COMMMISSIONER OF INCOME-TAX VS HAR PARSHAD
1991 P T D 94
[Punjab and Haryana High Court (India))
Before Gokal Chand Mital and K.S. Bhalla, JJ
COMMMISSIONER OF INCOME-TAX
Versus
HAR PARSHAD and others
Income-tax Reference No. 74 of 1978, decided on 05/10/1988.
(a) Income-tax---
----Assessment---Notice---Service of notice jointly on four persons---Service of notice on three of them being not valid assessment of the three was also not valid.
(b) Income-tax--
----Association of persons---Condition precedent---Joint action with common purpose of earning income---Joint purchase of land and sale after eight years-- No evidence to show that purchase of land had been made with the intention of re-selling it---Sale of land after division into plots---Joint owners not assessable as association of persons.
The expression "association of persons" 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.
N, T, H and P purchased two pieces of land in 1951. During the financial year ending March 31,1960, relevant to the assessment year 1960-61, the land was sold by the aforesaid persons after dividing it into 12 plots. The Income-tax Officer started proceedings with a view to tax the income from the sale of land and issued a notice under section 148 of the Income-tax Act, 1961, to the aforesaid four persons jointly at their village address treating their status as "association of persons" on February 10, 1969, by registered post. The said notice was received back in the office of the Income-tax Officer on February 21, 1969, indicating refusal. Treating the same as presumptive proof of service and thus satisfaction of condition precedent under the law, in the absence of any return filed by the assessee, the Income-tax Officer made a best judgment assessment under section 144 of the Act on January 31, 1970. The assessment was made in the status of an "association. of persons" and the notice of demand in pursuance thereof was served on H alone. H moved under section 146 of the Act to cancel the assessment which was accepted by the Income-tax Officer. H alone joined the subsequent proceedings for fresh assessment and assessment against the assessee as association of persons was finally made in December, 1974. The Tribunal heldthat the assessment under section 143(3) was not valid as there was no service of notice and that no association of persons had been formed. On a reference:
Held, (i) that the material on record showed that out of the four persons to whom notice was addressed, two, namely, N and P, had expired when the notice was issued and T was in Delhi. The legal heirs of the two deceased were not mentioned in the notice.. The assessment made was valid in so far as it related to H. It was not valid with reference to N, P and T;
(ii) that there was no material to show that the four persons in question, while purchasing the land, formed themselves into an association with the object of producing income. It appeared to be a joint venture of owning property. The land was purchased in May, 1951, and it was sold after more than eight years. The mere fact that it was sold after dividing it into plots did no; mean that at the time of its purchase, the purpose or object was to earn profits. No association of persons had been formed by the four persons in the impugned transaction of purchase and sale of land.
C.I.T. v. Indira Balkrishna (1960) 39 ITR 546 (S C) ref.
Ashok Bhan (Ajay Mittal with him) for the Commissioner.
Nemo for the Assessee.
JUDGMENT
K.S. BHALLA, J.---On an application under section 256(1) of the Income-tax Act, 1961 (hereinafter called "the Act"), by the Commissioner of Income-tax, Haryana and Chandigarh, Rohtak, the Income-tax Appellate Tribunal, Chandigarh Bench, Chandigarh, has referred the following two questions of law to this Court for its opinion:
"(i) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessment made under section 143(3) of the Income-tax Act, 1961, on December 30, 1974, was not a valid assessment as it came to be made without service of notice under section 148?
(ii) If the answer to question No. (i) is in the negative, whether, on the facts and in the circumstances, the Tribunal was right in law in holding that no association of persons was formed by the four persons in question in the impugned transaction of purchase and sale of land?"
Facts giving rise to the present reference, briefly stated, are as under:
Four out of the various partners of the firm, Noop Ram Man Singh, which was carrying on business at Bazar Sirkiwalan, Delhi, namely, Nanak Chand, Tulsi Ram, Har Parshad (all sons of Noop Ram) and Pehlad Dutt, s/o Ramji Lal, all residents of village Gangaichajat, Tehsil Rewari, District Gurgoan, purchased two pieces of land at Rewari on May 18, 1951, measuring 3,700 square yards. During the financial year ending March 31, 1960, relevant to the assessment year 1960-61, that land was sold by the aforesaid persons after dividing it into 12 plots. With a view to tax the income from the sale of land, the Income-tax Officer started proceedings under section 147(a) of the Act and issued a notice under section 148 of the Act to the aforesaid four persons jointly at their village address treating their status as "association of persons" on February 10, 1969, by registered post. The said notice was received back in the office of the Income-tax Officer on February 21, 1969, indicating refusal. Treating the same as presumptive proof of service and thus satisfaction of condition precedent under the law, in the absence of any return filed by the assessee, the Income-tax Officer made a. best judgment assessment under section 144 of the Act on January 31, 1970. .The assessment was made in the status of an "association of persons" and the notice of demand in pursuance thereof was served on August 28, 1970, on Shri Hari Parshad alone as member of the association of persons. Shri Hay Parshad moved an application under section 146 of the Act on September 2, 1970, claiming that 'the assessee did not receive any notice for which reason the assessment made under section 144 should be cancelled and a fresh assessment be made according to law. The contention of Shri Har Parshad found favour with the Income-tax Officer and he, vide his order, dated October 6, 1970, cancelled the assessment under section 144 holding that notice under section 139(2)/14& was not served on the assessee. Shri Har Parshad alone out of the four aforesaid persons or his son. Ishwar Chander, joined the subsequent proceedings for fresh assessment and assessment against the assessee as association of persons was finally made by the Income-tax Officer, Rewari, vide his order, dated December 30, 1974 (Annexure "A"). In the appeal preferred against that order, both the arguments giving rise to the present questions of law were repelled and the findings of the Income-tax Officer were confirmed by the Appellate Assistant Commissioner of Income-tax, Rohtak Range, Rohtak, vide his order dated November 1, 1976 (Annexure "B"). Feeling aggrieved, the assessee preferred an appeal before the Income-tax Appellate Tribunal, Chandigarh Bench, which was allowed holding that no notice under section 148 of the Act was served on the assessee and that no association of persons was formed by the aforesaid four persons in the impugned transactions of purchase and sale of land, vide its order dated March 14, 1978 (Annexure "C"). Thereafter, the Department made a reference application under section 256(1) of the Act resulting in the present reference.
It is clear from the facts placed on the record that only one notice under section 148 of the Act was issued and that was issued in the joint names of all the four persons, at their village address, on February 10, 1969. It was received back with an endorsement of refusal. That could be treated as presumptive proof of service for discharge of condition precedent for proceedings under section 147 (a) of the Act. It has been shown on the record that out of four persons to whom notice was addressed, two, namely, Nanak Chand and Pehlad Dutt, had already expired when that notice was issued and the third. i.e., Tulsi Ram, allegedly was in Delhi curing February, 1969. The factum of stay of Tulsi Ram during February, 1969, in Delhi reaming uncontroverted on the record. It is also not disputed that the names of the legal heirs of the two deceased were never mentioned in the notice. Thus, for obvious reasons, no presumption with regard to service of notice against Sarvshri Nanak Chand, Pehlad Dutt and Tulsi Ram can be raised by any stretch of imagination. Again, the Income-tax Officer, in his order dated October 6, 1970, of .cancellation of assessment under section 146 of the Act, has categorically, found that the notice was not served upon the assessee and thus the presumption, if any, possible against any of the four persons in question, stood rebutted and it is not possible to conclude that the notice in question was served before February 21, 1969. However, filing of return by Shri Har Parshad which could be filed in response to a notice under section 148 which subsisted till it was served and his subsequent association in the proceedings for assessment amounts to acceptance of notice by him before the Income-tax Officer and the notice can well be treated to have been served upon him. The Tribunal was, therefore, not right in law in holding that the assessment made under section 143(3) of the Act on December 30, 1974, which was made on the return filed by Shri Har Pvrshad and in which proceedings he voluntarily associated .himself was not a valid assessment so far as the individual of Shri Har Parshad is concerned. But the same cannot be treated to be binding on the rest of the three persons, Sarvshri Tulsi Ram, Pehlad Dutt and Nanak Chand; on whom no notice under section 148 of the Act was served. Question No. (i) accordingly is answered in the negative, i.e., in favour of the Department to the extent it relates to Shri Har Parshad alone.
The status of the assessee as association of persons for the purpose of the assessment appears to have been wrongly taken. More than two persons can be taken as association of persons for the purposes of assessment only if they join in a common purpose and form an association in earning income, profit or gain. The Department could not collect any material to show that the four persons in question, while purchasing the land, formed themselves into an association with the object to produce income, profits and gains. Rather, it appears to be a joint, venture of owning property. The land was purchased in May, 1951, and it was sold: after more than eight years. The mere fact that it was sold after dividing it into 12 plots does not mean that at the time of its purchase, the purpose or object was to earn profits or gains. Every owner would like to get maximum price for his property, when sold. Even if the land was required to 6e sold against the will of the persons in question under some pressure, because it perhaps was a distress sale to meet the liability and losses of firm, Noop Ram Man Singh, as held by the Tribunal in Annexure "C", they were bound to make an effort to get maximum proceeds at the time of sale. The consideration paid from the books of account of Noop Ram Man Singh was divided equally amongst the four purchasers and a sum of Rs. 9,056.82 was debited to the account of each of the said four persons. Thus, the sequence of events would also show that they were co-owners only and that they had simply made the investment in property and had not formed themselves into any association to earn income.
The above conclusion of ours is reinforced by CIT v-. Indira Balkrishna (1960) 39 1TR 5.1(, (SC), wherein it was held as under (headnote):
"The word `associate' means `to join in common purpose, or to join in an action'. Therefore, `association of persons', as used in section 3 of the Income-tax 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."
By the application of the ratio of the aforesaid judgment of the highest Court of this Republic with regard to the meaning of association of persons as well, the four persons in question could not be treated to have formed themselves into an association of persons to be assessed as such by the Revenue. The Tribunal was thus right n law in holding that no association of persons was formed by the four persons in question in the impugned transactions of purchase and sale of land. Question No. (ii) accordingly is answered in the affirmative, i.e., against the Revenue.
We answer the two referred questions of law as above.
Z.S./780/TQuestions answered accordingly.