SETHURAMAN J. - Four persons by name, Dhandayutham, Subramaniam, Govindan and Mahalakshmi Ammal purchased certain vacant lands for Rs. 80,000 on October 9, 1960. On October 17, 1960, they agreed to sell the said lands to a co-operative society for a sum of Rs. 1,58,725 resulting in a profit, which was assessable in the assessment year 1962-63. On February 29, 1964, a part of the land was sold and one of them was assessed on a sum of Rs. 17,617 as his share of the capital gains arising from the said transaction. In the course of the assessment order the Income-tax Officer stated as follows :
'I am adopting the figure furnished by the assessee provisionally, subject to revision later on receipt of correct share of capital gains, from the 6th Income-tax Officer, Circle-II, Coimbatore.'
This assessment was made on February 29, 1964. The Income-tax Officer who was assessing the association of persons, consisting of the said four persons, had earlier served a notice under section 139(2) of the Act, in February, 1963. A nil return was filed on behalf of the association on December 19, 1963, claiming that no income was liable to be assessed as there was no intention to sell the land and that the sale was forced under a threat of compulsory acquisition. The Income-tax Officer rejected the claim of the assessee and brought to tax a sum of Rs. 79,325 as business profit arising from the sale of the association. On appeal, the Appellate Assistant Commissioner confirmed the assessment and the association filed a further appeal to the Tribunal. One of the contentions taken before the Tribunal and accepted by it was that the department, having earlier assessed one of the members, Subramaniam, individually on his share income, could not later on assess the unit consisting of the four persons as 'association of persons' on the whole of its income. Against this conclusion of the Tribunal two questions were set out in the application for reference as follows :
'(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the assessment made on the association of persons after the assessment had been made earlier in the case of one of the members thereof was without a legal sanction ?
(2) Whether, on the material available before the Tribunal, its conclusion that the Income-tax Officer exercised his option to assessee the members of the association individually, could be said to be reasonable and valid in law ?'
The Tribunal referred only the first of the two questions extracted above an d declined to refer the second question. At the instance of the Commissioner of Income-tax, a direction was obtained from this court under section 256(2) for reference of the following question also, viz :
'Whether the conclusion of the Appellate Tribunal that the Income-tax Officer exercised his option to assessee the members of the association individually is supported by material ?'
In pursuance of this direction, a statement of the case has been submitted and it is numbered as T.C. No. 7 of 1975.
As far as the first question is concerned we have considered all the contentions urged by the respective parties in our judgment in T.C. No. 179 of 1971 [Commissioner of Income-tax v. Blue Mountain Engineering Corporation : 112ITR839(Mad) and we do not think it necessary to go into the same contentions over again here. For the reasons stated therein, we answer the question in the affirmative and in favour of the assessee.
As regards the second question referred in T.C. No. 7 of 1975, the Tribunal has pointed out in the statement of the case as follows :
'The evidence on the basis of which the Tribunal came to the consolation that one of the members of the association of the persons, i.e., R. Subramaniam, had already been assessed to tax prior to the assessment made on the assocation of persons has been set out in paragraph 28 of the order of the Tribunal. This evidence was the assessment order in the case of R. Subramaniam for the assessment year 1962-63, dated February 29, 1964 and the inference drawn from the contents thereof. The Tribunal in this regard negatived the plea of the department that the Income-tax Officer had not exercised the option of bringing to tax the income from the sale of the land in the hands of R. Subramanaiam for the reasons further set out in paragraph 32 of the order of the Tribunal.'
On a perusal of the order of the Tribunal, particularly the evidence referred to in the statement of the case, we consider that the inference of the exercise of the option was drawn from the fact that the assessment was made on the individual prior to the assessment on the association of persons. From the extract given from the assessment order it is clear that the Income-tax Officer was aware of the fact that another Income-tax Officer was in charge of the assessment of the association of persons. In one view there can be no exercise of option by the Income-tax Officer, who assessed the individual, when he had no jurisdiction to assessee the association as such. However, the point adverted to before us is that the choice is by the department ever, as such and not by the individual. In other words, the point sought to be made out is that all the Income-tax Officers are functioning under the Income-tax Act to assessee the income of any person liable to tax and that though, for convenience, they are invested with the jurisdiction over particular cases territorially or otherwise, still as all of them are discharging the same function, when one of them is exercising a choice, then be in a way forecloses the power available to the department to assessee the association. As point out by the Supreme Court in M. M. Ipoh v. Commissioner of Income-tax : 67ITR106(SC) , primarily, the return of income would be made by an association, where the association has earned income, and the Income-tax Officer would also call upon the association to submit a return of its income, and would ordinarily proceed to assessee tax on the return as made. Again, at page 115, the Supreme Court observed as follows :
'If the income is earned by an association of persons, normally a return would be made or asked for under section 22 from the association, and the income of the association would be brought to tax.'
This shows that the normal procedure is to tax the association primarily and then to proceed to consider the income in the hands of the individuals composing the association in the manner contemplated by law. If the department does not adopt the primary or normal procedure and takes the individual member, then the consequence thereof has to follow. It is this aspect which has been adverted to by the Allahabad High Court in Girdhari Lal Laxman Prasad v. Commissioner of Income-tax : 70ITR853(All) . If the Income-tax Officer does not want to foreclose the choice available to the department, he should wait till the firms or associations assessment is completed, and then proceed against the partners or members of the association individually. In this view, it is not possible to hold that when the Income-tax Officer assessed the member, the department did not exercise the option. The second question has, therefore, to be and is answered in the affirmative and against the revenue. The assessee will have its costs. Counsels fee Rs. 500 one set.