1975 (12) TMI 15 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Income-tax Officer (ITO) exercised the option to assess the association of persons (AOP) or the individual members.
2. Whether the ITO could assess individual members after assessing the AOP.
3. The effect of tax deduction at source on the assessment of the AOP and its members.

Issue-Wise Detailed Analysis:

1. Whether the Income-tax Officer (ITO) exercised the option to assess the association of persons (AOP) or the individual members:
The primary contention was whether the ITO had exercised his option to assess either the AOP or the individual members. The judgment clarified that the entire case before the Tribunal proceeded on the basis that the ITO had exercised his option. Therefore, this issue did not arise in the present reference.

2. Whether the ITO could assess individual members after assessing the AOP:
The second contention was that once the ITO exercised his powers under section 23(3) and assessed the AOP, he could not subsequently assess the individual members for the same income. The judgment referenced the Supreme Court's interpretation in Commissioner of Income-tax v. Kanpur Coal Syndicate [1964] 53 ITR 225, which held that section 3 of the Indian Income-tax Act, 1922, impliedly gives the ITO an option to assess either the AOP or its individual members. The judgment concluded that the ITO's assessment of the AOP did not preclude him from assessing the individual members unless a charge (demand) was raised against the AOP. Since the ITO directed that no demand notice should issue against the AOP, he was within his rights to assess the individual members.

3. The effect of tax deduction at source on the assessment of the AOP and its members:
The judgment delved into the implications of tax deducted at source (TDS) on the assessment process. Section 18(5) of the Indian Income-tax Act, 1922, was cited, which treats TDS as payment of tax on behalf of the person from whose income the deduction was made. The court noted that the ITO did not order a refund of the tax already deducted at source from the AOP's dividend income, which amounted to a partial levy of tax on the AOP. Consequently, it was held that the ITO could not assess the individual members for the same income once tax had been levied on the AOP. The judgment emphasized that the ITO must direct repayment of tax deducted at source if he decides not to charge the AOP but to charge the individual members instead.

Conclusion:
The court held that the ITO, having levied tax on the AOP by not directing a refund of the TDS, could not subsequently assess the individual members for the same income. Therefore, the question referred to the court was answered in the negative and in favor of the assessees. The Commissioner was ordered to pay the assessees' costs of the reference.