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PETITIONER: M.   M. IPOH & ORS.

       Vs.

RESPONDENT: COMMISSIONER  OF INCOME-TAX, MADRAS

DATE OF JUDGMENT: 26/07/1967

BENCH: SHAH, J.C. BENCH: SHAH, J.C. SIKRI, S.M. RAMASWAMI, V.

CITATION:  1968 AIR  317            1968 SCR  (1)  65  CITATOR INFO :  R          1970 SC1589  (10)

ACT: Income-tax Act, 1922, s. 3--Whether violative of Art. 14  of the  Constitution--Quasi-Judicial  function  of   Income-tax Officer  in  assessing  income to tax and  duty  to  prevent evasion--If   constitute  sufficient   guidance--Individuals minor  and  firm trading  together--Whether  association  of persons--Whether doctrine of res judicata applies to finding in  assessment  proceedings  in  one  year  in  relation  to proceeding  for  another  year--Whether  determination   and declaration  necessary as to who is principal officer of  an association  of persons before assessment  proceedings  take place.

HEADNOTE: The  Karta  of  a Hindu undivided  family  was  assessed  to Incometax from year to year until the assessment year  1953- 54 either as an individual or as the Karta.  But later,  the Income-Tax  Officer issued notices to him under s. 34(1)  of the  Income-tax Act, 1922, for the assessment years  1951-52 to  1953-54  and under s. 22(2) for the years    1954-55  to 1956-57 for assessment of the income as having been received by an association of persons consisting of the Karta and his minor  son  in 1951-52, and the Karta, his minor son  and  a firm  in  the  years 1952-53 to 1956-57,  and  assessed  the income received as income and associations of persons.   The Appellate  Assistant  Commissioner  and  the  Tribunal,   in appeals filed before them, substantially confirmed the order of   the  Income-tax  Officer.   The  High  Court,  upon   a reference.  held  that the income for  the  assessment  year 1951-52  did E not accrue to an association of persons,  but confirmed  the  view  taken by  the  Income-tax  Officer  in respect of the income for the year- 1952-53 to 1956-57. The  Karta then moved the High Court under Art. 226  of  the Constitution and contended that s. 3 of the Income-tax  Act, 1922,  invested  the Income-tax Officer with  arbitrary  and unguided  power  to assess the income of an  association  of persons  in the hands either   of the association or of  the persons  constituting  that  association  and  it  therefore offended  Art.  14  of the  Constitution.   The  High  Court

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rejected the petitions. In  appeals to this Court against the decisions of the  High Court in the writ petition and the reference under s. 66  of the Income tax Act. HELD:(i) S. 3 of the Income-tax Act, 1922, was not violative of Art. 14 of the Constitution.  The duty of the  Income-tax Officer    is to administer the provisions of the Act in the interests  of  public  revenue, and to  prevent  evasion  or escapement of tax legitimately ,due to the State.  Though an executive Officer engaged in the administration of the  Act. the  function  of the Income-tax  Officer  is  fundamentally quasi-judicial.   His  decision to bring to tax  either  the income of the association collectively or the shares of  the members  of the association separately is not final:  it  is subject  to appeal  to the Appellate Assistant  Commissioner and to the Tribunal.  The nature of the authority  exercised by  the Income-tax Officer in a proceeding to assess to  tax income,  and  his duty to prevent evasion or  escapement  of liability  to  pay tax legitimately due to the  State,  con- stitute adequate enuciation of Principles and policy for the guidance of the Income-tax Officer. [72B-H] 66 Suraj  Mall Mohta & Co. v. A. V. Visvanatha Sastri and  Anr. (1954) 26 I.T.R. 1, distinguished. Shri  Ram Krishna Dalmia v. Shri Justice S.R. Tendolkar  and Ors.  [1959] S.C.R. 279, Jyoti Pershad v. The  Administrator for  the Union Territory of Delhi. [1962] 2 S.C.R.  125  and Commissioner  of Income-tax U.P. v. Kanpur  Coal  Syndicate, (1964) 53 I.T.R. 225. referred to, There  is  no  force in the contention that s.  23A  of  the Income-tax  Act,  as it was incorporated by Act 21  of  1930 laid down certain principles for the guidance of the  Income Tax  Officer in exercising his option, but since  the-repeal of  that section by Act 7 of 1939, the discretion vested  in the  Income-tax Officer to select either the income  of  the association or the individual member is unfettered.  By  the repeal of s. 23A(1) the essential nature of the power of the Incometax  Officer was not altered.  He remained  as  before under  a  duty  to administer the Act, for  the  benefit  of public  revenue,  but  his  powers  were  to  be   exercised judicially  and so as to avoid double taxation of  the  same income. [73A-B; 74F-G] (ii) There was abundant material on the record to prove that the Karta, his minor son and the firm formed an  association in the years 1952-53 to 1956-57. Under  s.  2(9) of the Income-tax Act, 1922, read  with  el. (42)  of  3 of the General Clauses Act, a firm is  a  person within  the meaning of the Income-tax Act and a firm and  an individual  or group of individuals may form an  association of persons within the meaning of s. 3 of the Income-tax Act. [75F, G] There is nothing in the Act to indicate that a minor  cannot become  a  member  of  an association  of  persons  for  the purposes  of  the  Act.  In any event  the  High  Court  had rightly  held that the mother and guardian of the minor  son must,  on  the facts, be deemed to have  given  her  implied consent to the participation of the minor in the association of persons. [75H] Commissioner of Income-tax, Bombay v. Laxmidas & Anr. (1937) I.T.R.,  584 and Commissioner of Income-tax,  Bombay  North, Kutch Saurashtra v. Indira Balkrishna, (1960) 39 I.T.R. 546, referred to. (iii)The doctrine of res judicata does not apply so  as to  make  a  decision  on a question of fact  or  law  in  a proceeding  for  assessment in one year binding  in  another

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year.   The  assessment and the facts found  are  conclusive only in the year of assessment: the finding on questions  of fact  may be good and cogent evidence in  subsequent  years, when  the  same question falls to be determined  in  another year  but they are not binding and conclusive.  The  finding recorded  by the High Court that in the year  1951-52  there was  no association of persons constituted by the Karta  and his  minor son did not in ’the present case have any  effect on the finding of the Tribunal that in year 1952-53 and  the subsequent years such an association existed.   Furthermore, the  association of persons which traded in 1952-53 and  the subsequent years was different from the association in 1951- 52  because in 1952 an association was formed of the  Karta, his son and a firm. [75B-C] (iv)If  the person described as a principal officer of  an. association  is duly served with a notice under s. 23(2)  in the  manner prescribed by s. 23(2), an adjudication  of  his status   as   the  principal  officer,   before   assessment proceedings  may take place, is not obligatory.   The  order assessing the association containing a finding that the per. son served is the principal officer is sufficient compliance with the 67 requirements of the statute.  It is open to the  association to challenge the finding of the Income-tax Officer in appeal before  the Appellate Assistant Commissioner and in  further appeal  to the Appellate Tribunal.  But the order  declaring him  as the principal officer of an association  of  persons will not be deemed to be void merely because the  proceeding for  assessment  was not preceded by a  declaration  of  his status as the principal officer. [80G-81B] Commissioner  of  Income-tax,  Punjab &  N.W.F.P.  v.  Nawal Kishore Kharaiti Lal, (1938) 6 I.T.R. 61, referred to.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 1060-  1064 of 1965. Appeals  by special leave from the judgment and order  dated April  3. 1961 of the Madras High Court in Tax Case No.  201 of 1960.                             AND Civil Appeals Nos. 1103-1107 of 1966. Appeals  by special leave from the judgment and order  dated November 29, 1963 of the Madras High Court in Writ Petitions Nos. 1374-1378 of 1961. M.   M.  Nambiyar,  K.  Narayanaswami,  B.  Manivannan,   B. Parthasarathy,  J. B. Dadachanji, O.C. Mathur  and  Ravinder Narain, for the appellants (in all the appeals). S.  T. Desai, R. Ganapathy Iyer and R. N. Sachthey, for  the respondent (in all the appeals) and for the Attorney-General for India (in C. As.  Nos. 1103-1107 of 1966). The Judgment of the Court was delivered by Shah,  J.-Meyyappa (1), Alagammal his wife, and  Chokalingam and Meyyappa (11) his two minor sons formed in 1940 a  Hindu Undivided  Family which traded in the name of  "M.S.  M.M.". The  family carried on extensive business in money  lending, rubber  plantations,  and in real estates in  the  Federated States of Malaya, Burma and India. The property of the undivided family was divided between the three  male members on February 22, 1940.  To  Meyyappa  (1) were  allotted at the partition "business of the family"  at Rangoon  and at Karaikudi in the Ramnath District and  three rubber  estates in the Federated States of Malaya  and  some

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houses.  Even after the partition Meyyappa (1) continued  to remain in management on behalf of himself and his two  minor sons of all the properties ’and the businesses carried on by the  family  when  it was joint,  and  the  businesses  were carried on in the name of "M.S.M.M.". The houses and the three rubber estates allotted exclusively to Meyyappa (1) were entered in the books of accounts opened in  the name of "M.M. Ipoh" from the date of  the  division. In 68 December  1941 Alagammal gave birth to a son who  was  named Chettiappa.  Meyyappa (1) and Chettiappa then constituted  a Hindu coparcenary which owned the property and the  business as  allotted to Meyyappa (1) in the partition of  1940.   On December  30, 1949 a deed of partition was executed  between Meyyappa  (I) and Chokalingam (who had by then attained  the age of majority) in respect of the businesses carried on  in the  name  of  "M.S.M.M."  The  businesses  were  thereafter carried on in partnership between Meyyappa (1)  representing himself  and the minor Chettiappa and  Chokalingam  Meyyappa (II)  was admitted to the benefits of that partnership.   On April  13, 1950 partition was effected between Meyyappa  (1) and the minor Chettiappa by posting entries in the books  of account  of  M.M. Ipoh.  It was agreed that  the  properties entered  in the books of account of M.M. Ipoh shall be  held by Meyyappa (1) and Chettiappa in two equal shares, and that the properties shall continue to remain in the management of the  firm  M.S.M.M. to the benefit of which  Chettiappa  was admitted.   A deed of partition recording the terms of  that partition  was executed on May 28, 1953 by Meyyappa (1)  and Alagammal acting as Guardan of the minor Chettiappa. In  1951  Meyyappa (1) acceded to a demand made  by  Chocka- lingam  on behalf of the M.S.M.M. firm for a half  share  in the  "M.M. lpoh properties".  There was however no  division of the properties by metes and bounds, and the management of those  properties as a single unit continued to remain  with the M.S.M.M. firm as before. Meyyappa  (1) was assessed under the Indian  Income-tax  Act 1922 to tax year after year till the assessment year 1953-54 in  respect of the income from the "M.  M. lpoh  properties" as  a respect individual or as a karta of a Hindu  undivided family.   Later the Income-tax Officer,  Karaikudi,  Ramnath District,  issued notices under s. 34(1) of  the  Income-tax Act for the assessment years 1951-52 to 1953-54 and under s. 22(2) for the years 1954-55 to 1956-57 for assessment of the income  of  "an association of persons styled M.  M.  lpoh". The  Income-tax Officer rejected the contentions  raised  by Meyyappa (1) that there was no association of persons of the nature  described  in  the notices and brought  to  tax  the income  of the "M.M. lpoh properties" as income received  by an  association  of  persons  formed  by  Meyyappa  (1)  and Chettiappa  in  1951-52, and by Meyyappa (1),  the  M.S.M.M. firm and Chettiappa in the years 1952-53 to 1955-57. In  appeals  filled by M. M. lpoh, the  Appellate  Assistant Commissioner  confirmed the orders passed by the  Income-tax Officer subject to the modification that the income from the houses  be assessed under s. 9(3) of the Income-tax  Act  in the  hands  of  the members individually,  and  not  as  the collective,  income  of  the association  of  persons.   The Appellate  Tribunal  confirmed the order  of  the  Appellate Assistant Commissioner,                              69 The Tribunal drew up a statement of case and submitted under s.  66(1) of the Indian Income-tax Act, the following  ques- tion for determination of the High Court of Madras:

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             "Whether  the assessments on the  ’Association               of  persons’ for assessment years  1951-52  to               1956-57 are valid?" and  declined  to submit a statement’ of the  case  on  five other questions, the first out of which alone is material in these appeals and need be set out:               "Whether on the facts and in the circumstances               of  the case, there are any materials to  hold               the assessee as the principal officer of  M.M.               lpoh assessed in the status of an  association               of persons?" At  the hearing of the reference on the principal  question, the High Court on the application of the assessee  proceeded to   deal   apparently  without  any  objection   from   the Commissioner with the additional question which had not been referred by the Tribunal. The  High Court held that the income brought to tax  in  the assessment year 1951-52 did not accrue to an association  of persons,  but  the income in the years  1952-53  to  1956-57 accrued to an association of persons formed by Meyyappa (1), M.S.M.M. firm and the minor Chettiappa.  The High Court  was of the view that Meyyappa (1) acted on behalf of  Chettiappa in  forming  the  association,  that  the  affairs  of  this association were under the management of Meyyappa (1) during the  account years relevant to the assessment years  1952-53 to 1956-57, that the association of persons was engaged in a joint  enterprise for the purpose of producing income,  that there  being  "unity purpose and objectivity"  the  ultimate object  of the association to earn income on behalf  of  the members  of  the association was "fully  established".   The High  Court also held that by the notices for assessment  of the income for the years 1952-53 to 1954-55 Meyyappa (1) did in  fact  have  notice of the intention  of  the  Income-tax Officer  to  treat  him  as the  principal  officer  of  the association,   and  the  proceedings  for   assessment   and reassessment  were  properly  commenced.   The  High   Court accordingly by order dated, April 3, 1961 answered the first question in favour of the assessee in respect of the assess- ment   year  1951-52  and  against  the  assessee  for   the subsequent  five assessment years.  The High Court  recorded in answer to the second question that the Income-tax Officer was  justified in holding Meyyappa (1) to be  the  principal officer of "M.M. Ipoh". On  November 21. 1961 five petitions were moved in the  High Court  of  Madras under Art. 226 of the Constitution  for  a writ of prohibition restraining the Income-tax Officer  from enforcing  the  demands made by him in respect  of  the  tax assessed against 70 "the  association of persons M.M. lpoh".  In support of  the petitions  it was urged that s. 3 of the  Indian  Income-tax Act  invested  the  Income-tax Officer  with  arbitrary  and unguided power to assess to tax the income of an association of persons in the hands either of the association or of  the persons  constituting that association, and on that  account s.  3 offended Art. 14 of the Constitution, and was to  that extent void the High Court rejected the petitions.   Against the  orders  passed by the High Court in the  petitions  for writs,  Meyyappa  (1)  has  appealed.   Against  the  orders recorded  by  the High Court in references under s.  66  the association of persons "M.M. lpoh" has appealed. Section 3 of the Income-tax Act invests the taxing authority with  an option to assess to tax the income collectively  of the association of persons, in the hands of the  association or  in  separate shares in the hands of the members  of  the

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association.  Counsel for the assessee contends that the Act sets  out  no principles and discloses no  guidance  to  the Income-tax  Officer  in  exercising  the  option:  the   Act therefore confers arbitrary and uncontrolled authority  upon the  Income-tax Officer to select either the association  or its  members for assessment to tax according to  his  fancy, and may on that account be discriminatively administered  by subjecting  persons  similarly situate to varying  rates  of tax. Counsel in support of that plea relied upon the judgment  of this  Court  in Suraj Mall Mohta & Co. v. A.  V.  Visvanatha Sastri and Anr.(1) but that case is of little assistance  to the  assessee.   In Suraj Mall Mohta’s  cave(1)  this  Court declared  sub-s.  (4)  of s. 5 of  the  Taxation  of  Income (Investigation Commission) Act 30 of 1947 and the  procedure prescribed  by that Act, insofar as it affected the  persons proceeded against under that sub-section, invalid as a piece of discriminatory legislation and on that account  offending against  Art.  14 of the Constitution of India.   The  Court held  that sub-s. (4) of s. 5 of Act 30 of 1947  dealt  with the same class of persons who fall within the ambit of s. 34 of  the  Indian Incometax Act 1922 and whose income  can  be brought to tax by proceeding under that section: The  result in  the  view of the Court was that some assessees  who  had evaded payment of tax by failing to disclose fully and truly all material facts necessary for assessment of tax could  be dealt  with  under  Act  30 of 1947 at  the  choice  of  the Commission,  though they could also be proceeded with  under s.  34 of the Indian Income-tax Act.  Persons discovered  as evaders of income-tax during an investigation under s.  5(1) of  Act 30 of 1947, and persons discovered by the  Incometax Officer to have evaded payment of tax had in the view of the Court     common     properties     and.........      common characteristics",  and since the procedure prescribed  under Act 30 of 1947 was more                              71 drastic  and  deprived the assessee of  valuable  rights  of appeal,  second  appeal and revision, s. 5(4) of Act  30  of 1947   under   which  a  person  could   be   selected   for discriminatory treatment at the choice of the  Investigation Commission was void as infringing tile guarantee of equality before the law. But here no question of application of a more drastric  pro- cedure,  or  deprivation of valuable rights  of  appeal  and revision,  by  the  adoption  of  one  of  two   alternative procedures arises.  The procedure for assessment is the same whether  the  income  is  assessed  in  the  hands  of   the association  or the share of each member of the  association is assessed separately.  In Shri Rain Krishna Dalmia v. Shri Justice S.  R. Tendolkar and Ors,(1) S. R. Das, C.   J., observed at p. 299:               "In  determining the question of the  validity               or  otherwise of......... a statute the  court               will  not strike down the law Out of had  only               because no classification appears on its  face               or  because  a  discretion  is  given  to  the               Government   to   make   the   selection    or               classification  but will go on to examine  and               ascertain  if  the statute has laid  down  any               principle  or policy for the guidance  of  the               exercise  of  discretion  or   classification.               After  such  scrutiny, the court  will  strike               down  the statute if it does not lay down  any               principle  or policy for guiding the  exercise               of discretion by the Government in the  matter

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             of selection or classification, on the  ground               that  the statute provides for the  delegation               of  arbitrary  and uncontrolled power  to  the               Government so as to enable it to  discriminate               between  persons or things  similarly  situate               and  that,  therefore, the  discrimination  is               inherent in the statute itself." In  Jyoti Pershad v. The Administrator for the Union  Terri- tory  of  Delhi(1)  this  Court  observed  that  where   the Legislature  Jays down the policy and indicates the rule  or line of action which should guide the authority, Art. 14  is not  violated, unless the rules or the policy indicated  lay down  different criteria to be applied to persons or  things similarly  situate.   It is not however  essential  for  the Legislature to comply with the guarantee of equal protection that  the  rules  for the guidance should be  laid  down  in express  terms.   Such  guidance may  be  obtained  from  or afforded  by  (a)  the preamble read in  the  light  of  the surrounding    circumstances    which    necessitated    the legislation,  taken in conjunction with well-known facts  of which the Court might take judicial notice or of which it is apprised  by evidence before it in the form  of  affidavits, (b)  or  even from the policy and purpose of  the  enactment which may be gathered from other operative provisions (1)[1959] S.C.R. 279. (2) [1062] 2S.C.R. 125. 72 applicable   to  analogous  or  comparable   situations   or generally  from  the  object sought to be  achieved  by  the enactment. Section  3  of  the Income-tax Act does  not,  it  is  true, expressly  lay  down  any policy for  the  guidance  of  the Income-tax  Officer  in  selecting the  association  or  the members  individually  as entities in bringing  to  tax  the income  earned  by the association.  Guidance may  still  be gathered  from the other provisions of the Act, its  scheme, policy and purpose, and the surrounding circumstances  which necessitated  the legislation.  In considering  whether  the policy  or principles are disclosed, regard must be  had  to the scheme of the Act.  Under the Act of 1922 the Income-tax Officer  is required to issue a general notice calling  upon all  persons  whose total income during  the  previous  year exceeds the minimum not chargeable to tax to submit a return of  income.   The  Income-tax  Officer  may  also  serve  an individual  notice  requiring a person whose income  in  the opinion of the Income-tax Officer is liable to tax to submit a return of income.  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 assess tax on the return so made.  But for  diverse  reasons,  assessment  of  the  income  of  the association may not be possible or that such assessment  may lead to evasion of tax.  It would be open to the  Income-tax Officer then to assess the individual members on the  shares received by them.  The duty of the Income-tax Officer is  to administer  the provisions of  the Act in the  interests  of public revenue, and to prevent evasion or escapement of  tax legitimately due to the State.  Though an executive  officer engaged in the administration of the Act the function of the Income-tax  Officer  is fundamentally  quasi-judicial.   The Income-tax Officer’s decision of bringing to tax either  the income of the association collectively or the shares of  the members  of the association separately is not final,  it  is subject  to appeal to the Appellate  Assistant  Commissioner

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and to the Tribunal. In Commissioner of Income-tax, U.P.  v. Kanpur Coal Syndicate(1) it was held by this Court that  the Appellate  Tribunal  has ample power under s. 33(4)  to  set aside an assessment made on an association of persons and to direct   the  Income-tax  Officer  to  assess  the   members individually  or  to  direct  amendment  of  the  assessment already made on the members.  Exercise of this power is from its   very  nature  contemplated  to  be  governed  not   by considerations  arbitrary but judicial.  The nature  of  the authority   exercised  by  the  Income-tax  Officer   in   a proceeding to assess to tax income, and his duty to  prevent evasion  or escapement of liability to pay tax  legitimately due  to  tile State, constitute, in our  judgment,  adequate enunciation of principles and policy for the guidance of the Income-tax Officer. (1) [1964] 53 I.T.R. 225 73 Counsel  for  the appellants contended that s. 23-A  of  the Income-tax  Act, as it was incorporated by Act 21  of  1930, laid down certain principles for the guidance of the Income- tax  Officer  in  exercising  his  option,  but  since   the Legislature  by  Act 7 of 1939 repealed that  provision  the discretion vested in the Incometax Officer to select  either the  income of the association or the individual members  is unfettered.   To appreciate the argument it is necessary  to set  out in some detail the legislative history.  Under  the Indian  Income-tax  Act,  1922, as  originally  enacted,  an association of persons or individuals was not an entity  the income  whereof  was  charged  to  tax.   By  11.  of   1924 "association of individuals" was added in s. 3 and an entity of  which the income is charged to tax under the  Income-tax Act, but the Act as it stood amended contained no  statutory safeguard  against  double taxation of income earned  by  an association of individuals.  S. 14(1) of the Act (as it then stood  which aimed at avoiding double taxation of  the  same income  was  applicable to the income of a  Hindu  undivided family, to the income of a company distributed as  dividends to  share-holders,  and  to the income  of  a  firm  profits whereof were assessed in its hands.  The Legislature amended s.  14 of the Act by Act 22 of 1930 and remedied the  defect by  modifying cl. (c) of sub-s. (2) of s. 14 of the Act  and provided  that "any sum which he (the assessee) received  as his  share  of  the profits or gains of  an  association  of individuals, other than a Hindu undivided family, company or firm,  where  such profits or gains have  been  assessed  to income-tax",  shall not be subject to tax.  The  Legislature also enacted Act 21 of 1930 which made several modifications in  the  Income-tax Act.  It provided  for  registration  of firms and added s. 23A which provided:               "(1) Where the Income-tax Officer is satisfied               that   any  firm  or  other   association   of               individuals  carrying on any  business,  other               than a Hindu undivided family or a company, is               under  the control of one member thereof,  and               that such firm or association has been  formed               or is being used for the purpose of evading or               reducing  the liability to tax of  any  member               thereof, he may, with the previous approval of               the Assistant Commissioner pass an order  that               the  sum payable as income-tax by the firm  or               association  shall  not  be  determined,   and               thereupon  the  share of each  member  in  the               profits  and gains of the firm or  association               shall be included in his total income for  the               purpose of his assessment thereon."

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A  similar  provision  with regard  to  companies  was  also incorporated in sub-s. (2) of s. 23A.  Broadly speaking,  by the amended provision discretion was given to the Income-tax Officer  to  treat as separate entities for the  purpose  of taxation the individuals formed any association carrying  on business, of which only one 74 member  was competent to bind the association by  his  acts, and  to give to the Income-tax Officer discretion  to  treat the  members  of a company as separate entities  in  certain conditions-.   But s. 23A (1) as enacted by Act 21  of  1930 applied only to first and association of individuals if  the management  was  in the hands of one person: it did  not  in terms  apply to cases where the management was in the  hands of  more  persons than one, even if it was  formed  for  the purpose  of evading or reducing the liability to tax of  any member  thereof.   By Act 7 of 1939  the  expression  "asso- ciation  of  persons" was substituted  for  "association  of individuals"-,  s.  23A(1) was deleted; and sub-s.  (5)  was added  to  s. 23.  Sub-section (5) of s. 23  prescribed  the mechanism  for  bringing  to  tax  the  income  of  a   firm registered or unregistered.  If the firm was registered, the share  of  each  partner was to  be  separately  taken  into account  together with his other income and brought to  tax. If  it  was  an unregistered firm, the income  of  the  firm itself  was  brought to tax, unless the  Income-tax  Officer wits  of  the  opinion that the correct amount  of  the  tax including  super-tax, if any, payable by the partners  under the  procedure  applicable  to a registered  firm  would  be greater  than the aggregate amount payable by the  firm  and the  partners  if the firm is assessed  as  an  unregistered firm.   In respect of unregistered firms a practical  scheme which  aimed  at preventing evasion of tax  was  devised  by enactment of s. 23(5)(b). After  the repeal of s. 23A (1) as introduced by Act  21  of 1930  no  similar provision conferring discretion  upon  the Income-tax  Officer  similar  to  the  discretion  which  is prescribed  by  the terms of s. 23(5)(b) in respect  of  the income of the unregistered firms was expressly enacted.  But it  cannot  be  inferred that it was intended  to  make  the discretion  of the Income-tax Officer qua the assessment  to tax the income of an association of persons in the hands  of individual  members collectively, arbitrary  or  unfettered. By the repeal of s. 23A(1) the essential nature of the power of  an Income-tax Officer was not altered.  He  remained  as before  under a duty to administer the Act, for the  benefit of  public  revenue,  but his powers were  to  be  exercised judicially  and so as to avoid double taxation of  the  same income. This resume of the legislative provisions discloses that the relevant provisions were made with it view to ensure against evasion  of tax, while ensuring that the same  income  shall not be charged more than once. The  policy and the purpose of the Act may be gathered  from other  operative  provisions  applicable  to  analogous   or comparable  situations": Jyoti Pershad’s case(1) at p.  139: and there can (1) [1962] 2 S.C.R. 125. 75 be no doubt that an unregistered firm and an association  of persons  are closely analogous.  If the income is earned  by an  association of persons, normally a return would be  made or  asked  for  under s. 22 from the  association,  and  the income  of the association would be brought to tax.  If,  it appears  to  the  Income-tax  Officer  that  by  taxing  the

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association  of persons evasion of tax or escapement of  tax liability  may result, he is given a discretion to  tax  the individual  members: but the discretion is to  be  exercised judicially and not arbitrarily, and its exercise is  capable of rectification by superior authorities exercising judicial functions. It  cannot  therefore be said that there  is,  by  investing authority   in   the  Income-tax  Officer  to   select   the association of persons or individual members thereof for the purpose  of assessing to tax the income of the  association, denial of equality before the law between persons  similarly situate within the meaning of Art. 14 of the Constitution so as  to  render  s. 3 insofar as it confers  power  upon  the Income-tax  Officer  to  select either  the  association  of persons  or  the members thereof for assessment  to  tax  in respect of the income of the association void.  Appeals Nos. 1103-1107 of 1966 must therefore fail. In the group of appeals which arise out of the order  passed by  the High Court in exercise of its advisory  jurisdiction under  the  Income-tax Act, counsel for the  assessee  urged that there was no association in fact; that Chettiappa being at  all  material  times a minor there could in  law  be  no association of which the income could be brought to tax, and that  in any event there was no evidence to prove  that  any one on behalf of Chettiappa had assented to the formation of the association. The expression "person" is defined in s. 2(9) of the  Indian Income-tax Act, 1922 as including "a Hindu undivided  family and  a  local authority".  The definition is  inclusive  and resort  may appropriately be had to the General Clauses  Act to ascertain the meaning of the expression "person".  Clause (42)  of s. 3 of the General Clauses Act defines a  "person" as  inclusive  of  any  company,  association  or  body   of individuals whether incorporated or not, and that  inclusive definition in the General Clauses Act would also apply under the  Income-tax Act.  A firm is therefore a "Person"  within the  meaning  of  the  Income-tax Act, and  a  firm  and  an individual  or group of individuals may form an  association of persons within the meaning of s. 3 of the Indian  Income- tax Act. There  is nothing, in the Act which indicates that  a  minor cannot become a member of an association of persons for the purposes of the Act.  In Commissioner of Income-Tax, Bombay v.   Laxmidas and Anr.(1) it was held that the fact that one of the (1) [1937] I.T.R. 584. 76 individuals was a minor did not affect the existence of  the association,  if  in  point  of  fact,  the  assessees   had associated   together   for  the  purpose   of   gain.    In Commissioner   of  Income-tax,  Bombay  North,   Kutch   and Saurashtra v.Indira Balkrishna(1) it was held "that the word "associate"  means........... to join in common purpose,  or to  join  in  an action’.   Therefore,  and  association  of persons  must be one in which two or more persons join in  a common purpose or common action, and as the words occur in a section which imposes a tax on income, the association  must be one the object of which is to produce income, profits  or gains." In the case before us, there is abundant material, to  prove that  Meyyappa  (1), his minor son Chettiappa  and  M.S.M.M. firm formed an association in the years 1952-53 to  1956-57. To  review  the.relevant facts: the "M.M.  Ipoh  properties" which were allotted to Meyyappa (1) at the partition in 1940 became   on  the  birth  of  Chettiappa,  Properties  of   a

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coparcenary,  and  it  is  common  ground  that   Chettiappa acquired  a share in the income which Meyyappa (1)  received from the M.S.M.M. firm: the "M.M. Ipoh properties" were,used in a trading venture and were managed by the M.S.M.M.  firm- the  selling  agency was common between  M.S.M.M.  firm  and "M.M.  Ipoh":  the stocks and expenditure of the  M.M.  Ipoh firm  were  not ;separately determined and common  books  of account were maintained for the management of the M.M.  Ipoh properties and the M.S.M.M. firm dealings. Alagammal-mother  of  Chettiappa-had executed  the  deed  of partition   dated  April  13,  1950  as  the   guardian   of Chettiappa.   By the deed she acknowledged  having  received the share of Chettiappa in the property.  The Tribunal found that  the management was entrusted to the M.S.M.M.  firm  on behalf of "M.M. Ipoh", and that in entrusting the management Alagammal  must have given her consent.  In paragraph II  of the statement of the case, the Tribunal observed:               "The  integrity and management of the  estates               have  continued undisturbed  right  throughout               the  period,  only  the  holding  thereof   by               various  members having changed from  time  to               time.  The volition necessary is only all  too               apparent the entrustment of the management  to               M.S.M.M. firm for ,a proper management implies               a prior agreement to which the guardian of the               minor must have given her consent too," These observations relate to the entire period of six  years 1951-52 to 1956-57.  In the view of the High Court  division of  the  status  of joint Hindu family  on  April  13,  1950 between Meyyappa (1) and.  Chettiappa was brought about  not as a result of any mutual agreement between the coparceners, but  by Meyyappa (1 in exercise of his power to do so  under the  Hindu law, and "solely from the feature that the  share of  minor  son Chhettiappa was not separated  by  metes  and bounds, a conclusion could (1) [1960] 39 I.T.R. 546. 77 not  be "reached that Meyyappa (1) and Chettiappa  continued as members of an association of persons.  The  minor had  no volition  of  his own to express, and the fact that  at  the partition the minor was represented for purposes of form and nothing more by his father, cannot be taken to mean that the mother  as his guardian exercised any volition on behalf  of the minor." In the view of    the  High  Court "to  form  an association  of persons no agreement enforceable at law  was necessary":  but that "is not the same thin- as to say  that an agreement--express or implied-may be inferred where  none can  possibly  exist.         The High  Court  rejected  the contention  raised on behalf of the Revenue that the  father must have acted as the guardian of the minor in forming  the association in 1951-52.  The High Court however held that in the  year  1952-53 and subsequent years  an  association  of persons was formed and Meyyappa (1) joined that  association on  behalf  of  himself and  Chettiappa.   Counsel  for  the assessee  contends  that  once the High  Court  reached  the conclusion that in the year 1951-52 there was no association of  persons, the conclusion that an association  of  persons existed in the subsequent years could   not  be  reached  in the  absence  of positive evidence to show  that  after  the close  of  the year 1951-52 an association  of  persons  was actually formed. We are not called upon in these appeals to consider  whether the learned Judges of the High Court were right in the  view which  they  have  taken  insofar  as  it  relates  to   the assessment  year  1951-52.   We  are  only  called  upon  to

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consider whether the conclusion of the Tribunal that in fact an  association of persons existed in the year  1952-53  Ind subsequent years was based on any evidence.  In our judgment the  facts  proved  clearly  show that  there  was  such  an association  in the years 1952-53 and the subsequent  years. Pursuant  to the three partitions no division by  metes  and bounds of the shares of the owners was made, only the shares in  the  income of the owner were entered in  the  books  of account.  There was common management of the properties, and there was even a common. selling agency.Alagammal had  acted as  a guardian of Chettiappa in the deed of partition.   The Tribunal  inferred that Alagammal must have assented to  the formation of the association on behalf of Chettiappa and  in the  various  transactions relating to  the  entrustment  of management.   It  is true that this finding related  to  the year 1951-52 as well, and the High Court has disagreed  with that finding insofar as it related to the year 1951-52.  But on  that account the finding of the Tribunal in  respect  of the  subsequent years cannot be discarded.  The  Association which has earned income in the years 1952-53 and  thereafter is an association different from the association in 1951-52. In 1951 Chokalingam had demanded a share in the  "properties of  M.M. lpoh and he was given a half share. The  shares  of Meyyappa (1) and Chettiappa in the properties were 78 reduced, and thereafter ownership in the "properties of M.M. Ipoh" and its activities vested in an association formed  by Meyyappa  (1),  the  M.S.M.M. firm and  Chettiappa.   It  is common ground that "M.M. Ipoh" was a trading venture and its management  was  entrusted  in the  relevant  years  to  the M.S.M.M. firm. The doctrine of res judicata does not apply so as to make  a decision  on a question of fact or law in a  proceeding  for assessment  in  one  year  binding  in  another  year.   The assessment  and the facts found are conclusive only  in  the year of assessment: the findings on questions of fact may be good and cogent evidence in subsequent years, when the  same question  falls to be determined in another year,  but  they are not binding and conclusive.  The finding recorded by the High Court that in the year 1951-52 there was no association of  persons constituted by Meyyappa (1) and  Chettiappa  for earning  income  from M.M. Ipoh properties will not  in  the present case have any effect on the finding of the  Tribunal that  in  year  1952-53 and the  subsequent  years  such  an association  existed.  It must again be remembered that  the association  of  persons  which traded in  1952-53  and  the subsequent  years  was  an association  different  from  the association  in 1951-52.  After the reduction in the  shares of Meyyappa (1) and Chettiappa in the "M.M. Ipoh properties" a fresh arrangement for entrustment of the management of the properties to the M.S.M.M. firm was necessary and  according to  the  findings  of the Tribunal,  Alagammal  assented  on behalf of Chettiappa to that arrangement. Counsel  for  assessee contended that for the  finding  that Alagammal  assented  on  behalf of  Chettiappa  to  form  an association was not supported by any evidence on the record. But  from  readjustment  of the shares  in  the  "M.M.  Ipoh properties",  admission  of Chettiappa to  the  benefits  of M.S.M.M.  firm and the management of "M.M. Ipoh  properties" to  continuing  F to remain with the M.S.M.M. firm,  with  a common  selling  agency, and the execution of  the  deed  of partition  by  Alagammal, an inference could  reasonably  be made  that  a  person  purporting  to  act  as  guardian  of Chettiappa concurred in forming the association and that the person so concurring was Alagammal.  The finding recorded by

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the  Tribunal  is one of fact, and was not liable  a  to  be questioned  before the High Court.  It is also pertinent  to note  that  the finding that Alagammal acted  on  behalf  of Chettiappa in forming the association for the years  1952-53 was  never  challenged  and was not sought to  be  made  the subject  of  a question in an application  to  the  Tribunal under  s. 66(1) and no question in that behalf was  referred to  the High Court.  It is true that  the High Court was  of the  view that in the years 1952-53 to 1956-57 Meyyappa  (1) acted  on behalf of Chettiappa in forming  the  association. But the High Court in a reference under s. 66 of the Income- tax Act was incompetent to disturb what was 79 essentially  a finding of fact recorded by the Tribunal  and arrive at another finding. On  the other question which has been answered by  the  High Court  the  Tribunal declined to submit a statement  of  the case,  because in their view it did not arise out  of  their order.   They pointed out that a ground in  support  thereof was  taken  in the memorandum of appeal, but as it  was  not pressed  before the Appellate Assistant  Commissioner.  they did  not  deal with it.  The High Court  observed  that  the Tribunal was bound to deal with the question irrespective of whether  it  was  agitated before  the  Appellate  Assistant Commissioner.   Even assuming that the second  question  was properly  raised in the form and in the manner in  which  it was  raised  by the High Court, the answer to  the  question must, on the facts found, be against the assessee.   Counsel for  the assessee contended that there were no materials  on which  the  Tribunal could hold that Meyyappa  (1)  was  the principal  officer of "M.M. Ipoh", and since the  Income-tax Officer  had  made  no enquiry  before  issuing  the  notice treating  Meyyappa  (1) was the principal officer  of  "M.M. Ipoh", Meyyappa (1) could not be so treated for the  purpose of  the  proceedings for assessment.  Under  s.  22(2),  the Income-tax  Officer may, if in his opinion the income  of  a person  is  liable to income-tax, serve a  notice  upon  him requiring  him to furnish a return in the  prescribed  form. The  notice under s. 34 for re-assessment must also  contain all  or any of the requirements which may be included  in  a notice  under  sub-S. (2) of S. 22.  Such a  notice  may  be served  under  s.  63(2)  of the  Income-tax  Act  upon  the principal  officer of an association of persons.  Under  the definition  in s. 2(12) a "Principal officer"omitting  parts not  material-"used with reference to.....  any  association means-(a)  .  .  .  . (b)  any  person  connected  with  the authority,  company,  body,  or association  upon  whom  the Incometax  Officer has served a notice of his  intention  of treating  him  as  the  principal  officer  thereof;".   The Income-tax  Officer  Karaikudi assessed the income  of  "the association  M.M.  Ipoh by its  principal  officer  M.S.M.M. Meyyappa  Chettiyar".  No objection was ever  raised  before the   Income-tax  Officer  about  the  regularity   of   the proceedings  and the Income-tax Officer found that  Meyyappa (1)  was  the principal officer of  the  association.   Even before  the  Appellate  Assistant Commissioner  it  was  not argued that Meyyappa (1) was not the principal officer.  For the  first time that ground was taken before  the  Tribunal. The  notices served on Meyyappa (1) are not printed  in  the record  prepared  for use in this Court.  In the  orders  of assessment for the year 1952-53 and the subsequent years  it is recorded that action was taken to bring to tax the income of "M.M. Ipoh", and in response to the notices the principal officer  Meyyappa  (1)  had  filed  returns.   The  assessee submitted an application under s. 66(2) during the course of

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the  hearing before the High Court of the question  referred by the 80 Tribunal.   The  High  Court granted  that  application  and without  calling for a formal statement of the case  on  the ’question sought to be raised, heard the parties.  It may be reasonably  assumed that the assessee was prepared to  argue the case on the footing that the statements in the orders of the  Income-tax Officer were correct.  In the  circumstances it  must  be held that the Income-tax Officer did,  serve  a notice of his intention to treat a person connected with the association  as the principal officer thereof.  The  Income- tax Officer assessed the income of the association as repre- ented  by Meyyappa (1) its principal officer.  There is,  in our  judgment,  nothing  in  the  Act  which  supports   the contention   of  counsel  for  the  assessee   that   before proceedings   in   assessment  can   commence   against   an association  of persons a notice must in the first  instance be  issued and an order passed after giving  opportunity  to the  person proposed to be treated as the principal  officer opportunity  to show cause why he should not be so  treated. It is open to the Income-tax Officer to serve a notice on  a person  who  it is intended to be treated as  the  principal officer.  The person so served may object that he is not the principal  officer or that the association is  not  properly formed.   The Income-tax Officer will then consider  whether the  person served is the principal officer and  whether  he has some connection or concern with the income sought to  be assessed.   There  is  in the Income-tax  Act  an  analogous provision  in s. 43 of the Act which authorises the  Income- tax  Officer to treat a person as a statutory agent  of  the non-resident  for the purpose of assessing him to  tax,  the income  received  by the non-resident.  It was held  by  the Judicial  Committee in Commissioner of Income-tax, Punjab  & N.W.F.P.  v.  Nawal Kishore Kharaiti Lai(1) that it  is  not necessary for the validity of a notice calling for a  return of the income under S. 23(2) served on a person as agent  of a  non-resident  under  S.  43, that  it  should  have  been preceded not only by the notice of intimation prescribed  by s. 43, but also by an order declaring the person to be agent of the non-resident or treating him as such.  The Income-tax Officer may postpone any final determination of the  dispute until  the time comes to make an assessment under S.  23  of the  Act.  In our judgment, the same principle applies to  a case  in  which  in  the assessment  of  the  income  of  an association  of  persons  or person is to be  treated  as  a principal  officer  of  that  association.   If  the  person described  as a principal officer of an association is  duly served with a notice under S. 23(2) in the manner prescribed by s. 63(2), an adjudication of his status as the  principal officer before assessment proceedings may take place is  not obligatory.  The order assessing the association  containing a finding that the person served is the principal officer is sufficient compliance with the requirements of the  statute. It  is open to the association to challenge the  finding  of the Income-tax Officer 81 in appeal before the Appellate Assistant Commissioner and in further  appeal  to the Appellate Tribunal.  But  the  order declaring him as the principal officer of an association  of persons  will  not be deemed to be void merely  because  the proceeding for assessment was not preceded by a  declaration of  the  status  of  the person  treated  as  the  principal officer. The  appeals Nos. 1060-1964 of 1965 must also fail  and  are

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dismissed  with  costs.  There will be one  hearing  fee  in appeals  Nos.  1103-1107  of 1966 and  one  hearing  fee  in appeals Nos. 1060-1064 of 1965. R.K.P.S. Appeals dismissed. 82