1956 (3) TMI 42 - HC - Income Tax

Summary

Issues Involved:
1. Whether the income from the property inherited by the three widows should be assessed as an association of persons or as separate individuals.
2. Whether the Tribunal was correct in expressing an opinion on the assessment of the assessees which was prejudicial to them.
3. Validity of the assessment order against one of the widows, Indira Balkrishna, as the manager of the estate.

Issue-wise Detailed Analysis:

1. Assessment as an Association of Persons or Separate Individuals:
The primary issue was whether the income from the property inherited by the three widows should be assessed as an association of persons or as separate individuals. The Income-tax Officer assessed the widows as an association of persons but held that the income from the property should be assessed separately for each widow under section 9(3). The Appellate Assistant Commissioner and the Income-tax Tribunal upheld this view. However, the Tribunal expressed an opinion that the Appellate Assistant Commissioner's view regarding the income from property under section 9(3) was incorrect.

The court emphasized that the Income-tax Act does not explicitly define when an association of persons can be assessed to tax. The test is whether the income was earned by the association. The court concluded that the three widows inherited the estate as joint tenants with rights of survivorship and equal beneficial enjoyment, meaning each widow was entitled to one-third of the income. The court rejected the argument that the widows' joint management of the property constituted an association of persons liable to tax. It was noted that section 9(3) specifically exempts income from jointly owned property with definite and ascertainable shares from being assessed as an association of persons.

2. Tribunal's Prejudicial Opinion:
The court criticized the Tribunal for expressing an opinion on the assessment that was prejudicial to the assessees, especially when the issue did not arise in the appeal. The court stated that it is undesirable for any judicial body to express unnecessary opinions, as it can lead to serious prejudice against the assessee. The Tribunal's opinion led to the Income-tax Officer issuing a notice under section 34(1)(b), causing unnecessary harassment to the assessees.

3. Validity of Assessment Order Against Indira Balkrishna:
Mr. Palkhivala argued that the assessment order against Indira Balkrishna as the manager of the estate was invalid as it purported to assess the income of a deceased person. The court dismissed this argument, stating that it was a mere misdescription that did not invalidate the assessment. The assessment was clearly made on the three widows as heirs of their husband.

Conclusion:
The court concluded that the three widows should not be assessed as an association of persons for the income they earned as heirs of their deceased husband. The Tribunal's opinion on the assessment was unnecessary and prejudicial. The assessment order against Indira Balkrishna was a minor misdescription and did not invalidate the assessment. The court answered the relevant questions accordingly and ordered the Commissioner to pay the costs.