Right person rule under income tax: an association of persons may be assessed despite earlier assessment of a member.

Under the Income-tax Act, 1961, assessment must be made on the right person alone, and the Assessing Officer has no discretion to choose between taxing an association of persons and its members. The earlier view allowing an option to assess either the firm or partners, or the association of persons or its members, is stated to have been displaced by the Supreme Court decision in ITO v. Ch. Atchaiah. Applying sections 4 and 2(31), the text explains that a prior assessment on one member does not prevent separate assessment of the association of persons for the same income if the association is the person legally liable.

---

---

Issues: (i) Whether, after one member of an association of persons had already been assessed, the association of persons could still be assessed separately for the same income for the assessment year 1981-82.

Analysis: The earlier Division Bench view permitting an option to assess either the firm or its partners, or the association of persons or its members, was held to be no longer good law after the Supreme Court decision in ITO v. Ch. Atchaiah. Under section 4 of the Income-tax Act, 1961, tax is charged on the total income of every person, and section 2(31) includes a firm and an association of persons within the meaning of person. The present Act does not confer any discretion on the Assessing Officer to choose between taxing the association of persons and taxing its members individually. The governing principle is that the Assessing Officer must tax the right person and the right person alone; assessment of a wrong person does not bar assessment of the person who is liable in law.

Conclusion: The assessment on the assessee as an association of persons, notwithstanding the earlier assessment on one of its members, was held to be legal, and the issue was answered against the assessee and in favour of the Revenue.

Ratio Decidendi: Under the Income-tax Act, 1961, the Assessing Officer has no option to tax an incorrect person in place of the person who is legally liable to be taxed; the income must be assessed in the hands of the right person alone.

---