1991 (12) TMI 112 - AT - Income Tax

Association Of Persons, Capital Gains On Sale, House Property, Orders Prejudicial To Interests, Rental Income

Summary

Issues Involved:
1. Limitation period for revision under section 263.
2. Existence of an Association of Persons (AOP) for tax assessment.
3. Validity of the Commissioner of Income-tax's (CIT) revision of assessments.

Detailed Analysis:

1. Limitation Period for Revision under Section 263:

The primary issue was whether the CIT's revision order under section 263 was barred by limitation. The assessee argued that the order was passed beyond the prescribed time limit, as the assessment made on 3rd February 1984 could only be revised within two years, i.e., up to 2nd February 1986. The CIT issued the revision order on 12th March 1986, which the assessee claimed was barred by limitation. The Department, however, contended that the time limit was extended by the Taxation Laws (Amendment) Act, 1984, which allowed revision within two years from the end of the financial year in which the order was passed, making the revision permissible until 31st March 1986. The Tribunal agreed with the Department, citing the Madhya Pradesh High Court decision in Veerbhandas Purswani v. CWT, which supported the view that procedural amendments extending the limitation period apply retrospectively if the original limitation period had not expired. Thus, the Tribunal held that the CIT's order was within the extended time limit and not barred by limitation.

2. Existence of an Association of Persons (AOP) for Tax Assessment:

The second issue was whether the four individuals who co-owned the property constituted an AOP for the purpose of tax assessment on the capital gains from the sale of the property. The assessee argued that the property was purchased and owned by the co-owners in definite and ascertained shares, with no joint management or business venture to constitute an AOP. The Tribunal examined the nature of the co-ownership and the income derived from the property. It referred to the Supreme Court decisions in CIT v. Indira Balkrishna and G. Murugesan & Bros. v. CIT, which held that an AOP must be formed for a common purpose or joint enterprise. The Tribunal found that the co-owners merely held the property and received rental income, which was assessed individually under section 26 of the Income-tax Act. The Tribunal concluded that there was no AOP in existence, as the co-owners did not engage in any joint business or venture beyond mere co-ownership.

3. Validity of the CIT's Revision of Assessments:

The final issue was whether the CIT's revision of the assessments was valid. The assessee contended that the CIT's action was erroneous, as the ITO had already exercised the option to assess the capital gains in the hands of the individual co-owners. The Tribunal supported this argument, stating that the ITO's discretion to assess either the AOP or the individual members was part of the assessment process. Once the ITO chose to assess the individuals, the CIT could not later revise this decision under section 263, as it was not erroneous but a valid exercise of discretion. The Tribunal emphasized that for the CIT to invoke section 263, the order must be both prejudicial to the interests of the revenue and erroneous. Since the ITO's order was not erroneous, the CIT's revision was invalid.

Conclusion:

The Tribunal vacated the CIT's orders under section 263 and restored the ITO's original assessments. Consequently, the appeals arising from the assessments made pursuant to the CIT's orders were dismissed as infructuous. The assessee's appeals were allowed, and the CIT's revision orders were deemed improperly assumed jurisdiction under section 263.