1988 (9) TMI 99 - AT - Income Tax

Summary

Issues Involved:
1. Status of the assessee as an association of persons (AOP).
2. Separate assessment of co-owners.
3. Rule of consistency in tax assessments.

Detailed Analysis:

1. Status of the Assessee as an Association of Persons (AOP):

The primary issue was whether the assessee constituted an association of persons (AOP) for tax purposes. The Income-tax Officer (ITO) issued a notice under Section 139(2) and assessed the income at Rs. 1,79,960 in the status of an AOP, rejecting the assessee's contention that the owners were merely co-owners or tenants-in-common of the rice mill. The assessee argued that the joint lease deeds executed for convenience did not imply a common design to produce income. The rent was collected individually by each co-owner, indicating separate enjoyment of the property. The Tribunal agreed with the assessee, emphasizing that the separate receipt of rent and individual liability for any loss due to recalcitrant co-owners militated against the concept of an AOP. The Tribunal cited the Supreme Court decision in G. Murugesan & Bros. v. CIT and the Andhra Pradesh High Court decision in Bolla Tirapanna & Sons v. CIT, which supported the view that separate enjoyment of property negates the status of an AOP.

2. Separate Assessment of Co-owners:

The assessee argued that even if there was an AOP, the ITO had already assessed each co-owner separately for the assessment year, precluding an AOP assessment. The Tribunal noted that for the assessment year 1983-84, assessments had been completed in the hands of several co-owners individually, which was supported by the ITO's communication. The Tribunal cited several decisions, including Ch. Achayya v. ITO, CIT v. Hyderabad Deccan Liquor Syndicate, CIT v. Khalid Mehdi, Lakshmichand Hirjibhai v. CIT, and CIT v. V.H. Sheth, which held that once income is assessed in individual hands, it cannot be reassessed as an AOP.

3. Rule of Consistency in Tax Assessments:

The assessee contended that the rule of consistency should apply, as the department had assessed the individual shares of the co-owners for over two decades and also for the subsequent assessment year 1985-86. The Tribunal agreed, noting that the doctrine of res judicata does not apply to income-tax proceedings, but the rule of consistency does, as held by the Madhya Pradesh High Court in CIT v. Godavari Corpn. Ltd. The Tribunal observed that the property was incapable of being divided by metes and bounds without injury or jeopardy to the property itself, reinforcing the argument for separate assessments.

Conclusion:

The Tribunal allowed the appeal, holding that the assessee did not constitute an AOP and that the income should be assessed in the hands of the individual co-owners. The Tribunal emphasized the separate receipt of rent, individual liability for losses, and the rule of consistency in tax assessments.