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TMI Blog2003 (11) TMI 315X X X X Extracts X X X X X X X X Extracts X X X X ..... by that decision. In other years the facts considered by the Settlement Commission, may be considered by the Assessing Officer/Appellate Authorities and a decision taken independently. This may mean that if it is found that the decision of the Settlement Commission is not there, so far as the relevant years are concerned, then the Assessing Officer/Appellate Authorities are not bound by the decision of the Settlement Commission for some other years. 3. M/s. Alok Nursing Home had claimed the status of Co-ownership by the said Doctor couple and, thus it was claimed that no tax shall be payable by the Nursing Home. Instead, the income of the Nursing Home was shown 50:50 in the hands of the two Doctors named above. The Assessing Officer has relied on the following decisions of the Supreme Court: (i) That the Nursing Home is to be assessed in the status of AOP-CAIT v. Raja Ratan Gopal [1966] 59 ITR 728 (SC) and 224 ITR 648. She has also quoted from these decisions. The CIT(A) in his order has tried to distinguish the facts of the case laws relied upon by the Assessing Officer. 4. There is an inclusive definition of 'Person' in section 2(31). It does not mention 'Ownership' as a 'Pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. Narendra Prasad and Dr. (Mrs.) Leela Prasad at ratio of 50% each. Thereafter the income from M/s. Alok Nursing Home was being assessed in the same way till assessment year 1994-95. For the first time in the assessment year 1995-96 the Department proceeded to take M/s. Alok Nursing Home as a separate taxable entity and treated it as AOP. 5. To go ahead with the asstt. proceedings the Assessing Officer considered the matter in detail and in view of the provisions under section 2(31) of the I.T. Act coupled with the decision of Hon'ble Supreme Court in the case of Meera & Co. v. CIT [1997] 224 ITR 635 and ITO v. Ch. Atchaiah [1996] 218 ITR 239 he was of the view that income earned either by profession or business by more than one person jointly should be brought within the definition of section 2(31) of the I.T. Act as company, firm, AOP or Body of Individuals. According to the Assessing Officer section 2(31) of the I.T. Act does not recognize co-owner as assessable persons or unit. He examined the matter in the light of exact position of facts and finally came to the conclusion that business of M/s. Alok Nursing Home was that of Dr. Narendra Prasad and Dr. (Mrs.) Leela Prasad as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. Narendra Prasad and Dr. (Mrs.) Leela Prasad for the assessment years 1985-86 to 1994-95 have been made under section 143(3) of the I.T. Act. The assessments are respectively compiled at pages 23 to 31 and at pages 32 to 35 of the paper book. In all these assessment years the same method was adopted which the Settlement Commission has defined. Income from M/s. Alok Nursing Home has all along been assessed in the hands of Doctor couple at 50% each. This very fact shows and proves that the revenue Department has never treated Alok Nursing Home as separate entity. It is to be noted that concept of AOP and provision of section 2(31) were very much in existence even at the relevant period when the Settlement Commission passed the order under section 254D(4) of the IT. Act. 8. In fact the ld. CIT(A) has examined the matter in great detail and he has distinguished those decisions on which the Assessing Officer has relied upon. The CIT(A) has primarily found that the Assessing Officer has presupposed that there existed an AOP and has applied those decisions. The finding of the CIT(A), to my mind, appears to be correct. The Assessing Officer has not given the factual aspect or material a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if there exist any AOP so far as it relates to M/s. Alok Nursing Home. It is to be reiterated that for almost one decade or more the income from M/s. Alok Nursing Home has been assessed at the ratio of 50% each in the hands of Dr. Narendra Prasad and Dr. (Mrs.) Leela Prasad. For making any departure the Assessing Officer has to bring some material to show that in fact there exist an AOP but that has not been done. Relating to consistency that is why the Hon'ble Supreme Court in the case of Radha Soami Satsang v. CIT [1992] 193 ITR 321 has said "Strictly speaking, res judicata does not apply to Income-tax proceedings. Though each assessment year being a unit what was decided in one year may not apply in the following year where fundamental aspects per meeting through different assessment years has been found a fact one way or other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year." 11. As said above in the present case also there is no change in the facts in the present years as it has existed before. The Assessing Officer has not given any specific findin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s owned by Dr. Narendra Prasad and Dr. (Mrs.) Leela Prasad in equal proportion and not exclusively by any one of them. The Settlement Commission accepted the claim and directed the assessment of rental income as well as other income in the hands of the two individuals. The assessments for assessment years 1982-83, 1983-84 and 1984-85 were made accordingly on the directions of the Settlement Commission. It is observed from the order of the Settlement Commission that for assessment years 1982-83 and 1983-84, income from the Nursing Home was disclosed only on account of lodging and no other receipts have been shown. However, for assessment year 1984-85, the income has been shown from lodging as well as from other services. For assessment years 1982-83 and 1983-84, the income from lodging has been divided between the two co-owners and assessed accordingly. For assessment year 1984-85, the income from lodging as well from other activities has been divided amongst the two persons in the ratio of 50:50. The husband and wife disclosed the income from the Nursing Home for the subsequent assessment years also in the ratio of 50:50. The Assessing Officer had accepted the returns filed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Nursing Home was owned by husband and wife in equal proportion and that its income was assessable in the individual hands separately in the same ratio. The income of the Nursing Home was never assessed separately in the hands of A.O.P. or any other status. The decision of the Settlement Commission was for assessment years 1982-83 to 1984-85. So, however, the Income-tax Department accepted the decision up to the assessment year 1994-95 and that the income from the Nursing Home has all along been assessed in the hands of the co-owners in the ratio of 50:50. No separate assessment has been made in the name of M/s. Alok Nursing Home. The Department having accepted the claim of the assessee for several years, according to the learned counsel, it was not open to it to take a different view in the assessment year 1995-96 and subsequent years. In this connection reliance was placed on the decision of the Supreme Court in the case of Radha Soami Satsang. Relying upon the said decision it was contended that since there was no change in facts in the year under appeal as compared with the earlier years and since the Income-tax Department has accepted the claim of the assessee that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent in the hands of the individuals has been made on protective basis. The Ld. Departmental Representative contended that the principles of estoppels do not apply in this case in so far as there is no direction by the Settlement Commission for assessment year 1995-96, The order of the Settlement Commission is binding for the assessment years 1982-83 to 1984-85 only. The Revenue has never decided as to whether AOP is assessable or not. This is an omission by the Revenue authorities, So, however, the assessee does not get any legal right to capitulate on the mistakes committed by the department. According to the Ld. Departmental Represent alive, the principles of estoppels do not apply against the statutory provision. It was pointed out that the Nursing Home is being run in an organized manner and the activities are being carried on, on behalf of the two persons who are also co-owners of the building etc. The profits and gains are also distributed amongst the co-owners in equal proportion. The activities of the Nursing Home are not carried on by the husband and wife individually but are being carried on, on their behalf by their employees. Relying upon the decision of the Supreme Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved at the time of her marriage. The investment in the property had been shown at Rs. 4,07,000 up to the assessment year 1984-85 and Rs. 1 lakh has already been agreed to be surrendered towards the real cost of construction from the applicant's resources up to 31-3-1989 in addition to the loans of Rs. 1,49,000 shown initially in the lady's name but now admitted to be the husband's income because of surrender. The ownership of the nursing home and the income therefrom should reasonably be divided between the husband and the wife. Shri Rastogi stated that considering all the aspects of the case, the applicant offered that the net professional income subject to depreciation be calculated as follows: Assessment year Rs. 1982-83 1,72,000 1983-84 2,32,000 1984-85 &nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 3,74,000 --------- The applicant also offered that the income from nursing home and the rental income offered in the computation of Dr. (Mrs.) Leela Prasad up to 31-3-1984 be taxed in equal proportions in the hands of the applicant and his wife." In para-8 of the order, the Settlement Commission held as under:- "8. As a result, the net professional income of the applicant should be taken subject to depreciation at Rs. 1,72,000, Rs. 2,32,000 and Rs. 2,70,000 respectively for the assessment years 1982-83, 1983-84 and 1984-85. As regards ownership of the nursing home we accept that both the husband and the wife own the same in equal proportions and, therefore, the rental income and the other income shown from nursing home in these three assessment years would be taxed in equal proportions in the hands of the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the status of A.O.P. for the first time. The issue that assumes importance in this case is as to whether the Assessing Officer had any material in his possession on the basis of which he could have reasons to believe that the income in the hands of the Association of Persons had escaped assessment. In this connection, it would be necessary to consider as to whether the running of the Nursing Home, viz Alok Nursing Home by the two individuals can be said to be an Association of Persons. Dr. (Mrs.) Leela Prasad claims that she is not actively involved in the running of the Nursing Home. Dr. Narendra Prasad also claims that he is providing professional services to the Nursing Home for which he is remunerated. In order to decide this issue it will be relevant to refer the statement of accounts of Alok Nursing Home which forms part of the record. For assessment year 1995-96, i.e. as on 31-3-1995, the balance sheet of the Nursing Home is reproduced hereunder:- ALOK NURSING HOME Balance Sheet as at 31st March, 1995 --------------------------------------------------------------------- Capital & Liabilities &nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; ------------ Properties and Assets Fixed Assets 'E' 1,796,938.00 Current Assets, loans & advances 'F' 474,356.61 ------------ &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; 22,172.30 47,172.30 --------- ------------- Total... 4,191,617.30 Expenditure Bank Interest and Charges 82,224.74 Depreciation & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal Account as on 31st March, 1995 ----------------------------------------------------------------------------- Particulars Dr. Narendra Dr. Leela Total Prasad Prasad ----------------------------------------------------------------------------- Opening Balance as on 1-4-1994 218,554.78 617,235.34 835,790.12 Professional fee credited 180,000.00 0.00 180,000.00 Profit for the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sad has acted as Chief Consultant of the Nursing Home and for rendering his services to the Nursing Home, a separate fee of Rs. 1,80,000 has been paid to him. This amount is deducted in working out the profit derived on account of running of the Nursing Home. On these facts whether the association of persons exists or not, it will be necessary to consider some of the relevant decisions which may be helpful in deciding the issue. 11. An Association of Persons, as the name suggests, 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 tax on income, the association must be one the object of which is to produce income, profits or gains. This was held by their Lordships of the Supreme Court in the case of CIT v. Indira Balkrishna [l960] 39 ITR 546. In the case of G. Murugesan & Bros. v. CIT [1973] 88 ITR 432 (SC), their Lordships of the Supreme Court held that when two or more individuals voluntarily combine together for a certain purpose, it gives rise to an association of persons. In the case of N. V. Shanmugham & Co. v. CIT [1971] 81 ITR 310 (SC), their Lordships of the Supreme Court held that the word ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ships further held - "Liability to tax depends upon the earning of profits by a unit and not upon the ultimate division of the profits." 12. In the case of Mohamed Noorullah v. CIT [1961] 42 ITR 115 (SC), one Oomer Sahib used to carry on business of manufacture and sale of Spade Clover brand beedies. After his death his minor son and his widow and four children by her who were all minors at the date of the death of Oomer Sahib, carried on the business. Noorullah through his next friend applied to sue in forma pauperis and during the pendency of those proceedings, two Advocates of the High Court were appointed joint receivers of the properties of the deceased on March 17,1943. On May 10,1943, the widow of the deceased filed a suit for partition and also applied for the continuance of the joint receivers. The receivers as per the court order continued the business as before. In due course a preliminary decree for partition was passed. The question that came up for consideration of the Hon'ble Supreme Court was the status in which the income of the business was to be taxed. Their Lordships held that the income was the income of a business which was carried on as a single business by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been carried on, on behalf of the joint owners in an organized manner which constitutes a joint business. Since Dr. Narendra Prasad and his wife Dr. (Mrs.) Leela Prasad are established to have joined together for a common cause, i.e., earning of profits and gains from running of the Nursing Home, it gives birth to an association of persons within the meaning of section 4 of the Act. Thus, in my considered view, there exists an association of persons, which is a separate assessable entity under the provisions of the Income-tax Act, 1961. 15. Now I proceed to consider as to whether the Assessing Officer had the option to assess only the individual members in respect of the respective shares they received from the association of persons instead of assessing the association of persons. In this connection, reference to section 4 of the I.T. Act, 1961 would be relevant. It reads as under:- "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 (including provisions for the levy of additional income-tax) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therein. As a result thereof, an assessment could well be made on the registered firm even after the individual partners had been assessed on their respective share income. Similarly under the Income-tax Act, 1961, the option of assessing either AOP or its members under the Income-tax Act, 1922 is not available to the Assessing Officer. The position of law relating to the option available to the Assessing Officer of assessing, either the association of persons or the individual members, was explained by their Lordships of the Supreme Court in the case of Ch. Atchaiah, wherein the distinction between the provisions of 1922 Act and the provisions under 1961 Act is explained. It has been held by their Lordships that under the 1961 Act even in the case of collective entities, the ITO has no option to assess either such entity itself or its individual constituents. Thus, it is abundantly clear that the association of persons being recognized as an entity in itself is separately assessable to tax hors the assessment of the individual members. As per the scheme under the 1961 Act, the individuals, HUF's shareholders of companies or others being partners of a firm or members of an associa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um marginal rate, tax shall be charged on that portion or portions of the total income of the association or body 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 the association or body shall be taxed at the maximum marginal rate. Explanation.-For the purposes of this section, the individual shares of the members of an association of persons or body of individuals in the whole or any part of the income of such association or body shall be deemed to be indeterminate or unknown if such shares (in relation to the whole or any part of such income) are indeterminate or unknown on the date of formation of such association or body or at any time thereafter." 18. It is evident from the language of section 167B quoted above that the Legislature has ensured levy of tax on association of persons at maximum rate under various circumstances. It thus becomes evident that the Legislature has treated an association of persons as a separate assessable entity de hors the members of the association of persons. The association of persons being a separate assessable entity is obliged to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r assessment of A.O.P. This issue is also more or less covered by the decision of the Supreme Court in the case of Ch. Atchaiah, referred to above, insofar as the Settlement Commission did not consider the assessability of the association of persons as such. The order of the Settlement Commission, which relates to assessment years 1982-83 to 1984-85 only, provides for assessment of the individual members, but it does not specifically debar the assessment of association of persons. Therefore, the order of the Settlement Commission does not come in the way of the assessment of the association of persons as such even for the assessment years 1982-83 to 1984-85. Moreover, in subsequent years, i.e., after 1984-85, there is neither any order of the Settlement Commission nor any order of the Assessing Officer to the effect that the association of persons does not exist. The fact of the matter is that the income of the Nursing Home has been assessed in the individual hands in the ratio of 50:50. As held by the Hon'ble Supreme Court in the case of Ch. Atchaiah, even the assessment in the same assessment year in the hands of individual members will not debar the Assessing Officer to assess t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im of the assessee that the Revenue was estoppel from assessing the A.O.P. is thus devoid of any merit. It, therefore, concur with the view of the Ld. Accountant Member and hold that the assessment on the association of persons made by the Assessing Officer on the disclosed income is perfectly in order and in accordance with law and no interference is warranted. The decision of the Commissioner of Income-tax (Appeals) is contrary to law and the facts on record. The same deserves to be set aside and the order of the Assessing Officer deserves to be restored. I hold accordingly. 24. As far as the assessments of Dr. Narendra Prasad and his wife Dr. (Mrs.) Leela Prasad are concerned, the same are required to be modified as the mere declaration of income by the individual members in their assessments does not bind them to be assessed in respect of that income, which is found to be assessable in the hands of the association of persons. The share income of the members has got to be treated for the purpose of taxation in their respective assessments in accordance with provisions of section 67A and other provisions of law and the Assessing Officer shall have to give consequential effect in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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