Decided on December 13,1993



T.V. Rqjagopala Rao, Judicial Member - (1.) THESE are assessee's appeals directed against the order of the Dy. Commissioner (Appeals), Vijayawada, dated 13-5-1988 confirming the status of the assessee as 'Body of Individuals', for these three assessment years.
(2.) The facts leading to the filing of these appeals may be stated as follows :� (a) There was one person by name Guravayya. Sitamma was his second wife. By his second wife, Guravayya has got one son named Venkatadri, and three daughters named, Narayanamma, Venkata Narasamma and Dhanalaxmamma. Guravayya has got another daughter, by name, Mahalaxmamma, by his first wife. This family of seven originally belong to Jagyayyapet. However, they have migrated to Khammammet about 40 years prior to 6-5-1956, in order to eke out their livelihood. Guravayya was stuck up with paralysis. Sitamma and Mahalaxmamma had been doing business in sweet-meats, and they were able to marry three daughters of Sitamma and her only son. Besides this, they were able to save an amount of Rs. 50,000. With the said amount, and in partnership with one Paddaboina Rama Dasu, they began construction of a cinema hall by the side of a canal in Burada Raghavarapuram, in the land owned by Smt. Sitamma. Construction of the cinema hall was not yet completed by 6-5-1956, on which date Sitamma executed an unregistered will bequeathing her property described as 'self-acquired property'. A copy of the will is filed before us. In the said will, it is described that after the death of the testator, Sitamma her son Venkatadri, his two wives, viz., Laxmikanthamma and Padmavathamma, and their daughters born to Venkatdri and Padmavathamma, viz. Chandrakala, Sesharatnamma and Baby Sarojini, and the subsequent issues of Venkatadri, are all entitled equally in the cinema hall belonging to Sitamma. It is made very clear in the will that it is not permissible for Venkatadri to enjoy the cinema hall to the exclusion of others. All legatees should equally enjoy the property, while carrying on business in it. (b) By the date of the execution of will, Sitamma was aged 80 years. It is stated that the will should come into operation only on the death of Sitamma. She died in 1966. Dy. CIT (Appeals) notes in his impugned order that after the death of Sitamma, the cinema hall was run by Venkatadri of and on behalf of the other five persons who have got equal shares in the cinema hall, as per the will of Late Smt. Sitamma. For assessment year 1967-68, IT return was filed claiming the status as 'registered firm'. The ITO rejected the claim of the assessee in that behalf, and completed the assessment holding that the entire income from Venkatalakshmi Talkies belonged to Shri A. Venkatadri. At the same time, protective assessment was made in the status of 'unregistered firm'. The AAC had annulled the assessment, as he was of the view that the assessment could be made only in the status of 'Body of Individuals'. Subsequently, the ITO had made the assessments for assessment years 1967-68, 1968-69, 1969-70,1972-73 and 1973-74, taking the status of the assessee as 'Body of Individuals'. Against the said assessments appeals were carried to the AAC, who annulled the assessments for assessment years 1967-68 and 1968-69 on the ground that they were time-barred, whereas he upheld the assessments for the assessment years 1969-70, 1972-73 and 1973-74. The orders of the AAC for those years were allowed to become final, since the assessee did not prefer any further appeal. (c) In 1974, disputes arose among the co-legatees. Smt. A Lakshmikanthamma, the elder of the two wives of Venkatadri, had filed originally a suit in the Court of Sub-judge, Khammam which was numbered O.S. 47/74 on his file. The said suit was filed, purportedly for dissolution of partnership and rendition of accounts. All the co-legatees were made defendants to the suit. Later on, the said suit appears to have been transferred to the file of the District Judge, Khammam and appears to have been renumbered as O.S. 5 of 78 on his file. On 30-9-1978, a preliminary decree was passed by the learned District Judge, Khammam. A copy of the decree dated 30-9-1978 was filed before us. (d) In the decree, it is stated in the opening paras that the suit was filed for dissolution of partnership business of Sri Venkatalakshmi Talkies, Khammam and for rendition of accounts of the said partnership business by the first defendant, viz., Venkatadri, from 22-3-1966 till the date of dissolution of the firm, and to direct the 1st defendant, Venkatadri, to pay the plaintiff, her due share. The clauses in the decree are important and hence, those that are felt to be important, are extracted hereunder :� (1) That the plaintiff and defendants 2 to 5 have each 16 paise share and the defendant No. 1 has 20 paise share in a rupee in the partnership firm; (2) That the Projector, generator, the electrical fittings of the cinema hall are not the self-acquisition of the defendant No. 1 and that the plaintiff is entitled to a share in them; JUDGEMENT_5344_TLIT0_19930.htm (4) That the rent realised on the cinema hall by the defendant No. 1 during his management was only Rs. 50 per day; (5) That it is declared that the plaintiff has received from the defendant No. 1 profits due to her from 22-3-1966 to 28-2-1968; (6) That it is declared that the suit cinema hall constitutes the property of co-ownership of the parties to the suit but does not constitute an asset of the partnership; JUDGEMENT_5344_TLIT0_19931.htm (8) That the partnership between the plaintiff and the defendants shall be deemed to have been dissolved as and from 27-9-1974. From the above, it is very clear to our minds that the partnership firm constituted by all the legatees under the will was only with regard to carrying on of the business of exhibiting cinema films. It is specifically mentioned in the decree that the cinema hall as such was not brought into the partnership firm, and it always remained as a co-ownership asset of the parties to the dispute. It is also very clear that even the partnership firm was dissolved on 27-9-1974. (e) The appellate order passed by the Dy. Commissioner (Appeals) dated 12-10-1977 for assessment years 1970-71 and 1971-72 was filed before us by the learned departmental representative. In that it is made very clear that the income was derived by the assessee firm from the exhibition of films, and following the decision of the A.P. High Court decision at Deccan Wine & General Stores v. CIT [1977] 106 ITR 111, the status of the firm should be taken as that of Body of Individuals', as he had already determined the status like that in his appellate orders for the earlier years. (f) During the pendency of the suit before the sub-Judge, a petition for appointment of Commissioner was filed with a request that he may lease out the common property and deposit the proceeds in the Court to the credit of the suit. The petition was numbered as IA 473 of 74. A copy of the warrant given to the Advocate- Commissioner in the suit was filed before us, on behalf of the assessee. By the said warrant, the Commissioner was directed to lease out the cinema hall for one year from 1-10-1974 in open auction. Every year, the proceeds realised by conducting the open auction for carrying on exhibition of cinema films in the said cinema hall, were being deposited to the credit of the suit. The amounts thus deposited for the three financial years relevant to assessment years 1977-78, 1978-79 and 1979-80 are the following ;� JUDGEMENT_5344_TLIT0_19932.htm It was ascertained from the Commissioner that as per the conditions of auction, rates, taxes and other expenses for running the theatre were to be borne by the lessees themselves. According to him whatever amount was credited to the court is the net income. (g) For assessment year 1977-78, assessee did not file any return whatsoever. The ITO, therefore, issued notice under Section 148. As per xerox copy of the order-sheet filed before us by the learned departmental representative, the reason given by the ITO for the issuance of notice under Section 148 is as follows :� I have reason to believe that by reason of omission or failure on the part of the assessee to make a return under Section 139 for the year, the income chargeable to tax has escaped assessment for the year 1977-78. The said notice under Section 148 was issued on 29-3-1982 even after the receipt of the notice under Section 148, assessee did not come forward and file any return, though it was called upon to do so by the said notice. Then the ITO completed the assessment under Section 144 read with Section 148 on 11-3-1986, from which this appeal arose for assessment year 1977-78. From the lease amount deposited in the court, the ITO had given 10 % reduction towards depreciation and thus determined the total income of the assessee at Rs. 69,760. While completing the assessment, he levied interest of Rs. 26,598 under Section 139(8). (h) Facts relating to assessments for assessment years 1978-79 and 1979-80 remained the same, and it is enough for us to note that the assessments for these two years where also completed under Section 144 read with Section 148 by separate assessment orders dated 11-3-1986. For assessment year 1978-79, the total income was determined at Rs. 99,200, whereas for assessment year 1979-80 the total income was determined at Rs. 79,710. Interest levied for assessment year 1978-79 under Section 139(8) was Rs. 42,386. Similarly, for assessment year 1979-80, interest levied under Section 139(8) was Rs. 26,807 and interest levied under Section 217(1)(a) was Rs. 28,095. (i) Aggrieved by the assessment orders for these three years, all dated 11-3-1986, assessee preferred appeals before the Dy. Commissioner of IT (Appeals), Vijayawada who, by his impugned order dated 13-5-1988, confirmed the assessments for these three assessment years. Hence, these appeals are filed before this Tribunal. The main common ground in each of these appeals is that the status of the assessee should not have been determined as 'Body of Individuals'. By way of additional grounds, the legality of levy of interest under Section 139(8) and Section 217(1)(a) is questioned. Since for deciding the additional ground, no new or fresh facts are necessary to be appreciated, we have allowed the additional grounds and have taken them up for decision. Thus, the status as well as the levy of interest are the two common grounds which arise from out of these three appeals.
(3.) WE ,have heard Shri K.S. Viswanathan, learned advocate for the assessee and Shri K. Vasanth Kumar, learned departmental representative/Firstly, let us take up the question of status. According to the revenue, the status of the assessee was rightly determined as 'Body of Individuals' by the Assessing Officer, and the same was rightly confirmed by the Dy. Commissioner (Appeals) and, so it should be confirmed, whereas according to Shri K.S. Viswanathan, learned counsel for the assessee, ingredients required to treat the assessee as 'Body of Individuals' were never present and hence the determination of the status of the assessee as 'Body of Individuals' is wrong both under law as well as on facts.;

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