(a) Income-tax---

----Charge of tax---Difference between Act of 1922 and Act of 1961---Law applicable to assessment---Under Act of 1961 Assessing Authority must tax right person---No option to tax either a body of individuals or its members individually---Indian Income-tax Act, 1922, S.3---Indian Income Tax Act, 1961, S.4.

(b) Income-tax--

----Charge of tax---Body of individuals---Members of body of individuals assessed to tax individually---Subsequent submission of return in the status of body of individuals---Tribunal directed to determine right person to be assessed---Indian Income Tax Act, 1961, S.4.

Under the Income Tax Act, 1961, the Income-tax Officer has no option like the one he had under the 1922 Act and, therefore, the Assessing Authority must tax the right person and the right person alone. By right person is meant, the person fable to be taxed, according to law, with respect to a particular income. The expression "wrong person". is obviously used as the opposite of the expression "right person". Merely because a wrong person is taxed with respect to a particular income, the Assessing Officer is not precluded from taxing the right person with respect to that income.

The assessee was a proprietary concern of one S. He passed away in 1978. His legal representatives continued the business. The legal representatives of the late S seven in number, had other incomes also. Six of the said legal representatives filed individual returns for the assessment year 1979-80, wherein they included the share of income received from the business. The Income-tax Officer had completed their individual assessments and tax due thereon had also been collected. The seventh legal heir had also been assessed on her income, which did not include the share income from this business. Notwithstanding the fact that the income received by the legal heirs, six in number out of seven, had been separately assessed in the hands of the individuals, these seven persons jointly as a unit-body of individuals filed a return of income for the assessment year 1979-80 declaring a total income of Rs.1,04,490. The Income-tax Officer before whom this return was filed, without noticing the fact that the same income had already been assessed at the hands of the legal heirs, completed the assessment in the status of body of individuals and accepted the said return. The Appellate Authority held that the assessment of the body of individuals was unsustainable. The Tribunal took the view that the Appellate Authority was in error in canceling the assessment of the body of individuals. On a reference:

Held, that the Assessing Authority had assessed the concern as a body of individuals only because the assessee had filed the return in the status of body of individuals. The Assessing Authority could not and did not consider the question as to whether the earlier assessment of the share income of the concern at the hands of the individuals was made on the wrong person or as to who the right person was to be assessed in respect of the income which had been returned. The first Appellate Authority also did not consider the real issue nor was it considered by the Tribunal. The Tribunal ought to have addressed the question as to whether the earlier assessments made on the individuals were on the "wrong person" for, only if it is found that the earlier assessments were made on the "wrong person" the Assessing Authority will be clothed with the authority to make the assessment on the body of individuals.

ITO v. Ch. Atchaiah (1996) 218 IT'R 239 (SC) fol.

Atchaiah (Ch.) v. ITO (1979) 116 ITR 675 (AP); CIT v. B.R. Constructions (1993) 202 ITR 222 (AP); CIT v. C. Ratan & Co. and S.N. Agarwalla (1981) 128 ITR 39 (Cal.); CIT v. Chandrasekaran (K.) (1990) 182 ITR 392 (Mad.); CIT v. Sheth (V.H.) (1984) 148 ITR 169 (Bom.); CIT v. Shiv Sagar Estates (AOP) (1993) 201 ITR 953 (Bom.); ITO v. Bachu Lal Kapoor (1966) 60 ITR 74 (SC); Mahendra Kumar Agrawalla v. ITO (1976) 103 ITR 688 (Pat.); Punjab Cloth Stores v. CIT (1980) 121 ITR 604 (Delhi); Radhakrishnan (S.) v. ITO (1985) 156 ITR 538 (Mad.); Rodamal Lalchand v. CIT (1977) 109 ITR 7 (P & H) and Venkatakrishna Rice Co. v. CIT (1987) 163 ITR 129 (Mad.) ref.

P.R. Raman for the Assessee.

P.K.R. Menon, Senior Advocate and N.R.K, Nair for the Commissioner.

JUDGMENT

G. SIVARAJAN, J.---In this case, the Income-tax Appellate Tribunal, Cochin Bench, under section 256(1) of the Income Tax Act, 1961, at the instance of the assessee, referred three questions of law for decision of this Court. The short facts necessary for adjudication of the said questions are as follows:

The assessment year concerned is 1979-80, the relevant accounting period ended on January 14, 1979. The assessee, Neela Productions, Tivandrum, was a proprietary concern of one, Sri P. Subramoniam. He passed away on October 4, 1978. The legal representatives of the late, Sri P. Subramoniam continued the said business from October 4, 1978 to January 14, 1979. The income derived from the conduct of the said business by the legal heirs of the late P. Subramoniam is the subject-matter of this case.

The legal representatives of the late P. Subramoniam, seven in number, were having other incomes also. Six of the said legal representatives filed individual returns for the assessment year 1979-80, wherein they included the share of income received from the business, Neela Productions, for the period October 4, 1978 to January 14, 1979. It is also a fact that the Income-tax Officer, Central Circle, Trivandrum, had completed their individual assessments and tax due thereon has also been collected from them. Regarding the seventh legal heir, Smt. C. Meenakshi Amma, she has also been assessed on an income of about Rs.18,000 which did not include the share income from this business.

Notwithstanding the fact that the income received by the legal heirs, six in number out of seven, had been separately assessed in the hands of the individuals, these seven persons jointly as a unit-body of individuals filed a return of income for the assessment year 1979-80 declaring a total income of Rs.1,04,490. The Income-tax Officer before whom this return was filed, without noticing the fact that the same income had already been assessed at the hands of the legal heirs, completed the assessment in the status of body of individuals and accepted the said return.

The assessee thereafter filed an appeal against the said assessment and contended that there is no justification for making an assessment on the body of individuals because the same income had already been assessed in the hands of the individuals who constitute the various members of the body of individuals. The relevant assessment orders on the individuals were also produced before the appellate authority. The Appellate Assistant Commissioner relying on the decision of the Madras High Court in the case of S. Radhakrishnan v. ITO (1985) 156 ITR 538 in C.R Ps. Nos. 129 to 131 of 1980 to the effect that once the Income-tax Officer chooses to assess the members individually, it is not open to him to assess the association of persons or unregistered firm as a unit once again and also taking note of the factual situation that the tax collected pursuant to the individual assessment appears to be higher than the tax payable by the body of individuals as a unit, held that the assessment order, dated February 15, 1982, on the body of individuals is unsustainable. Accordingly, he annulled the said assessment order. The Appellate Assistant Commissioner also directed the Income-tax Officer to take steps to rectify the assessments of the various members because the share includible in the hands of the various members would appear to be higher than what has, already been included.

Aggrieved by the appellate order of the Commissioner of Income tax (Appeals), Ernakulam, the Department took up the matter in appeal before the Income-tax Appellate Tribunal, Cochin Bench. Before the Appellate Tribunal, the Department urged that the Commissioner of Income-tax (Appeals) was not justified in annulling the assessment of the body of individuals on the ground that the income had already been taxed in the hands of the individual members. The Appellate Tribunal considered the said contention of the Department and took the view that the Commissioner of Income-tax (Appeals) was in error in canceling the assessment of the body of individuals. According to them, the said order is repugnant to the legal position laid down in various judicial pronouncements. It was observed by the Tribunal that the legal position under the Income Tax Act, 1961, was different from the legal position that came to prevail under the Indian Income-tax Act, 1922, that under the Indian Income-tax Act, 1922, it had been held by the Courts that once the income of the association of persons was charged to income-tax in the hands of the members individually, there could be no fresh assessment of the income in the hands of the association because that would amount to double taxation of the income. It was also observed that, under section 3 of the Indian Income-tax Act, 1922, the Income-tax Officer had the option to assess either of the two units of assessment and once having exercised the option to assess one unit, it was not open to him to assess the other unit and that under the Income Tax Act, 1961, section 4 did not give any such option to the assessing authority at all. The Appellate Tribunal relied on the decision of the Patna High Court in the case of Mahendra Kumar Agrawalla v. ITO (1976) 103 ITR 688_ the decision of the Punjab and Haryana High Court in the case of Rodamal Lalchand v. CIT (1977) 109 ITR 7 and the decision of the Delhi High Court in Punjab Cloth Stores v. CIT (1980) 121 ITR 604 to the effect that section 4 of the Income Tax Act, 1961, did not give any such option to the assessing authority. The Appellate Tribunal also rejected the contention of the assessee made on the basis of Circular F. No.75/19/191/62-II-J, dated August 24, 1966, issued by the Central Board of Direct Taxes, to the effect that the legal position under the 1961 Act is not different from the legal position under the 1922 Act holding that the said circular did not contain any such binding instructions beneficial to the assessee.

Before us, Shri P.R. Raman, learned counsel for the assessee, submitted that in the instant case, the assessing authority while completing the individual assessments of the legal heirs was aware of the fact that the seven legal heirs jointly conducted the business, that this is evident from the fact that in the individual returns they had shown the share of income as share income from the association of persons and that after having exercised the option to assess the share income in the hands of the individuals it was not open to the assessing authority to tax the very same income again in the hands of the association of persons/body of individuals. Learned counsel in support of his contentions relied on a large number of decisions of various High Courts. To mention some of them CIT v. K. Chandrasekaran (1990) 182 ITR 392 (Mad.); Venkatakrishna Rice Co. v. CIT (1987) 163 ITR 129 (Mad.); CIT v. C. Ratan & Co. and S.N. Agarwalla (1981) 128 ITR 39 (Cal.); Ch. Atchaiah v. ITO (1979) 116 ITR 675 (AP), later approved by a Full Bench of the same Court in CIT v. B.R. Constructions (1993) 202 ITR 222 (AP) and CIT v. V.H. Sheth (1984) 148 ITR 169 (Bom.). Learned counsel also alternatively contended, relying on the decision of the Bombay High Court in CIT v. Shiv Sagar Estates (1993) 201 ITR 953 to the effect that various matters are required to be considered for arriving at a conclusion that there is an association of persons and that in order to acquire the status of an association of persons, the persons must join in a common purpose or action, that the object of the association must be to produce income and that it is not enough that the persons receive the income jointly, that the mere fact that a group of persons, in the instant case, the legal representatives, seven in number, have received income from the proprietary business which devolved on them on the death of their father cannot automatically attract the status of body of individuals or association of persons and that the Income-tax Appellate Tribunal erred in sustaining the order of the assessing authority assessing the petitioner in the status of body of individuals.

Sri P.K.R. Menon, learned senior counsel appearing for the Department, on the other hand, strenuously contended before us that the fact that the individual members constituting the alleged body of individuals had been wrongly assessed in their individual status will not preclude the assessing authority from assessing the right person subsequently and that under the 1961 Act, unlike the provisions contained in the Indian Income-tax Act, 1922, no option is given to the assessing authority to assess either of the entities and that only in a case where such option is available, the assessing authority can be said to have been precluded from assessing a different entity after assessing the members constituting the said entity in their individual capacity. Learned senior counsel in support of his contention had also pressed into service the decisions of the Supreme Court in ITO v. Bachu Lai Kapoor (1966) 60 ITR 74 and also the decision in ITO v. Ch. Atchaiah (1996) 218 ITR 239. The first decision relied on by learned senior counsel is in support of his contention that once .an entity is wrongly assessed by the assessing authority, the, same would not preclude the assessing authority from assessing the right persons. The second authority relied on by learned senior counsel is to the effect that under section 4 of the Income Tax Act, 1961, there is no option available to the assessing authority unlike section 3 of the Indian Income-tax Act. 1922, precluding the assessing authority from making an assessment on the body of individuals or association of persons after making an assessment on the individuals constituting the said association of persons or body of individuals and vice versa. Learned senior counsel also contended that if the aforesaid contentions of the Department are acceptable and accepted, then it can be seen that the Tribunal and the authorities had considered only that aspect in arriving at the conclusion and that if for any reason this Court finds that it is necessary to decide the question as to who is the right person to be assessed then the proper course for this Court would be to remand the matter to the assessing authority for consideration.

We have perused the decision of the Supreme Court in ITO v. Ch. Atchaiah (1996) 218 ITR 239. That was an appeal against the decision of the Andhra Pradesh High Court in Ch. Atchaiah v. ITO (1979) 116 ITR 675 which decision was later approved by that Court in the Full Bench decision in CIT v. B.R. Constructions (1993) 202 ITR 222 and strongly relied on by learned counsel for the assessee in support of his case. In that case, the Supreme Court after considering the provisions of section 3 of the 1922 Act and also section 4 of the 1961 Act and other allied provisions held that under present Act, the Income-tax Officer had no option like the one he had under the 1922 Act and that the assessing authority can, and he must, tax the right person and the right person alone. The Supreme Court further observed that by "right person" is meant the person who is liable to be taxed, according to law, with respect to a particular income and that the expression "wrong person" is obviously used as the opposite of the expression "right person". The Supreme Court further observed that merely because a wrong person is taxed with respect to a particular income, the Assessing Officer is not precluded from taxing the right person with respect to that income.

Thus, it is clear that the assessing authority under section 4 of the Income Tax Act, 1961, had no option to assess a particular income either in the hands of the individuals or in the hands of the "body of individuals" and that the real question to be decided is as to whether the earlier assessment was made on the right person and that if it is found that the assessment was made on the wrong person nothing precluded the assessing authority from assessing the right person. The Supreme Court had also suggested the remedy available to the aggrieved party to correct the wrong order.

It can be seen from the assessment order that the assessing authority has assessed the concern as a body of individuals only because the assessee had filed the return in the status of body of individuals. The assessing authority could not and did not consider the question as to whether the earlier assessment of the share income of the concern at the hands of the individuals was made on the wrong person or as to who is the right person to be assessed in respect of the income which has been returned. This is probably for the reason that the assessing authority while considering the return filed by the "body of individuals" was not aware of the returns filed by the individuals offering for assessment the share income from the proprietary concern of the late P. Subramoniam and the assessments completed on them or because the legal heirs themselves as "body of individuals" had offered the said income for assessment as such. In the appeal filed by the assessee before the first appellate authority, he also did not consider the real issue as he also was carried away by the fact that the income had already been assessed in the hands of the individuals and that the tax so assessed is more than what is payable on an assessment in the status of "body of individuals". In other words, the first appellate authority also had no occasion to consider the question as to who is the right person to be assessed in respect of the said income. We also find that the Income-tax Appellate Tribunal had considered only the question as to whether in a case where the individuals constituting the association of persons/body of individuals were assessed, whether an assessment can be made subsequently on the association of persons/body of individuals. In other words, the Appellate Tribunal also did not consider the question as to who is the right person to be assessed in respect of the particular income or as to whether the assessing authority, on the earlier occasion, had assessed a wrong person.

Respectfully following the decision of the Supreme Court in Ch. Atchaiah's case (1996) 218 ITR 239, we hold that the Appellate Tribunal ought to have addressed the question as to whether the earlier assessments made on the individuals were on the "wrong person" for, only if it is found that the earlier assessments were made on the "wrong person" the assessing authority will be clothed with the power to assess the right person subsequently and that the Appellate Tribunal failed to consider the said question which is a misdirection in law. We also hold that the assessing authority and the first appellate authority had also committed the same mistake.

In these circumstances, we adopt the following course:

We decline to answer the question referred. We hereby set aside the order, dated February 15, 1982, of the assessing authority and the appellate order of the Commissioner of Income-tax (Appeals), Ernakul4:lt, and of the Income-tax Appellate Tribunal, Cochin Bench, Ernakulam, and we further direct the assessing authority concerned to complete the assessment afresh in the light of the observations contained hereinabove and in accordance with law.

A copy of this judgment under the seal of the Court and the signature of the Registrar will be forwarded to the Income-tax Appellate Tribunal, Cochin Bench, for consequential orders as required by law.

M.B.A./1626/FC Order accordingly.