1993 (12) TMI 104 - AT - Income Tax

Summary

Issues:
1. Status of the assessee as 'Body of Individuals'.
2. Legality of levy of interest under section 139(8) and section 217(1)(a).

Issue-wise Analysis:

1. Status of the Assessee as 'Body of Individuals':
Facts and Background:
- The appeals are against the order confirming the status of the assessee as a 'Body of Individuals' for three assessment years.
- The family involved migrated to Khammammet and engaged in business activities, eventually constructing a cinema hall.
- Sitamma executed an unregistered will bequeathing her property, including the cinema hall, equally among her son Venkatadri, his two wives, and their children.
- Post Sitamma's death in 1966, the cinema hall was managed by Venkatadri on behalf of the other co-legatees.
- Disputes among the co-legatees led to a suit for dissolution of partnership and rendition of accounts, resulting in a decree that recognized the cinema hall as co-ownership property, not a partnership asset.

Legal Arguments and Analysis:
- The term 'Body of Individuals' was introduced in the Income-tax Act, 1961, and lacks a statutory definition.
- The Andhra Pradesh High Court in Deccan Wine & General Stores v. CIT [1977] 106 ITR 111 provided a distinction between 'Association of Persons' and 'Body of Individuals', emphasizing the absence of a common design in the latter.
- The revenue argued that the status was rightly determined as 'Body of Individuals', while the assessee contended that the necessary ingredients for such a status were absent.
- The Tribunal observed that the partnership firm was dissolved in 1974, and the cinema hall was leased out by a court-appointed Commissioner, indicating no common design or combined will among the co-legatees.
- The Tribunal concluded that the co-legatees merely received income jointly without any active involvement or common design, thus not fitting the definition of 'Body of Individuals'.

Conclusion:
- The Tribunal held that the status of the assessee should not be determined as 'Body of Individuals' for the relevant assessment years. The assessments framed in this status were cancelled.

2. Legality of Levy of Interest under Section 139(8) and Section 217(1)(a):
Facts and Background:
- For the assessment year 1977-78, the assessee did not file any return, leading to a notice under section 148 and subsequent assessment under section 144 read with section 148.
- Similar assessments were made for the years 1978-79 and 1979-80, with interest levied under section 139(8) and section 217(1)(a).

Legal Arguments and Analysis:
- The Tribunal admitted the additional grounds questioning the legality of the interest levy.
- It was argued that since the assessments were cancelled, the question of interest levy did not survive.
- The Andhra Pradesh High Court in CIT v. Padma Timber Depot [1988] 169 ITR 646 held that interest under sections 139(8) and 217 cannot be charged on reassessments made under section 143(3) read with section 147.
- The Tribunal noted that the amendment to section 139(8) by the Taxation Laws Amendment Act, 1984, effective from 1-4-1985, did not apply to the assessment years in question.

Conclusion:
- The Tribunal held that the levy of interest under section 139(8) and section 217(1)(a) was not permissible for the assessment years 1977-78, 1978-79, and 1979-80. The interest levied was cancelled.

Final Judgment:
- The appeals were allowed, and the assessments framed in the status of 'Body of Individuals' were cancelled.
- The levy of interest under section 139(8) and section 217(1)(a) was also cancelled.