2004 (12) TMI 39 - HC - Income Tax

1. Whether the Appellate Tribunal is right in law in setting aside the order made by the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961? 2. Whether the Appellate Tribunal is right in law in holding that the assessee should be assessed in the status of body of individuals? - In the present case, as can be seen from the facts on record, three individuals were jointly donated a sum by the donor under a declaration dated June 21, 1981. The said sum was invested by them and interest income returned in the status of body of individuals. Thus, it is apparent that the Tribunal has correctly held the status of the assessee to be body of individuals. Both questions are answered in the affirmative, i.e., in favour of the assessee and against the Revenue.

Summary

Issues:
1. Jurisdiction of the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961.
2. Assessment status of the assessee as body of individuals or association of persons.

Jurisdiction of the Commissioner under Section 263:
The High Court analyzed the jurisdiction of the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961. It was highlighted that for the Commissioner to exercise jurisdiction under this section, two conditions must be satisfied: firstly, the order of the Assessing Officer must be erroneous, and secondly, it must be prejudicial to the interests of the Revenue. The court emphasized that the provision of section 263 cannot be invoked to correct every mistake made by the Assessing Officer, as clarified by the Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83. Furthermore, the court referred to the interpretation by the Supreme Court regarding what constitutes an order prejudicial to the interests of the Revenue, stating that if the Assessing Officer has taken a permissible course of action or where two views are possible, the order cannot be considered erroneous unless the view taken is unsustainable in law.

Assessment Status of the Assessee:
The High Court delved into the assessment status of the assessee, focusing on whether they should be considered a body of individuals or an association of persons. The case involved three individuals who jointly received a sum as a donation, invested it, and received interest income. The Commissioner of Income-tax sought to assess them as an association of persons based on the organized activity jointly carried out by the individuals to produce income. However, the Tribunal, relying on the decision in the case of CIT v. Harivadan Tribhovandas [1977] 106 ITR 494, held that the assessee should be assessed as a body of individuals. The court referred to the Supreme Court decision in Meera and Co. v. CIT [1997] 224 ITR 635, where it was established that an association of persons is not distinct from a body of individuals. The court concluded that the facts of the present case aligned with the precedent set in Meera and Co., thereby affirming the Tribunal's decision to assess the assessee as a body of individuals.

Conclusion:
The High Court answered both questions referred by the Income-tax Appellate Tribunal in favor of the assessee and against the Revenue. It upheld the Tribunal's decision that the assessee should be assessed as a body of individuals rather than an association of persons. The reference was disposed of with no order as to costs, concluding the judgment.