1985 (8) TMI 130 - AT - Income Tax

Summary

Issues Involved:
1. Applicability of the principle of res judicata in income tax proceedings.
2. Assessment of income in the hands of individual members versus an Association of Persons (AOP).
3. Interpretation and application of the Supreme Court's decision in CIT vs. Indira Balkrishna.

Detailed Analysis:

1. Applicability of the Principle of Res Judicata in Income Tax Proceedings:

The primary issue revolves around whether the principle of res judicata applies to income tax proceedings. The assessee argued that the income from the stud business was assessed individually for the assessment years 1976-77 to 1978-79, and no new facts emerged to justify a change in this approach for the assessment year 1979-80.

The Tribunal noted that the principle of res judicata generally does not apply to income tax proceedings. However, exceptions exist where an earlier decision cannot be reopened unless it is arbitrary, perverse, or arrived at without due enquiry. The Tribunal referenced the decisions of the Orissa High Court in CIT vs. Belpahar Refractories Ltd. and the Madhya Pradesh High Court in CIT vs. Bhilai Engineering Corporation (P) Ltd., which emphasized finality and certainty in litigation, including tax litigation.

The Tribunal concluded that no fresh facts had come to light for the assessment year in question, and the earlier decision was not arbitrary or perverse. Therefore, the principle of res judicata applied, and the ITO was not justified in deviating from the earlier decision to assess the income in the status of an AOP.

2. Assessment of Income in the Hands of Individual Members versus an AOP:

The assessee contended that the income from the stud business had been assessed in the hands of individual members according to their shares as per Muslim Law in the earlier years, and this approach should continue. The ITO, however, assessed the income in the status of an AOP for the assessment year 1979-80.

The Tribunal observed that the stud business was carried out by Bhopal Stud & Agricultural Farm (P) Ltd., which went into liquidation in 1968. From the assessment year 1976-77 to 1978-79, the income was assessed in the hands of individual members. The Tribunal found no new facts justifying a change in this approach for the assessment year 1979-80. The Tribunal relied on the principle that there should be finality and certainty in all litigation, including tax litigation, and concluded that the ITO was not justified in assessing the income in the status of an AOP.

3. Interpretation and Application of the Supreme Court's Decision in CIT vs. Indira Balkrishna:

The assessee argued that the assessment in the status of an AOP was not correct as per the ratio laid down by the Supreme Court in CIT vs. Indira Balkrishna. The Supreme Court held that an AOP must involve two or more persons joining in a common purpose or action to produce income, profits, or gains.

The Tribunal noted that the co-heirs inherited the property and the business as per Muslim Law, and there was no agreement or willingness among them to join together to earn profits. Therefore, the assessee could not be assessed in the status of an AOP. The Tribunal concluded that the ratio laid down by the Supreme Court in Indira Balkrishna was more in favor of the assessee, and the ITO was not justified in assessing the income in the status of an AOP.

Separate Judgment by the Third Member:

The Third Member, G. Krishnamurthy, Sr. Vice-President, agreed with the Judicial Member's view that the principle of res judicata applied and that the ITO was not justified in changing the assessment approach without new facts. The Third Member also agreed that the Supreme Court's decision in Indira Balkrishna applied, and there was no evidence that the co-heirs voluntarily came together to form an AOP. Therefore, the income could not be assessed in the status of an AOP.

Conclusion:

The appeal filed by the assessee was allowed, and the cross-objection filed by the Revenue was dismissed as infructuous. The Tribunal concluded that the ITO was not justified in assessing the income in the status of an AOP and that the principle of res judicata applied, ensuring finality and certainty in tax litigation.