9911796707
TMI Blog1985 (8) TMI 130X X X X Extracts X X X X X X X X Extracts X X X X ..... to which Begum Suraiya Rasheed got 6/48 share. Both the sons got 14/48 share eaten of the two daughters got 7/48 share each. After the death of Nawab Saheb, the Bhopal Stud Agricultural Farm (P) Ltd. was incorporated on 11the Dec., 1962. The aforesaid company has gone into liquidation w.e.f. 28th Sept., 1968. Again, for the first time the income from livestock breeding was taxed from the asst. yr. 1976-77. The said income is shown according to their individual shares in the income-tax returns of all the five co-heirs for three asst. yrs. 1976-77 to 1978-79, alongwith their other incomes like property income, foreign income etc. This has been accepted in assessments for all these three years completed by the ITO. The income of Bhopal Stud Agricultural Farm (P) Ltd., which carried on the business of horse breeding was included in the individual returns of all the five co-shares during all the aforesaid three years. No separate assessment of Bhopal Stud Agricultural Farm (P) Ltd was made for the asst. yrs. 1977-78 and 1978-79. For the asst. yr. 1976-77, a notice under s. 148 of the IT Act, 1961 ( the Act ) was given and the assessment of Bhopal Stud Agricultural Farm (P) Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r relied on the decision of the Madhya Pradesh High Court in the case of CIT vs. Bhilai Engg., Corpn. (P) Ltd. (1982) 133 ITR 678 where their Lordships of the Madhya Pradesh High Court have held that though the principle of res judicata has no application to proceedings under the Act and the finding reached for one particular assessment year cannot be held to be binding in the assessment proceedings for the subsequent year, yet this general rule is subject to the qualification that a finding reached in the assessment proceedings for an earlier year, after due enquiry, would not be reopened in a subsequent year if it is not arbitrary or perverse, and if no fresh facts are found in the subsequent year. This is on the principle that there should be a finality and certainty in all litigation s including litigation s arising out of the Act. Relying on the aforesaid decision so the various High Courts, the learned counsel submitted that the principle of res judicate would be applicable to the facts of this case as and fresh facts have come to the light of the ITO after passing the assessment order for the asst. yr. 1976-77 to 1978-79 and that there order passed by the ITO resulted in inj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t correct. It cannot be assessed as an AOP as per the ratio laid down by the Supreme Court in the case of CIT vs. Indira Balkrishna (1960) 39 ITR 546 (SC). In the aforesaid case, their Lordships of the Supreme Court have held that word associate meanest to join in common purpose, or to join in an action . Therefore, AOP as used in s. 3 of the Act, means an association in which two or more persons join in a common purpose or common action, and as the words occur in a section which imposes a tax on income, the association must be one the object of which is to produce income, profits or gains. Their Lordships further held that co-widows succeeded as co-heirs to the estate of their deceased husband and took as joint tenants with rights of survivorship and equal beneficial enjoyment they were entitled as between themselves to an equal share of the income. Though they took as joint tenants, no one of them had a right to enforce an absolute partition of the estate against the others so as to destroy their right of survivorship. But they were entitle to obtain a partition of separate portions of the property so that each might enjoy her equal share of the income accruing therefrom. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itrary or perverse or arrived at without due enquiry. The second limitation is that the earlier decision should not cause injustice to the assessee. Their Lordships of the Madhya Pradesh High Court in Ghilai Engg. Corpn. (P) Ltd. s case, have further held that a finding reached in the assessment proceedings for an earlier year, after due enquiry, would not be reopened in the subsequent year if it is not arbitrary of perverse, and if no fresh facts are found in the subsequent assessment year. As already pointed out by us that from the facts on record, it is clear that no fresh facts, have come to the knowledge of the ITO and the decision of the ITO is neither arbitrary nor perverse and has been arrived at after due enquiry. We are, therefore, of the opinion that the ratio laid down by their Lordships of the Madhya Pradesh and Orissa High Courts is applied to the facts of this case, the rule of res judicata clearly applies and the Ito is not justified in deviating from the earlier decision taken by him and assess the assessee in the status of an AOP. The ratio laid down by their Lordships of the Madhya Pradesh High Court is based purely on the principle that there should be finality ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irming the order passed by the ITO. 8. In the result, the appeal filed by the assessee is allowed. C.O. No. 14 (Indore) of 1983 9. The cross-objection filed by the Revenue is against the order of the CIT (A) dt. 2nd Nov. 1982. In the cross objection the Revenue has taken the ground that the learned CIT (A) erred in considering the issue whether in the hands of members the share should be before or after deduction of income-tax., as this point does not arise in the case of an AOP nor any prejudice is caused the AOP. Further, the CIT (A) erred in directing that the share to be assessed in the hands of the members, would be out of the total income as reduced by income-tax of an AOP. 10. Since the same ground has been taken by the Revenue in IT Appeal No. 255 (Indore) of 1983, the cross-objection is treated as infructuous and is, therefore, dismissed. N. Y. TAMHANE, A. M.: I have studied the order of my learned senior brother. On facts which have been found in paragraph No. 5 there can be no dispute. I accept the facts as stated by my learned senior brother. However, it is with most sincere regrets that I am unable to agree with my leaned senior brother with the concl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Balkishna. 4. Since I have stated earlier that my senior brother has held that the second argument is against the assessee, one need not examine the assessee s submissions thereon. Inasmuch as after great deliberation, I am not in a position to agree with my senior brother s conclusion on the first and third submissions made by the assessee, I will proceed to examine the two in some details. As one understands it, the more important of the two objections is third objection, viz., the assessee s objection based on the decision of the Supreme Court in the case of Indira BalkrishnaI. 5. Shri Chhajed, as observed by my senior brother, has argued that, "the assessment made in the status of an AOP is not correct. It cannot be assessed as an AOP as per the ratio laid down by the Supreme Court in the case of Indira Balrishna. In the aforesaid case, their Lordships of the Supreme Court have held that the word associate means to join in common purpose, or to join in an action . Therefore, AOP , as used in s. 3, means an association in which two or more persons join in a common purpose or common action, and as the words occur in a section which impose a tax on income. the associatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in the aforesaid case is more in favour of the assessee, and the ITO is not justified in assessing the assessee in the status of an AOP." 6. In Indira Balkrishna s case, towards the end the Supreme Court has observed: "In In re. B. N. Elias (1935) 3 ITR 408 Derbyshire, C. J., rightly point out that the word associate means, according to the Oxford Dictionary to join in common purposed, or to join in an action . Therefore, an AOP must be one in which two or more persons join in a common purpose or common action, and as the words occur in a section which imposes a tax on common action, and as the words occur in a section which imposes a tax on income, the association must be one the object of which is to produce income, profit or gains. This was the view expressed by Beaumount, C. J. in CIT vs. Lakshmidas Devidas (1937) 5 ITR 548, at page 589 and also in In re. Dwarkanath Harishchandra Pitale (1937) 5 ITR 716. In In re, B. N. Elian s case, costello, J., put the test in more forceful language. He said: It may well be that the intention of the legislature was to hit combinations of individuals who were engaged together in some joint enterprises but not in law constitute pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property, the AAC had held that s. 9(3) applied. There was no appeal by the Department against that finding and it was not open to the Tribunal to go behind it. Even on merits the Tribunal was wrong in thinking that the respective shares of the widows were not definite and ascertainable. They and an equal share in the income viz., one-third each, and the provisions of s. 9(3) clearly applied in respect of the immovable property. With regard to the shares, dividends, and interest on deposits there was no finding of any act of joint management. Indeed, the main item consists of the dividends and it is difficult to understand what act of management the widows performed in respect thereof which produced or helped to produce income. On the contrary, the statement of the case shows that the assesses filed lists of shares, copies whereof are marked Annexure C and form part of the case, which showed that the share stood separately in the name of each one of the three widows and this was not denied by the Department. It was on these facts that the test which the Supreme Court approved later and referred to by me earlier, the Court concluded by observing: "Coming back to the facts fou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich takes the assessee s case out of the principles laid down by the Supreme Court in Indira Balkrishna s case. As I understand it, to these facts aptly apply the observations in B. N. Elias, In re (1935) 3 ITR 408 (Cal) by the Supreme Court and italicised in paragraph No. 6 above and reproduced once again for emphasis: "when we find that there is a combination of persons formed for the promotion of a joint enterprise then I think no difficulty arises whatever in the way of saying that these persons did constitute an association. 10. One has now to turn to the firs argument taken by the assessee based on the principles of res judicata. On this issue, in paragraph No. 5 of the order, my senior brother observed: "On a perusal of the entire records it can be safely concluded that no fresh facts have come to the knowledge of the ITO at the time of making the assessment year in question." The above statement is absolutely correct. The decision given by the Supreme Court in Indira Balkrishna s case was given as early as 14th April 1982. It is an undisputed fact that between the primary facts of the three years relevant for the asst. yr. 1976-77 to 1978-79 both years inclusive on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1953, s. 4(3) (i) of the Act was amended with retrospective effect from 1st April 1952. Thereupon, the ITO initiated reassessment proceedings under s. 34 (1)(b) of the Act. The Bombay High Court held, that the knowledge of that amendment was sufficient in law to constitute receipt of information within the meaning of s. 34 (1) (b) and the receipt of such information was sufficient for the ITO to have reason to believe that the income of the assessee for the year 1952-53 had escaped assessment. 11. Now in the instant case, even if my understanding of the Supreme Court in Indira Balikrishna s case be correct, the ITO would not be justified to reopen the assessment for the years 1976-77 to 1978-79 because at the time the ITO made those assessments, the Supreme Court had already given the decision. However, for the assessment under consideration, viz., 1979-80, the ITO is making an assessment for the first time and the issue is whether an assessment, which is being made for the first time, cannot be made in consonance of the law. Merely because the earlier assessments were incorrectly made. 12. For the reasons given above, with deepest regret, I am unable to agree with my learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he asst. yr. 1976-77 a notice under s. 148 was given to the Bhopal Stud Agricultural Farm to assess the income of the horse breeding in the status of AOP. Now for the asst. yr. 1979-80, the assessee filed a return in the name of Bhopal Stud and Agricultural Farm showing nil income. There was no notice issued under s. 148 for this year and the return filed by the assessee showing nil income appears to be voluntary. In support of the claim that there was no income accruing to Bhopal Stud Agricultural Farm assessable in its hands as separate entitle, the argument addressed were that under the Muslim Law the shares of the heirs were specified in the property left by the Nawad and each one of them got the property and the income attributable thereto in accordance with those shares and the assessment must be made only in the case of the individuals and their share of income, which was being done in the earlier years and not in the hands of one entity aggregating the whole as belonging to or accruing to or arising in the hands of that entity. In order that the entity can be taxes, there must be violation on the part of all the members to come together and to carry on business. In this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... registered with that club separately and hence the income of the entity now sought to be assessed as AOP should be allocated between the members. This argument did not find favour with CIT (A). 3. Aggrieve by this decisions, there was a second appeal before the Tribunal. Before the Tribunal, also the same arguments were addressed. After concluding the hearing the members could not agree to the conclusion. The ld. Judicial Member held that there was some amount of force in the argument of the assessee. The Department having assessed the individual members on their respective shares in the earlier years should not have departed from that procedure without any valid reason to seek to assess the income in the hands of the entity as AOP. He relied very strongly upon a decision of the Madhya Pradesh High Court in the case CIT vs. Bhilai Engineering Corporation P. Ltd. (1982) 133 ITR 687 (MP) a decision of the Orissa High Court in CIT vs. Belpahar Refractores Ltd. (1981) 22 CTR (Ori) 155 : (1981) 128 ITR 610 (Ori) and that of a Bombay High Court in H. A. Shah Co. vs. CIT (1956) 30 ITR 618 (Bom). He has given several other reasons which may be discussed at the appropriate time but the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee submitted that it is erroneous to adhere to the view that the principle of res judicata has no application to the proceedings under the IT Act. It is subject to a qualification, namely, that a finding reached in one assessment year after due enquiry would not be reopened in the subsequent year if it is not arbitrary or perverse and if no fresh facts come to light in the subsequent assessment year. Thus the principle of res judicata yields to the principles of finality, namely, that in all litigation not excluding the income-tax litigation, the finality and certainty must be reached. This is how the Madhya Praadesh High Court explained the principle of res judicata in the case of CIT vs., Bhilai Engg. Corporation P. Ltd. and it was placing greatest reliance on that decision and urging that it was binding on us that he submitted that the ITO having assessed the individuals on their shares in the earlier years should not have deviate from that view to assessthe income combined it together in the hands of an AOP on a plea that there was no AOP that came into being by the violation of the members without establishing such violation more particularly when the facts obtaining this ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares were taken by the co-heirs in the manner in which they were dividing the income and holding the property even prior to the formation of the Company. This position was accepted by the Revenue in the intervening assessment years, when all the partners were sharing the income by appointing some common Manager. It is now well settled that such a circumstances would not necessarily lead to the conclusion that all of them have joined together as an AOP for the purpose of carrying on business. He placed reliance on the decisions in the cases of S. R. Y. Sivaram Prasad Bahadur vs. CIT (1971) 82 ITR 527 (SC), G. Murugasan Bros. vs. CIT 1973 CTR (SC) 279 : (1973) 88 ITR 432 (SC), C. M. Aleemulla Khan vs. Commr. of Agrl. IT (1984) 42 CTR (Kar) 10 : (1984) 148 ITR 696 (Kar), CIT vs. Deghamwala Estates (1980) 14 CTR (Mad) 284 : (1980) 121 ITR 684 (Mad), CIT vs. T.V. Suresh Chandran Ors. 91979) 13 CTR (Ker) 366 : (1980) 121 ITR 985 (ker), Indira Balakrishna vs. CIT. Commr. of Agrl. IT. vs. Raja Ratan Gopal (1966) 59 ITR 728 (SC) and lastly on CIT vs. V. H. Sheth Others (1984) 41 CTR (Bom) 380 : (1984) 148 ITR 169 (Bom). 5. For the Revenue, the ld. Departmental Representative relying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s according to their personal law an never an assessment was made in the status of AOP combining the income of all these co-heirs. In view of this fact the question now is whether it is open to the Department to change that view. Nothing new has happened in this year in the sense that no new fact has come to light nor any evidence. whether on the same set of facts the Department is entitled to change the view is the question. In a case that arose before the Madhya Pradesh High Court, the applicability of the principle of res judicata to income tax proceedings had come up for consideration. There for the asst. yr. 1973-74 the assessee was granted relief under s. 80-J of the IT Act, 1961. Th ITO found that the assessee made substantial expansion by the installation of new plant and machinery and by the construction of a new building in the accounting year relevant to the asst. yr. 1973-74. However, for the asst. yr. 1974-75 and 1975-76, the ITO declined to grant the relief under s. 80J on the ground that the expansion of an existing undertaking did not make it a new undertaking on appeal. The AAC and on further appeal the Tribunal granted relief to the assessee on the ground that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itrary or perverse and certainly there was no fresh material. In order that the principle of finality and certainty in litigation should be protected, the same view taken by the ITO for the earlier years should also have been taken for this year and he should no have deviated without first establishing one or all of the above criteria. This is not as if this is the solitary view expressed by the Madhya Pradesh High Court in the above case but this was also the view taken by the Bombay High Court as well as the Punab and Haryana High Court and also by the Orissa High Court in CIT vs. Belpaher Refractories Ltd. Dealing with this principle of res judicata Justice R. N. Mishra, the Chiuef Justic of Orissa High Court, as he then was speaking, the Court Observed: "We do not think it appropriate to differ from the view expressed on the earlier occasion particularly when it is the same dispute in one and the same setting. It is true that the rule of res judicata in terms does not apply to assessment proceedings, but two exceptions have usually been indicated, namely, an earlier decision on the same question cannot be reopened unless that decision is arbitrary or perverse or arrived at wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring order had endorsed this statement by saying that it was absolutely correct. Thus the members were ad ldem on the question that there were no new facts coming to the knowledge of the ITO. The point made out by the learned Accountant Member was that the ITO had in the earlier years mis-appreciated the law and came to erroneous conclusion and that conclusion he was entitled to rectify in subsequent years. He seemed to be of the opinion that the leading decision of the Supreme Court in the case of Indira Balakrishna was not properly appreciated both by the ITO and the ld. Judicial Member. According to the leaned Accountant Member the principle laid down by the Supreme Court in the case Indira Balakrishna did not apply to the assessee s case. In view of that, the decision reached by the ITO for the earlier must be held to be erroneous. He has not discussed in his order the applicability or otherwise of the rule enunciate by the Madhya Pradesh High Court in CIT vs. Bhilai Engg. Corporation P. Ltd. nor of the Orissa High Court in CIT vs. Belpahar Refractories Ltd. but referred to the Bombay High Court decision in H. A. Shah Company vs. CIT (1956) 30 ITR 618 (Bom) for a different pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be jointed together to assess as an AOP. There is no finding recorded in a categorical way that the co-heirs have come together to join for the common purpose of earning income by carrying on the business of stud farm and on the other hand the Members agreed that no new facts have come to light so that the ITO could deviate from the view taken in the earlier years. The view taken in the earlier year was that the co-heirs should be assessee separately on their respective shares, which means that there was no joining together of togetherness of the purpose of producing income which means that there is no association of these persons to form an AOP whiting the meaning of the IT Act as explained by the Supreme Court in Indira Balkrishna s case. From this point of view there is no coming together of these co-heirs to carry on the business and it could be said that the case is covered by the decision of the Supreme Court in the case of Indira Balkrishna. If there is coming together of these persons to produce income, then also it can be said that the case is covered by the decision of the Supreme Court the case of Indira Balkrishna. If there is coming together is of these persons to p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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