Strict construction of income tax charging provisions bars splitting an association's income among its individual members.

Section 4 of the Income-tax Act, 1961 was construed as taxing an association of persons in its own hands where it is the recipient of income, because the Act does not contain the 1922 Act's express basis for splitting income and assessing members individually. Applying strict construction of taxing statutes, the Court held that no charge or alternative incidence of tax can be implied from general charging language. Section 86 did not change that position on these facts. The Tribunal therefore lacked authority to direct division of capital gains among the members of the association of persons, and the reference was answered against the Revenue.

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Issues: Whether, under section 4 of the Income-tax Act, 1961, the income received by an association of persons could be assessed in the hands of the individual members by directing a split-up of the income, even though the association of persons was found to be the recipient of the income.

Analysis: The reference turned on the scope of the charging provision in section 4 of the Income-tax Act, 1961, read with the definition of "person" in section 2(31). The Court distinguished the earlier charging section in section 3 of the Income-tax Act, 1922, which expressly referred to an association of persons and its members individually, and on that basis had permitted an alternative mode of assessment. The 1961 Act omitted any corresponding reference to members of an association individually. Applying the principle that a taxing statute must be construed strictly and that no charge can be created by implication, the Court held that the recognition of an association of persons as a taxable person required assessment in its own hands unless the statute specifically provided otherwise. The power to shift the incidence of tax to another entity could not be inferred from the general charging language, and section 86 did not alter that position for the present purpose.

Conclusion: The Tribunal had no competence to direct the Income-tax Officer to divide the capital gains among the members of the association of persons. The answer to the referred question was in the negative and against the Revenue.

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