1996 (3) TMI 93 - HC - Income Tax

Issues Involved:
1. Assessment of income derived from the business by legal heirs.
2. Double taxation of income.
3. Correct entity for assessment under the Income-tax Act, 1961.
4. Legal position under the Income-tax Act, 1922 vs. the Income-tax Act, 1961.
5. Authority of the Income-tax Officer to assess the right person.

Issue-wise Detailed Analysis:

1. Assessment of income derived from the business by legal heirs:
The legal representatives of the late P. Subramoniam continued the business of Neela Productions from October 4, 1978, to January 14, 1979. Six of the seven legal heirs included their share of income from the business in their individual returns for the assessment year 1979-80, which were subsequently assessed and tax collected. However, the seventh legal heir, Smt. C. Meenakshi Amma, did not include this share income in her return.

2. Double taxation of income:
Despite the individual assessments, the seven legal heirs jointly filed a return as a "body of individuals" (BOI) declaring a total income of Rs. 1,04,490. The Income-tax Officer, unaware of the individual assessments, completed the assessment for the BOI. The assessee appealed, arguing that the same income had already been assessed individually, and thus, the BOI assessment was unjustified. The Appellate Assistant Commissioner annulled the BOI assessment, citing that once individual assessments were made, reassessing the BOI was unsustainable and would result in double taxation.

3. Correct entity for assessment under the Income-tax Act, 1961:
The Department appealed, contending that the Commissioner of Income-tax (Appeals) erred in annulling the BOI assessment. The Income-tax Appellate Tribunal upheld the Department's view, stating that under the Income-tax Act, 1961, the assessing authority had no option to assess either the individuals or the BOI, unlike under the Indian Income-tax Act, 1922. The Tribunal referenced several judicial pronouncements, including Mahendra Kumar Agrawalla v. ITO, Rodamal Lalchand v. CIT, and Punjab Cloth Stores v. CIT, to support this position.

4. Legal position under the Income-tax Act, 1922 vs. the Income-tax Act, 1961:
Under the Indian Income-tax Act, 1922, the Income-tax Officer had the option to assess either the individuals or the association of persons. However, under the Income-tax Act, 1961, section 4 did not provide such an option. The Tribunal rejected the assessee's reliance on a 1966 CBDT Circular, stating that it did not contain binding instructions beneficial to the assessee under the 1961 Act.

5. Authority of the Income-tax Officer to assess the right person:
The Supreme Court's decision in ITO v. Ch. Atchaiah clarified that under the 1961 Act, the assessing authority must tax the right person, meaning the person liable to be taxed according to law. The Supreme Court emphasized that taxing a wrong person does not preclude the authority from subsequently taxing the right person. The High Court noted that the assessing authority did not consider whether the earlier individual assessments were on the wrong person or who the right person was. The first appellate authority and the Tribunal also failed to address this critical question.

Conclusion:
The High Court declined to answer the referred questions, set aside the orders of the assessing authority, the Commissioner of Income-tax (Appeals), and the Income-tax Appellate Tribunal, and directed the assessing authority to complete the assessment afresh, considering the observations and in accordance with the law. The judgment emphasized the necessity to identify and assess the right person to avoid double taxation and ensure compliance with the legal provisions under the Income-tax Act, 1961.

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