of the assess on the facts and the circumstances of the case is wholly misconceived. We are in agreement with the view taken by the Tribunal. Relief in respect of avoiding double taxation in the case of the individual members of the assessed can be had by recourse to the provisions of section 155 of the 1961 Act. On completion of the income of the assessed as an association of persons, the assessment of its member can be rectified under the above said section.

(40) In view of our discussion on the various points noted above, we answer the question referred in the affirmative and hold that the Tribunal was justified in upholding the status of association of persons adopted by the Income-tax Officer in assessing the assessed even though its members had been assessed separately in respect of their share income for the assessment years 1967-68, 1968-69 and 1969-70. We leave the parties, in the circumstances of the case, to bear their respective costs.


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