TMI Blog1991 (6) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... ed separately for the premises and for the use of other equipment. Subsequently, the entire business as such was leased in the year 1973 as a going concern. The income from the lease was claimed as belonging to the association of persons comprising the two widows during the assessment years 1974-75 and 1975-76. The statement of the case states that this contention was accepted by the Appellate Assistant Commissioner as well as by the Tribunal. A further sentence however states that, "it appeared that the assessments of the individuals were restored to the Income-tax Officer for making fresh assessments and they are still pending". Subsequently, the entire business as a going concern was sold on October 30, 1975. The recipients of the consideration filed returns as individuals as well as an association of persons. The capital gains thus received was assessed in the status of individual by the assessing authority. This order was substantially affirmed by the Commissioner (Appeals) from which appeals were filed by the assessees as well as by the Revenue. The assessees contended that the capital gains must be assessed only in the hands of an association of persons. The Revenue contende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... answering the question referred to us, we would like to emphasise once again that the status of the recipient of the capital gain has become final by the finding of the Appellate Tribunal and the same has not been questioned by the Revenue by seeking any reference. Therefore, the basic fact has to be accepted to the effect that the income was received in the hands of the association of persons. Under the provisions of the earlier Act of 1922, the charging section is section 3, which reads thus : "Where any Central Act enacts that income-tax shall be charged for any year at any rate or rates tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, this Act in respect of the total income of the previous year of every individual, Hindu undivided family, company and local authority, and of every firm and other association of persons or the partners of the firm or the members of the association individually." The said earlier Act did not go beyond defining the word "person" as including a Hindu undivided family and a local authority as per section 2(9). However, the charging section, given above, provided for charging to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is only a charging section imposing the levy of tax on the total income of an assessable entity described therein. The section expressly treats an association of persons and the individual members of an association as two distinct and different assessable entities. On the terms of the section the tax can be levied on either of the said two entities according to the provisions of the Act. There is no scope for the argument that under section 3 the assessment shall be only on the association of persons as a unit though after such assessment the share of the income of a member of that association may be added to his other income under section 14(2) of the Act. This construction would make the last words of the section, viz., 'members of the association individually' a surplusage. This argument is also contrary to the express provisions of section 3, which mark out the members of the association individually as a separate entity from the association of persons." From the above observation, it is clear that the specific reference to charge the income, to tax, in the hands of the members of the association individually was a substantial basis for the conclusion of the Supreme Court on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the old Act or section 4 of the present Act. As already noted by us, the express language of section 3 of the old Act resulted in the Supreme Court holding that an option was given to the authorities under section 3 of the old Act either to assess the association of persons or its members individually (see Kanpur Coal Syndicate's case [1964] 53 ITR 225 (SC) referred to above). The present section 4, which is the charging section now, to the extent of its relevancy, reads thus : "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 person." The word "person" is defined under section 2(31) as including an individual, Hindu undivided family, etc., etc., ; this definition also includes an association of persons or a body of individuals whether incorporated or not in the concept of the word "person". According to Mr. Chanderkumar, learned counsel for the Revenue, section 4 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciation of persons only. Under section 4 of the Income-tax Act, 1961, the unit for the purpose of assessment in this case can only be an association of persons. Section 4 of the Income-tax Act, 1961, charges the income earned by such an association of persons called 'person' within the meaning of the definition clause of section 2(31), with liability to suffer income-tax. It is no doubt true that an association of persons is a body of persons. But from this, it does not necessarily follow that in the matter of assessing the income earned by an association of persons, the Income-tax Officer has an option either to assess that body of persons called the association of persons or its individual members. Under section 4 of the Income-tax Act, 1961, the Income-tax Officer is left with no choice to assess the association of persons or alternatively the individual persons comprising that association of persons. Under section 4 of the Act, he has to levy tax only on the appropriate unit of income-tax. It, therefore, becomes necessary to find out which is the appropriate unit of income-tax in this case. The income was earned in this case not by the individuals but by an association of perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dealing with the assessment of the firm, the Income-tax Officer comes to the conclusion that the firm is not entitled to registration. Although the Supreme Court's decision is under the Indian Income-tax Act, 1922, the Board is advised that it will equally apply to the assessments made under the Income-tax Act, 1961. In view of the above decision, the Income-tax Officer assessing the partners of a firm should not normally complete the regular assessments of the partners by including their share from the firm unless the assessment of the firm had already been made. The Income-tax Officers assessing the firms must give priority to the disposal of the firm's assessments. They should realise that if they delay the assessments of the firms, they would be responsible for the assessments of all the partners being held up. In an exceptional case if the Income-tax Officer assessing the firm feels that the assessment of the firm is likely to be delayed so that there would be unnecessary delay in the assessment of the partners, he may consider the firm's claim for registration and pass a suitable order under section 26A of the 1922 Act/184-185 of the 1961 Act even before passing the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion and not with whether the assessee was also bound by the circular. The circular, in no way, specifically states that, under section 4 of the 1961 Act, there is an option vested in the Incometax Officer to assess the firm or its members Similarly, the circular in no way, states that, under section 4, the Income-tax Officer has the option to assess the individual members or the association of persons. It simply states that the other entity shall not be charged to tax ; in fact, the circular is confined to cases of firms and their partners ; it does not refer to associations of persons. From the decision of the Gujarat High Court, it is not possible to infer that the court recognised an option having vested in the Income-tax Officer either to assess the firm or its partners or vice versa ; the court was not at all concerned with the interpretation of section 4. A circular issued by the Board is binding on the subordinate officer of the Income-tax Department. However, such a circular, if opposed to the provisions of the Act, is not enforceable against an unwilling assessee. The assessee is entitled to ignore the circular if its terms are beyond the scope of the provisions of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act of 1961 was to shorten the provision and to eliminate repetition of the words found in section 2(31). There is no indication to show that Parliament intended to alter the powers of the Income-tax Officer in this behalf when it re-enacted section 4 in a slightly modified form. In fact, the decision of the Supreme Court or of the High Courts noticed above, where the question of option had come in for consideration, were all rendered subsequent to the passing of the Act of 1961, so that any intention to alter the law taking into account those pronouncements could not be attributed to it. However, we have to take into consideration the provision as it appears in the Act, and if the provision as it is in the statute would yield the construction of the option not being available to the Income-tax Officer as was the case under the preceding statute, then the provision will have to be given effect to. The use of the word 'or' occurring in section 3 of the Act of 1922 and the use of the word 'and' in section 2(31), it is urged, show that the question of choice between the two alternatives is not available to the Income-tax Officer under the new Act. It is, however, to be remembered tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income-tax Officer proceeded to assess the firm treating it as an unregistered firm. The Appellate Assistant Commissioner held that the status of the assessee was that of an association of persons. Since the members of the association of persons were already assessed, it was not open to assess the income again in the hands of the association of persons. This view was altered by the Appellate Tribunal which held that the option having once been exercised to assess the income in the hands of the partners, the firm cannot be assessed. Reference was sought by the Revenue which mainly contended that there was no material at all to hold that the Income-tax Officer had exercised his option and, that therefore, he could not assess the firm again. The question referred to the court is found at page 340 as under : "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding and had valid materials to hold that the Income-tax Officer had exercised his option of assessing the income of the assessee-association in the hands of its members individually and that the assessments made in the hands of the assessee-association are not valid ?" The R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tified in assessing it as an association of persons and refusing registration on the ground that the partnership deed had been signed on behalf of one of the partners by his guardian because he was a minor, and the fact that the minor had, on attaining majority, informed the Registrar of Firms that he wished to continue as a partner, would have no effect because the partnership deed making the minor a full partner was void: Chowdhury Bros. v. CIT: SLP (Civil) No. 6438 of 1985. " Here again, the decision was affirmed by reference to the facts of the case. Therefore, we have to proceed that there is no authoritative Pronouncement by the Supreme Court on this vexed question. The Revenue has been taking inconsistent stands before different High Courts. Before the Madras High Court, the Department asserted that the Income-tax Officer had no option under section 4 of the 1961 Act while, before the Andhra Pradesh High Court, it contended that it had such an option. But, in all these cases, basically, firms were involved and they are governed specially by Chapter XVI of the Act; similarly, the Income-tax Officer was bound by the circular issued by the Board ; he has no option except to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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