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Petitioner: COMMISSIONER OF INCOME-TAX VS Respondent: B.R. CONSTRUCTIONS
Court Name: Andhra Paradesh High Court Judge(s): S. Parvatha Rao, Syed Shah Mohammad Quadri, N. D. Patnaik Title: COMMISSIONER OF INCOME-TAX vs B.R. CONSTRUCTIONS Case No.: Case Referred No,41 of 1980 Date of Judgment:1992-06-19 Reported As: 1994 PTD 273 Result: Reference answered
Judgment ORDER OF REFERENCE TO FULL BENCH K. RAMASWAMY, J.--- This case brings out a cleavage of opinion between two co-ordinate Division Benches of this Court covering the same point. In Ch. Atchaiah v. ITO (1979) ITR 675, a Division Bench held that the language in section 3 of the Indian Income-tax Act, 1922, and the language in section 4 read with section 2(31) of the Income Tax Act, 1961, is the same and there is not much of a difference. The Income-tax Officer having chosen to assess the individual partners separately, it is not open to him (Income-tax Officer) again to assess the unregistered firm consisting of all the partners as a single unit for the same assessment year. A contrary view was taken by another Division Bench in Choudhry Brothers v. CIT (1986) 158 ITR 224, and this later Division Bench has said that the decision in Ch. Atchaiah v ITO (1979) 116 ITR 675, was rendered per incuriam without elaborating under what circumstances it (doctrine of per incuriam) can be applied by the co- ordinate Division Bench without making any reference to a larger Bench. The later Division Bench did not feel inclined to agree with the opinion expressed by the earlier Division Bench. With a view to set at rest the cleavage of opinion, we are of the considered view that the matter needs an authoritative pronouncement by a Full Bench of this Court and accordingly, we make a reference to the Full Bench to resolve the difference of opinion expressed by the two Division Benches and also:-- (1) under what circumstances, one Division Bench can differ from the view of an earlier Division Bench; and (2) under what circumstances the doctrine of per incuriam can be applied by a co-ordinate Division Bench for net following the earlier binding precedent of another Division Bench.
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The office is directed to place the papers before the Honourable Chief Justice to constitute a Full Bench as expeditiously as possible to go into these questions and decide the matter. Since the sole point involved in the referred case is of the applicability of section 4 of the Income-tax Act, 1961, the entire referred case is referred to the Full Bench. JUDGMENT OF FULL BENCH At the instance of the Commissioner of Income-tax, Andhra Pradesh I, Hyderabad, the Income-tax Appellate Tribunal, Hyderabad, made this reference under section 256(1) of the Income Tax Act, 1961, for the opinion of the High Court on the following question of law: "Whether, on the facts and in the circumstances, the assessment made on the assessee for the assessm ent year 1968-69 was valid." When this reference came up before a Division Bench of this Court, it referred the case to a Full Bench to resolve the difference of opinion expressed by two Division Benches in Ch. Atchaiah v. ITO (1979) 116 ITR 675 and Choudry Brothers v.' CIT (1986) 158 ITR 224. It, however, added these two questions for the opinion of the Full Bench: (1) Under what circumstances can one Division Bench differ from the view of an earlier Division Bench; and (2) Under what circumstances can be doctrine of per incuriam be applied by a co-ordinate Division Bench for not following the earlier binding precedent of another Division Bench." First, we shall take up the question referred to this Court by the Income-tax Appellate Tribunal. Here it would be appropriate to notice the facts giving rise to the said quest ion. The assessee is a firm carrying on business in contracts. Its status was that of a registered firm till the assessment year 1967-68. As no declaration under section "184(7) in Form No,12 was filed, the Income-tax Officer assessed the assessee as an unregistered firm for the assessment year 1968-69. Before the completion of assessm ent of the assessee, the assessments of some of the, partners, taking their share income from the assessee into account, were completed, so the assessment of the same income in the hands of the assessee was questioned before the Appellate Assistant Commissioner. It was urged before the appellate authority that the Income-tax Officer would be deemed to have exercised his option of assessing the income in the hands of the partners and as such he could not have assessed the same income over again in the hands of the assessee, an unregistered firm. The appeal was rejected. On further appeal, the Income-tax Appellate Tribunal accepted the said contention of the assessee and allowed the appeal. The Commissioner then got the abovesaid question of law referred to the High Court. Sri S.R. Ashok, learned standing counsel for the Revenue, has contended that whatever might have been the position under section 3 of the Indian Income Tax Act, 1922, now under section 4 of the Income Tax In other words, according to the clear provisions of rule 1-D, the balance-sheet of a company drawn up in accordance with the provisions of Act, 1961, no option is available to the assessing authority either to assess the unregistered firm or its members, therefore, the assessing authority is competent to assess the unregistered firm after completing the assessment of the partners in regard to their share income. Sir, Y. Ratnaker, learned counsel for the assessee, contended that the Income Tax Act, 1961, did not depart from the position under the 1922 Act, and that the scope of the charging sections under both the Act continued to be the same; the 1961 Act substituted the word "person" for the taxable entities mentioned in section 3 of the 1922 Act and separately defined "person" in section 2(31) which does not alter the position. In the light of the contentions raised before us by learned counsel for the parties, we shall consider the question referred to us by the Tribunal. It is now well-settled, in view of the judgments of the Supreme Court in CIT v. Kanpur Coal Syndicate (1964) 53 ITR 225 and CIT v. Murlidhar Jhawar and Puma Ginning and Pressing Factory (1966) 60 ITR 95, that, if the Income-tax Officer exercised an
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option and assessed the share income in the hands of the partners of an unregistered firm or members of the association, he cannot assess the same income in the hands of the unregistered firm or the association of persons. But those decisions were rendered on the interpretation of section 3 of the Indian Income-tax Act, 1922 (hereinafter referred to as the old Act). In the instant case, the Appellate Assistant Commissioner declined to follow the judgment of the Supreme Court in CIT v. Murlidhar Jhawar and Purna. Ginning and Pressing Factory (1966) 60 ITR 95 on the ground that it was under section 3 of the old Act which was different from the provisions of section 4 of the Income Tax Act, 1961 (hereinafter referred to as the new Act). The Income-tax Tribunal followed the judgment of this Court in Atchaiah's case (1979) 116 ITR 675, which laid down that there was no difference between the provisions of section 3 of the old Act and section 4 of the new Act and, in that view of the matter, it held that the judgment of the Supreme Court in Murlidhar Jhawar's case (1966) 60 ITR 95 was applicable. The controversy, therefore, boils down to whether the scope of section 4 of the new Act is different from the ambit of the provisions of section 3 of the old Act. Here it would be useful to read section 3 of the old Act and section 4 of the new Act. Section 3 of the Indian Income-tax Act, 1922: "(3) Charge of income-tax.---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." Section 4 of the Income Tax Act, 1961: "(4) Charge of income-tax.---(1) Where any Central Act enacts that income-tax shall be charged for any assessm ent year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions including provisions for the levy of additional income-tax of this Act in respect of the total income of the previous year of every person: Provided that where by virtue of any provision of this Act income-tax is to be charged in respect of the income of a period other than the previous year, income-tax shall be charged accordingly. (2) In respect of income chargeable under subsection (1), income-tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of this Act." It can immediately be noticed that, whereas in section 3 of the old Act, the taxable entities were mentioned in the body of the section, in section 4 of the new Act, the expression "every person" is used. The word "person" is defined in section 2(31) of the Income Tax Act, 1961. It is an inclusive definition. Substituting the definition of "person" in section 4(1), it reads as follows: "(4)(1) Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions including provisions for the levy of additional income-tax of this Act in respect of the total income of the previous year of every (i) individual, (ii) Hindu undivided family, (iii) company, (iv) firm, (v) association of persons or body of individuals, whether incorporated or not, (vi) local authority and (vii) every artificial juridical person, not falling within any of the preceding sub-clauses." On a comparison of the provisions of section 3 of the old Act and section 4 of the new Act it is evident that the words used in section 3 of the old Act, namely, "or the partners of the firm or the
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members of the association individually," are not to be found in section 4 of the new Act as quoted above. But from this, can it be said that Parliament changed the scope of the charge by enacting section 4 and section 2(31) of the new Act from what it was under section 3 read with section 2(9) of the old Act? From a perusal of the relevant provisions of the new Act, it appears to us that Parliament never intended to change the scope of the charge of income-tax by omitting the taxable entities from section 4 and including them in the definition of the word person in section 2(31) of the new Act. The change in the phraseology of section 4 is one of form and does not change the substance of charge under the old Act. It continues to be the same. Though section 4 of the new Act is differently worded, it does not take away the option available to the assessing authority under section 3 of the old Act in regard to the assessment of income of an unregistered firm or the share income of the partners, so also of an association of persons or members of the association individually. There cannot be any dispute that, in any taxation law, the charging section is of paramount importance, but the scope of the charging section cannot properly be understood de hors the machinery provisions. Further, in interpreting a charging section, we must avoid such construction of the provisions which leads to double taxation unless that is expressly provided by the statute or that follows by necessary implication. The charge of income-tax is on the total income of every person as defined in the Act. If the same income passes hands from one taxable entity to another taxable entity, it cannot be assessed to tax over again. This is a general principle which has to be kept in mind while interpreting the provisions of a taxing statute. This is not to say that the Legislature cannot provide for double taxation of the same income. It is open to the Legislature to provide for taxing the same income twice in the hands of different taxable entities as e.g. In the case of a regisiered firm the income of the registered firm is taxable in the hands of the registered firm as well as in the hands of its partners. What is the position in regard to an unregistered firm will be examined now. Section 183 deals with assessment of an unregistered firm. The assessm ent in question relates to the year 1968-69 and the said provision during the material period read as follows:-- "183. In the case of an unregistered firm, the Income-tax Officer-- (a) 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 of the tax payable by the partners if the firm were treated as a registered firm would be greater than the aggregate amount of the tax which would be 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 clause (ii) of subsection (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 subsections (2), (3) and (4) of section 182 shall apply thereto as they apply in the case of a register& firm." From a perusal of this section, it is clear that the Assessing Officer had power to determine the tax payable by the unregistered firm itself on the basis of the total income of the firm under clause (a) or make assessm ent under clause (ii), subsection (1) of section 182, by taxing the partners treating the firm as a registered firm, if, in his opinion, the aggregate amount of tax payable by them in that event would be greater than the aggregate amount of tax payable by the firm and the partners individually. He did not have power to assess both the unregistered firm as well as the partners. There is no other provision which authorises assessment of the income of an unregistered firm twice---once in the hands of the unregistered firm as well as in the hands of the partners. Section 4 of the new Act cannot be so construed as to run counter to section 183. They have to be construed harmoniously. Thus, construed, the absence of the words "or the partners of the firm or the members of the association individually" in section 4 would not make any difference and the position obtaining under section 3 of the old Act in regard to the assessment of taxable entities remains the same under section 4 of the new Act.
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Section 155 of the Income Tax Act, 1961, on which reliance was placed by learned standing counsel for the Revenue does not also support the view that the assessing authority has power to tax the income in the hands of the partners of an unregistered firm as well as in the hands of the unregistered firm. Section 154 deals with rectification of mistakes and section 155 deals with other amendments mentioned therein. A perusal of subsection (2) of section 155 shows that, in respect of any completed assessm ent of a member of an association of persons or of a body of individuals which was assessed or reassessed or on any reduction or enhancement made in the income of an association or body under section 155, section 154, section 250, section 254, section 260, section 262, section 263 or section 264 or consequent upon an order made on the association or body under subsection (4) of section 245-D, the share of the member in the income of the association or body, as the case may be, has not been included in the assessment of the member or, if included, is not correct, the Assessing Officer is empowered to amend the order of assessment of the member with a view to the inclusion of the share in the assessment or the correction thereof. For that purpose, the provisions of section 154 are made applicable. We may also refer to the objects and reasons of the legislation of section 4 as mentioned in the Notes on clauses of the Income Tax Bill, 1961, to ascertain the intention of Parliament in enacting the said section. The relevant portion is as follows: Basis of charge: Clause 4. This section corresponds to section 3 of the existing Act with the following changes: (i) for the different entices, individual, Hindu undivided family, etc. Mentioned in the section, the word person has been substituted; (ii) the proviso makes it clear that notwithstanding that tax is to be paid in respect of the income of a previous year, tax may be recovered on current income wherever so provided; (iii) it is made clear that even where tax is deducted at source or paid in advance liability to pay tax arises by virtue of this provision." From the Notes on Clauses also, it is clear that section 4 of the new Act corresponds to section 3 of the old Act and the only change made in enacting section 4 is that the word person has been substituted for the different taxable entities mentioned in section 3 of the old Act. In Kanga and Palkhivala's The Law and Practice of Income-tax (Eighth Edition, Vol. I, page .106), the learned authors, while dealing with section 4 of the new Act, write: Section 4 (sections 3 and 60-B of the 1922 Act). The charging section.-- The provisions of subsection (1) are the same as those of section 3 of the 1922 Act except for two changes; (a) .... (b) the old section enumerated the categories of assessees, while this subsection taxes every 'person', and the definition of 'person' in section 2(31) enumerates the categories of assessees including two which were not in the 1922 Act, viz. Body of individuals and artificial juridical persons." For all the above reasons, we are of the view that section 4 of the new Act embodies the same principle as contained in section 3 of the old Act and that in spite of some changes in the form and phraseology, the substance of the charging section with regard to the options of the assessing authority to assess the total income of the unregistered firm either in its hands or in the hands of the partners, remains the same and the Parliament, while enacting section 4 of the new Act did not contemplate any change in the substance of section 3 of the old Act. The question as to whether the law laid down by the Supreme Court in Murlidhar Jhawar's case (1966) 60 ITR 95, would apply in view of the provisions of section 4 of the new Act gave rise to conflict of opinion between different High Courts and also in the same High Court. The learned Judges of the Patna High Court and the Andhra Pradesh High Court differed in their views on this question. The Madras. High Court, the Madhya Pradesh High Court and the Calcutta High Court took the view that it applies whereas a contrary view is expressed by the High Court of Punjab and
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Haryana and the Delhi High Court. Before we address ourselves to the judgments rendered by the different High Courts on the above question, we consider it appropriate to make a brief reference to the judgments of the Supreme Court in those cases. Kanpur Coal Syndicate's case (1964) 53 ITR 225 (SC), was a case dealing with an association of persons. The Supreme Court held that section 3 expressly treated an association of persons and the individual members of the association as two distinct and different assessable entities, and, on the terms of the section, the tax could be levied on either of the two entities according to the provisions of the Act. In Murlidhar Jhawar's case (1966) 60 ITR 95, three persons carried on business in partnership. The Income-tax Officer assessed them in the status of an unregistered firm. The Tribunal held that the Income-tax Officer had the option to assess the individual parties to the joint venture or the unregistered firm and that option having been exercised, it was not open to him thereafter to reassess the same income collectively in the hands of the three parties to the joint venture in the status of an unregistered firm. Referring to the judgment in Kanpur Coal Syndicate's case (1964) 53 ITR 225, the Supreme Court observed as follows (at page 97); "The same principle would apply to the case of assessment of partners individually of an unregistered firm. The partners may be assessed individually or they may be assessed collectively in the status of an unregistered firm; the Income-tax Officer cannot, however, seek to assess the one income twice--once in the hands of the partners and again in the hands of the unregistered firm." In CIT v. Pure Nichitpur Colliery Co. (1975) 101 ITR 79 (Pat.), which arose under the new Act, the Patna High Court held that the judgments of the Supreme Court in Kanpur Coal Syndicate's case (1964) 53 ITR 225, and in Murlidhar Jhawar's case (1966) 60 ITR 95, continued to be applicable and, once the option was exercised by the Income-tax Officer by assessing the share income in the hands of the partners, he had no jurisdiction to tax the total income of the unregistered partnership firm in its hands. The Patna High Court was answering a reference under section 256(1) of the new Act. The question before the High Court was similar to the one now before us. After noticing section 3 of the old Act and section 4 of the new Act, the Bench observed that the charging section imposed a tax liability on the person and the machinery sections provided, in a given case, who was the person to be assessed to income-tax -- whether a firm or a partner or both. The Bench concluded thus (at page 85):-- "It would thus be clear that even after the amendment brought about in the 1922 Act in the year 1956, which was incorporated in the 1961 Act, the Income-tax Officer had the option in the case of an unregistered firm either to tax the total income in the hands of the firm, treating it as a separate entity, or to tax the share income in the hands of the partners. He could not do both. Neither the charging section 4 nor any other provision of the 1961 Act empowered him to do so. It was still his option to do one or the other and not both. The law, therefore, laid down by the Supreme Court was still good, the new provisions did not bring about any change in respect of the exercise of the option, and once the option was exercised to tax the share income of the unregistered firm in the hands of the partners then, on computation of the income of the unregistered firm, the assessment of a partner could be rectified under section 155 of the 1961 Act. But it was not open to the Income- tax Officer to change his option and tax the unregistered firm itself." In Atchaiah's case (1979) 116 ITR 675 (AP) the petitioner challenged the validity of the notice issued by the Income-tax Officer under section 48(2) of the new Act mainly on the ground that the Income-tax Officer having assessed the share income in the individual hands of the petitioner and another person, had no jurisdiction to assess the same income in their joint hands. The petitioner and that other person purchased certain lands as a joint venture. The lands were acquired by the Government. On receiving compensation and enhanced compensation, each of them was assessed to tax on the capital gains individually. The Income-tax Officer sought to initiate
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proceedings to assess the same income in the hands of the association of persons. That was questioned in the writ petition filed by the petitioner. After referring to section 3 of the old Act and section 4 of the new Act, the Division Bench held (at page 678): "In our view, this change in the wording of the section does not affect the legal position and all the decisions under the old Act, referred to above are applicable even today under the present Act. As observed by the Supreme Court in CIT v. Murlidhar Jhawar and Purna Ginning and Pressing Factory (1966) 60 ITR 95, an association of persons and the individual members of the association are two distinct and different assessable entities and under section 3 of the Indian Income-tax Act, 1922, the tax can be levied on either of the said two entities. The Income-tax Officer cannot seek to assess the one income twice--once in the hands of the partners and again in the hands of the association. This principle holds good even under the present Act." The judgment of the Patna High Court in Pure Nichitpur Colliery's case (1975) 101 ITR 79, was followed by the Madras High Court in CIT v. Blue Mountain Engineering Corporation (1978) 112 ITR 839. In that case, the assessee was an unregistered firm consisting of three partners. It was carrying on business as contractors. The dispute was for the assessment year 1968-69. Assessment of one of the partners was completed taking his share income into account. Thereafter, the same income was assessed in the hands of the firm as an unregistered firm. Before the…
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