TMI Blog1967 (7) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... en after the partition Meyyappa (I) continued to remain in management on behalf of himself and his two minor sons of all the properties and the businesses carried on by the family when it was joint, and the businesses were carried on in the name of M.S.M.M. The houses and the three rubber estates allotted exclusively to Meyyappa (I) were entered in the books of accounts opened in the name of M. M. Ipoh from the date of the division. In December, 1941, Alagammal gave birth to a son who was named Chettiappa. Meyyappa (I) and Chettiappa then constituted a Hindu coparcenary which owned the property and the business as allotted to Meyyappa (I) in the partition of 1940. On December 30, 1949, a deed of partition was executed between Meyyappa (I) and Chockalingam (who had by then attained the age of majority), in respect of the businesses carried on in the name of M. S. M. M. The businesses were thereafter carried on in partnership between Meyyappa (I) representing himself and the minor, Chettiappa, and Chockalingam. Meyyappa (II) was admitted to the benefits of that partnership. On April 13, 1950, partition was effected between Meyyappa (I) and the minor, Chettiappa, by posti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether the assessments on the ' association of persons ' for the assessment years 1951-52 to 1956-57 are valid ? and declined to submit a statement of the case on five other questions, the first out of which alone is material in these appeals and need be set out : Whether, on the facts and in the circumstances of the case, there are any materials to hold the assessee as the principal officer of M. M. Ipoh assessed in the status of an association of persons ? At the hearing of the reference on the principal question, the High Court on the application of the assessee proceeded to deal apparently without any objection from the Commissioner with the additional question which had not been referred by the Tribunal. The High Court held that the income brought to tax in the assessment year 1951-52 did not accrue to an association of persons, but the income in the years 1952-53 to 1956-57 accrued to an association of persons formed by Meyyappa (I), M. S. M. M. firm and the minor, Chettiappa. The High Court was of the view that Meyyappa (I) acted on behalf of Chettiappa in forming the association, that the affairs of the association were under the management of Meyyapp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Income-tax Officer in exercising the option : the Act therefore confers arbitrary and uncontrolled authority upon the Income-tax Officer to select either the association or its members for assessment to tax according to his fancy, and may on that account be discriminatively administered by subjecting persons similarly situate to varying rates of tax. Counsel in support of that plea relied upon the judgment of this court in Suraj Mall Mohta and Co. v. A. V. Visvanatha Sastri but that case is of little assistance to the assessee. In Suraj Mall Mohta's case this court declared sub-section (4) of section 5 of the Taxation on Income (Investigation Commission) Act, 1947 (30 of 1947), and the procedure prescribed by that Act, in so far as it affected the persons proceeded against under that sub-section, invalid as a piece of discriminatory legislation and on that account offending against article 14 of the Constitution of India. The court held that sub-section (4) of section 5 of Act 30 of 1947, dealt with the same class of persons who fall within the ambit of section 34 of the Indian Income-tax Act, 1922, and whose income can be brought to tax by proceeding under that section. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Jyoti Pershad v. Administrator for the Union Territory of Delhi this court observed that where the legislature lays down the policy and indicates the rule or line of action which should guide the authority, article 14 is not violated, unless the rules or the policy indicated lay down different criteria to be applied to persons or things similarly situate. It is not however essential for the legislature to comply with the guarantee of equal protection that the rules for the guidance should be laid down in express terms. Such guidance may be obtained from or afforded by, (a) the preamble read in the light of the surrounding circumstances which necessitated the legislation, taken in conjunction with well-known facts of which the court might take judicial notice or of which it is apprised by evidence before it in the form of affidavits, (b) or even from the policy and purpose of the enactment which may be gathered from other operative provisions applicable to analogous or comparable situations or generally from the object sought to be achieved by the enactment. Section 3 of the Income-tax Act does not, it is true, expressly lay down any policy for the guidance of the Income-tax Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of the authority exercised by the Income-tax Officer in a proceeding to assess to tax income, and his duty to prevent evasion or escapement of liability to pay tax legitimately due to the State, constitute, in our judgment, adequate enunciation of principles and policy for the guidance of the Income-tax Officer. Counsel for the appellants contended that section 23A of the Income-tax Act, as it was incorporated by Act 21 of 1930, laid down certain principles for the guidance of the Income-tax Officer in exercising his option, but since the legislature, by Act 7 of 1939, repealed that provision, the discretion vested in the Income-tax Officer to select either the income of the association or the individual members is unfettered. To appreciate the argument it is necessary to set out in some detail the legislative history. Under the Indian Income-tax Act, 1922, as originally enacted, an association of persons or individuals was not an entity, the income whereof was charged to tax. By Act 11 of 1924, association of individuals was added in section 3 as an entity of which the income is charged to tax under the Income-tax Act, but the Act as it stood amended contained no st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not in terms apply to cases where the management was in the hands of more persons than one, even if it was formed for the purpose of evading or reducing the liability to tax of any member thereof. By Act 7 of 1939 the expression association of persons was substituted for association of individuals , section 23A(1) was deleted and sub-section (5) was added to section 23. Sub-section (5) of section 23 prescribed the mechanism for bringing to tax the income of a firm registered or unregistered. If the firm was registered, the share of each partner was to be separately taken into account together with his other income and brought to tax. If it was an unregistered firm, the income of the firm itself was brought to tax, unless the Income-tax Officer was of the opinion that the correct amount of the tax including super tax, if any, payable by the partners under the procedure applicable to a registered firm would be greater than the aggregate amount payable by the firm and the partners if the firm is assessed as an unregistered firm. In respect of unregistered firms a practical scheme, which aimed at preventing evasion of tax, was devised by the enactment of section 23(5)(b). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment to tax in respect of the income of the association void. Appeals Nos. 1103-1107 of 1966 must therefore fail. In the group of appeals which arise out of the order passed by the High Court in exercise of its advisory jurisdiction under the Income-tax Act, counsel for the assessee urged that there was no association in fact, that Chettiappa being at all material times a minor there could in law be no association of which the income could be brought to tax, and that in any event there was no evidence to prove that any one on behalf of Chettiappa had assented to the formation of the association. The expression person is defined in section 2(9) of the Indian Income-tax Act, 1922, as including a Hindu undivided family and a local authority . The definition is inclusive and resort may appropriately be had to the General Clauses Act to ascertain the meaning of the expression person . Clause (42) of section 3 of the General Clauses Act defines a person as inclusive of any company, association or body of individuals whether incorporated or not, and that inclusive definition in the General Clauses Act would also apply under the Income-tax Act. A firm is therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nagement of the estates have continued undisturbed right throughout the period, only the holding thereof by various members having changed from time to time. The volition necessary is only all too apparent ; the entrustment of the management to M. S. M. M. firm for a proper management implies a prior agreement to which the guardian of the minor must have given her consent too. These observations relate to the entire period of six years 1951-52 to 1956-57. In the view of the High Court, division of the status of joint Hindu family on April 13, 1950, between Meyyappa (I) and Chettiappa was brought about not as a result of any mutual agreement between the coparceners, but by Meyyappa (I) in exercise of his power to do so under the Hindu law, and solely from the feature that the share of the minor son, Chettiappa, was not separated by metes and bounds, a conclusion could not be reached that Meyyappa (I) and Chettiappa continued as members of an association of persons. The minor had no volition of his own to express, and the fact that at the partition the minor was represented for purposes of form and nothing more by his father, cannot be taken to mean that the mother as his guar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome in the years 1952-53 and thereafter is an association different from the association in 1951-52. In 1951, Chockalingam had demanded a share in the properties of M. M. Ipoh and he was given a half share. The shares of Meyyappa (I) and Chettiappa in the properties were reduced, and thereafter ownership in the properties of M. M. Ipoh and its activities vested in an association formed by Meyyappa (I), the M.S.M.M. firm and Chettiappa. It is common ground that M. M. Ipoh was a trading venture and its management was entrusted in the relevant years to the M. S. M. M. firm. The doctrine of res judicata does not apply so as to make a decision on a question of fact or law in a proceeding for assessment in one year binding in another year. The assessment and the facts found are conclusive only in the year of assessment : the findings on questions of fact may be good and cogent evidence in subsequent years, when the same question falls to be determined in another year, but they are not binding and conclusive. The finding recorded by the High Court that in the year 1951-52 there was no association of persons constituted by Meyyappa (I) and Chettiappa for earning income fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was not pressed before the Appellate Assistant Commissioner, they did not deal with it. The High Court observed that the Tribunal was bound to deal with the question irrespective of whether it was agitated before the Appellate Assistant Commissioner. Even assuming that the second question was properly raised in the form and in the manner in which it was raised by the High Court, the answer to the question must, on the facts found, be against the assessee. Counsel for the assessee contended that there were no materials on which the Tribunal could hold that Meyyappa (I) was the principal officer of M. M. Ipoh , and since the Income-tax Officer had made no enquiry before issuing the notice treating Meyyappa (I) as the principal officer of M. M. Ipoh , Meyyappa (I) could not be so treated for the purpose of the proceedings for assessment. Under section 22(2), the Income-tax Officer may, if in his opinion the income of a person is liable to income-tax, serve a notice upon him requiring him to furnish a return in the prescribed form. The notice under section 34 for reassessment must also contain all or any of the requirements which may be included in a notice under sub-section (2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osed to be treated as the principal officer, to show cause why he should not be so treated. It is open to the Income-tax Officer to serve a notice on a person who is intended to be treated as the principal officer. The person so served may object that he is not the principal officer or that the association is not properly formed. The Income-tax Officer will then consider whether the person served is the principal officer and whether he has some connection or concern with the income sought to be assessed. There is in the Income-tax Act an analogous provision in section 43 of the Act which authorises the Income-tax Officer to treat a person as a statutory agent of the non-resident for the purpose of assessing him to tax, the income received by the non-resident. It was held by the Judicial Committee in Commissioner of Income-tax v. Nawal Kishore Kharaiti Lal, that it is not necessary for the validity of a notice calling for a return of the income under section 23(2) served on a person as agent of a non-resident under section 43, that it should have been preceded not only by the notice of intimation prescribed by section 43, but also by an order declaring the person to be the agent of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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