2017 (11) TMI 1605 - HC - Income Tax

Status of the assessee - Partnership or AOP - no agreement between the persons to constitute a partnership firm as required under section 4 of the Partnership Act - Held that - The status of an unregistered partnership cannot be bestowed on the appellant- assessee. The order of the authorities under the Act, i.e., Assessing Officer, Deputy Commissioner of Income-tax (Appeals) as well as the Tribunal holding that the applicant-assessee is an AOP and not unregistered firm is justified. - Decided in favour of the respondent-Revenue Shares of the persons carrying on the business indefinite and unspecified - Held that - We note that the order of the Tribunal dated March 7, 1993 specifically refers to the statement made by Shri Satish Dongare and Shri Anand Meshram members of the AOP who have specifically denied any knowledge of their share in the applicant-assessee, i.e., AOP. In terms of section 167 of the Act as in force during the subject assessment year where individual shares of the members of an AOP in the whole or in part is indeterminate/unknown then tax would be charged on such AOP at the maximum marginal rate. In the present case, as is evident from the order of the Tribunal dated March 7, 1993, it is clear that one of its members namely Mr. Satish Dongare disputes he is a partner and states his father is one and even does not indicate his share. The other member, viz., Mr. Anand Bajirao Meshram clearly states that he not aware of his share in the firm. Thus, in terms of section 167 the share of the members of AOP are indeterminate at least in part due to the unequivocal statement of Mr. Anand Meshram and Mr. Satish Dongare. In such case the whole of the income of such an AOP is to be taxed at the maximum marginal rate, as being an AOP with indeterminate share. - Decided in favour of revenue

Summary

Issues:
1. Correct status of the assessee - AOP or partnership firm
2. Determination of shares of the persons carrying on the business

Analysis:

Issue 1: Correct status of the assessee - AOP or partnership firm
The case involved a dispute regarding the status of the assessee, whether it should be considered as an Association of Persons (AOP) or a partnership firm. The assessee initially filed its return as an unregistered firm but later, upon insistence by the Revenue, declared its status as an AOP. The Assessing Officer assessed the assessee as an AOP with indeterminate shares, leading to taxation at the maximum marginal rate. The Deputy Commissioner of Income-tax (Appeals) partially allowed the appeals, recognizing the partnership status based on statements recorded during the investigation. However, the Tribunal upheld the AOP status, considering the lack of partnership agreement evidenced by members' statements. The court emphasized the need for an agreement to form a partnership, which was not established in this case. The Tribunal's findings were supported by the members' statements indicating a lack of knowledge about the firm or their shares. Consequently, the court affirmed the Tribunal's decision, ruling in favor of the Revenue and against the assessee.

Issue 2: Determination of shares of the persons carrying on the business
The second issue revolved around the determination of shares of the persons involved in the business. While the Assessing Officer and the Tribunal concluded that the AOP had indeterminate shares, the Deputy Commissioner of Income-tax (Appeals) found the shares to be determinate. The appellant argued for determinate shares based on the Deputy Commissioner's findings, which were not addressed by the Tribunal. However, the Tribunal's order highlighted members' statements denying knowledge of their shares, leading to the conclusion of indeterminate shares. As per the relevant section of the Income-tax Act, if individual shares of AOP members are indeterminate, the AOP is taxed at the maximum marginal rate. The court upheld the Tribunal's decision, emphasizing the unequivocal statements of the members regarding their lack of knowledge about their shares. Consequently, the court ruled in favor of the Revenue on this issue as well.

In conclusion, both questions were answered in favor of the Revenue, affirming the status of the assessee as an AOP with indeterminate shares. The reference was disposed of accordingly, with no order as to costs.