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PETITIONER: INCOME TAX OFFICER

       Vs.

RESPONDENT: CH. ATCHAIAH

DATE OF JUDGMENT11/12/1995

BENCH: JEEVAN REDDY, B.P. (J) BENCH: JEEVAN REDDY, B.P. (J) KIRPAL B.N. (J)

CITATION:  1996 AIR  883            1996 SCC  (1) 417  JT 1995 (9)   441        1995 SCALE  (7)186

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T B.P.JEEVAN REDDY.J.       This  appeal is  directed against  the judgment of the Andhra Pradesh  High Court  allowing the writ petition filed by  the   respondent  and  issuing  a  writ  of  prohibition restraining the  appellant (respondent in the writ petition) from taking  any action  pursuant to  the notice dated March 17, 1972  issued under  Section 148  of the  Income Tax Act, 1961 [1961 Act].       The  respondent in  this  appeal,  Sri  Atchaiah,  and another person,  Sri Kondal  Reddy, purchased  an extent  of 454.11 acres  in a  village  in  Medak  District  in  Andhra Pradesh from  Sri Ikramuddin and Smt. Azizunnisa Begum under a sale  deed dated  October 20,  1962 for a consideration of Rupees seventy five thousand. Even prior to the execution of the  sale  deed,  the  said  lands  had  been  notified  for acquisition under  the Land  Acquisition Act. The respondent and  Kondal  Reddy  appeared  before  the  Land  Acquisition Officer claiming  compensation. By  award dated  February 4, 1964,  the   Land   Acquisition   Officer   determined   the compensation  at   Rs.1,38,794.12  annas  which  amount  was received by  the respondent  and Kondal Reddy on December 4, 1964, in  equal shares.  At their  instance, a reference was made under  Section 18  of the  Land  Acquisition  Act.  The learned  District   Judge  enhanced   the  compensation   by Rs.3,95,026.00 (according  to the  appellant, the  figure is Rs.4,17,477/-). The  enhanced compensation  was also  shared between the respondent and Kondal Reddy in equal proportion.       In  the assessment  proceedings relating to Assessment Year 1965-66,  the Income  Tax Officer  included  a  sum  of Rs.35,397/-, treating  it as the capital gain, in the income of  the  respondent.  (This  figure  was  arrived  at  after deducting the  amount contributed  by the respondent towards the purchase  of the  said lands.)  Again, in the assessment relating  to   Assessment   Year   1968-69,   the   enhanced

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compensation falling  to the share of respondent was brought to tax  as capital  gain. Sri Kondal Reddy was also taxed in the same manner for both the said assessment years.       On  February 18,  1972 the Income Tax Officer issued a notice to both the respondent and Kondal Reddy under Section 148 of  the Income  Tax Act  stating that  he has  reason to believe that  income chargeable  to tax  for the  Assessment Year 1964-65  has escaped assessment. He called upon them to file a  return. On  April 3, 1972, the respondent and Kondal Reddy filed  a "Nil"  return. On  August 3, 1972, the Income Tax Officer  gave a  notice to  both of them stating that in the return  filed by them they have not mentioned the status in which  the return  was  filed.  The  Income  Tax  Officer proposed to  tax them as an Association of Persons and bring the entire  profit made by them as capital gain in the hands of such  Association of  Persons. The  respondent and Kondal Reddy raised  certain objections  to the proposed assessment but finding  that the  Income Tax  Officer was  inclined  to proceed with  the assessment,  they  approached  the  Andhra Pradesh High Court by way of a writ petition questioning the aforesaid notice dated February 19, 1972.       The  main contention  urged by the respondent was that the Income  Tax Officer having assessed the share of each of them  in   their  respective   individual  hands,   has   no jurisdiction to  assess the same income as the income of and in the hands of the Association of Persons aforesaid. Having exercised the  discretion  vested  in  him  to  assess  them individually with respect to their shares, it was contended, it was  not open  to him to assess them as an Association of Persons with  respect to the very same income. Certain other contentions were also raised with respect to the validity of the impugned  notice with  which objections, however, we are not  concerned   herein.  The   High  Court   accepted   the respondent’s contention. It rejected the contention urged by the learned  standing  counsel  for  the  Revenue  that  the decisions relied upon by the respondent-writ petitioner were all rendered  with reference to the provisions in the Indian Income Tax  Act, 1922  [1922 Act]  and that the principle of the said  decisions cannot  be extended to the cases arising under the  1961 Act.  The High Court found that the position under the  present Act  is no  different from  the  position under the  1922 Act  notwithstanding the  difference in  the language employed  in the  relevant provisions  of the  1961 Act. The  High court opined that even under the present Act, the Income  Tax Officer  has an  option to assess either the Association of  Persons as  a unit  or the  members  thereof individually and  that having exercised the option to assess the members of the Association of Persons as individuals, he cannot seek  to tax  the Association of Persons with respect to the  very same  income. The  High Court  also rejected an alternative contention  put forward  by the  Revenue,  viz., inasmuch as  the previous assessments in individual capacity were made  for the  Assessment Year  1965-66 and because the impugned notice  is for  the Assessment  Year  1964-65,  the Income Tax  Officer is  not precluded from taxing the income in the  hands of  the Association  of Persons. This argument was rejected by the High Court holding - "in our view, there is a fallacy in this argument. When making an assessment the Income Tax  Officer exercised his option and chose to assess the individual,  but he  did so  for the year 1965-66 as the amount was received by the assessee on December 4, 1964. The question is  not for what particular year the assessment was made, but  whether the  Income  Tax  Officer  exercised  his option in  levying the  tax on  the income  in the  hands of individual or in the hands of the association."

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     In this appeal, Dr. Gauri Shanker, learned counsel for the Revenue,  urged that the High Court was clearly in error in holding  that under  the  present  Act,  the  Income  Tax Officer has  an option  to tax either Association of Persons or its  members individually. Learned counsel submitted that while such an option was available to the Income Tax Officer under the  1922 Act,  no such  option is available under the present Act.  According to  the  present  Act,  the  learned counsel says,  the right  person has  to be taxed and merely because a  wrong person  is taxed,  it does not operate as a bar  to  taxing  the  right  person.  In  other  words,  his contention is  that if  in law the income in question had to be taxed  in the  hands of Association of Persons, it had to be taxed  as such and the mere fact that the said income was taxed in  the hands  of individual members of Association of Persons does  not bar the Income Tax Officer from taxing the Association of  Persons.  Sri  A.  Panduranga  Rao,  learned counsel for  the appellant-assessee, contended, on the other hand, that  there is  no  difference  between  the  position obtaining under  the 1922  Act and the present Act and that, therefore, the  decisions rendered  under the  1922 Act hold good  equally  under  the  present  enactment.  The  learned counsel supported  the reasoning  and conclusion of the High Court. Learned  counsel also  brought  to  our  notice  that though the  Andhra Pradesh  High court had taken a different view  in  a  subsequent  decision  in  Choudry  Brothers  v. Commissioner of  Income Tax [(1986) 158 I.T.R.224], the said view has  since been  overruled by  the Full  Bench of  that Court in  Commissioner of  Income Tax  v. B.R. Constructions (202 I.T.R.222).  The Full Bench, it is stated, has affirmed the correctness  of the  decision  under  appeal  (which  is reported in  116 I.T.R.675).  The learned  counsel has  also filed written arguments, which we have perused.       In  our opinion,  the contention  urged by  Dr.  Gauri Shanker merits  acceptance. We are of the opinion that under the present  Act, the  Income Tax Officer has no option like the one  he had under the 1922 Act. He can, and he must, tax the right  person and  the right  person  alone.  By  "right person", we  mean the  person who  is liable  to  be  taxed, according to  law, with  respect to a particular income. The expression "wrong  person" is obviously used as the opposite of the  expression "right  person". Merely  because a  wrong person is  taxed with  respect to  a particular  income, the Assessing Officer  is not  precluded from  taxing the  right person with  respect to that income. This is so irrespective of the  fact which course is more beneficial to the Revenue. In our  opinion, the  language of the relevant provisions of the present  Act is quite clear and unambiguous. Section 183 shows that  where the  Parliament  intended  to  provide  an option, it  provided so  expressly. Where  a person is taxed wrongfully, he  is no doubt entitled to be relieved of it in accordance  with   law*  but  that  is  a  different  matter altogether. The person lawfully liable to be taxed can claim no  immunity  because  the  Assessing  Officer  [Income  Tax Officer] has  taxed the  said income in the hands of another person contrary to law. We may proceed to elaborate.       Section  3 of  the Indian  Income Tax  Act,  1922,  as amended by the Indian Income Tax (Amendment) Act, 1939, read as follows:      "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

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    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."                              (Emphasis added) *Apart from  questioning the levy by way of appeal, revision and reference, it is suggested, the assessee can also resort to Section  155(2). We,  however, express  no opinion on the applicability of  Section 155(2)  since it does not directly arise in this case.       The  expression "person"  was defined in clause (9) of Section 2  in the  following words:  "9. ’Person’ includes a Hindu undivided family and a local authority".       As  against the  above provisions,  Section 4  of  the Present Act  (before it  was amended  by the Direct Tax Laws (Amendment) Act,  1987, with effect from April 1, 1989) read thus:      "4(1). Where any Central Act enacts that      income tax  shall  be  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.      (2)  In  respect  of  income  chargeable      under sub-section  (1), income-tax shall      be deducted  at the  source or  paid  in      advance, where  it is  so deductible  or      payable  under  any  provision  of  this      Act." (The amendments  made by the aforesaid Amendment Act of 1987 do not make any difference so far as the present controversy is concerned.)  The expression "person" is defined in clause (31) of Section 2 in the following words:      "’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."       A  comparison of  the provisions  of  both  enactments immediately bring out the difference between them. Section 3 of the 1922 Act provided that in respect of the total income of a firm or an Association of Persons, the income tax shall be charged  either on the firm or the Association of Persons or on  the partners  of the  firm or  on the  members of the Association of Persons individually. It is evident that this

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option was  to be  exercised by  him keeping  in view of the interest of  Revenue. Whichever course was more advantageous to Revenue,  he  was  entitled  to  follow  it.  In  such  a situation, it  was generally  held that  once the Income Tax Officer opted for one course, the other course was barred to him. But no such option is provided to him under the present Act. Section  4 extracted  hereinabove says  that income tax shall be  charged on  the total income "of every person" and the expression "person" is defined in clause (31) of Section 2. The  definition  merely  says  that  expression  "person" includes inter  alia a firm and an Association of Persons or a body of individuals whether incorporated or not. There are no words  in the  present Act  which empower  the Income Tax Officer or  give him an option to tax either the Association of Persons or its members individually or for that matter to tax the  firm or  its partners  individually. If  it is  the income of  the Association of Persons in law, Association of Persons  alone   has  to   be  taxed;  the  members  of  the Association of  Persons  cannot  be  taxed  individually  in respect  of  the  income  of  the  Association  of  Persons. Consideration of  the interest  of Revenue  has no  place in this scheme.  When Section 4(1) of the present Act speaks of levy of  income tax  on the total income of every person, it necessary means  the person  who is liable to pay income tax in respect  of that  total income  according to law. The tax has to  be levied  on that  person, whether  an  individual, Hindu  Undivided   Family,  Company,  Firm,  Association  of Persons/BOP, a  local authority  or an  artificial juridical person. From  this, it  follows that if income of A is taxed in the  hands of B, A may be legitimately aggrieved but that does not  mean that B is exonerated of his liability on that account. B  cannot say,  when he  is sought  to be  taxed in respect of the total income which is lawfully taxable in his hands, that since the Income Tax Officer has taxed very same income in  the hands  of A,  he himself cannot be taxed with respect to  the said  total income. This is not only logical but is  consistent with  the provisions  of the Act. In this connection, it  may be pointed out that where the Parliament wanted to provide an option, a discretion, to the Income Tax Officer, it  has provided  so expressly.  Section 183 [which has since been omitted with effect from April 1, 1993 by the Finance  Act,   1992]  provided  that  in  the  case  of  an unregistered firm,  it is  open to the Income Tax Officer to treat it,  and make  an assessment  on it,  as if  it were a registered firm,  if such  a course  was more  beneficial to Revenue -  in the  sense that such a course would fetch more tax to the public exchequer. Section 183 read as follows      "183. Assessment of unregistered firms.-      - In  the case  of an unregistered firm,      the Assessing Officer--      (a) may determine the tax payable by the      firm itself  on the  basis of  the total      income of the firm, or      (b) if,  in his  opinion, the  aggregate      amount of the tax payable by the firm if      it were  assessed as  a registered  firm      and the  tax  payable  by  the  partners      individually  if   the  firm   were   so      assessed  would   be  greater  than  the      aggregate amount  of the  tax payable by      the firm  under clause  (a) and  the tax      which would  be payable  by the partners      individually, may  proceed to  make  the      assessment  under   sub-section  (1)  of      section  182  as  if  the  firm  were  a

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    registered   firm;    and,   where   the      procedure specified  in this  clause  is      applied to  any unregistered  firm,  the      provisions of  sub-sections (2), (3) and      (4) of  section 182  shall apply thereto      as  they   apply  in   relation   to   a      registered firm."       It  may be  mentioned that Section 183 corresponded to Section 23(5)  (b) of  the 1922  Act. The  1922 Act not only provided an  option to  the Income Tax Officer in the matter of firm  and Association of Persons under Section 3 but also expressly enabled  him to  assess an  unregistered firm as a registered firm [Section 23(5)(b)], if by doing so, more tax accrued to  the State.  The 1961  Act has  omitted the first option, while retaining the second.       In this connection, it would be relevant to notice the relevant provisions  of the  draft Bill  proposed by the Law Commission in  its XIIth Report, which constitutes the basis for the  1961 Act.  Clause (27)  of Section  2 of  the draft (definition of  "person") did  expressly provide  an  option similar to  the one  contained in Section 3 of the 1922 Act. Clause 27 read thus:      "(27) ’Person’ includes--      (i)  an individual,      (ii) a Hindu undivided family,      (iii)a company,      (iv) a  firm  or  other  association  of      persons, whether incorporated or not, or      the partners  of the firm or the members      of the association individually,      (v)  a   body  of  individuals,  whether      incorporated or not,      (vi) a local authority, and      (vii)every artificial  juridical person,      not falling  within sub-clauses  (i)  to      (vi)"                              (Emphasis added) In the  "Notes  on  Clauses"  appended  to  the  draft,  the Commission stated:      "27. Person.  The definition of ’person’      in  existing   section  2(9)   has  been      amplified.      The  existing  definition  includes  (a)      Hindu undivided  family and  (b) a local      authority.  The   General  Clauses  Act,      defines ’person’  as including a company      or association  or body  of  individuals      whether   incorporated   or   not.   The      charging  section  (section  3)  of  the      Income-tax Act  enumerates the units for      taxation as ’individual, Hindu undivided      family, company,  local authority,  firm      and other association of persons, or the      partners of a firm or the members of the      association individually’.  Section 4 of      the Act refers to a ’person’.      It   seems    desirable   to    have   a      comprehensive  definition  of  the  word      ’person’ in  the Act  so as to cover all      entities mentioned in --      (i) the existing definition [S.2(9)].      (ii) the  existing  charging  provisions      [sections 3 and 4], and      (iii) the General Clauses Act.           The definition  has therefore  been

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    amplified on the above lines."       The  Parliament, however,  chose  not  to  accept  the suggested  definition   in  total   it  deleted   the  words indicating the  option. The  Committee,  which  drafted  the draft Bill  comprised Sri P.Satyanarayana Rao, Sri G.N.Joshi and Sri  N.A.Palkhivala, who was specifically appointed as a member for  the purpose  of the  revision of  the Income Tax Act. [Extracts  are taken  from the  XIIth Report of the Law Commission of  India,  published  by  Government  of  India, Ministry of Law.]       This  question has also been troubling the High Courts in the  country. As  a matter  of  fact,  Patna  and  Andhra Pradesh High  Courts have  taken different views. Be that as it may, we may mention that the Patna High Court in Mahendra Kumar Agarwal  v. Income Tax Officer [(1976) 103 I.T.R.688], Punjab  and  Haryana  High  Court  in  Rodamal  Lalchand  v. Commissioner of  Income Tax  [(1977)  109  I.T.R.7],  Andhra Pradesh High  Court in  Choudry [supra] and Delhi High Court in Punjab Cloth Stores v. Commissioner of Income Tax [(1980) 121 I.T.R.604]  have taken  the view which we have taken. On their other  hand, Madras  High  Court  in  Commissioner  of Income Tax  v. Blue Mountain Engineering Corporation [(1978) 112 I.T.R.839]  and Patna High Court in its earlier decision in Commissioner  of Income  Tax v.  Pure Nichitpur  Colliery Company [(1975)  101 I.T.R.79] have taken the opposite view. The Andhra  Pradesh High  Court first  expressed  the  other view, then  in Choudry  it took the view which we have taken and the again in B.R. Constructions (F.B.), it has gone back to the  other view  and reiterated  the view  taken  in  the judgment under  appeal. In Ramanlal Madanlal v. Commissioner of Income  Tax [(1979)  116 I.T.R.657], Sabyasachi Mukharji, J., speaking  for  a  Bench  of  the  Calcutta  High  Court, recognized the  distinction  in  the  language  employed  in Section 3  of the  1922 Act and Section 4 of the present Act but that was a case of an unregistered firm where the Income Tax Officer  had assessed  the incomes  in the  hands of the partners individually.  In such  a  situation,  the  learned Judge held, the Income Tax Officer cannot, at the same time, bring the  unregistered firm  to tax  in respect of the very same income.  Section 183  was  also  referred  to  in  that connection.       The  decision of  the High  Courts taking the contrary view  appears   to  have  been  influenced  largely  by  the decisions of  this Court  in Commissioner  of Income  Tax v. Kanpur Coal Syndicate [(1964) 53 I.T.R.225] and Commissioner of Income  Tax v.  Murlidhar Jhawar  and Purna  Ginning  and Pressing Factory  [(1966) 60  I.T.R.95] which  were rendered under the  1922 Act  and have  not given  due weight  to the marked difference in the language of the relevant provisions in the two enactments.       For  the above  reasons, the  appeal is  allowed.  The judgment of  the High  Court is  set aside.  We must make it clear  that  we  have  pronounced  only  upon  one  question referred to  above. We  have not  expressed ourselves on any other contention urged by the assessee before the Income Tax Officer or for that matter before the High Court. It is open to the  assessee to urge these contentions before the Income Tax Officer,  if he  is so  advised, according to law. There shall be no order as to costs.