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PETITIONER: COMMISSIONER OF INCOME-TAX, U.P., LUCKNOW

       Vs.

RESPONDENT: KANPUR COAL SYNDICATE

DATE OF JUDGMENT: 30/04/1964

BENCH: SUBBARAO, K. BENCH: SUBBARAO, K. SHAH, J.C. SIKRI, S.M.

CITATION:  1965 AIR  325            1964 SCR  (6)  85  CITATOR INFO :  D          1966 SC1148  (7)  F          1966 SC1536  (3)  R          1968 SC 317  (14)  R          1972 SC  83  (13)  R          1991 SC 241  (5,7)

ACT: Income  Tax-Assessment  on  Association  of  persons  or  on members  individually-Option to appropriate  authority-Right of appeal, whether such assessee has-Powers of Tribunal  and Appellate  Assistant Commissioner in Appeal-Income-tax  Act, 1922 (11 of 1922), xi. 3, 14(2) (b) 30, 31 and 33.

HEADNOTE: Income-tax  was assessed upon the total income in the  hands of  the  respondent-assessee,  an  association  of   several persons  combined  together for the purpose of  purchase  of coal  and its supply to customers for domestic purposes  and other small scale industries.  The assessee claimed that  it should not be assessed to tax as an association of  persons, but  the  proportion  of the income in  the  hands  of  each members of the association might be assessed to tax instead. The Income-tax Officer refused this request and an appeal to the  Appellate  Assistant Commissioner was  dismissed.   The Income-tax  Appellate  Tribunal, on a further  appeal.  held that  though  the  Income-tax Officer had  power  to  assess income  of  the  association of persons as such  or  in  the alternative on the individual members thereof in respect  of their proportionate share in the income, the tribunal had no power  under  the Act to direct the  Income-tax  Officer  to exercise his power in one way or other.  On a 86 reference,  the High Court held that the Appellate  Tribunal had  power to set aside the Income-tax Officer’s  assessment against  the  association  and  to  give  consequential  and ancillary   ’directions  to  the  said  officer  to   assess individuals. HELD:-(i) Section 3 of the Income-tax Act impliedly gives an option  to  an  appropriate authority to  assess  the  total income  of either the association of persons or the  members of such association individually.

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Commissioner  of  Income-tax v. Reddy  Mallaram,  (1964)  51 I.T.R. 285 (S.C.) followed. (ii) Such  an assessee has a right to appeal under s. 30  of the  Act  against  the  order  of  the  Income-tax   Officer assessing the association of persons instead of the  members individually. (iii)     The  Appellate Tribunal has jurisdiction  to  give directions  to  the  appropriate  authority  to  cancel  the assessment  made on the association of persons and  to  give appropriate  directions to the authority concerned  to  make fresh  assessment  on  the  members  of  that   associations individually.  The phraseology used both in s. 31 and s.  33 does  not  restrict the powers of  the  Appellate  Assistant Commissioner or the Appellate Tribunal; both have the  power of such direction.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 673 of 1963. Appeal  from  the judgment and decree  dated  September  22, 1960,  of  the  Allahabad  High  Court  in  Income-tax  Mis- cellaneous Case No. 188 of 1953. S. K. Kapur and R. N. Sachthey, for the appellant. Veda Vyasa and Naunit Lal, for the respondent. April 30, 1964.  The Judgment of the Court was delivered by SUBBA  RAo, J.-The question for decision in this  appeal  is whether  when  the  Income-tax  Officer  in  his  discretion assessed an association of persons to income-tax, the Appel- late  Assistant  Commissioner in appeal  or  the  Income-tax Appellate  Tribunal  in further appeal can  set  aside  that order  and  direct  him  to  assess  the  members  of   that association individually. ’Me facts lie in a small compass and they areas follows: ’Me assessee consisted of several persons combined together  for the purpose of purchasing coal in order to supply the 87 same  to  customers for domestic purposes  and  other  small scale industries.  For the assessment year 1948-49 the Income-tax Officer  levied tax upon the total income in the hands of the said   association of persons.  The assessee claimed that in the circumstances of the case it should not be  assessed  to tax as an association of persons,  but  the proportion of the income in the hands of each of the members of the association might be assessed to tax instead.  As the Income-tax  Officer  did not comply with this  request,  the assessee preferred an appeal to the Appellate Assistant Com- missioner, but it was dismissed.  On a further appeal to the Income-tax Appellate Tribunal, the Tribunal held that though the Income-tax Officer had the power to assess the income of the association of persons as such or in the alternative  on the  individual members thereof in respect of their  propor- tionate share in the income,, it (the Tribunal) had no power under  the Act to direct the Income-tax Officer to  exercise his  rower in one way or other.  The following question  was referred  to the High Court, of Allahabad under s. 66(2)  of the Indian Income-tax Act, 1922: "If  in pursuance of s. 3 of the Indian Income-tax  Act  the Income-tax  Officer levies the income tax in respect of  the total  income  of  the previous year of  an  association  of persons upon the said association of persons as a collective unit,  whether  the  Tribunal is  competent  to  direct  the Income-tax  Officer to levy the income  tax  proportionately upon  the  individual  members of the  said  association  of persons  in respect of the proportionate income of  each  of

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the members consisting the said association of persons." A  Division Bench of the High Court held that the  Appellate Tribunal  had  power to sat aside the  Income-tax  Officer’s assessment against the association and to give consequential and  ancillary directions to the said Officer to assess  the Individuals. Learned  counsel  for the Revenue contends  that  under  the Indian  Income-tax Act, 1922, he reinafter called  the  Act, the Income-tax Officer has no option but to assess the total 88 income  of  the association of members, though  the  indivi- dual’s  share in the income may be added to  his  individual income for the purpose of ascertaining his total income.  He further  argues that even if the Income-tax Officer has  the option to assess to income-tax the association of persons on its  total  income  or the  individual  members  thereof  in respect  of their proportionate share of the income,  if  he had  exercised  the option in one way or other  neither  the Appellate  Assistant Commissioner in appeal nor the  Income- tax Appellate Tribunal in further appeal has power to direct the  Incometax  Officer  to exercise  his  discretion  in  a different  way;  and for this conclusion he  seeks  to  draw strength from his further submission that no appeal lies  at the  instance  of the association of persons when  they  are assessed  as one unit on the ground that the Officer  should have   assessed   the  individual  members   of   the   said association. At  the  outset it will be convenient to read  the  relevant provisions of the Act. Section 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 chareed 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  indi- vidual, 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. Section   14. (2) The tax shall not be payable by an assessee- (b)  if  a member of an association of persons other than  a Hindu  undivided family, a company of a firm, in respect  of any  portion of the amount which he is entitled  to  receive from  the  associa, tion on which the tax has  already  been paid by the association. 89 Section  30.  (1) Any assessee objecting to  the  amount  of income assessed under section 23  .......................... or the amount of tax determined under section 23 under this Act     may appeal to the Appellate Assistant Commissioner against the  assessment or against such refusal or order: Section  31.  (3) In disposing of an  appeal  the  Appellate Assistant  Commissioner  may,  in the case of  an  order  of assessment,- (a)  confirm, reduce, enhance or annul the assessment, or (b)  set  aside  the  assessment and  direct  the  Incometax Officer to make a fresh assessment after making such further inquiry  as  the  Income-tax  Officer  thinks  fit  or   the Appellate  Assistant  Commissioner  may  direct,  a-,id  the Income-tax  Officer  shall thereupon proceed  to  make  such fresh assessment and determine where necessary the amount of tax payable on the basis of such fresh assessment. x     x      x     x     x     x

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(4)  Where as the result of an appeal any change is made  in the assessment of a firm or association of persons or a  new assessment  of a firm or associations of persons is  ordered to  be  made,  the  Appellate  Assistant  Commissioner   may authorise  the Income-tax Officer to amend  accordingly  any assessment made on            any partner of the firm or any member of the association. Section  3  imposes a tax upon a person in  respect  of  his total  income.  The persons on whom such tax can be  imposed ,are particularized therein, namely, Hindu undivided family, company,  local  authority, firm,  association  of  persons, partners  of  firm or members of  association  individually. The  section, therefore, does not in terms confer any  power on any particular officer to assess one of the 90 persons  described therein, but is only a  charging  section imposing  the  levy  of  tax  on  the  total  income  of  an assessable entity described therein.  The section  expressly treats an association of persons and the individual  members of  an association as two distinct and different  assessable entities.  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.  There is no scope for the  argument that  under  s.  3  the assessment  shall  be  only  on  the association   of  persons  as  a  unit  though  after   such assessment  the  share  of ’he income of a  member  of  that association may be added to his other income under s.  14(2) of the Act.  This construction would make the last words  of the section, viz., "members of the association individually" a surplusage.  This argument is also contrary to the express provisions  of  s.  3, which mark out  the  members  of  the association  individually  as  a separate  entity  from  the association  of persons.  Income of every person whether  he is a member of an association or not is liable to the charge under the head "’every individual".  Section 14(2) (b)  only says that if such an individual happens to be a member of an association of persons which has already been assessed,  the tax would not be payable in respect  of the share of his income again.  That  under  the Act  an assessment can be made on an association of  persons as  a  unit  or, alternatively, on  the  individual  members thereof in respect of their respective shares of the  income was  assumed by this Court in Commissioner of Income-tax  v. Raja  Reddy  Mallaram(1).   We, therefore, hold  that  s.  3 impliedly  gives  an option to an appropriate  authority  to assess the total income of either the association of persons or the members of such association individually. The  next question is whether the said option is given  only to  the  Income-tax Officer and is denied to  the  Appellate Assistant  Commissioner and the Appellate  Tribunal.   Under the  Act the Income-tax Officer, after following the  proce- dure  prescribed,  makes the assessment under s. 23  of  the Act.   Doubtless  in  making the  assessment  at  the  first instance  he  has to exercise the option whether  he  should assess the association of persons or the members thereof (1)  [1964]51 I.T.R. 285 (S.C.) 91 individually.  It is not because that any section of the Act confers  an exclusive power on him to do so, but because  it is part of the process of assessment; that is to say, he has to ascertain who is the person liable to be assessed for the tax.  If he seeks to assess an association of persons as  an assessable  entity,  the  said -entity  can  object  to  the assessment,   inter  alia,  on  the  ground  that   in   the circumstances  of the case the assessment should be made  on

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the members of the association individually.  The Income-tax Officer  may reject its contention and may assess the  total income of the association as such and impose the tax on  it. Under  s. 30 an assessee objecting to the amount  of  income assessed  under s. 23 or the amount of tax determined  under the  said  section or denying his liability to  be  assessed under the Act can prefer an appeal against the order of  the Income-tax Officer to the Appellate Assistant  Commissioner. It  is  said that an order made by  the  Income-tax  Officer rejecting  the  plea of an association of persons  that  the members thereof shall be assessed individually does not fall under one or other of the three heads mentioned above.  What is  the  substance of the objection of  the  assessee?   The assessee  denies his liability to be assessed under the  Act in the circumstances of the case and pleads that the members of the association shall be assessed only individually.  The expression "denial of liability" is comprehensive enough  to take in not only the total denial of liability but also  the liability to tax under particular circumstances.  In  either case  the  denial is a denial of liability  to  be  assessed under  the provisions of the Act.  In one case the  assessee says  that he is not liable to be assessed to tax under  the Act, and in the other case the assessee denies his liability to  tax under the provisions of the Act if the option  given to  the appropriate officer under the provisions of the  Act is  judicially exercised.  We, therefore, hold that such  an assessee  has  a  right of appeal under s.  30  of  the  Act against  the order of the Income-tax Officer  assessing  the association  of  members  instead  of  the  members  thereof individually.  If an appeal lies, s. 31 of the Act describes the  powers of the Appellate Assistant Commissioner in  such an  appeal.   Under s. 31 (3) (a) in disprosing of  such  an appeal  the  Appellate Assistant Commissioner may,  in  the, case of an order of assessment, confirm, reduce, enhance or 92 annul the assessment; under cl. (b) thereof he may set aside the  assessment and direct the Income-tax Officer to make  a fresh assessment.  The Appellate Assistant Commissioner has, therefore,  plenary powers in disposing of an  appeal.   The scope  of his power is coterminous with that of the  Income- tax  Officer.  He can do what the Income-tax Officer can  do and also direct him to do what he has failed to do.  If  the Income-tax Officer has the option to assess one or other  of the  entities  in the alternative, the  Appellate  Assistant Commissioner  can direct him to do what he should have  done in  the  circumstances  of a case.  Under s. 3 3  (I  ),  au assessee  objecting  to  an order  passed  by  an  Appellate Assistant  Commissioner under s. 28 or s. 31 may  appeal  to the  Appellate Tribunal within 60 days of the date on  which such  order  is communicated to him.  Under s.  33(4),  "The Appellate  Tribunal  may, after giving both parties  to  the ,appeal  an  opportunity of being heard,  pass  such  orders thereon  as  it thinks fit, and shall communicate  any  such orders  to the assessee and to the Commissioner."  Under  s. 33(5), "Where as the result of an appeal any change is  made in  the assessment of a firm or association of persons or  a new  assessment  of  a firm or  association  of  persons  is ordered to be made, the Appellate Tribunal may authorise the Income-tax Officer to amend accordingly any assessment  made on   any  partner  of  the  firm  or  any  member   of   the association".  Under this section the Appellate Tribunal has ample  power  to  set  aside  the  assessment  made  on  the association of persons and direct the Income-tax Officer  to assess  the  individuals or to direct the amendment  of  the assessment  already made on the members.  The  comprehensive

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phraseology used both in s. 31 and s. 33 of the Act does not countenance  the  attempt  of the Revenue  to  restrict  the powers  of  the Appellate Assistant Commissioner or  of  the Appellate  Tribunal; both of them have power to  direct  the appropriate  authority  to assess the  members  individually instead of the association of persons as a unit. We, therefore, hold, agreeing with the High Court, that  the Appellate  Tribunal has jurisdiction to give  directions  to the  appropriate authority to cancel the assessment made  or the   association  of  persons  and  to   give   appropriate directions 93 to the authority concerned to make a fresh assessment on the members of that association individually.  The answer  given by the High Court to the question propounded is correct. In the result, the appeal fails and is dismissed with costs. Appeal dismissed.