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Issues involved: The validity of assessment on the association of persons u/s 256(1) of the Income-tax Act, 1961.
Judgment Summary: The case involved assessments on two companies as an association of persons due to a profit-sharing agreement. The Income-tax Officer assessed them as a joint venture, but the Appellate Assistant Commissioner canceled the assessments based on High Court decisions and a Board's circular. The Appellate Assistant Commissioner ruled that since the companies were already individually assessed, a second assessment as an association of persons was not valid. The Tribunal upheld this decision, citing the binding nature of the Board's Circular on all officers under the Income-tax Act, 1961. In a separate case, it was argued that the Income-tax Officer had no option to assess either the association of persons or its members under section 4 of the Act. The court accepted this argument in a separate order. In the present case, the assessee contended that once the members were individually assessed, they could not be assessed jointly as an association of persons again, relying on the circular dated August 24, 1966. The court clarified that the circular aimed to prevent double taxation and bound the Revenue, but not the assessee. The Tribunal held that the Income-tax Officer could not assess the association of persons after already assessing its members, based on the binding nature of the circular. This view was supported by a Supreme Court decision rejecting an appeal against a similar case. The court concluded that the question referred had to be answered in the affirmative and against the Revenue, based on the precedents and the circular's application. The references were answered accordingly.
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