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TMI Blog1963 (11) TMI 77X X X X Extracts X X X X X X X X Extracts X X X X ..... eeks to assess an association of persons or the members of such an association individually. We shall briefly refer to the facts leading up to these petitions. The petitioner was treated as the principal officer of the association of persons described as Messrs. M.M. Ipoh, and the Income-tax Officer, Karaikudi, assessed him in such capacity. There was a Hindu undivided family with the name and vilasam M.S.M.M. consisting of the father Meyyappa, and his two minor sons, Chockalinga and Meyyappa. The family carried on business in money-lending, purchase and sale of rubber gardens in the Malay States, Burma and India. Besides the exclusive business carried on by the family, it was also a partner in another business. A partition was effected among the members of the family by a deed dated April 5, 1940, with effect from February 22, 1940. The sons were minors on that date and were represented by their mother as guardian. Two of the businesses owned by the family referred to as the Karaikudi and the Rangoon business were allotted to the share of the father, Meyyappa. In addition, the father also took three rubber estates and three house properties. The other businesses were divid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d held that in 1951-52 Meyyappa and his minor son, Chettiappa, were members of an association of persons, and that, for the remaining assessment years, these two persons and the firm of M.S.M.M. were the members of such an association. Assessments were made accordingly. There were appeals to the Appellate Assistant Commissioner, in which Meyyappa raised the same objections. The appeals failed, but the appellate authority, however, directed that the rental income from properties should be assessed in the hands of the several owners, instead of an assessment on Meyyappa as the principal officer. Meyyappa went up by way of further appeals to the Appellate Tribunal, but was again unsuccessful. Proceedings under section 66(1) of the Income-tax Act resulted in the following question being referred to this court: Whether the assessments on the 'association of persons' for the assessment years 1951-52 to 1956-57 are valid? That formed the subject-matter of the reference in T.C. No. 201 of 1960 (Reference No. 92 of 1960) M.M. Ipoh v. Commissioner of Income-tax [1962] 46 I.T.R. 301. It was contended on behalf of Meyyappa in this court that the assessment in respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and appropriate in the circumstances, to restrain the Income-tax Officer, Karaikudi, from enforcing the collection of the tax in respect of Meyyappan who is now dead and his son Chettiappan who has been impleaded as his legal representative. The single question that arises is: Whether section 3 of the Indian Income-tax Act, providing for taxation of 'association of persons' as an entity or, in the alternative, of the members of that association, offends article 14 of the Constitution? Before dealing with this question, we should refer to an argument raised by the learned Advocate-General appearing for the department, which is almost in the nature of a preliminary objection regarding the maintainability of these petitions. In short, the contention is that this court had upheld the validity of the assessments for the years 1952-53 to 1956-57 in T.C. No. 201 of 1960* and that, therefore, the petitioners cannot reagitate the same question in a different form or on different grounds. The simple question is, whether the unsuccessful challenge of the validity of the assessments in the earlier references before us operates as a bar to the present writ procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore decline to deal with it. What then is the effect of the prior decision, which upheld the validity of the assessment on the petitioner in respect of the years 1952-53 to 1956-57 on him in his capacity as the principal officer of M.M. Ipoh? We have already pointed out that the constitutional validity did not arise for decision at that stage. This court then exercised its powers under section 66 of the Indian Income-tax Act. It is needless to point out that the jurisdiction under that provision is limited to answering the questions referred. Only the question that arises out of the order of the Tribunal can come within the scope of section 66. The assessment cannot, of course, raise the question, before the department or the Tribunal, of the vires of any of the provisions of the Indian Income-tax Act, either on the ground that the legislature was not competent to enact the measure or on the ground that it offended the fundamental rights guaranteed under the Constitution. The reason is simple, because neither the department nor the Tribunal can give relief to the assessee holding that the impugned provision is in any way bad in law. If such a contention were to be raised, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regards the scope of section 67 of the Indian Income-tax Act. A joint stock company was incorporated in the Isle of Man and had its main office in England. It held shares in nine companies carrying on business in British India. All the dividends received by the company from the nine companies were declared, paid and received in England; No part of them was ever remitted to British India. The company was assessed in respect of income-tax and super-tax for the assessment year 1939-40 as a non-resident on an income which included the dividends received from the nine companies. The tax was paid under protest, and a suit was instituted by the company in the High Court of Calcutta in its ordinary original civil jurisdiction, praying for a declaration that, in so far as Explanation 3 and the other provisions of section 4 of the Indian Income-tax Act, 1922, as amended in 1939, purported to authorise the assessment and charging to tax of a non-resident in respect of dividends declared or paid outside British India, but not brought into British India, those provisions were ultra vires the legislative powers of the federal legislature, and that the assessment was illegal and wrongful. An inj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct' The phrase describes the provenance of the assessment: it does not relate to its accuracy in point of law. The use of the machinery provided by the Act, not the result of that use, is the test. It is now a well-accepted rule of law that where rights are created under a statute, and the statute itself prescribes or erects a special machinery to adjudicate upon such rights, the jurisdiction of the normal forum of the land is taken away by necessary implication. Their Lordships of the Judicial Committee had apparently this principle in mind, when they laid emphasis on the fact that questions relating to assessment, whatever be their nature and character, could be solved with the help and assistance of the hierarchy of tribunals constituted under the Act. We must confess, with great respect to the Judicial Committee, our difficulty in appreciating this point of view as regards cases where the assessee impugns, as ultra vires and unconstitutional, the very Act, which the assessing authorities are compelled to administer. The authority of Raleigh Investment Company's case 1951] S.C.R. 1; 19 I.T.R. 132, however, seems to be shaken and whittled down by the decision of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ship Gajendragadkar J. The following observation of his Lordship really gives an inkling of his view as regards Raleigh's case [1947] 15 I.T.R. 332 (P.C.): It is true that the judgment shows that the Privy Council took the view that even the constitutional validity of the taxing provision can be challenged by adopting the procedure prescribed by the Income-tax Act; and this assumption presumably proceeded on the basis that if an assessee wants to challenge the vires of the taxing provision on which an assessment is purported to be made against him, it would be open to him to raise that point before the taxing authority and take it for a decision before the High Court under section 66(1) of the Act. It is not necessary for us to consider whether this assumption is well founded or not. In the present case, we can steer clear of the principle laid down in Raleigh's case [1963] 50 I.T.R. 93, 100 (S.C.), even if it were to be taken to have laid down the law correctly on the subject as we are not now dealing with the maintainability of a suit as contemplated under section 67 of the Act. These are proceedings under article 226 of the Constitution, and it can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitions filed under article 32 or article 226. It is necessary to emphasise that the application of the doctrine of res judicata to the petitions filed under article 32 does not in any way impair or affect the content of the fundamental rights guaranteed to the citizens of India. Referring to the doctrine of constructive res judicata, his Lordship stated thus: The grounds now urged are entirely distinct and so the decision of the High Court can be upheld only if the principle of constructive res judicata can be said to apply to writ petitions filed under article 32 or article 226. In our opinion, constructive res judicata which is a special and artificial form of res judicata enacted by section 11 of the Civil Procedure Code should not generally be applied to writ petitions filed under article 32 or article 226. We would be reluctant to apply this principle to the present appeals all the more because we are dealing with cases where the impugned tax liability is for different years.........Therefore, we are inclined to hold that the appellants cannot be precluded from raising the new contentions on which their challenge against the validity of the notices is bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ociation individually violates the equality clause, because the taxing authorities are vested with the power to tax an association of persons or the members of the association individually according to their whim and caprice. It is said that the authorities are put in a position to pick and choose as amongst the associations or persons and subject one association to tax as an association, and subject the members of another association individually without treating them together as an entity. In other words, the vice of this part of section 3 is, according to the learned counsel for the petitioner, that the department is clothed with unguided and uncontrolled powers, which they can successfully use to discriminate between associations similarly situated. The argument is developed thus. Though the rate of tax on the income of the individual and association of persons is the same, inequality might result, if the assessing authorities were to choose to tax the association rather than the individual. The following illustration is given in paragraph 5 of the affidavit in support of the petitions: For example when an association of persons consisting of 10 members is assessed as such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before us is not whether the constitution of such a group is unconstitutional, but whether the liberty given to the department to assess an association or its members is so large and so bereft of any principle as to attract the mischief of article 14. We do not think that the mere fact that the department can treat the principal officer as the representatives of the association would amount to any discrimination, as suggested by the learned counsel for the petitioner. Principal Officer is defined in section 2(12) of the Act and it reads: 'Principle Officer,' used with reference to a local authority or a company or any other public body or any association, means-- (a) the secretary, treasurer, manager or agent of the authority, company, body or association, or (b) any person connected with the authority, company, body or association upon whom the Income-tax Officer has served a notice of his intention of treating him as the principal officer thereof. An association of persons may consist of members who hail from different parts of the country. It would be very difficult for the department to get at these members individually, and complica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the association is not assessable but the individuals are. The constitutionality of the provision is of course to be judged not by the averments in the counter affidavit but on a proper construction of the statute itself. In Jyothi Pershad v. Union Territory of Delhi A.I.R. 1961 S.C. 1602, 1608, the following principles governing the applicability of article 14 of the Constitution to any piece of legislation are laid down: (1) The enactment or the rule might not in terms enact a discriminatory rule of law but might enable an unequal or discriminatory treatment to be accorded to persons or things similarly situated. This would happen when the legislature vests a discretion in an authority......by a legislation which does not lay down any policy or disclose any tangible or intelligible purpose, thus clothing the authority with unguided and arbitrary powers enabling it to discriminate.... (2) In such circumstances the very provision of the law which enables or permits the authority to discriminate, offends the guarantee of equal protection afforded by article 14..... (3) It is manifest that the above rule would not apply to cases where the legisl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other factors. We have not so far heard it contended that the provisions of the Indian Penal Code offend article 14 of the Constitution. The standard to be followed by an authority in the matter of exercise of discretion may either be expressly found within the four corners of the statute, or may be gleaned from the underlying policy of the Act. If we are satisfied that, in the scheme of Indian Income-tax Act, the department has not been clothed with the powers of taxing an association or the individual members in a naked arbitrary fashion, we must uphold it as being constitutional. It seems to us that, properly understood, the charging section does not confer any despotic power on the department to treat associations differently and tax with unequal hands or to adopt one mode or the other governed only by its will. There is sufficient indication in the scheme, design and policy of the Act to fetter free and unbridled taxing power. We are, therefore, of opinion that the challenge on the Act is unsustainable. In the result, these writ petitions fail and are dismissed. The rule nisi is discharged. The petitioner will pay the costs of the department in W.P. No. 1374 of 1961. Counse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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