1988 (1) TMI 72 - AT - Income Tax

Summary

Issues:
1. Determination of tax liability of the representative assessee under section 161(1) of the Income Tax Act, 1961.
2. Interpretation of the liability of a representative assessee under section 161(1) in comparison to the liability of the person represented.
3. Assessment of tax on the Association of Persons (AOP) as a unit versus determining individual tax liabilities of the members of the AOP.

Detailed Analysis:
1. The case involved the partnership business of three individuals under the style of M/s Barick Screen Corporation. One partner filed a suit for dissolution, leading to the appointment of Joint Receivers by the Calcutta High Court. The issue was the correct determination of tax liability under section 161(1) of the Income Tax Act, 1961. The Income Tax Officer (ITO) assessed the representative assessee's tax at rates applicable to the 'Collective Income,' which was challenged by the assessee.

2. The assessee's counsel referred to a Rajasthan High Court decision and argued that the liability of a representative assessee under section 161(1) is vicarious and co-extensive with the person represented. Citing a Supreme Court decision, it was emphasized that tax liability should be determined in a manner similar to the beneficiaries directly or the erstwhile partners. The departmental representative contended that tax should be computed on the total income of the AOP as a unit, not on individual shares, as the business was managed jointly by the receivers on behalf of the AOP.

3. Both parties agreed that the profits were rightfully considered as earned by the AOP, and the Court-appointed receivers represented the real owners of the business. Referring to the Supreme Court decision in a similar case, it was clarified that the assessment should be on the AOP as a unit, but the tax liability of the representative assessee should be determined in line with the individual members' liability. Following the legal precedents, the Tribunal held that the tax liability of the assessee should be computed to the same extent and in the same manner as that of the erstwhile partners under section 161(1) of the Act.

In conclusion, the appeal was allowed in favor of the assessee based on the interpretation of the tax liability provisions under section 161(1) of the Income Tax Act, 1961.