TaxTMI 
TaxTMI 
1963 (11) TMI 77
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....the entire section but confined his attack only to that portion of section 3, which seeks to assess an association of persons or the members of such an association individually. We shall briefly refer to the facts leading up to these petitions. The petitioner was treated as the "principal officer" of the association of persons described as Messrs. M.M. Ipoh, and the Income-tax Officer, Karaikudi, assessed him in such capacity. There was a Hindu undivided family with the name and vilasam M.S.M.M. consisting of the father Meyyappa, and his two minor sons, Chockalinga and Meyyappa. The family carried on business in money-lending, purchase and sale of rubber gardens in the Malay States, Burma and India. Besides the exclusive business carried on by the family, it was also a partner in another business. A partition was effected among the members of the family by a deed dated April 5, 1940, with effect from February 22, 1940. The sons were minors on that date and were represented by their mother as guardian. Two of the businesses owned by the family referred to as the Karaikudi and the Rangoon business were allotted to the share of the father, Meyyappa. In addition, the father also ....
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....hat there was any association of persons, but the officer overruled his objections and held that in 1951-52 Meyyappa and his minor son, Chettiappa, were members of an association of persons, and that, for the remaining assessment years, these two persons and the firm of M.S.M.M. were the members of such an association. Assessments were made accordingly. There were appeals to the Appellate Assistant Commissioner, in which Meyyappa raised the same objections. The appeals failed, but the appellate authority, however, directed that the rental income from properties should be assessed in the hands of the several owners, instead of an assessment on Meyyappa as the principal officer. Meyyappa went up by way of further appeals to the Appellate Tribunal, but was again unsuccessful. Proceedings under section 66(1) of the Income-tax Act resulted in the following question being referred to this court: "Whether the assessments on the 'association of persons' for the assessment years 1951-52 to 1956-57 are valid?" That formed the subject-matter of the reference in T.C. No. 201 of 1960 (Reference No. 92 of 1960....
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..... In these petitions, the prayer is for the issue of a writ of prohibition, or such other writ or directions as this court may think fit and appropriate in the circumstances, to restrain the Income-tax Officer, Karaikudi, from enforcing the collection of the tax in respect of Meyyappan who is now dead and his son Chettiappan who has been impleaded as his legal representative. The single question that arises is: "Whether section 3 of the Indian Income-tax Act, providing for taxation of 'association of persons' as an entity or, in the alternative, of the members of that association, offends article 14 of the Constitution?" Before dealing with this question, we should refer to an argument raised by the learned Advocate-General appearing for the department, which is almost in the nature of a preliminary objection regarding the maintainability of these petitions. In short, the contention is that this court had upheld the validity of the assessments for the years 1952-53 to 1956-57 in T.C. No. 201 of 1960* and that, therefore, the petitioners cannot reagitate the same question in a different form or....
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....er appear to arise. This contention was not taken before any of the officers below or even before the Tribunal. That being the case, the argument outlined above seeks to pose a question which does not arise from the order of the Tribunal. We therefore decline to deal with it." What then is the effect of the prior decision, which upheld the validity of the assessment on the petitioner in respect of the years 1952-53 to 1956-57 on him in his capacity as the principal officer of M.M. Ipoh? We have already pointed out that the constitutional validity did not arise for decision at that stage. This court then exercised its powers under section 66 of the Indian Income-tax Act. It is needless to point out that the jurisdiction under that provision is limited to answering the questions referred. Only the question that arises out of the order of the Tribunal can come within the scope of section 66. The assessment cannot, of course, raise the question, before the department or the Tribunal, of the vires of any of the provisions of the Indian Income-tax Act, either on the ground that the legislature was not competent to enact the measure or on the ground that it offended the fundamental rig....
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.... it to show that an assessment purporting to be under the Act is inviolable and cannot be collaterally attacked in any independent proceeding de hors the machinery under the Act. The question that came up for consideration in that case was as regards the scope of section 67 of the Indian Income-tax Act. A joint stock company was incorporated in the Isle of Man and had its main office in England. It held shares in nine companies carrying on business in British India. All the dividends received by the company from the nine companies were declared, paid and received in England; No part of them was ever remitted to British India. The company was assessed in respect of income-tax and super-tax for the assessment year 1939-40 as a non-resident on an income which included the dividends received from the nine companies. The tax was paid under protest, and a suit was instituted by the company in the High Court of Calcutta in its ordinary original civil jurisdiction, praying for a declaration that, in so far as Explanation 3 and the other provisions of section 4 of the Indian Income-tax Act, 1922, as amended in 1939, purported to authorise the assessment and charging to tax of a non-resident....
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....ppropriate machinery is, therefore, provided by the Act itself for the review on grounds of law of any assessment. It is in that setting that section 67 has to be construed.......The circumstance that the assessing officer has taken into account an ultra vires provision of the Act is in this view immaterial in determining whether the assessment is 'made under this Act' The phrase describes the provenance of the assessment: it does not relate to its accuracy in point of law. The use of the machinery provided by the Act, not the result of that use, is the test." It is now a well-accepted rule of law that where rights are created under a statute, and the statute itself prescribes or erects a special machinery to adjudicate upon such rights, the jurisdiction of the normal forum of the land is taken away by necessary implication. Their Lordships of the Judicial Committee had apparently this principle in mind, when they laid emphasis on the fact that questions relating to assessment, whatever be their nature and character, could be solved with the help and assistance of the hierarchy of tribunals constituted under the Act. We must confess, with great respect to the Judicial Co....
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....-point adopted by the Board. A recent decision of the Supreme Court in Civil Appeal No. 315 of 1962, lluri Subbayya Chetty & Sons v. State of Andhra Pradesh*, would seem to indicate that their Lordships are not inclined to accept as sound Raleigh Investment Company's case*. That was a case which considered the scope of section 18A of the Madras General Sales Tax Act, 1939, and incidentally Raleigh's case* was referred to and dealt with by his Lordship Gajendragadkar J. The following observation of his Lordship really gives an inkling of his view as regards Raleigh's case [1947] 15 I.T.R. 332 (P.C.): "It is true that the judgment shows that the Privy Council took the view that even the constitutional validity of the taxing provision can be challenged by adopting the procedure prescribed by the Income-tax Act; and this assumption presumably proceeded on the basis that if an assessee wants to challenge the vires of the taxing provision on which an assessment is purported to be made against him, it would be open to him to raise that point before the taxing authority and take it for a ....
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....ryao v. State of U.P.** and in that case it has been held that where the petition under article 226 is considered on the merits as a contested matter and dismissed by the High Court, the decision pronounced is binding on the parties......and so, if the said decision was not challenged by an appropriate remedy provided by the Constitution, a writ petition filed in respect of the same matter would be deemed to be barred by res judicata. Therefore, there can be no doubt that the general principle of res judicata applies to writ petitions filed under article 32 or article 226. It is necessary to emphasise that the application of the doctrine of res judicata to the petitions filed under article 32 does not in any way impair or affect the content of the fundamental rights guaranteed to the citizens of India." Referring to the doctrine of constructive res judicata, his Lordship stated thus: "The grounds now urged are entirely distinct and so the decision of the High Court can be upheld only if the principle of constructive res judicata can be said to apply to writ petitions filed under article 32 or article 226. In o....
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....p; "Where any Central Act enacts that income-tax shall be charged for any year at any rate or rates, tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, this Act in respect of the total income of the previous year of every individual, Hindu undivided family, company and local authority, and of every firm and other association of persons or the partners of the firm or the members of the association individually." The contention urged is that that part of the section enabling the imposition of tax on the "association of persons or the members of the association individually" violates the equality clause, because the taxing authorities are vested with the power to tax an association of persons or the members of the association individually according to their whim and caprice. It is said that the authorities are put in a position to pick and choose as amongst the associations or persons and subject one association to tax as an association, and subject the members of another association individually without treating them together as an entity. In other words, the vice of this pa....
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.... that the creation of such an entity is repugnant to article 14 of the Constitution. The Act has a scheme of creating entities of groups of persons like a Hindu undivided family, firm of partnership, a company, each with different characteristics and different legal attributes. "Association of persons" is a residuary group which cannot fit in with the other groups referred to. That is why separate mention is made of an ad hoc body like an "association of persons" who join together to earn income, and whose jointness is incapable of being assigned any legal label. It is, however, unnecessary to pursue this point further, as the problem now before us is not whether the constitution of such a group is unconstitutional, but whether the liberty given to the department to assess an association or its members is so large and so bereft of any principle as to attract the mischief of article 14. We do not think that the mere fact that the department can treat the "principal officer" as the representatives of the association would amount to any discrimination, as suggested by the learned counsel for the petitioner. "Principal Officer" is defined in section 2(12) of the Act and it reads: ....
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....unter affidavit on behalf of the department, it is averred as follows: "...the Act confers no choice as alleged and that whereas association of persons earns income and is assessable it is bound to be assessed as such. The last part of section 3 is intended to enable an assessment on the individual earlier than or independent of the association. Even assuming that the Act permits an assessment either on the association or the members individually, the choice of the Income-tax Officer is not unguided or arbitrary. He will have to make an assessment, in the submission of this respondent on the principle that the object of the enactment is to levy the tax at its point of accrual to the association itself and he can assess the individuals only in cases as for example, where the association is not assessable but the individuals are." The constitutionality of the provision is of course to be judged not by the averments in the counter affidavit but on a proper construction of the statute itself. In Jyothi Pershad v. Union Territory of Delhi A.I.R. 1961 S.C. 1602, 1608, the following principles governing the applicability of article 14 of the Constitution to any piece of legislation ....