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TMI Blog1977 (12) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... and terylene cloth on wholesale basis. For the year 1967-68 (accounting period ending on 18th June, 1966) the assessee filed a return of income along with Form No. 12 seeking continuation of registration under s. 184(7) of the Income-tax Act, 1961 (herein called " the 1961 Act ") as it had earlier applied for registration in Form No. 11 along with the return filed for the assessment year 1966-67. Since the application of the assessee for registration had been rejected by the ITO while passing orders on the return filed by it for the year 1966-67, the ITO by his order dated 24th March, 1972, filed the Form No. 12 and proceeded to assess the assessee under s. 143(2) of the 1961 Act. The assessee feeling aggrieved by the aforesaid order of the ITO filed appeals before the AAC both against the quantum order passed by the ITO and his refusal to register the firm. The present case pertains to the rejection of the assessee's application for registration. At the time the assessee filed the return for the present assessment year (1967-68) it showed the status of the assessee as a firm and the assessee claimed that at that time its claim for registration under s. 185 of the 1961 Act for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee for registration in respect of the assessment year 1966-67 had upheld the contention of the department that the firm was not a genuine one and in so concluding it took into consideration the declaration made by the assessee-firm to the bank and other circumstances of the case which pointed to the fact that the assessee was not a genuine firm as contemplated in the instrument of partnership dated 12th February, 1965. Before the AAC the assessee, however, contended that the principles of res judicata did not apply in the matter and the question be considered afresh. The assessee also filed two affidavits dated 4th September, 1972, by Lachhu Mal and Shanti Sarup Jain before the AAC. Lachhu Mal in his affidavit stated that he was a partner in the firm, Jagan Nath Lachhu Mal, which firm supplied goods on credit to the assessee and for that reason he got his name inserted for the operation of the bank account of the assessee to safeguard the interests of the firm, Jagan Nath Lachhu Mal, and the interests of his son's wife, Krishna Devi. Shanti Sarup in his affidavit stated that he gave his name to operate the bank account of the assessee to safeguard the interests of his wife, Pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the affairs of the partnership. Besides, it was found that there were no substantial withdrawals except in the account of Ram Avtar Gupta. In examining the genesis of the assessee's business, the Tribunal found that it was started some time in December, 1964, when, according to the Tribunal, the parties apparently had not decided as to who should carry on the business and that in January, 1965, the thinking appeared to be that the business should be claimed as being carried on in partnership by Lachhu Mal Jain, Shanti Sarup Jain and Ram Avtar Gupta but much later an instrument of partnership was drawn up giving an entirely different constitution of the firm. Holding that the onus lay on the assessee to establish that there was a partnership amongst the four different persons mentioned in the partnership deed, the Tribunal held that the onus had not been discharged by the assessee. The Tribunal found that the facts and circumstances relating to the assessee's claim for registration for the assessment year under appeal were substantially similar to the facts and circumstances pertaining to the assessment year 1966-67 and that the basis on which the registration or continuation of r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis, i.e., the partnership deed dated 12th February, 1965, on which registration was claimed for the assessment year 1966-67 and the facts being identical for the subsequent assessment years with that of the previous assessment year 1966-67, the Tribunal asked the assessee's learned counsel to point out distinguishing features or fresh facts which, according to him, showed that such firm existed and was genuine. To this the learned counsel for the assessee pointed out that in the subsequent assessment years 1967-68, 1968-69 and 1969-70, the assessee has been shown as an association of persons which showed that the members of the association of persons had joined hands for a common purpose for carrying on the business of wholesale in cloth in the name and style of M/s. Punjab Cloth Stores. It was further pointed out that though for the assessment year 1966-67, the ITO had treated the assessee as a dummy of Jagan Nath Lachhu Mal, the finding of the ITO assigning the status of association of persons to the assessee for the subsequent assessment year was inconsistent. The Tribunal dealing with the said contention observed that, though the ITO's finding treating the assessee as dummy of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... again having considered the same in Income-tax Case No. 183 of 1975. For the same reasons we dismiss these income-tax cases, leaving the parties to bear their own costs. We now proceed to deal with the Income-tax References Nos. 219 to 221 of 1975. The ITO, vide his order dated 24th March, 1972 (annex. P-4), assessed the petitioner as an association of persons and after arriving at the taxable income of the assessee indicated the share allocation for rate purposes in respect of the various members of the assessee. In appeal before the AAC, the assessee made a grievance of the adoption of the status of association of persons by the ITO. The AAC, relying on the earlier order of the Tribunal in respect of the assessee's assessment for the year 1966-67, wherein taking note of the following factors, namely, that the constitution of the firm as per deed of partnership was different from the constitution informed to the bank ; that examination of the alleged partners showed that they were not fully conversant with the affairs of the firm and that there were no substantial withdrawals in the accounts of partners other than Ram Avtar, and, in view of the findings of the Tribunal that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f tax, besides allowing some deduction which aspects need not be noted as they are not relevant for the disposal of the present references. The assessee feeling aggrieved by the order of the AAC, challenged the same in appeal before the Tribunal. Before the Tribunal the contentions raised before the AAC were repeated. It was urged that the members of the so-called association of persons having been assessed as partners in respect of their shares from the firm, it was not open to the ITO to treat the firm as association of persons. Relying on the decision of the Rajasthan High Court in CIT v. Chaganlal Durga Prasad [1968] 70 ITR 314, it was submitted that the ITO, on the facts and circumstances of the case, was bound to treat the assessee as a registered firm. Further, the distinction drawn by the AAC between the provision of s. 3 of the Indian Income-tax Act, 1922 (herein called " the 1922 Act "), and s. 4 of the 1961 Act was unrealistic and uncalled for, and that if the same income was assessed both in the hands of the assessee and its members, it would amount to double taxation causing great hardship in that the assessee would not be able to get any relief under s. 86 of the 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t refusal to register the firm or continuation of registration and the other three appeals relating to assessment years 1967-68, 1968-69 and 1969-70 were disposed of jointly by the Tribunal by a single judgment dated 15th July, 1974, copy annex. " H ", at page 33 of the paper book pertaining to Income-tax References Nos. 219 to 221 of 1975. The assessee filed reference application in all the three quantum appeals praying that certain questions said to be questions of law that arise out of the above-said consolidated order of the Tribunal passed on 15th July, 1974, be referred to the High Court along with the statement of the case. On a consideration of the facts of the case, the Tribunal by its order dated 29th May, 1975, felt that the following common question of law arises in respect of the three quantum appeals : " Whether the Tribunal was justified in upholding the status of AOP adopted by the Income-tax Officer in assessing the assessee even though the, members of the AOP had been assessed separately in respect of their share income for the assessment years 1967-68, 1968-69 and 1969-70 ? " The Tribunal, accordingly, drawing up the statement of the case, has referred the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stood earlier under the provisions of s. 3 of the 1922 Act. That being so, it was vehemently contended, members of the assessee having been already assessed in respect of the share income from the firm, the ITO was not competent again to proceed to assess the firm itself. This argument was sought to be reinforced on the basis of India Army and Police Equipment Factory v. CIT [1970] 75 ITR 693 (All), CIT v. Murlidhar Jhawar and Purna Ginning and Pressing Factory [1966] 60 ITR 95 (SC), CIT v. P. P. Johny [1969] 73 ITR 459 (Ker), Girdhari Lal Laxman Prasad v. CIT [1968] 70 ITR 853 (All), CIT v. Kanpur Coal Syndicate [1964] 53 ITR 225 (SC) Hari Om Company v. CIT [1969] 71 ITR 584 (All) and Joti Prasad Agarwal v. ITO [1959] 37 ITR 107 (All). It need hardly be emphasised that the cases relied upon by the learned counsel for the assessee referred to above, deal with the provision and ambit of s. 3 of the 1922 Act. The said section reads as under : " 3. Charge of income-tax.--Where any Central Act enacts that income-tax shall be charged for any year at any rate or rates, tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 1961 Act defines the word "person" and reads as under " ' Person ' includes-- (i) an individual, (ii) a Hindu undivided family, (iii) a company, (iv) a firm, (v) an association of persons or a body of individuals, whether incorporated or not, (vi) a local authority, and (vii) every artificial juridical person, not falling within any of the preceding sub-clauses. " This section only gives the definition of the word " person " which, among others, besides an individual, includes an association of persons or body of individuals whether incorporated or not, but does not envisage on whom the income-tax shall be leviable. Relevant provision of s. 4, which is the charging section in the 1961 Act, 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the preceding sub-sections. However, under s. 3 of the 1922 Act, it was observed, instead of stating that the tax shall be charged on every person, the categories of assessees were enumerated in the section itself and one of the categories was an association of persons, but under the 1961 Act instead of enumerating the categories in the body of the section, it is stated that income-tax will be charged on every person and in the definition of " person " in s. 2(31) the various categories of persons are enumerated. This change in the wording of s. 4 of the 1961 Act, it was held, does not affect the legal position and that all the decisions under the 1922 Act were applicable under the 1961 Act. In the premises, the principle enumerated by the Supreme Court in Murlidhar Jhawar's case [1966] 60 ITR 95 (SC) was held to hold good even under the 1961 Act. With great respect to the learned judges who decided Ch. Atchaiah's case [1979] 116 ITR 675 (AP) we expressed our inability to subscribe to the view taken in the above noted case. There can be no denying the fact that s. 4(l) of the 1961 Act is the charging section. The said section, in terms, enjoins on an ITO to levy tax in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ividual parties to the joint venture, and he having exercised that option it was not open to him thereafter to reassess the same income collectively in the hands of the three parties to the joint venture in the status of an unregistered firm. On the asking of the revenue the Tribunal submitted a statement of the case referring the question as to whether, on the facts and the circumstances of the case, the assessment of the unregistered firm was proper and legal, despite the partners of the partnership having been assessed in respect of their shares of income from the partnership business. The High Court recorded an answer in the negative. With certificate granted by the High Court the revenue preferred an appeal to the Supreme Court. Dealing with the question the Supreme Court, following its earlier decision in CIT v. Kanpur Coal Syndicate [1964] 53 ITR 225, wherein it was observed that s. 3 of the Indian I.T. Act, 1922, expressly treats " an association of persons and the individual members of an association " as two distinct and different assessable entities and that on the terms of the section " the tax can be levied on either of the said two entities according to the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the court observed that the ITO had the option in the case of an unregistered firm either to tax the total income in the hands of the firm, treating it as a separate entity, or to tax the share income in the hands of the partners but he could not do both in that neither the charging s. 4 nor any other provision of the 1961 Act empowered him to do so. The above case dealt with an entirely different question and is of no assistance to the petitioner. It pertained to the assessment of an unregistered firm which was a genuine one but, in the instant references, the assessee firm is not a genuine firm. The grievance of the assessee on the facts and the circumstances of the case is wholly misconceived. We are in agreement with the view taken by the Tribunal. Relief in respect of avoiding double taxation in the case of the individual members of the assessee can be had by recourse to the provisions of s. 155 of the 1961 Act. On computation of the income of the assessee as an association of persons, the assessment of its members can be rectified under the above-said section. In view of our discussion on the various points noted above, we answer the question referred in the affirmati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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