1991 (6) TMI 86 - AT - Income Tax

Summary

Issues:
Assessment of the assessee in the status of Body of Individuals (BOI) vs. Association of Persons (AOP); Validity of the assessment made by the Income Tax Officer (ITO) on a protective basis in the status of AOP; Jurisdiction of the ITO to change the status of assessment from BOI to AOP; Interpretation of the term "person" under the Income Tax Act, 1961; Applicability of relevant case laws in determining the correct status for assessment.

Analysis:
The appeals before the Appellate Tribunal ITAT Ahmedabad-A involved the assessment of the assessee, M/s Darpan and Co., for the assessment years 1981-82 and 1982-83. The dispute arose from the contention made by the assessee that they should be assessed in the status of BOI, formed as a result of resolutions passed by the trustees of Shri Jagdish Family Trust. The ITO, however, rejected this claim and assessed the income at the maximum marginal rate in the status of AOP, considering the creation of BOI as artificial to avoid higher taxation. The AAC directed the ITO to adopt the status of BOI based on technical grounds, leading to the Department appealing before the Tribunal.

The Department argued that the ITO was justified in assessing the assessee in the status of AOP, even if the return was filed as BOI, citing relevant case laws. They contended that the term "person" under the Income Tax Act includes AOP and BOI, indicating their interchangeable nature. On the other hand, the assessee's counsel argued that the ITO had no authority to change the status of assessment once the return was filed, relying on different case laws supporting their stance.

The Tribunal analyzed the jurisdiction of the ITO to change the status of assessment and found that if the facts justified such a change, the ITO had the authority to do so after providing a reasonable opportunity to the assessee. The Tribunal highlighted the provisions of the Income Tax Act, emphasizing that the ITO can assess any entity falling under the definition of "person" and that the assessee has the right to challenge the assessment order through appeal. The Tribunal also discussed various case laws, dissenting from some and favoring others, to support their conclusion.

Ultimately, the Tribunal held that the action of the ITO in changing the status of assessment from BOI to AOP was valid, especially since all parties were involved, and a show cause notice had been issued. They set aside the AAC's order and directed a fresh consideration of the appeal, ensuring a reasonable opportunity for both the assessee and the ITO to present their case. The appeals were allowed in favor of the Department.