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TMI Blog2007 (8) TMI 385X X X X Extracts X X X X X X X X Extracts X X X X ..... e respective members of the joint venture. 2. That on the facts and circumstances of the case the learned CIT(A) also erred in fact and in law in confirming the finding of the AO that the tax should be levied at the maximum marginal rate. 3. That on the facts and circumstances of the case the learned CIT(A) also erred in fact and in law in confirming the finding of the AO even though the AO acted in contravention of the Board's instructions which are binding on him (the AO). Facts: 3. The assessee in the present case is an Association of Persons (AOP) constituted by joint venture agreement entered into by five different entities on 30th March, 2002. The constitution of the AOP is as under: Sl. No. Name of member Share in P&L of JV 1. Laxmi Traders (Regd. firm) 25% 2. Bijay Paper Trading Co. (Prop. Shri Bijay Kumar Pasai) 25% 3. Pradeep Agencies (Prop. Shri Pradeep Kumar Pasai) 25% 4. Biswanath Industries Ltd. 12.50% 5. Bishwanath Traders & Investment Ltd. 12.50% 4. A copy of joint venture (JV) agreement has been placed at pp. 1 to 6 of the paper book. The above association was constituted for carrying ,on the business of procuring orders on behalf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the hands of the AOP as in that case it will be a case of double taxation of the same income. Reliance was placed on the following decisions: (a) CIT vs. Murlidhar Jhawar & Purna Ginning & Pressing Factory (1966) 60 ITR 95 (SC); (b) CIT vs. Kanpur Coal Syndicate (1964) 53 ITR 225 (SC); (c) CIT vs. Chandrasekaran; SLP (Civil) Nos. 1782-1784/1988 reported at (1989) 178 ITR 73 (St); (d) Laxmichand Hirjibhai vs. CIT (1981) 21 CTR (Guj) 181 : (1981) 128 ITR 747 (Guj); (e) CIT vs. V.H. Sheth (1984) 41 CTR (Bom) 380 : (1984) 148 ITR 169 (Bom); (f) Narnauli Jewel Corporation vs. CIT (1987) 163 ITR 293 (Raj); (g) CIT vs. Taj Oil Traders (2003) 130 Taxman 585 (Raj). 8. Further reliance was placed on Board's Circular No. 75/19/191/62-ITJ, dt. 24th Aug., 1966 (for short "the circular"). It was pointed out that Section 86 and Section 167B of the Act have no relevance in the present context. It was contended that these sections come into play when the income is first assessed in the hands of AOP and not in those cases where first assessment has not been made in the hands of AOP. It was pleaded that as members of the AOP are assessed without making prior assessment in the hands ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be taxed in the hands of the AOP, the learned CIT(A) observed that the said argument would nota stand in the eyes of law. He pointed out that various judicial decisions referred to by the assessee were delivered in the context of old Act. He observed that IT Act was amended so as to levy tax on "every person" who is having taxable income and, therefore, the decisions relied upon by the assessee cannot be applied in the present context of facts and in view of law as it stood on the relevant date. He held that since the income has accrued to the assessee it should be taxed in the hands of the AOP and the shares of members of such AOP will be subject to tax as per provisions of law. He observed that to examine the contention of the assessee that the income was offered to tax in the hands of members, therefore, the same cannot be again subjected to tax is required to be examined in view of relevant provisions of law. He referred to Section 4 of the 1961 Act which is charging section which enables the Department to levy tax on the total income of the previous year of "every person". It was pointed out by him that the language used in charging section i.e. Section 4 is different from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its partners had been assessed separately in respect of their shares of income from such partnership concern. A distinction was made in Section 3 of 1922 Act and Section 4 of 1961 Act. 12. He also referred to the decision of Hon'ble Supreme Court in the case of ITO v. Ch. Atchaiah (1996) 130 CTR (SC) 404 : (1996) 218 TTR 239 (SC) wherein it is held that under the 1961 Act, the ITO has no option like the one he had in 1922 Act but to tax 'right person' and the right person alone. It was held that by right person it means the person who is liable to be taxed according to law with respect to a particular income. It was held that merely because a wrong person is taxed with respect to a particular income, the AO is not precluded from taxing the right person with respect to that income and this is so irrespective of the fact that which course is more beneficial to the Revenue. It was held that under old provisions the option was available to assessing authority to take more advantage of the Revenue position and thus once such option was exercised by the AO, he could not proceed to tax the said income again in another hand. Reference was also made to the decision of Hon&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of AOP, etc. in a case where income-tax has already been paid by the AOP/body of individuals (BOI). He contended that in Section 86 an amendment was brought w.e.f. 1st April, 1989 when new Clause (v) was inserted in place of earlier clause and there was no material change in the section which conveyed that where the assessee is a member of AOP, etc. his share of income in the said association will be computed in the manner provided in Section 67A. It provided further that when such association is chargeable to tax on its total income at maximum marginal rate or at any higher rate under the provisions of IT Act then the share of a member computed as aforesaid shall not be included in his total income and in any other case the share of the member computed as aforesaid shall form part of his total income. It also provides that where no income-tax was chargeable on the income of such association, the share of members as computed under Section 67A shall be chargeable to tax as part of its total income. 16. Learned Authorised Representative pleaded that a further change was brought into Section 86 w.e.f. 1st April, 1993 which also enacted similar provisions as it was on the statute w. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t from situation prescribed under Section 167B(1) and such situation includes a situation where the shares of the members of AOP/BOI are determinate and known. In such a situation it has been provided that if total income of any of the members of such AOP or BOI exceeds the maximum amount which is not chargeable to tax, in that situation tax shall be charged on the total income of AOP or BOI at the maximum marginal rate. It is also provided that in a case where any member or members of such AOP/BOI are chargeable to tax at a rate or rates which is or are higher than the maximum marginal rate, tax shall be charged on that portion or portions of the total income of the AOP or BOI which is or are relatable to the share or shares of such member or members at such higher rate or rates, as the case may be, and the balance of the total income of such AOP or BOI shall be taxed at maximum marginal rate. 20. Reading from these sections, learned Authorised Representative vehemently pleaded that even according to Sub-section (2) of Section 167B the chargeability of tax in the hands of AOP/BOI cannot be determined if tax liability is not first computed in the hands of members of such AOP/BOI. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hawar & Puma Ginning & Pressing Factory (supra) was applicable. He contended that assessment framed by the AO on the members of AOP is valid assessment in accordance with the circular and the said circular being beneficial circular was binding on the IT authorities. In this respect he referred to the decision of Hon'ble Gujarat High Court in the case of Laxmichand Hirjibhai v. CIT (supra) wherein it has been held that CBDT circulars are binding on the IT authorities even if they deviate from the correct legal position. CBDT stating that provisions for assessments of partners and unregistered firm in 1961 Act were on the same lines as in 1922 Act, circular of Board dt. 24th Aug., 1966 must be followed and even a deviation from the legal position cannot be a ground to ignore the binding effect of a circular. 24. Learned Authorised Representative further referred to the decision of Hon'ble Bombay High Court in the case of CIT v. V.H. Sheth and Ors. (supra) wherein the abovementioned circular was held to be binding on the Department. 25. Learned Authorised Representative further referred to the decision of Hon'ble Karnataka High Court in the case of CIT v. Manjunatha Moto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that time. It was held that the fact that the proviso to Section 10(2)(vib) of 1922 Act was incorporated into the Act after the Board issued its instructions cannot affect the force of the instructions issued by the Board of Revenue. (iii) K.P. Varghese v. ITO and Anr. (1981) 24 CTR (SC) 358 : (1981) 131 ITR 597 (SC) wherein it is held that the CBDT circulars, apart from being binding on the Revenue authorities are clearly in the nature of contemporaneous exposition furnishing legitimate aid in the construction of Sub-section (2) of Section 52. The rule of construction by reference to contemporaneous exposition is a well-established rule for interpreting a statute by reference to the exposition it has received from contemporary authority, though it must give way where the language of the statute is plain and unambiguous. It is worth noting that circulars issued by the CBDT are legally binding on the Revenue and this binding character attaches to the aforesaid two circulars dt. 7th July, 1964 and 14th Jan., 1974, even if they be found not in accordance with the correct interpretation of Sub-section (2) and they depart or deviate from such construction.-- Navnit Lal C. Javeri vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the Revenue to raise a contention contrary to a binding circular. A show-cause notice and demand contrary to existing circulars of the CBEC are ab initio bad. Further, it is not open to the Revenue to advance an argument or file an appeal contrary to the circular. (vii) CCE v. Dhiren Chemical Industries (supra) wherein it has been held as under: Where the raw material is not liable to excise duty or such duty is nil, the exemption notification in question will not apply; however, if there are circulars which have been issued by the CBEC which place a different interpretation upon the said phrase, that interpretation will be binding upon the Revenue. (viii) ITO v. Bir Engg. Works (2005) 93 TTJ (Asr)(SB) 257: (2005) 94 ITD 164 (Asr)(SB) wherein it has been held as under: Instructions issued by the CBDT prescribing monetary limit for filing the appeals before the Tribunal, High Court or the Supreme Court are binding on the IT authorities and therefore Tribunal did not commit any error in dismissing the Department's appeal by relying on Instruction No. 1979, dt. 27th March, 2000. 28. Referring to all these decisions learned Authorised Representative finally pleaded that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P/BOI in the income of such AOP will be dealt with and thus the same also cannot be said to be a charging section. 31. Learned Departmental Representative further contended that option to assess either the members of an AOP or AOP itself was under the 1922 Act. He contended that with the introduction of Section 167B no such option was available with the AO. He contended that circular also cannot be said to be applicable as there was an amendment in the Act after the issue of circular. He contended that in view of introduction of Section 167B to the statute by the Direct Tax Laws (Amendment) Act, 1989 w.e.f. 1st April, 1989, the circular of 24th Aug., 1966 had lost its effect. He contended that when base is removed superstructure cannot stand. He contended that substantial provisions are to be applied rather than the circular. Reading from the circular of 1966, he contended that it was only an advice given by CBDT to its officer to complete the assessment of AOP first and the said instruction was given only for avoiding further complication and it was not intended to give any benefit to the assessee. He contended that instead of applicability of the circular of 1966, the circular e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that the case of assessee comes within the letter of the law, he must be taxed, however great the hardship may appear to the judicial mind to be. (v) Orissa State Warehousing Corporation v. CIT (1999) 153 CTR (SC) 177 : (1999) 237 ITR 589 (SC) wherein it has been held that a fiscal statute shall have to be interpreted on the basis of the language used therein and not de hors the same. No words ought to be added and only the language used ought to be considered so as to ascertain the proper meaning and intent of the legislation. The Court is to ascribe the natural and ordinary meaning to the words used by the legislature and the Court ought not, under any circumstances, substitute its own impression and ideas in place of the legislative intent as is available from a plain reading of the statutory provisions. Learned Departmental Representative further contended that under the Act Board has power to issue beneficial circulars and there is also no doubt that such circulars are binding on IT authorities but he pleaded that the circular had lost its validity in view of subsequent decision of Hon'ble Supreme Court in the case of ITO v. Ch. Atchaiah (supra) and also in the light ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set at rest by the Hon'ble Supreme Court in the case of ITO v. Ch. Atchaiah (supra). In this respect, to correctly appreciate the legal position it will be necessary to discuss in detail the said decision of Hon'ble Supreme Court. 34. In the said case their Lordships have referred to the provisions of 1922 Act and also the provisions of 1961 Act. The controversy in the said case related to asst. yrs. 1965-66 and 1968-69. In the said case Shri Ch. Atchaiah and another person namely, Shri Kondal Reddy purchased land measuring 454.11 acres in a village in Medak District in Andhra Pradesh from Shri Ikramuddin and Smt. Azizunnisa Begum under a sale deed dt. 20th Oct., 1962, for a consideration of Rs. 75,000. Prior to the execution of the sale deed, the said land had been notified for acquisition under the Land Acquisition Act. One of the purchasers, namely, Shri Kondal Reddy appeared before the Land Acquisition Officer claiming compensation and vide award dt. 4th Feb., 1964, the Land Acquisition Officer determined the compensation at Rs. 1,38,794.12 annas which amount was received by both the purchasers of the land on 4th Dec, 1964 in equal shares. Further, the land compensatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reof individually and that having exercised the option to assess the members of AOP as individuals and he cannot seek to tax the AOP with respect to the very same income. It is against such decision of Andhra Pradesh High Court, an appeal was filed by the Revenue before the Hon'ble Supreme Court. 36. It was urged before the Supreme Court that the High Court was clearly in error in holding that under 1961 Act, the ITO has an option to tax either the AOP or its members individually. It was pleaded that though there was an option with the Revenue to do so under 1922 Act but the said option is not available under 1961 Act. It was pleaded on behalf of the Revenue that the right person has to be taxed and merely because a wrong person is taxed, it does not operate as a bar to tax the right person. The contention of the Revenue was that if in law the income in question had to be taxed in the hands of AOP, it had to be taxed as such and the mere fact that the said income was taxed in the hands of individual members of the AOP does not bar the ITO from taxing the AOP. On the other hand, it was contended on behalf of the assessee that there is no difference between the position obtainin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 2 of 1922 Act which reads as under: (9) 'person' includes an HUF and a local authority As against the above provisions, they referred to Section 4 of the 1961 Act [before it was amended by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1st April, 1989] which reads thus: 4. (1) Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of this Act in respect of the total income of the previous year or previous years, as the case may be, of every person: Provided that where by virtue of any provision of this Act income-tax is to be charged in respect of the income of a period other than the previous year, income-tax shall be charged accordingly. (2) In respect of income chargeable under Sub-section (1), income-tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of this Act. [They expressed that amendments made by Direct Tax Laws (Amendment) Act, 1987 in Section 4 of 1961 Act do not make any difference so far as it relates to controv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred to various decisions rendered under 1961 Act holding therein that such option was available to the ITO even under 1961 Act and also to the decisions which have taken the view that no such option was available under 1961 Act. They observed that in the decisions where the view has been taken by various High Courts that such option is available even under 1961 Act appeared to have been influenced largely by the decisions of Supreme Court in the cases of CIT v. Kanpur Coal Syndicate (supra) and CIT v. Murlidhar Jhawar & Purna Ginning & Pressing Factory (supra) and observed that these decisions were rendered under 1922 Act and no due weight was given in those decisions to the marked difference in the language of relevant provisions in the two enactments. Thus they held that AOP being the assessable entity has to be taxed on its income and under 1961 Act no such option was available with the ITO to assess the members on the income of AOP and even if the members of AOP have been assessed, that will be the assessment on 'wrong person'. The assessment of a 'wrong person' cannot stand in the way of the assessment of 'right person' as 'wrong person' can ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axation also, assessment on AOP (which is the right person to be assessed under the 1961 Act) cannot be held to be invalid and the argument raised by the assessee in this regard is also liable to be rejected and is rejected. 41. Now we have to consider the arguments of the learned Authorised Representative of the assessee regarding applicability of the circular dt. 24th Aug., 1966 relying on which it is pleaded that it is a beneficial circular and therefore the same was binding on AO and CIT(A) and thus assessment made on AOP subsequent to the assessment of its members could not be validly made by AO, and CIT(A) has wrongly upheld the same. To examine such contention, it will be relevant to reproduce the text of the circular: 33. Share income from AOP or firm once assessed directly in the hands of member or partner-Whether open to ITO to assess the same income in the hands of AOP or firm as unregistered firm--Decision of Supreme Court in Murlidhar's case to that effect whether applies to assessments under 1961 Act 1. The effect of this decision [CIT v. Murlidhar Jhawar & Puma Ginning & Pressing Factory (1966) 60 ITR 95 (SC)]] is that once the ITO assesses directly an asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of ITO v. Ch. Atchaiah (supra) came to be delivered on 11th Dec, 1995 propounding that the position of law regarding chargeability of tax on the AOP and its member is different under 1961 Act as compared to the provisions of 1922 Act. As already discussed, Hon'ble Supreme Court has interpreted the law in this regard by comparing the provisions of Sections 3, 2(9) of 1922 Act and the provisions of Section 2(31) and Section 4 of 1961 Act. Further their Lordships have also observed that earlier decision of apex Court in the case of CIT v. Murlidhar Jhawar & Puma Ginning & Pressing Factory (supra) (based upon which the circular has been issued by CBDT) was rendered under 1922 Act and the same, therefore, could not be applied to 1961 Act as there was marked difference in the language of both the Acts. The reliance by the learned Authorised Representative on the decisions in the cases of Laxmichand Hirjibhai v. CIT (supra), CIT v. V.H. Sheth and Ors. (supra) and CIT v. Manjunatha Motor Service & Canara Public Conveyances (supra) taking a different view on the issue thus is clearly misplaced in view of the law declared subsequently by the Supreme Court in the case of ITO v. Ch. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of such association or body or at any time thereafter. 44. Section 167B regulates chargeability of tax on AOP and BOI. This section has given a clear mandate that the tax is chargeable in the hands of AOP alone and it has been brought in the statute subsequent to the issue of abovementioned circular of the CBDT. 45. In the light of the abovementioned factual aspects, we shall proceed to examine the contention of the learned Authorised Representative as to whether the benefit as sought under the said circular can be extended to the AOP. 46. There cannot be any dispute to the proposition that IT authorities are bound to follow the circulars issued by CBDT under Section 119 of the Act. At the same time, it is also well settled that it is not irrelevant for the judicial forum to examine the circumstances/context as well as the prevailing conditions under which such circular came to be issued. A close look at the circular will reveal that the basis of issue of circular is the decision of Hon'ble Supreme Court in the case of CIT v. Murlidhar Jhawar & Puma Ginning & Pressing Factory (supra), which was then available on the date of issue of circular. Considering the said decision, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted out by referring to several decisions of this Court to the effect that the circulars or instructions given by the Board are no doubt binding in law on the authorities under the Act but when the Supreme Court or the High Court has declared the law on the question arising for consideration it will not be open to a Court to direct that a circular should be given effect to and not the view expressed in a decision of the Supreme Court or the High Court. We find great force in this submission made by the learned senior advocate for the Revenue and find absolutely no merit in this appeal and the same stands dismissed, but in the circumstances of the case, there shall be no orders as to costs. (emphasis, italicised in print, ours) 49. Following the above decision the jurisdictional High Court in the case of CIT v. Blaze Advertising (Delhi) (P) Ltd. (2002) 173 CTR (Del) 482 : (2002) 255 ITR 460 (Del) has observed as under: 14. Circulars issued under Section 119 of the Act stand on a different footing. The Hon'ble Supreme Court in UCO Bank v. CIT (1999) 154 CTR (SC) 88 : (1999) 237 ITR 889 (SC) has held that circulars under Section 119 are meant for ensuring proper administration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... later on considered by Hon'ble Supreme Court in the case of Kalyani Packing Industry v. Union of India and Anr. 2004 (6) SCC 719 and the abovementioned decision was explained by their Lordships as under: We have noticed that para 9 (para 11 in SCC) of Dhiren Chemical's case (2002) 172 CTR (SC) 670 : 2004 (6) SCC 722 is being misunderstood. It therefore, becomes necessary to clarify para 9 (para 11 in SCC) of Dhiren Chemical's case (supra). One of us (Variava, J.) was a party to the judgment of Dhiren Chemical case (supra) and knows what was the intention in incorporating para 9 (para 11 in SCC). It must be remembered that law laid down by this Court is law of the land. The law so laid down is binding on all Courts/Tribunals and bodies. It is clear that circulars of the Board cannot prevail over the law laid down by this Court. However, it was pointed out that during hearing of Dhiren Chemical case (supra) because of the circulars of the Board in many cases the Department had granted benefits of exemption notifications. It was submitted that on the interpretation now given by this Court in Dhiren Chemical case (supra), the Revenue was likely to reopen cases. Thus, par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is binding on the AO even if it is contrary to the provisions of the Act. The law in this regard has been explained by Hon'ble Supreme Court in the case of Keshavji Ravji & Co. Etc. Etc. v. CIT (supra). In the said decision it was held by Hon'ble Supreme Court that the Tribunal is not an IT authority under the Act, therefore, circulars do not bind it. Though the benefits of such circulars to the assessee have been held to be permissible even though the circulars might have departed from the strict tenor of the statutory provisions and mitigate the rigour of law. But that is not the same thing as saying that such circulars would either have a binding effect in the interpretation of the provision itself or that the Tribunal and the High Court are supposed to interpret the law in the light of the circular. The following observations of their Lordships from the said decision are reproduced below: This contention and the proposition on which it rests, namely, that all circulars issued by the Board have a binding legal quality incurs, quite obviously, the criticism of being too broadly stated. The Board cannot pre-empt a judicial interpretation of the scope and ambit of a provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the statute in certain situations by applying a beneficial interpretation to the provision in question so as to benefit the assessee and make the application of the fiscal provision, in the present case, in consonance with the concept of income and in particular, notional income as also the treatment of such notional income under accounting practice. It is further held as under: We do not see any inconsistency or contradiction between the circular so issued and Section 145 of the IT Act. In fact, the circular clarifies the way in which these amounts are to be treated under the accounting practice followed by the lender. The circular, therefore, cannot be treated as contrary to Section 145 of the IT Act or illegal in any form. It is meant for a uniform administration of law by all the IT authorities in a specific situation and, therefore, validly issued under Section 119 of the IT Act. As such, the circular would be binding on the Department. (emphasis, italicised in print, ours) 57. In the case of CIT vs. Sahney Steel & Press Works Ltd. (1985) 44 CTR (AP) 243 : (1985) 152 ITR 39 (AP) [affirmed by apex Court in Sahney Steel & Press Works Ltd. Etc. Etc. vs. CIT (1997) 142 CT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assess the AOP or its members. Such option though was available under 1922 Act but was not provided in 1961 Act as there was a difference in the language of both the Acts. It has also been pointed out in this order that there was subsequent change in the legislation when Section 167B was introduced. Thus relying on the circular it cannot be held that AO had no jurisdiction to assess the AOP (assessee) as he had already assessed its members. 59. In view of the above discussion our answer to the question referred to the Special Bench is that assessment made by AO on AOP is valid in the light of the judgment of Hon'ble Supreme Court in the case of ITO v. Ch. Atchaiah (supra) and also in the light of the statutory amendments brought in the statute. For the reasons discussed above Board's circular dt. 24th Aug., 1966 cannot be relied upon to hold that the assessment on AOP is invalid. The said circular had lost its validity. 60. Our findings with regard to grounds raised by the assessee in its appeal are as under: 1. Apropos ground No. 1 it is held that CIT(A) was right in confirming the findings of the AO that commission income of Rs. 2,37,55,912 was taxable in the hands of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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