2009 (10) TMI 155 - HC - Income Tax

Association of person under section 2(31) Suppression The assessee was husband and wife and owned a nursing home in the name of M/s Alok Nursing Home, in equal proportions. The Assessing Officer held that for the assessment year 1995-96 and 1997-98 came to the conclusion that the venture constituted an association of person. In this case Patna High Court held that Alok Nursing Home cannot be treated as an association of persons of the two assessees. , the appeals are, allowed, the order of the learned Tribunal is hereby set aside, and that of the learned Commissioner of Income-tax (Appeals) is hereby restored. Decision in favor of assessee against the revenue

Issues Involved:
1. Whether the two individual assessees constitute an "association of persons" (AOP) under section 2(31) of the Income-tax Act, 1961.
2. Whether the Third Member of the Tribunal was justified in investigating and relying upon facts not presented before the Division Bench.
3. Whether the Revenue authorities can change their position and treat the Alok Nursing Home as an AOP despite the Settlement Commission's finding and long-term acceptance of the 50-50 income division.

Detailed Analysis:

Issue 1: Constitution of an "Association of Persons" (AOP)
The primary question was whether Dr. Narendra Prasad and Dr. Leela Prasad constituted an AOP under section 2(31) of the Income-tax Act, 1961, in the name of M/s. Alok Nursing Home. The Settlement Commission had previously concluded that the nursing home was jointly owned by the husband and wife in equal proportions, and their income was to be taxed accordingly. This position was accepted by the Department for several years. However, for the assessment years 1995-96 and 1997-98, the Assessing Officer took a different view, treating the nursing home as an AOP, which led to separate assessments and taxation for the AOP apart from the individual assessments.

The court noted that the authorities had not found any suppression of material facts or income by the assessees. The facts and figures returned by the assessees were consistent with those accepted by the Settlement Commission. The court emphasized that consistency is crucial in law and justice, and the authorities should not deviate from a settled position without strong justification. The court found no new facts or circumstances to warrant a different view for the two assessment years in question.

Issue 2: Justification of the Third Member's Investigation
The court examined whether the Third Member of the Tribunal was justified in considering facts not presented before the Division Bench. It was argued that the Third Member had overstepped by referring to section 167B of the Act and investigating new facts. However, the court concluded that the Third Member had confined himself to the issues referred by the Division Bench and had not introduced new facts. The Third Member had relied on the same facts and figures returned by the assessees, which were already before the Division Bench. Therefore, this question was answered in favor of the Department.

Issue 3: Revenue Authorities Changing Position
The court considered whether the Revenue authorities could change their position and treat the nursing home as an AOP despite the Settlement Commission's findings and long-term acceptance of the 50-50 income division. The court referred to the Supreme Court's judgment in Radhasoami Satsang v. CIT, which emphasized that in the absence of any material change, the Revenue should not take a different view in subsequent years. The court observed that the authorities had consistently followed the Settlement Commission's view, except for the two assessment years in question. The court found no adequate justification for this departure and emphasized the importance of consistency in legal proceedings.

Conclusion:
The court allowed the appeals, setting aside the Tribunal's order and restoring the order of the Commissioner of Income-tax (Appeals). The court held that Alok Nursing Home could not be treated as an AOP of the two assessees. The court's decision reinforced the principle that consistency and the absence of new facts or circumstances are crucial in tax assessments, and authorities should not deviate from a settled position without strong justification.

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