1967 (7) TMI 8 - SC - Income Tax

Supreme Court upholds assessments on 'association of persons' for 1952-57, confirms principal officer, no Article 14 violation

The Supreme Court upheld the validity of assessments on the 'association of persons' for the assessment years 1952-53 to 1956-57, confirmed Meyyappa (I) ... There are materials to hold the assessee as the principal officer of M.M. Ipoh assessed in the status of an association of persons - appeal of assessee is dismissed Issues Involved:1. Validity of assessments on the 'association of persons' for the assessment years 1951-52 to 1956-57.2. Whether there are materials to hold the assessee as the principal officer of M. M. Ipoh assessed in the status of an association of persons.3. Constitutionality of section 3 of the Indian Income-tax Act under Article 14 of the Constitution.Detailed Analysis:1. Validity of Assessments on the 'Association of Persons' for the Assessment Years 1951-52 to 1956-57:The High Court held that the income brought to tax in the assessment year 1951-52 did not accrue to an association of persons, but the income in the years 1952-53 to 1956-57 accrued to an association of persons formed by Meyyappa (I), M. S. M. M. firm, and the minor, Chettiappa. The High Court was of the view that Meyyappa (I) acted on behalf of Chettiappa in forming the association, that the affairs of the association were under the management of Meyyappa (I) during the account years relevant to the assessment years 1952-53 to 1956-57, that the association of persons was engaged in a joint enterprise for the purpose of producing income, and that there was 'unity of purpose and objectivity.' The High Court also held that by the notices for assessment of the income for the years 1952-53 to 1954-55, Meyyappa (I) did in fact have notice of the intention of the Income-tax Officer to treat him as the principal officer of the association, and the proceedings for assessment and reassessment were properly commenced.The Supreme Court found that there was abundant material to prove that Meyyappa (I), his minor son, Chettiappa, and M.S.M.M. firm formed an association in the years 1952-53 to 1956-57. The properties were used in a trading venture and were managed by the M. S. M. M. firm. The management of the properties and the business dealings were conducted in a unified manner, indicating an association of persons.2. Whether There Are Materials to Hold the Assessee as the Principal Officer of M. M. Ipoh Assessed in the Status of an Association of Persons:The High Court recorded that the Income-tax Officer was justified in holding Meyyappa (I) to be the principal officer of 'M. M. Ipoh.' The Supreme Court noted that no objection was ever raised before the Income-tax Officer about the regularity of the proceedings and the Income-tax Officer found that Meyyappa (I) was the principal officer of the association. Even before the Appellate Assistant Commissioner, it was not argued that Meyyappa (I) was not the principal officer. The Supreme Court held that the Income-tax Officer assessed the income of the association as represented by Meyyappa (I) its principal officer, and there was nothing in the Act requiring a notice and an order declaring a person as the principal officer before assessment proceedings could commence.3. Constitutionality of Section 3 of the Indian Income-tax Act Under Article 14 of the Constitution:Counsel for the appellants contended that section 3 of the Indian Income-tax Act invested the Income-tax Officer with arbitrary and unguided power to assess to tax the income of an association of persons in the hands either of the association or of the persons constituting that association, and on that account section 3 offended Article 14 of the Constitution. The Supreme Court, however, found that the Act sets out principles and provides guidance for the Income-tax Officer in exercising the option. The duty of the Income-tax Officer is to administer the provisions of the Act in the interests of public revenue and to prevent evasion or escapement of tax. The Supreme Court held that the nature of the authority exercised by the Income-tax Officer and his duty to prevent evasion of tax constitute adequate enunciation of principles and policy for the guidance of the Income-tax Officer.The Supreme Court dismissed the appeals, holding that there was no denial of equality before the law between persons similarly situated within the meaning of Article 14 of the Constitution.Conclusion:The Supreme Court upheld the validity of the assessments on the 'association of persons' for the assessment years 1952-53 to 1956-57, confirmed that there were materials to hold Meyyappa (I) as the principal officer of M. M. Ipoh, and found no violation of Article 14 of the Constitution in section 3 of the Indian Income-tax Act. The appeals were dismissed with costs.