Karnataka High Court
Commissioner Of Income-Tax vs Manjunatha Motor Service And Canara ... on 26 June, 1991
Equivalent citations: [1992]197ITR321(KAR), [1992]197ITR321(KARN)
Author: N. Venkatachala
Bench: N. Venkatachala
JUDGMENT K. Shivashankar Bhat, J.
1. The following question referred under section 256(1) of the Income-tax Act, 1961, requires to be answered by us :
"Whether, on the facts and in the circumstances of this case, the Tribunal was right in holding that no assessment on the association of persons could be validly made ?"
2. Under an agreement between two companies, Messrs. Manjunatha Motor Service and Canara Public Conveyance, Mangalore, the net profit earned by operating the buses in a particular route has to be shared between them. The Income-tax Officer made assessments on the two companies in the status of association of person as, in his view the arrangement was a joint venture. On appeal, the Appellate Assistant Commissioner cancelled the assessment relying upon several High Court decisions and also on the Board's circular bearing F. No. 75/191/62-TR(J), dated August 24, 1966. The Appellate Assistant Commissioner accepted the contention on behalf of the assessed in respect of their share or profit for the assessment year under consideration even before the impugned assessment were made and that the Income-tax Officer having exercised the option under section 4 of the Income-tax Act, 1961, to assess the members of the association of persons directly, a second assessment treating the two companies as an association of persons cannot be validly made. The Appellate Assistant Commissioner cancelled the assessments made by the to the same, the Revenue appealed to the Tribunal. The Tribunal confirmed the order of the Appellate Assistant Commissioner observing among other things that the Board's Circular is binding on all officers functioning under the Income-tax Act, 1961.
3. These references were heard along with I.T.R.C. Nos. 64 and 65 of 1987 (Bhoomiamma (K) (Smt.) v. CIT ), wherein the assessee contended that, under section 4 of the Act, the Income-tax Officer had no option to assess either the AOP (association of persons) or its members unlike the situation under section 3 of the Indian Income-tax Act, 1922, and that, under the present Act, the right person alone could be charged to tax. This contention of the assessee is accepted by us in the order pronounced separately.
4. In the instant references, the contention of the assessee has been that the Income-tax Officer having assessed the members of the associations of persons individually cannot proceed to assess the same income treating them jointly as association of persons again; the assessee contended that the circular dated August 24, 1966, issued by the Board is quite clear in this regard and the said circular binds the Revenue.
5. In I.T.R.Cs. Nos. 64 and 65 of 1987 (Bhoomiamma's case ), we have pointed out the scope of the said circular, its object is to apply the doctrine against double taxation of the same income in the hands of two sets of assessees the circular has nothing to do with the interpretation of section 4 of the present Act; the circular binds the Revenue, but the assessee is not bound by it and an assessee can always contend that the circular issued by the Board goes beyond the scope of the taxing provision.
6. In the instant case, the circular has been invoked against the Revenue. The Tribunal held that in view of the circular in question, it was not open to the Income-tax Officer to assessee the association of persons, having assessed the members of the association of persons earlier. This view is based not on the interpretation of section 4 of the new Act, but on the binding nature of the circular. This view is fully supported by the observations of the Supreme Court made while rejecting an appeal filed against the decision of the Madras High Court following CIT v. Blue Mountain Engineering Corporation [1978] 112 ITR 839. The report of the Supreme Court's observations is found in [1989] 178 ITR (St.) 73 and reads :
"25-7-1989 : Their Lordships S. RANGANATHAN and T. KOCHU THOMMEN JJ., dismissed the Department's special leave petition against the judgment dated October 20, 1986, of the Madras High Court following 112 ITR 839, answered against the Department the question whether, where the Income-tax Officer had already assessed each member of an association of persons (under the 1961 Act), he could again assess the association of persons While dismissing the petition, their Lordships made the following order : 'In view of the fact that the view taken by the Tribunal is also the view that has been followed since 1966 as per Circular of the Central Board of Direct Taxes, dated Taxes, dated August 24, 1966, extracted in 128 ITR 747, 751, we do not think this is a fit case of interference under article 136. The special leave petitions are therefore, dismissed'."
7. In these circumstances the question referred to us has to be answered in the affirmative and against the Revenue.
8. Reference answered accordingly.