1991 (6) TMI 48 - HC - Income Tax

Summary

Issues Involved:
1. Competence of the Tribunal to direct the Income-tax Officer to compute income as if it belonged to an association of persons (AOP) and distribute it among the members without an assessment on the AOP.
2. Interpretation of section 4 of the Income-tax Act, 1961, in comparison to section 3 of the Indian Income-tax Act, 1922.
3. Binding nature of circulars issued by the Central Board of Direct Taxes (CBDT) on Income-tax Officers and assessees.

Summary of Judgment:

1. Competence of the Tribunal:
The Tribunal directed the Income-tax Officer to compute the income as if it belonged to an association of persons (AOP) and then distribute it among the members, despite no assessment being made in the hands of the AOP. The Tribunal found that the capital gains were received by the AOP and should be assessed in its hands. The assessees contended that the Tribunal had no competence to further direct the Income-tax Officer to divide the said income among the individuals comprised in the AOP. The court emphasized that the status of the recipient of the capital gain had become final by the finding of the Tribunal and was not questioned by the Revenue.

2. Interpretation of Section 4 of the Income-tax Act, 1961:
The court analyzed the differences between section 3 of the Indian Income-tax Act, 1922, and section 4 of the Income-tax Act, 1961. Under the earlier Act, section 3 provided an option to assess the income either in the hands of the AOP or the members individually. However, section 4 of the 1961 Act does not refer to "members of the association individually" and thus does not provide such an option. The court concluded that section 4 aims to simplify the Act and reduce the discretionary powers of the assessing authorities, implying that the income should be taxed in the hands of the AOP if it is the recipient of the income.

3. Binding Nature of CBDT Circulars:
The court discussed the binding nature of circulars issued by the CBDT, stating that while such circulars are binding on the subordinate officers of the Income-tax Department, they are not enforceable against an unwilling assessee if they are opposed to the provisions of the Act. The court noted that a circular cannot widen the scope of section 4 to allow the Income-tax Officer to assess the income of the AOP in the hands of its members individually.

Conclusion:
The court held that the Tribunal, having found that the capital gain was earned by the AOP, could not have directed the Income-tax Officer to divide the said income among the members of the AOP. The answer to the question referred was in the negative and against the Revenue.