1995 (12) TMI 1 - SC - Income Tax

Supreme Court rules Income-tax Officer must tax the right person, clarifies jurisdiction. Appeal allowed.

Income-Tax Officer Versus Ch. Atchaiah

The Supreme Court held that under the Income-tax Act, the Income-tax Officer must tax the right person and cannot choose between taxing an association of ... AOP - Where a person is taxed wrongfully, he is no doubt entitled to be relieved of it in accordance with law - Merely because a wrong person is taxed with respect to a particular income, the Assessing Officer is not precluded from taxing the right person with respect to that income Issues Involved:1. Validity of the notice issued under Section 148 of the Income-tax Act, 1961.2. Jurisdiction of the Income-tax Officer to assess the same income in the hands of an association of persons after assessing it in the hands of individual members.3. Interpretation of provisions under the Income-tax Act, 1961 compared to the Indian Income-tax Act, 1922.Issue-wise Detailed Analysis:1. Validity of the Notice Issued Under Section 148 of the Income-tax Act, 1961:The respondent and Kondal Reddy were issued a notice under Section 148 of the Income-tax Act, 1961, stating that income chargeable to tax for the assessment year 1964-65 had escaped assessment. They filed a 'nil' return in response. The Income-tax Officer then proposed to tax them as an association of persons, which led to the respondent filing a writ petition questioning the validity of this notice.2. Jurisdiction of the Income-tax Officer to Assess the Same Income in the Hands of an Association of Persons After Assessing It in the Hands of Individual Members:The main contention by the respondent was that the Income-tax Officer, having assessed the share of each individual member, cannot reassess the same income as the income of an association of persons. The High Court accepted this contention, stating that the Income-tax Officer, having exercised the discretion to assess individuals, cannot reassess the same income in the hands of an association of persons. The High Court also rejected the Revenue's alternative contention that the previous assessments were for a different assessment year, emphasizing that the critical question was whether the Income-tax Officer exercised his option to levy tax on the income in the hands of individuals or the association.3. Interpretation of Provisions Under the Income-tax Act, 1961 Compared to the Indian Income-tax Act, 1922:The Revenue argued that the High Court erred in holding that under the present Act, the Income-tax Officer has an option to tax either the association of persons or its members individually. The court noted that while such an option was available under the 1922 Act, it is not available under the present Act. The court emphasized that under the current Act, the 'right person' must be taxed, and the mere fact that a wrong person was taxed does not preclude taxing the right person. The court clarified that the relevant provisions of the present Act are clear and unambiguous, and where Parliament intended to provide an option, it did so expressly, as seen in Section 183 regarding unregistered firms.The court further elaborated that under the 1922 Act, Section 3 provided an option to tax either the firm or the association of persons or its members individually, which was not retained in the 1961 Act. The court highlighted that the definition of 'person' in the 1961 Act does not include an option for the Income-tax Officer to choose between taxing the association of persons or its members individually.Conclusion:The Supreme Court concluded that under the present Act, the Income-tax Officer has no option and must tax the right person. The appeal was allowed, and the judgment of the High Court was set aside. The court clarified that it only pronounced upon the specific question of jurisdiction and did not express an opinion on other contentions raised by the assessee. The assessee was allowed to urge these contentions before the Income-tax Officer according to law. There was no order as to costs.