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Judgment
Janarthanam, J.—The assessee, Murugesa Naicker Mansion, Madras, derives income from letting out property at No. 544, Triplicane High
Road, Madras-5. The assessee claimed that the property in question is owned by three persons, whose shares are definite and ascertainable. As
the shares of the co-owners were definite and precise, they were returning their share of income from the property in question in their individual
capacities.
The Income Tax Officer has assessed the income derived from the property in the hands of the ""association of persons"" rejecting the contention
of the assessee for the assessment year 1981-82.
When the matter went before the Appellate Assistant Commissioner, he annulled the assessment following the decision of this court in
COMMISSIONER OF Income Tax, MADRAS-II Vs. BLUE MOUNTAIN ENGINEERING CORPORATION., as well as the order of the
Tribunal Madras B1 Bench in I. T. A. Nos. 955 to 958 (Mad) of 1981, dated September 22, 1982, relating to the assessment years 1974-75 to
1977-78 in the case of the assessee itself.
The Department took up the matter on further appeal to the Tribunal. The Tribunal, in turn following the decision of the Madras High Court in
the case of COMMISSIONER OF Income Tax, MADRAS-II Vs. BLUE MOUNTAIN ENGINEERING CORPORATION., , confirmed the
order of the Appellate Assistant Commissioner and dismissed the Revenue''s appeal.
It is on these facts, the Tribunal, at the instance of the Revenue referred the question of law as below for the opinion of this court :
Whether, on the facts and in the circumstances of the case, the assessment made on the assessee as an association of persons, after the
assessment made earlier in the case of one of the members of the association thereof for the assessment year 1981-82, was legal ?
Arguments of Mr. R. Sivaraman, learned counsel representing Mr. C.V. Rajan, learned junior standing counsel representing the Revenue, and of
Mr. G. Ashok Pathy, learned counsel representing Mr. K. Mani, learned counsel appearing for the respondent, were heard.
There is no denial of the fact that the Tribunal dismissed the Revenue''s appeal, following the decision in the case of COMMISSIONER OF
Income Tax, MADRAS-II Vs. BLUE MOUNTAIN ENGINEERING CORPORATION., , a Division Bench decision of this court. The said
Division Bench decision of this court is now not holding the field in the sense that the same had been overruled by the apex court in Income Tax
Officer Vs. Atchaiah, .
For the appreciation of the question involved we may incisively refer to the facts of the case, in the case of COMMISSIONER OF Income
Tax, MADRAS-II Vs. BLUE MOUNTAIN ENGINEERING CORPORATION., and the decision rendered thereon before ever, we are to
consider the decision of the Supreme Court in the case of Income Tax Officer Vs. Atchaiah, .
In the Division Bench case of the Madras High Court, the assessment on a partner of an unregistered firm was made u/s 144 of the Income Tax
Act, 1961, including therein an estimate of his share of the income from the firm in which he was a partner. Thereafter, the assessment on the firm
was made by the same Officer on an estimate, as no return was filed and treating it as an unregistered firm. The claim of the firm that once an
assessment had been made on the partner including his share income from the firm, no assessment on the firm could, thereafter, be made was
negatived by the Income Tax Officer and the Appellate Assistant Commissioner, but upheld by the Tribunal.
On a reference to this court, at the instance of the Department, this court held that in spite of the slight change in phraseology between Section 3
of the Indian Income Tax Act, 1922, and Section 4 of the Income Tax Act, 1961, the Income Tax Officer continues to have an option to assess
either the unregistered firm or the individual partners thereof and the assessment of a firm, after a partner has been assessed on his share income
from the firm would not be legal.
In the case of Income Tax Officer Vs. Atchaiah, , the Supreme Court after overruling the Division Bench decision of this court in the case of
COMMISSIONER OF Income Tax, MADRAS-II Vs. BLUE MOUNTAIN ENGINEERING CORPORATION., , expressed that a
comparison of the provisions of the Indian Income Tax Act, 1922, and the Income Tax Act, 1961, immediately brings out the difference between
them.
Section 3 of the 1922 Act provided that in respect of the total income of a firm or an association of persons, the Income Tax shall be charged
either on the firm or the association of persons or on the partners of the firm or on the members of the association of persons individually. It is
evident that this option was to be exercised by the Income Tax Officer, keeping in view the interests of the Revenue. In such a situation, it was
generally held that once the Income Tax Officer opted for one course, the other course was barred to him. But, no such option is provided to him
under the present Act.
Section 4 of the Act of 1961 says that Income Tax shall be charged on the total income ""of every person"" and the expression ""person"" is
defined in Clause (31) of Section 2. The definition merely says that the expression ""person"" includes, inter alia, a firm and an association of persons
or a body of individuals whether incorporated or not.
There are no words in the present Act which empower the Income Tax Officer or give him an option to tax either the association of persons or
its members individually or for that matter to tax the firm or its partners individually. If it is the income of the association of persons in law, the
association of persons alone has to be taxed ; the members of the association of persons cannot be taxed individually in respect of the income of
the association of persons. Consideration of the interests of the Revenue has no place in this scheme. Where Parliament wanted to provide an
option, or a discretion, to the Income Tax Officer, it has provided so expressly.
Section 183 (which has since been omitted with effect from April 1, 1993, by the Finance Act, 1992) provided that in the case of an
unregistered firm, it is open to the Income Tax Officer to treat it, and make an assessment on it, as if it were a registered firm, if such a course was
more beneficial to the Revenue, in the sense that such a course would fetch more tax to the public exchequer.
Under the present Act, the Income Tax Officer has no option like the one he had under the 1922 Act, He can, and he must, tax the right
person and the right person alone. By ""right person"" is meant the person, who is liable 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.
On the face of the decision of the Supreme Court in the case of Income Tax Officer Vs. Atchaiah, it goes without saying that the assessment
made on the assessee as an association of persons, after the assessment made earlier in the case of one of the members of the association thereof
for the assessment year 1981-82, was legal and this question is answered accordingly.
This tax case is thus disposed of. There shall however, be no order as to costs, on the facts and in the circumstances of the case.