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2007 (8) TMI 385 - AT - Income TaxValidity of Assessment of a 'wrong person' made by AO - Chargeability of tax u/s 167B(2) - shares of the members of AOP/BOI above the basic exemption limit - Commission income is taxable in the hands of AOP? - Whether, the assessment made on the AOP is invalid, in the light of the Board's circular or is valid in the light of the judgment of the Supreme Court in ITO vs. Ch. Atchaiah 1995 (12) TMI 1 - SUPREME COURT and/or statutory amendments of the IT Act? - HELD THAT - In view of the decision of apex Court in the case of ITO vs. Ch. Atchaiah 1995 (12) TMI 1 - SUPREME COURT , the contention of the ld AR that there is no material change in the provisions of 1961 Act as compared to similar provisions contained in 1922 Act with respect to chargeability of tax relating to AOP and its member is liable to be rejected and accordingly rejected. The contention of learned AR that assessment of AOP after the assessment of similar income in the hands of its members will make it a case of double taxation and therefore also assessment on the AOP is bad in law is also liable to be rejected since as held by Hon'ble Supreme Court in the case of ITO vs. Ch. Atchaiah, merely because a 'wrong person' has been assessed, the AO is not precluded from taxing the 'right person' and 'wrong person' can seek remedy as available under law. So on the ground of double taxation also, assessment on AOP (which is the right person to be assessed under the 1961 Act) cannot be held to be invalid and the argument raised by the assessee in this regard is also liable to be rejected and is rejected. ld AR, Pleaded that Applicability of the beneficial circular and therefore the same was binding on AO and CIT(A) and thus assessment made on AOP subsequent to the assessment of its members could not be validly made by AO, and CIT(A) has wrongly upheld the same. There cannot be any dispute to the proposition that IT authorities are bound to follow the circulars issued by CBDT u/s 119 of the Act. At the same time, it is also well settled that it is not irrelevant for the judicial forum to examine the circumstances/context as well as the prevailing conditions under which such circular came to be issued. A close look at the circular will reveal that the basis of issue of circular is the decision of Hon'ble Supreme Court in the case of CIT vs. Murlidhar Jhawar Purna Ginning Pressing Factory 1966 (1) TMI 18 - SUPREME COURT . which was then available on the date of issue of circular. Considering the said decision, a view was expressed by the CBDT that the position as described in the said decision will continue to apply to the provisions of 1961 Act. Under these circumstances the said circular was issued. The Special Bench decision in the case of ITO vs. Bir Engg. Works 2004 (2) TMI 274 - ITAT AMRITSAR also does not advance the case of the assessee as the circular considered in the said decision was neither contrary to the judicial pronouncement of apex Court nor against the provisions of the statute. It is thus clear that mandate of law is that effect cannot be given to a circular in preference to the view expressed by the Court, and this being so, we are of the view that the AO cannot be said to be bound to follow the aforementioned circular in preference to the decision of Hon'ble Supreme Court in the case of ITO vs. Atchaiah. On the contrary, he was bound to follow the proposition as propounded by Hon'ble apex ,Court in the case of ITO vs. Atchaiah which was directly applicable in the present case. Thus, in our opinion, the AO did riot commit any mistake in not following the said circular and rather he was right in framing the assessment on the AOP applying the law as declared by the Hon'ble Supreme Court in the case of ITO vs. Atchaiah on the point in issue. Thus it is clear that powers of CBDT exercised u/s 119 are not wide enough to travel beyond the scope of the Act. Its powers are same as are the powers of the rule making authority. Moreover, it has already been pointed out that in any case the circular had lost its validity as per law declared by the apex Court by way of the decision in the case of ITO vs. Atchaiah when the controversy prevailing on the issue was resolved and it was interpreted that under 1961 Act no option was vested with the ITO to either assess the AOP or its members. Such option though was available under 1922 Act but was not provided in 1961 Act as there was a difference in the language of both the Acts. It has also been pointed out in this order that there was subsequent change in the legislation when s. 167B was introduced. Thus relying on the circular it cannot be held that AO had no jurisdiction to assess the AOP (assessee) as he had already assessed its members. Thus, the question referred to the Special Bench is that assessment made by AO on AOP is valid in the light of the judgment of Hon'ble Supreme Court in the case of ITO vs. Ch. Atchaiah and also in the light of the statutory amendments brought in the statute. For the reasons discussed Board's circular cannot be relied upon to hold that the assessment on AOP is invalid. The said circular had lost its validity. Our findings with regard to grounds raised by the assessee in its appeal are as under Apropos ground No. 1 it is held that CIT(A) was right in confirming the findings of the AO that commission income was taxable in the hands of assessee (i.e. in the status of AOP) and the said income was not taxable in the hands of respective members of joint venture; Apropos ground No. 2 it is held that as share of income falling to the shares of respective members of AOP in all cases is above the exemption limit, the CIT (A) was right in confirming the finding of AO that tax on AOP should be levied at maximum marginal rate. Apropos ground No. 3 it is held that the Board Instruction was not binding on AO in view of aforementioned decision of Hon'ble Supreme Court in the case of ITO vs. Ch. Atchaiah and also in the light of subsequent amendment in the statute. Therefore, AO was right in making assessment in the hands of the AOP and such assessment is valid in accordance with law and CIT(A) was right in confirming the same. Keeping in view our abovementioned conclusions, the appeal filed by the assessee is dismissed.
Issues Involved:
1. Validity of the assessment made on the Association of Persons (AOP) in light of the Board's circular dated 24th August 1966 versus the Supreme Court judgment in ITO v. Ch. Atchaiah and statutory amendments of the IT Act. 2. Taxability of commission income in the hands of the AOP versus the respective members of the joint venture. 3. Applicability of the maximum marginal rate of tax on the AOP. 4. Binding nature of the Board's circular on the Assessing Officer (AO). Issue-wise Detailed Analysis: 1. Validity of the Assessment on AOP: The Tribunal examined whether the assessment made on the AOP was invalid based on the Board's circular dated 24th August 1966 or valid in light of the Supreme Court judgment in ITO v. Ch. Atchaiah and statutory amendments. The Tribunal concluded that the assessment on the AOP was valid. The Supreme Court's decision in ITO v. Ch. Atchaiah clarified that under the Income Tax Act, 1961, the AO must tax the right person, which in this case is the AOP. The Tribunal noted that the provisions of the 1961 Act differ significantly from the 1922 Act, and no option is available to the AO to tax either the AOP or its members individually. The Tribunal also highlighted that the Board's circular lost its validity following the Supreme Court's judgment and subsequent statutory amendments. 2. Taxability of Commission Income: The Tribunal upheld the CIT(A)'s decision that the commission income of Rs. 2,37,55,912 was taxable in the hands of the AOP and not in the hands of the respective members of the joint venture. The Tribunal emphasized that the income accrued to the AOP for its services rendered and should be taxed accordingly. The Tribunal rejected the argument that taxing the AOP's income would result in double taxation, as the Supreme Court in ITO v. Ch. Atchaiah held that taxing the right person (AOP) is paramount, even if the wrong person (members) was previously taxed. 3. Maximum Marginal Rate of Tax: The Tribunal confirmed that the CIT(A) was correct in applying the maximum marginal rate of tax on the AOP. Since the total income of all members of the AOP exceeded the exemption limit, Section 167B(2) of the IT Act mandated that the AOP's income be taxed at the maximum marginal rate. The Tribunal noted that the provisions of Section 167B(2) were applicable, and the AO correctly applied the maximum marginal rate. 4. Binding Nature of the Board's Circular: The Tribunal addressed whether the Board's circular dated 24th August 1966 was binding on the AO. It concluded that the circular was not binding in light of the Supreme Court's judgment in ITO v. Ch. Atchaiah and subsequent statutory amendments. The Tribunal emphasized that circulars cannot override judicial decisions or statutory provisions. The Tribunal cited various judicial precedents, including the Supreme Court's decision in Hindustan Aeronautics Ltd. v. CIT, which held that circulars are not binding when they conflict with judicial pronouncements. Conclusion: The Tribunal dismissed the appeal filed by the assessee, upholding the validity of the assessment on the AOP, the taxability of commission income in the hands of the AOP, the application of the maximum marginal rate of tax, and the non-binding nature of the Board's circular in the given context.
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