CIT KERALA Vs. P P JOHNY AND P P DEVASSYKUTTY
HIGH COURT OF KERALA
P.P. JOHNY AND P.P. DEVASSYKUTTY
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(1.) IN this reference made by the INcome-tax Appellate tribunal, Madras Bench, where the question referred is "whether on the facts and in the circumstances of the case the Tribunal was justified in deleting the income from the Trichur Vegetable Stores?" the facts are as follows: Two persons, P. P. Johny and P. P. Devassy Kutty, constituted an "association of Persons". This Association conducted two businesses known as 'trichur Vegetable Stores' and 'trichur Grocery'. P. P. Johny filed a return on 6-12-1960 of his personal income for the assessment year 1960-61. He included in it his half share of the income from the 'trichur vegetable Stores' as Rs. 257. 09. The INcome-tax Officer after calling for and examining the separate books of account of the 'trichur Vegetable Stores' fixed its income for the relevant period as Rs. 2724 and Johny's share of it as Rs. 1362. The assessment on Johny was accordingly completed on 17-12-1960. Thereafter the INcome Tax Officer proceeded to assess separately for the assessment year 1960-61 the income of the 'association of Persons' consisting of Johny and Devassykutty. He fixed the income of that 'association of Persons' as Rs. 16,164 from the Trichur Vegetable Stores' and Rs. 1911/-from the 'trichur Grocery' for the assessment year 1960-61. From that order of the income Tax Officer an appeal was filed by the 'association of Persons' to the appellate Assistant Commissioner. The Appellate Assistant Commissioner deleted the income from the 'trichur Vegetable Stores' in assessing the income of the 'association of Persons' on the ground that the income from that business had been determined already in assessing the income of Johny. From the decision of the Appellate Assistant Commissioner the Department filed an appeal before the tribunal. The Tribunal in disposing of the appeal agreed with the views of the appellate Assistant Commissioner. It was thereafter that this reference was made by the Tribunal.
(2.) THE question that arises for consideration is whether after the Income Tax Officer had assessed the income of one business of the 'association of Persons' and assessed on that basis the share of that income of one of the two persons who constituted the 'association of Persons' he was justified in assessing separately the income of the same business for the purpose of assessing separately the income of the 'association of Persons', and whether the deleting of that income by the Tribunal from the income of the 'association of Persons' for the purpose of assessment was not right. THE Act applicable in the instant case is the Income-tax Act, 1922. THE main charging section in that Act is S. 3. It is in the following terms: "where any Central Act enact? 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 members of the association individually. " It is clear from the Section that the same income cannot be charged repeatedly in the hands of different persons or in the hands of the same person. In the present case the income from the 'trichur Vegetable Stores' for the relevant period was determined once and a share of it in the hands of johny was charged. To allow the same income to be charged separately for the assessment of the 'association of Persons' would be to offend the rule that the same income cannot be charged more than once.
The Section quoted above shows that in the case of an 'association of Persons' it is open to the Income Tax Officer to assess the income of that Association and charged the same or after calculating the total income of the Association to fix the share of each of the persons constituting that Association and charge the share of the income of the Association in his hands. The Department has to elect whether for a particular income of the association it should charge the Association itself treating it as one entity or each of the persons constituting the Association separately for the share of the income of the Association in his hands. The option is one entirely with the department. When once the election is made and the option is exercised for the assessment of income for a particular period in a particular manner it is not open to the Department to assess the same income in a different manner.
In Joti Prasad Agarwal v. Income Tax Officer 1959-37-ITR. 107 out of 30 members of an association 23 were assessed to income-tax and in their individual assessments their respective shares of the proceeds earned by the Association during that period were included and the tax levied thereon was paid by them. When later on the Department initiated assessment proceedings and assessed the income of the Association in its hands some members of the association moved the Allahabad High Court for relief against the order of assessment. That court disposed of that matter in favour of the assessee. It is stated as follows in that decision: "in the present case, the income, which was earned by the association, was assessed and charged 10 tax in the hands of the members of the association individually under one of the alternatives provided under s. 3 of the Income Tax Act. This assertion of the petitioners is admitted by the opposite party, the Income Tax Officer, in the counter-affidavit filed on his behalf. The Income having once beer, charged to tax, it is urged that it could not be charged to tax again in the hands of the association. Learned counsel for the opposite party contended before us that there was no bar to tax being charged on the income in the hands of the association after it had already been charged to tax in the hands of the individual members of that association relying on the fact that in the Income Tax Act there is no specific provision barring such action of charging of tax by the Income Tax Officer. We do not think that any specific provision in this behalf was requited. S. 3 of the Act, which is the main charging section, only talks of charging the income of certain persons and does not talk of income-tax being charged on persons. This implies that the charge is to be levied on an income only once. Whether it is to be charged in the hands of one person or another can certainly be determined under S. 3 and other relevant provisions of the Income Tax Act. S. 3 is clear enough to indicate that the same income cannot be charged repeatedly in the hands of different persons or in the hands of the same person. In fact, when examining this argument advanced by learned counsel for the opposite party, we put a question whether be could point out any specific provision in the Income Tax Act under which there was a bar to the income of one individual for one previous year being repeatedly assessed and charged to tax. He was unable to point out any and we had to fall back on S. 3 of the Act reading in it a provision which enables the Income-tax Department to charge tax only once on the income and not more than once. In the present ease, this income of the association has already been charged in the hands of the members of the association individually and the assessment and the charge of tax under that assessment have not yet been set aside. In fact, those orders of assessment have not been challenged. The position has proceeded further and the tax, which was charged, has actually been realised. While the income had already once been charged to tax and the tax realised, we cannot see how the same income can now be assessed and charged to tax again in the hands of the association. " This decision was cited with approval in C. I. T. v. M. J. & P. Ginning & Pressing Factory (SC.) 1965-60 ITR. 95. In the latter decision the Supreme Court said: "this court in Commissioner of Income Tax v. Kannur coal Syndicate 1964-53-ITR. 225 (SC.) observed at page 228: 'the section (S. 3) expressly treats an association of persons and the individual members of an association as two distinct and different assessable entries. 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. ' 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 the one income twice once in the bands of the partners and again in the hands of the unregistered firm. " In the instant case the Department chose to determine the income of the 'trichur Vegetable Stores' separately and charged one of the two persons constituting the Association separately for his share of that income. The moment that act was done the option vested in the Department should be deemed to have been exercised by it. Thereafter it was not open to the department to charge the Association separately on the income it had derived during the relevant period from the 'trichur Vegetable Stores'.
(3.) THEREFORE we answer the question that has been referred to us in the affirmative, that is in favour of the assessee and against the Department. We direct the parties to bear their costs in this reference.
A copy of this judgment shall be sent to the Appellate tribunal as required by S. 260 of the Income Tax Act of 1961.;
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