TMI Blog1992 (6) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... ) can be applied by the co-ordinate Division Bench without making any reference to a larger Bench. The later Division Bench did not feel inclined to agree with the opinion expressed by the earlier Division Bench. With a view to set at rest the cleavage of opinion, we are of the considered view that the matter needs an authoritative pronouncement by a Full Bench of this court and accordingly, we make a reference to the Full Bench to resolve the difference of opinion expressed by the two Division Benches and also : (1) under what circumstances, one Division Bench can differ from the view of an earlier Division Bench ; and (2) under what circumstances the doctrine of per incuriam can be applied by a co-ordinate Division Bench for riot following the earlier binding precedent of another Division Bench. The office is directed to place the papers before the Hon'ble Chief justice to constitute a Full Bench as expeditiously as possible to go into these questions and decide the matter. Since the sole point involved in the referred case is of the applicability of section 4 of the Income-tax Act, 1961, the entire referred case is referred to the Full Bench. JUDGMENT OF FULL BENCH At ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that whatever might have been the position under section 3 of the Indian Income-tax Act, 1922, now under section 4 of the Income-tax Act, 1961, no option is available to the assessing authority either to assess the unregistered firm or its members, therefore, the assessing authority is competent to assess the unregistered firm after completing the assessment of the partners in regard to their share income. Sri Y. Ratnakar, learned counsel for the assessee, contended that the Income-tax Act, 1961, did not depart from the position under the 1922 Act, and that the scope of the charging sections under both the Acts continued to be the same ; the 1961 Act substituted the word "person" for the taxable entities mentioned in section 3 of the 1922 Act and separately defined" person" in section 2(31) which does not alter the position. In the light of the contentions raised before us by learned counsel for the parties, we shall consider the question referred to us by the Tribunal. It is now well-settled, in view of the judgments of the Supreme Court in CIT v. Kanpur Coal Syndicate [1964] 53 ITR 225 and CIT v. Murlidhar Jhawar and Purna Ginning and Pressing Factory [1966] 60 ITR 95, that, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovided that where by virtue of any provision of this Act income-tax is to be charged in respect of the income of a period other than the previous year, income-tax shall be charged accordingly. (2) In respect of income chargeable under sub-section (1), income-tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of this Act. " It can immediately be noticed that, whereas in section 3 of the old Act, the taxable entities were mentioned in the body of the section, in section 4 of the new Act, the expression "every person" is used. The word "person" is defined in section 2(31) of the Income-tax Act, 1961. It is an inclusive definition. Substituting the definition of "person" in section 4(1), it reads as follows: "4. (1) Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions including provisions for the levy of additional income-tax of , this Act in respect of the total income of the previous year of every (i) individual, (ii) Hindu undivided family, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to provide for taxing the same income twice in the hands of different taxable entities as, e.g., in the case of a registered firm. The income of the registered firm is taxable in the hands of the registered firm as well as in the hands of its partners. What is the position in regard to an unregistered firm will be examined, now. Section 183 deals with assessment of an unregistered firm. The assessment in question relates to the year 1968-69 and the said provision during the material period read as follows: "183. In the case of an unregistered firm, the Income-tax Officer (a) may determine the tax payable by the firm itself on the basis of the total income of the firm ; or (b) if, in his opinion, the aggregate amount of the tax payable by the partners if the firm were treated as a registered firm would be greater than the aggregate amount of the tax which would be payable by the firm under clause (a) and the tax which would be payable by the partners individually, may proceed to make the assessment under clause (ii) of subsection (1) of section 182 as if the firm were a registered firm ; and, where the procedure specified in this clause is applied to any unregistered firm, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or, if included, is not correct, the Assessing Officer is empowered to amend the order of assessment Of the member with a view to the inclusion of the share in the assessment or the correction thereof. For that purpose, the provisions of section 154 are made applicable. We may also refer to the objects and reasons of the legislation of section 4 as mentioned in the Notes on Clause of the Income-tax Bill, 1961, to ascertain the intention of Parliament in enacting the said section. The relevant portion is as follows: "Basis of charge: Clause 4. -This section corresponds to section 3 of the existing Act with the following changes: (i) for the different entities, individual, Hindu undivided family, etc., mentioned in the section, the word 'person' has been substituted ; (ii) the proviso makes it clear that notwithstanding that tax is to be paid in respect of the income of a previous year, tax may be recovered on current income wherever so provide ; (iii) it is made clear that even where tax is deducted at source or paid in advance liability to pay tax arises by virtue of this provision." From the Notes on Clauses also, it is clear that section 4 of the new Act corresponds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly treated an association of persons and the individual members of the association as two distinct and different assessable entities, and, on the terms of the section, the tax could be levied on either of the two entities according to the provisions of the Act. In Murlidhar Jhawar's case [1966] 60 ITR 95, three persons carried on business in partnership. The Income-tax Officer assessed them in the status of an unregistered firm. The Tribunal held that the Income-tax Officer had the option to assess the individual parties to the joint venture or the unregistered firm and that option having been exercised, it was not open to him thereafter to reassess the same income collectively in the hands of the three parties to the joint venture in the status of an unregistered firm. Referring to the judgment in Kanpur Coal Syndicate's case [1964] 53 ITR 225, the Supreme Court observed as follows (at page 97) : " The same principle would apply to the case of assessment of partners individually of an unregistered firm. The partners may be assessed individually or they may be assessed collectively in the status of an unregistered firm : the Income-tax Officer cannot, however, seek to assess th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he share income in the individual hands of the petitioner and another person, had no jurisdiction to assess the same income in their joint hands. The petitioner and that other person purchased certain lands as joint venture. The lands were acquired by the Government. On receiving compensation and enhanced compensation, each of them was assessed to tax on the capital gains individually. The Income-tax Officer sought to initiate proceedings to assess the same income in the hands of the association of persons. That was questioned in the writ petition filed by the petitioner. After referring to section 3 of the old Act and section 4 of the new Act, the Division Bench held (at page 678 ) : "In our view, this change in the wording of the section does not affect the legal position and all the decisions under the old Act, referred to above are applicable even today under the present Act. As observed by the Supreme Court in CIT v. Murlidhar Jhawar and Purna Ginning and Pressing Factory [1966] 60 ITR 95, an association of persons and the individual members of the association are two distinct and different assessable entities and under section 3 of the Indian Income-tax Act, 1922, the tax c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ult that the Revenue stands to lose the tax due to it. In our view, the fear expressed can perhaps be allayed by the following Departmental instructions issued by the Board in letter F. No. 75/19/191/ 62-11-1, dated August 24, 1966, wherein, among other things, the Income-tax Officers are directed to give priority to firms, assessments. In Ramanlal Madanlal v. CIT [1979] 116 ITR 657 (Cal), for the assessment years 1965-66, 1966-67 and 1967-68, the firm was assessed as an unregistered firm subsequent to the assessment of the individual partners. The firm appealed to the Appellate Assistant Commissioner challenging the validity of the assessment on the ground that as the partners were already assessed to tax, as such in respect of the same income there could not be two assessments. The appellate authority followed the judgment of the Supreme Court in Murlidhar Jhawar's case [1966] 60 ITR 95, and allowed the appeal. The Appellate Tribunal, however, set aside the order of the appellate authority and upheld the assessment. On a reference, the Calcutta High Court held that there was difference between the language of section 3 of the old Act and section 4 of the new Act, but the scheme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titution. For the assessment years 1960-61 and 1961-62, for which section 3 of the old Act was applicable, it was held that the Income-tax 'Officer had option to assess either the " association of persons " or the members individually and as the option was exercised by assessing the members individually, the same income could not be assessed in the hands of the "association of persons". For the assessment years 1962-63 to 1969-70, the learned judges relied on the judgment of the Supreme Court in ITO v. Bachu Lal Kapoor [1966] 60 ITR 74 and held that, under section 4 of the new Act, the Income-tax Officer had no such option. That was a case dealing with members of a Hindu undivided family, who had been assessed to tax as individuals for different years of assessment. Subsequently, a notice under section 34 of the old Act was given to the karta of the Hindu undivided family requiring him to file a return of income within the prescribed time for the assessment year 1955-56 stating that the same had escaped assessment. The Allahabad High Court held that the notice was bad as it offended the principle against double taxation. The judgment of the Allahabad High Court was questioned befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed by the Punjab and Haryana High Court in Rodamal Lalchand v. CIT [1977] 109 ITR 7, the Delhi High Court in Punjab Cloth Stores v. CIT [1980] 121 ITR 604, and our High Court in Choudry Brothers' case [1986] 158 ITR 224. We propose to refer to the last mentioned case decided by our High Court, viz., Choudry Brothers' case [1986] 158 ITR 224. In that case, the assessee-partnership firm had a minor as one of its partners. That was the reason for refusing to grant registration to the firm by the Income-tax Officer. The said minor partner, after attaining majority, elected to continue as partner and continued as such. For the assessment year 1966-67, the firm was assessed in the status of an association of persons. The Appellate Tribunal held that the assessee-firm was entitled to registration. The following questions were referred to the High Court for opinion under section 256, of which the first question was at the instance of the assessee (at page 226): " (1) Whether, on the facts and in the circumstances of the case, the assessment in the status of an association of persons is valid ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal can direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nges the charging section 3 had undergone by the omission of the words "or the members of the association individually". We, therefore, consider the judgment in Ch. Atchaiah v. ITO [1979] 116 ITR 675 (AP), as one made per incuriam and would not be a binding precedent. " It is this observation of the Bench which led to this reference. It may be observed that the question whether, after assessment of the individuals either as partners of unregistered firm or as members of an association of persons, it was competent to the Income-tax Officer to assess the unregistered firm or association of persons, was not one of the questions referred to the High Court for opinion. Therefore, the whole discussion on this question is only judicial dicta. Further, for the reasons already given by us above, we are unable to agree with the conclusions of the Bench that the option available to the Income-tax Officer under section 3 of the old Act is not available now under section 4 of the new Act. On a careful consideration of the cases and for the reasons stated above, we are in respectful agreement with the view expressed by the Division Bench of our High Court in Ch. Atchaiah's case [1979] 116 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by former precedents, where the same points come again in litigation : as well as to keep the scale of justice even and steady and not liable to waver with every new judge's opinion, as also because the law in that case being solemnly declared and determined, what before was uncertain, and perhaps indifferent, is now become a permanent rule, which it is not in the breast of any subsequent judge to alter or vary from, according to his private sentiment . . . ..." The ratio decidendi of a judgment is a binding precedent. The hierarchy of authority with regard to binding precedent is summed up in paragraph 28 at page 158 of " Salmond oil Jurisprudence ", Twelfth Edition, as follows : " The general rule is that a court is bound by the decisions of all courts higher than itself. A High Court judge cannot question a decision of the Court of Appeal, nor can the Court of Appeal refuse to follow judgments of the House of Lords. A corollary of the rule is that the courts are bound only by decisions of higher courts and not by those of lower or equal rank. A High Court judge is not bound by a previous High Court decision, though he will normally follow it on the principle of judicial com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ible. When a Division Bench differs from the judgment of another Division Bench, it has to refer the case to a Full Bench. A single judge cannot differ from a decision of a Division Bench except when that decision or a judgment relied upon in that decision is overruled by a Full Bench or the Supreme Court, or when the law laid down by a Full Bench or the Supreme Court is inconsistent with the decision. It may be noticed that precedent ceases to be a binding precedent (i) if it is reversed or overruled by a higher court, (ii) when it is affirmed or reversed on a different ground, (iii) when it is inconsistent with the earlier decisions of the same rank, (iv) when it is sub silentio, and (v) when it is rendered per incuriam. In paragraph 578 at page 297 of Halsbury's Laws of England, Fourth Edition, the rule of per incuriam is stated as follows: "A decision is given per incuriam when the court has acted in ignorance of a previous decision of its own or of a court of co-ordinate jurisdiction which covered the case before it, in which case it must decide which case to follow; or when it has acted in ignorance of a House of Lords decision, in which case it must follow that dec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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