1985 (8) TMI 44 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Tribunal was justified in directing that the tax liability of the assessee, assessed as an association of persons (AOP), should be determined in the same manner as that of the beneficiaries or erstwhile partners under section 41 of the Indian Income-tax Act, 1922, and section 161 of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Tribunal's Direction on Tax Liability Determination:
The Tribunal directed that even though the assessee, M/s. Duduwala & Co., was to be assessed as an association of persons (AOP), the tax liability should be determined in the same manner as if it were assessed on the beneficiaries or the erstwhile partners through their representatives. This direction was based on the provisions of section 41 of the Indian Income-tax Act, 1922, for the assessment years 1960-61 and 1961-62, and section 161 of the Income-tax Act, 1961, for the assessment years 1962-63 to 1966-67.

2. Background and Facts of the Case:
M/s. Duduwala & Co. was a registered firm with two partners, Shri Rai Bahadur Rameshwar Nathany and Shri Ram Kumar Agarwal. After the death of Shri Rameshwar Nathany, disputes arose regarding the continuation and registration of the firm, leading to litigation in the Calcutta High Court and the appointment of joint receivers. The Department refused to grant registration to the firm post the death of Shri Rameshwar Nathany, leading to the assessment of the firm as an unregistered firm (URF) up to the assessment year 1966-67. The Tribunal, however, directed that the status should be that of an AOP from the assessment year 1960-61.

3. Tribunal's Order and the Assessee's Application:
The assessee submitted a miscellaneous application under section 254(2) of the Income-tax Act, 1961, highlighting that certain grounds of appeal were not disposed of by the Tribunal. The Tribunal accepted the application, stating that the tax liability should be determined to the same extent and in the like manner as in the case of the beneficiaries directly or on the erstwhile partners through their representatives under the relevant provisions of the Act.

4. Legal Provisions and Interpretation:
The relevant provisions for the assessment years 1960-61 and 1961-62 were section 41 of the Indian Income-tax Act, 1922, and for the assessment years 1962-63 to 1966-67, section 161 of the Income-tax Act, 1961. Section 161(1) specifies that a representative assessee shall be liable to assessment in his own name in respect of the income, but the tax shall be levied and recovered from him in like manner and to the same extent as it would be from the person represented by him.

5. Case Law References:
The Tribunal and the High Court relied on the Supreme Court decisions in N. V. Shanmugham & Co. v. CIT and Trustees of Nizam's Family Trust, which clarified that the tax liability should be determined based on the income earned on behalf of the beneficiaries or partners and that the assessment should be made in the status of an AOP but the tax liability should reflect the beneficiaries' or partners' individual liabilities.

6. High Court's Conclusion:
The High Court concluded that the Tribunal's view was correct. There should be one assessment for the profits of the business run by the receivers on behalf of the partners, in the status of an AOP. However, the tax liability should be determined to the same extent and in the like manner as it would be for the beneficiaries or the erstwhile partners through their representatives under the relevant sections of the Act.

Final Judgment:
The High Court answered the referred question in the affirmative, in favor of the assessee and against the Revenue, confirming that the Tribunal was justified in its direction regarding the tax liability determination. There was no order as to costs, and a copy of the order was directed to be sent to the Tribunal as required by section 260(1) of the Act.