1974 (9) TMI 21 - HC - Income Tax

'Association of persons' status in tax assessments treated transactions as AOP; defective s.148 personal service invalid yet s.147 jurisdiction upheld

Whether the phrase 'association of persons' governs liability: the HC held neither Act defines the term; adopting SC authority, an 'association of ... Validity of the notices - business was being run on behalf of the minors by their father and guardian - Conditions for reopening assessments - Omission or failure on his part to disclose fully and truly all material facts necessary for the assessment - term ' association of persons ' - Service Of Notice - HELD THAT:- Neither in the Indian Income-tax Act, 1922, nor in the Income-tax Act, 1961, the term ' association of persons ' has been defined. In the case of Commissioner of Income-tax v. Indira Balkrishna [1960 (4) TMI 7 - SUPREME COURT], it was held by the Supreme Court that the word ' associate ' means ' to join in common purpose, or to join in an action '. Therefore, ' association of persons ' must be one in which two or more persons join in a common purpose or common action. With respect to the assessment years 1967-68, 1968-69 and 1969-70, the notices were delivered to one Sri Nalin Vaisnab. According to the petitioner, he was also not authorised to receive the notices on behalf of the association of persons and the service of notices on him was also invalid. It is clear from what I have stated above that action has been taken in all the cases on behalf of the association of persons in pursuance of the impugned notices issued under section 148 of the Income-tax Act, 1961. It is, therefore, idle to contend that the invalid service of notices would affect the jurisdiction of the Income-tax Officer to proceed with the assessment under section 147 of the Income-tax Act, 1961. It is stated in the applications that the notices were not served on the petitioner and on enquiry the petitioner also learnt that the notices were not served on his brother, Sri Yogendra Kumar Agrawalla. The notices were delivered to one Sri R. P. Sinha, who is a mere clerk employed in the colliery, and he had no authority to receive the notices on behalf of the petitioner or his brother, Sri Yogendra Kumar Agrawalla. Therefore, there was no valid service of the notices. The fact that notices under section 148 were served on Sri R. P. Sinha is admitted in the counter-affidavits but it has been asserted that they were served on him at the instance of either the petitioner of Sri Yogendra Kumar Agrawalla. Section 282(1) of the Income-tax Act, 1961, provides that a notice or requisition under the Act may be served either (1) by post, or (2) in any other way a summons issued by a court can be served under the Code of Civil Procedure. As provided under sub-section (2) of section 282, any such notice or requisition may be addressed in the case of an association or body of individuals to the principal officer or any member thereof. Issues Involved:1. Capacity of minors to form an 'association of persons'.2. Legality of assessing individuals after previously assessing them as an 'association of persons'.3. Jurisdiction of the Income-tax Officer to issue notices under section 148.4. Requisite conditions for reopening assessments.5. Validity of the Commissioner's sanction for issuing notices.6. Validity of service of notices under section 148.Detailed Analysis:1. Capacity of Minors to Form an 'Association of Persons':The petitioner argued that minors cannot form an 'association of persons' because they are incapable of exercising volition to associate themselves to produce income. The court referred to the Supreme Court's definition in Commissioner of Income-tax v. Indira Balkrishna, stating that an 'association of persons' must involve two or more persons joining in a common purpose or action to produce income. The court noted that whether minors can form such an association is a factual question. The court found that the colliery was managed as a single unit, implying a joint enterprise, and the petitioner failed to show that the minors did not join in a common action under their father's guardianship.2. Legality of Assessing Individuals After Previously Assessing Them as an 'Association of Persons':The petitioner contended that the Income-tax Officer cannot reassess the same income as an 'association of persons' after having assessed it individually. The court distinguished between the Indian Income-tax Act, 1922, and the Income-tax Act, 1961. Under the 1961 Act, the Income-tax Officer does not have the option to choose between assessing an association or its members individually. The court cited the Supreme Court's decision in Income-tax Officer, 'A' Ward, Lucknow v. Bachu Lal Kapoor, stating that if an assessment on an association is made, appropriate adjustments must be made to avoid double taxation.3. Jurisdiction of the Income-tax Officer to Issue Notices Under Section 148:The petitioner argued that the Income-tax Officer had no jurisdiction to issue the notices as his jurisdiction ended after the initial assessment. The court held that under the 1961 Act, the Income-tax Officer is competent to initiate proceedings under section 147 if the income of an assessable unit has escaped assessment. The court allowed the writ applications for the assessment years 1960-61 and 1961-62, as the 1922 Act applied, and the officer had already exercised his option to assess the members individually.4. Requisite Conditions for Reopening Assessments:The petitioner claimed that the conditions for reopening assessments were not met. The court examined the notice under section 148 and the counter-affidavits, concluding that the Income-tax Officer had reasonable grounds to believe that income had escaped assessment due to the failure to file returns for the association. The court found that the belief was based on reasonable grounds and not mere suspicion, thus validating the notices.5. Validity of the Commissioner's Sanction for Issuing Notices:The petitioner alleged that the Commissioner mechanically granted sanction without applying his mind. The court, satisfied with the counter-affidavits and the detailed letter from the Income-tax Officer to the Commissioner, found that the Commissioner had considered the facts before granting the sanction. Therefore, the court held that the sanction was not granted mechanically.6. Validity of Service of Notices Under Section 148:The petitioner argued that the notices were not validly served as they were delivered to unauthorized individuals. The court noted that the petitioner and his brother acted upon the notices, filing applications and accepting the notices' validity. Citing Bombay High Court decisions, the court held that procedural irregularities in serving notices do not invalidate the proceedings if the notices were acted upon. Thus, the court found no merit in the petitioner's contention regarding the invalid service of notices.Conclusion:- Allowed: C.W.J.C. No. 1647 of 1971 (assessment year 1960-61) and C.W.J.C. No. 1643 of 1971 (assessment year 1961-62).- Dismissed: C.W.J.Cs. Nos. 1644, 1645, 1646, 1648, and 1649 of 1971, and C.W.J.Cs. Nos. 1222, 1223, and 1224 of 1972.- No order as to costs in any of the applications.The judgment was concurred by both judges, with no separate judgments delivered.