Case: Income Tax Officer Vs. Ch. Atchaiah

may determine the tax payable by the firm itself on the basis of the total income of the firm, or (b) if, in his opinion, the aggregate amount o f the tax payable by the firm if it were assessed as a registered firm and the tax payable by the partners individually if the firm were so assessed would be greater than the aggregate amount of the tax payable by the firm under clause (a) and the tax which would be payable by the partners individually, may proceed to make the assessment under sub-section (1) of section 182 as if the firm were a registered firm; and, where the procedure specified in this clause is applied to any unregistered firm, the provisions of sub-sections (2), (3) and (4) of section 182 shall apply thereto as they apply in relation to a registered firm." * 8. It may be mentioned that Section 183 corresponded to Section 23(5) (b) of the 1922 Act. The 1922 Act not only provided an option to the Income Tax Officer in the matter of firm and Association of Persons under Section 3 but also expressly enabled him to assess an unregistered firm as a registered firm [Section 23(5)(b)], if by doing so, more tax accrued to the State. The 1961 Act has omitted the first option, while retaining the second. 9. In this connection, it would be relevant to notice the relevant provisions of the draft Bill proposed by the Law Commission in its XIIth Report, which constitutes the basis for the 1961 Act. Clause (27) of Section 2 of the draft (definition of "person") did expressly provide an option similar to the one contained in Section 3 of the 1922 Act. Clause 27 read thus: "(27) Person includes-- (i) an individual, (ii) a Hindu undivided family, (iii)a company, (iv) a firm or other association of persons, whether incorporated or not, or the partners of the firm or the members of the association individually, (v) a body of individuals, whether incorporated or not, (vi) a local authority, and (vii)every artificial juridical person, not falling within sub-clauses (i) to (vi)" * (Emphasis added) In the "Notes on Clauses" appended to the draft, the Commission stated: "27. Person. The definition of person in existing section 2(9) has been amplified. The existing definition includes (a) Hindu undivided family and (b) a local authority. The General Clauses Act, defines person as including a company or association or body of individuals whether incorporated or not. The charging section (section 3) of the Income-tax Act enumerates the units for taxation as individual, Hindu undivided family, company, local authority, firm and other association of persons, or the partners of a firm or the members of the association individually. Section 4 of the Act refers to a person. It seems desirable to have a comprehensive definition of the word person in the Act so as to cover all entities mentioned in -- (i) the existing definition [S.2(9)]. (ii) the existing charging provisions [sections 3 and 4], and (iii) the General Clauses Act. The definition has therefore been amplified on the above lines." * 10. The Parliament, however, chose not to accept the suggested definition in total it deleted the words indicating the option. The Committee, which drafted the draft Bill comprised Sri P.Satyanarayana Rao, Sri G.N.Joshi and Sri N.A.Palkhivala, who was specifically appointed as a member for the purpose of the revision of the Income Tax Act. [Extracts are taken from the XIIth Report of the Law Com mission of India, published by Government of India, Ministry of Law.] 11. This question has also been troubling the High Courts in the country. As a matter of fact, Patna and Andhra Pradesh High Courts have taken different views. Be that as it may, we may mention that the Patna High Court in Mahendra Kumar Agarwal v. Income Tax Officer [ 1976 (103) ITR 688 ], Punjab and Haryana High Court in Rodamal Lalchand v. Commissioner of Income Tax [ 1977 (109) ITR 7 ], Andhra Pradesh High Court in Choudry [supra] and Delhi High Court in Punjab Cloth Stores v. Commissioner of Income Tax [ 1980 (121) ITR 604 ] have taken the view which we have taken. On their other hand, Madras High Court in Commissioner of Income Tax v. Blue Mountain Engineering Corporation [ 1978 (112) ITR 839 ] and Patna High Court in its earlier decision in Commissioner of Income Tax v. Pure Nichitpur Colliery Company [ 1975 (101) ITR 79 ] have taken the opposite view.The Andhra Pradesh High Court first expressed the other view, then in Choudry it took the view which we have taken and the again in B.R. Constructions (F.B.), it has gone back to the other view and reiterated the view taken in the judgment under appeal. In Ramanlal Madanlal v. Commissioner of Income Tax [ 1979 (116) ITR 657 ], Sabyasachi M ukharji, J., speaking for a Bench of the Calcutta High Court, recognized the distinction in the language employed in Section 3 of the 1922 Act and Section 4 of the present Act but that was a case of an unregistered firm where the Income Tax Officer had assessed the incomes in the hands of the partners individually. In such a situation, the learned Judge held, the Income Tax Officer cannot, at the same time, bring the unregistered firm to tax in respect of the very same income. Section 183 was also referred to in that connection. 12. The decision of the High Courts taking the contrary view appears to have been influenced largely by the decision s of this Court in Commissioner of Income Tax v. Kanpur Coal Syndicate [ 1964 (53) ITR 225 ] and Commissioner of Income Tax v. Murlidhar Jhawar and Purna Ginning and Pressing Factory [ 1966 (60) ITR 95 ] which were rendered under the 1922 Act and have not given due weight to the marked difference in the language of the relevant provisions in the two enactments. 13.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]We are of the opinion that under the present Act, the Income Tax Officer has no option like the one he had under the 1922 Act. He can, and he must, tax the right person and the right person alone. By "right person", we mean the person who is liable to be taxed, according to law, with respect to a particular income. The expression "wrong person" is obviously used as the opposite of the express ion "right person". 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. This is so irrespective of the fact which course is more beneficial to the Revenue. In our opinion, the language of the relevant provisions of the present Act is quite clear and unambiguous. Section 183 shows that where the Parliament intended to provide an option, it provided so expressly. Where a person is taxed wrongfully, he is no doubt entitled to be relieved of it in accordance with law* but that is a different matter altogether. The person lawfully liable to be taxed can claim no immunity because the Assessing Officer [In come Tax Officer] has taxed the said income in the hands of another person contrary to lawA comparison of the provisions of both enactments immediately bring out the difference between them. Section 3 of the 1922 Act provided that in respect of the total income of a firm or an Association of Persons, the income tax shall be charged either on the firm or the Association of Persons or on the partners of the firm or on the members of the Association of Persons individually. It is evident that this option was to be exercised by him keeping in view of the interest of Revenue. Whichever course was more advantageous to Revenue, he was entitled to follow it. In such a situation, it was generally held that once the Income Tax Officer opted for one course, the other course was barred to him. But no such option is provided to him under the present Act. Section 4 extracted hereinabove says that income tax shall be charged on the total income "of every person" and the expression "person" is defined in clause (31) of Section 2. The definition merely says that expression "person" includes inter alia a firm and an Association of Persons or a body of individuals whether incorporated or not. There are no words in the present Act which empower the Income Tax Officer or give him an option to tax either the Association of Persons or its members individually or for that matter to tax the firm or its partners individually. If it is the income of the Association of Persons in law, Association of Persons alone has to be taxed; the members of the Association of Persons cannot be taxed individually in respect of the income of the Association of Persons. Consideration of the interest of Revenue has no place in this scheme. When Section 4(1) of the present Act speaks of levy of income tax on the total income of every person, it necessary means the person who is liable to pay income tax in respect of that total income according to law. The tax has to be levied on that person, whether an individual, Hindu Undivided Family, Company, Firm, Association of Persons/BOP, a local authority or an artificial juridical person. From this, it follows that if income of A is taxed in the hands of B, A may be legitimately aggrieved but that does not mean that B is exonerated of his liability on that account. B cannot say, when he is sought to be taxed in respect of the total income which is lawfully taxable in his hands, that since the Income Tax Officer has taxed very same income in the hands of A, he himself cannot be taxed with respect to the said total income. This is not only logical but is consistent with the provisions of the Act. In this connection, it may be pointed out that where the Parliament wanted to provide an option, a discretion, to the Income Tax Officer, it has provided so expressly. Section 183 [which has since been omitted with effect from April 1, 1993 by the Finance Act, 1992] provided that in the case of an unregistered firm, it is open to the Income Tax Officer to treat it, and make an assessment on it, as if it were a registered firm, if such a course was more beneficial to Revenue - in the sense that such a course would fetch more tax to the public exchequerIt may be mentioned that Section 183 corresponded to Section 23(5) (b) of the 1922 Act. The 1922 Act not only provided an option to the Income Tax Officer in the matter of firm and Association of Persons under Section 3 but also expressly enabled him to assess an unregistered firm as a registered firm [Section 23(5)(b)], if by doing so, more tax accrued to the State. The 1961 Act has omitted the first option, while retaining the second