Calcutta High Court
Champa Properties (P.) Ltd. vs Commissioner Of Income-Tax on 1 August, 1986
Equivalent citations: [1987]166ITR367(CAL)
JUDGMENT Dipak Kumar Sen, J.
1. The facts relevant and the proceedings leading up to this reference are, inter alia, that one Champabati Devi Chamaria purchased out of her stridhan four immovable properties at Calcutta, viz., 21A, Shakespeare Sarani; 114/1 A, Cotton Street; 6, Madan Mohan Street and 106, Diamond Harbour Road. Subsequently, Champabati sold undivided 1% share of the said properties each to ten of her close relatives for Rs. 17,000; The transaction was effected by registered deeds.
2. Champabati and the other co-owners of the said properties thereafter formed a joint stock company of the name of M/s Champa Properties (P.) Ltd., the assessee. Champabati held 90% of the shares in the company and the other co-sharers held the balance 10%. The assessee was subsequently registered under Part IX of the Companies Act, 1956, as a company as defined in Section 566(1) of the Companies Act. A certificate of incorporation was issued on September 20, 1968. It was the case of the assessee that under Section 575 of the Companies Act, the immovable properties owned by Champabati and the other co-owners automatically vested in it on incorporation and the assessee claimed the said properties as its own.
3. The assessee was assessed to income-tax in the assessment year 1970-71, the accounting period ending on September 30, 1969. In its return, the assessee claimed ownership of the said properties and offered the income arising out of the said properties for being taxed. The Income-tax Officer obtained the opinion of the Government Solicitor and came to the conclusion that in the absence of a deed of conveyance, the assessee cannot be held to be the owner of the said properties as they still stood in the name of Champabati. The Income-tax Officer, however, held that as the assessee had filed its return showing income from the said properties, as a protective measure, the same would be treated as income of the assessee. It was observed by the Income-tax Officer that actually the income accruing from the said properties ought to be assessed in the hands of Champabati in whose name the properties stood.
4. Being aggrieved, the assessee preferred an appeal, inter alia, from this part of the order of assessment to the Appellate Assistant Commissioner. It was contended before the Appellate Assistant Commissioner that in the records of the Calcutta Municipal Corporation, the properties stood in the name of the assessee and not Champabati. A decision of this court in Ram Sundari Roy v. Somendra Lal Roy [1947] ILR 2 Cal 1, was cited and it was contended that where a company obtained its certificate of incorporation under Part VfIII of the Indian Companies Act, 1913 (which is in pari materia with Part IX of the Companies Act, 1956), properties would pass to and vest in the company even, in the absence of a registered document of transfer. It was contended that the said properties were the properties of the assessee with effect from the date of incorporation of the assessee and the income from the same should have been held to be the income of the assessee and taxed as such, and not as a protective measure.
5. The Appellate Assistant Commissioner accepted the contentions of the assessee and held that the assessee was the owner of the said properties on and from its date of incorporation; that the Income-tax Officer was bound to treat the properties as the properties of the assessee and that there was no ground to make a protective assessment in the manner it was done.
6. Being aggrieved, the Revenue preferred an appeal from the order of the Appellate Assistant Commissioner to the Income-tax Appellate Tribunal. The Tribunal considered and construed Section 246(c) of the Income-tax Act, 1961, and held that the assessee could have a right to prefer an appeal against an order of the Income-tax Officer only if the conditions set out in the said Section were satisfied. The Tribunal held that the grievance of the assessee in the appeal before the Appellate Assistant Commissioner was not one which entitled the assessee to prefer an appeal under Section 246(c) of the Act and, therefore, the Appellate Assistant Commissioner was not justified in entertaining the appeal on the ground on which it was preferred and adjudicating on the same. It was held further that the observation of the Income-tax Officer that the assessment was being made only as a protective measure meant that a right to proceed against some other person in respect of the said properties was being reserved. The assessee, it was held, was not prejudiced in any manner by the said assessment. The Tribunal noted that no assessment had been made on anybody else in respect of the income from the said properties which had been assessed in the hands of the assessee. The Tribunal recorded that in spite of the observations in the order of assessment, no further assessment might be made at all on any other person and if such an assessment was made, the other person might have a right of appeal. The decision of the Appellate Assistant Commissioner in respect of the ownership of the said properties was held to be academic in nature. The Tribunal vacated the findings of the Appellate Assistant Commissioner holding that all his observations and findings should be treated as non est. The appeal of the Revenue was allowed.
7. On an application of the assessee under Section 256(1) of the Income-tax Act, 1961, the following question was referred, as a question of law arising out of the order of the Tribunal, for the opinion of this court:
" Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Appellate Assistant Commissioner was not justified in entertaining the ground as to the protective assessment and adjudicating upon the same and in disposing of the appeal preferred by the Revenue in the manner it did ? "
8. At the hearing, the learned advocate for the assessee contended that the decision of the Tribunal was patently wrong inasmuch as the Income-tax Officer having categorically found that the properties did not belong to the assessee proceeded to tax the income arising out of the said properties in the hands of the assessee. It was submitted that the Income-tax Officer was not entitled to do so. As a result of the said assessment, the title of the assessee to the said properties had been thrown under a cloud. In the event some other person was sought to be assessed on the income arising out of the said properties, a liability might attach to the said properties on the basis of such taxation to the prejudice of the assessee. The assessee would not have a right to be heard if some other person was taxed in respect of the same properties and orders may be passed in the absence of the assessee without giving it any opportunity of being represented which might prejudice the assessee and its rights over the properties.
9. The learned advocate submitted that the appeal by the assessee to the Appellate Assistant Commissioner was valid and maintainable inasmuch as under Section 246(c) of the Income-tax Act, 1961, the assessee could appeal against any order of assessment made under Section 143(3) of the Act where the assessee objected to the amount of the income assessed or to the amount of tax determined. In view of the categoric finding of the Income-tax Officer that the properties did not belong to the assessee and at the same time including the income from the said properties in the total income of the assessee, the latter was entitled to object to the amount of income assessed or the amount of tax determined.
10. It was submitted further that in making an assessment, it was the duty of the Income-tax Officer to determine any question of title for the purpose of assessment and the Income-tax Officer had plenary jurisdiction to determine such title for the purpose of assessment.
11. In support of his contentions, the learned advocate for the assessee cited the following decisions :
(a) In the matter of Keshardeo Chamria [1937] 5 ITR 246 (Cal). In this case, the properties which were the subject-matter of an assessment were in the process of partition in a partition suit. There was a consent decree declaring the shares of the plaintiff and the defendant in the properties and a commissioner for partition was appointed. An order was also passed in the suit directing the plaintiff and the defendant to collect rents jointly as managers.
The Income-tax Officer in making the assessment proceeded to tax the assessee, one of the parties to the suit, directly in respect of his share of income derivable from the properties under Section 9 of the Indian Income-tax Act, 1922, and did not make any assessment in the first instance on the joint managers for the purpose of arriving at the quantum of income" assessable in respect of the property. Questions were referred to this court whether, in the circumstances, the joint managers came within the purview of Section 41 of the Act of 1922 and whether the Income-tax Officer had acted legally in assessing the assessee in respect of his share of the property. It was held by a Division Bench of this court that the assessee and the other party were not managers appointed by the court within the meaning of Section 41 of the Act of 1922 and that the Income-tax Officer had not acted illegally in assessing the assessee in respect of his share of the income from the property. It was observed that before a person could be taxed as owner under Section 9 of the Act, it should be decided that he was in fact the owner of the property in question and the decision rested with the Income-tax Officer. It was observed further that the mere existence of a dispute as to title, even where a suit had been filed, could not by itself hold up an assessment until the final determination of the suit.
(b) Jagannath Hanumanbux v. ITO [1957] 31 ITR 603 (Cal). This decision of Sinha J., (as his Lordship then was), was cited for the following proposition (headnote):
" Though there is no provision in the Indian Income-tax Act authorising the levy of income-tax on a person other than ' the assessee ', i.e., the person by whom the income-tax is payable, it is open to the income-tax authorities to make a ' protective ' or ' alternate ' assessment where owing to litigation between the parties concerned, in the civil courts, or for other reasons the person who is really liable to pay the tax cannot be finally determined by the income-tax authorities, and unless such alternative or protective assessment is made, proceedings for assessment against the party ultimately found to be liable may become time-barred.
But, though such protective or alternate assessment is permissible, a protective recovery of tax is not permissible, that is to say, the income-tax authorities cannot proceed to recover the tax in respect of the same income from both persons."
(c) Lalji Haridas v. ITO [1961] 43 ITR 387. This decision of the Supreme Court was cited for the following proposition (at page 392):
" In cases where it appears to the income-tax authorities thatcertain income has been received during the relevant assessment year but it is not clear who has received that income and prima facie it appears that the income may have been received either by A or B or by both together, it would be open to the relevant income-tax authorities to determine the said question by taking appropriate proceedings both against A and B. "
In the facts of the case, the Supreme Court observed that in the proceedings taken against one or the other, exhaustive enquiry should be made and the question as to who is liable to pay the tax in question should be determined after hearing the objections. The proceedings against the other person may also continue and be concluded but until the proceeding against one has been finally determined, no assessment order should be passed. A final determination had, however, to be made in one of the proceedings.
(d) Smt. Hemlata Agarwal v. CIT [1967] 64 ITR 428 (All). Here, a house was purchased in the name of the assessee who was the wife of a member of a Hindu undivided family. The assessee contended that the wife had paid the consideration for the purchase partly out of money borrowed from the family and the balance from sale of her jewellery. The case of the sale of the jewellery was not accepted and the amount stated to be the sale proceeds of the jewellery was sought to be taxed in the hands of the Hindu undivided family. The assessment made on the Hindu undivided family was set aside on appeal on the ground that the family had been disrupted and no further assessment could be made on it. The Revenue thereafter sought to assess the said amount in the hands of the husband of the assessee stating that the said amount could not be the income of the wife as she had no business and had no source of income. Immediately thereafter, a notice was issued under Section 34 of the Indian Income-tax Act, 1922, on the assessee. Though an appeal had been preferred by the husband against the assessment made on him and the said appeal was pending, the amount was again assessed in the hands of the wife to guard against limitation. The assessee preferred appeals against the order of assessment to the Appellate Assistant Commissioner and to the Tribunal successively which were unsuccessful.
On a reference, it was held by a Division Bench of the Allahabad High Court that the proceedings under Section 34 of the Act of 1922 were not maintainable as there was no material to show that the Income-tax Officer had reason to believe that income of the assessee had escaped assessment. This was supported by the fact that the Revenue was not able to make up its mind as to whose income was being assessed. The Division Bench held further that while it might be open to an Income-tax Officer to make a protective assessment, it was not open to the Income-tax Appellate Tribunal which was a final court of facts to make a protective order. It was further observed that the Income-tax Act required the Tribunal to give a final finding of facts and the Tribunal was required to find in the instant case that the sum sought to be assessed was the income of the assessee and no one else. If the Tribunal did not give any such finding, it was possible for the Tribunal to confirm such an assessment even though the same was made under Section 34.
The Division Bench observed that the Tribunal ought to have heard both the appeals together and finally determined whether the amount in question was the income of the husband or the wife.
(e) Mahamaya Dassi v. CIT . This decision of a Division Bench of this court was cited for the following propositions:
Assessment was one of the processes open in law to adjudicate the title of the parties or the shares of the parties. Assessment could not be held up by mere existence of a dispute as to title, till the final determination of proceedings, if any. It was open to the Income-tax Officer to decide who was the owner and to whom a particular income belonged. To that extent, the power of the Income-tax Officer was plenary......
The Income-tax Officer, however, has to decide the question in accordance with the other provisions of law. It is also open to the income-tax authorities to make protective assessment.
(f) Smt. Daya Bai v. CIT . The facts of this case were that income arising out of a matinee show business was assessed in the hands of a firm, the Income-tax Officer holding that an individual who had shown the same income in the latter's return was only a name-lender. The Income-tax Officer also made a protective assessment of the same income in the hands of the individual. The Appellate Assistant Commissioner and the Tribunal upheld both the orders of assessment. On a reference, it was held by a Division Bench of the Madhya Pradesh High Court that the same income could not be assessed twice in law. It was held further that the Tribunal was not justified in confirming the protective assessment made on the individual.
12. The learned advocate for the Revenue contended, on the other hand, that, in the instant case, the only grievance of the assessee was that his assessment was a protective assessment and not a final assessment. The learned advocate emphasised that the assessee did not deny his liability to pay the tax on the income arising from the properties. In fact, the assessee offered the said income for being taxed in its hands and it had been so taxed. The grievance of the assessee that the Income-tax Officer should not have made a protective assessment cannot be agitated in an appeal to the Appellate Assistant Commissioner under Section 246(c) of the Income-tax Act, 1961.
13. The learned advocate for the Revenue submitted further that the law was settled that it was open to the income-tax authorities to make protective assessments and, in the instant case, it has been so done. The appeal by the assessee to the Appellate Assistant Commissioner was, therefore, patently incompetent and the Tribunal has acted correctly in setting aside the order of the Appellate Assistant Commissioner.
14. The fact found by the Tribunal that no other assessment in respect of the same income had been made on any other person was not disputed. It was submitted that as a result, the assessment in the instant case had become a substantive assessment and the assessee should have no further grievance in respect of the same. In support of his contentions, the learned advocate for the Revenue cited Msmt. Zulekha Begum (Khatun) v. C1T . In this case, the Income-tax Officer held that the income returned by the assessee was really that of her husband and that the assessee was a benamidar of her husband. The Income-tax Officer however, completed the assessment and levied penalty for delay in filing the return. On these facts, it was held on a reference by a Division Bench of this court that though the assessment was protective at the inception, it became a substantive assessment because no other assessment had been made in respect of the income returned by the assessee in the hands of any other person and in particular the husband. It was noted that the assessment order was treated as a substantive assessment and that relief had been granted to the assessee in appeal. On the facts, it was held that penalty was clearly imposable under Section 271(l)(a) of the Income-tax Act, 1961.
15. The first point to be considered is whether the appeal preferred by the assessee against the order of the Income-tax Officer before the Appellate Assistant Commissioner was maintainable. The material part of Section 246(c) of the Income-tax Act, 1961, reads as follows :
" Section 246 : Any assessee aggrieved by any of the following orders of an Income-tax Officer may appeal to the Appellate Assistant Commissioner against such order--......
(c) an order against the assessee where the assessee denies his liability to be assessed under this Act or any order of assessment under Sub-section (3) of Section 143 or Section 144, where the assessee objects to the amount of income assessed, or to the amount of tax determined, or to the amount of loss computed, or to the status under which he is assessed." It appears to us that in view of the clear finding of the Income-tax Officer that the properties in dispute did not belong to the assessee, the assessee was entitled to object to the assessment on the ground that it was not taxable in respect of the said income. The assessee could object both to the amount of income assessed and to the amount of tax determined. It is not clear to us whether the assessee had impugned the order of the Income-tax Officer on that ground inasmuch as the grounds of appeal before the Appellate Assistant Commissioner cannot be found from the records before us. Be that as it may, we find that it was open to the assessee to file an appeal on this ground. If there was a determination in respect of the title of the assessee by the revenue authorities, the same was bound to have an impact on the income to be assessed or the amount of tax determined. It could have been open to the assessee to raise an additional ground of appeal on the above questions.
16. As laid down in the case of Keshardeo Chamria [1937] 5 ITR 246 (Cal) which has been followed subsequently in Mahamaya Dassi's case , the Income-tax Officer has plenary power to decide the title of any property for the purpose of assessment in accordance with law. In the instant case, the Income-tax Officer has done so. It is not the case of the Income-tax Officer that there was any doubt in his mind as to whom the properties belonged. In fact, the Income-tax Officer specifically stated that this income should be assessed in the hands of Champabati and not in the hands the assessee.
17. In the appeal, the Appellate Assistant Commissioner also considered the question of title to the properties and on his interpretation of the law came to an exactly opposite conclusion. In our view, the Appellate Assistant Commissioner had also the power to decide the question of title.
18. The Tribunal, it appears, was not correct in holding that the appeal before the Appellate Assistant Commissioner was not maintainable or that it was not open to the Appellate Assistant Commissioner to go into and decide the question of title. If the appeal was maintainable, then certainly it was within the jurisdiction of the Appellate Assistant Commissioner to decide the question of title to the properties and to hold that the said properties belonged to the assessee and that the income arising from the same was taxable in the hands of the assessee.
19. The Tribunal noted that no assessment had been made in respect of the income arising from the said properties in the hands of anybody else. It was not held nor found by the Tribunal nor was it the case of the Revenue before the Tribunal that the protective assessment made on the assessee had become substantive in the sense that it has been finally determined that the income arising out of the said properties should be taxed only in the hands of the assessee on the basis that the properties belonged to the assessee. It was found, in Msmt. Zulekha Begum (Khatun) , that a protective assessment order was subsequently treated as a substantive assessment order and relief was granted to the assessee on an appeal from the assessment. There is nothing in the order of the Tribunal in the instant case to show that the order of assessment made on the assessee has become or was being treated as substantive. On the other hand, the Tribunal considered the possibility that there might be a further assessment in the hands of somebody else and, if so, the other person might have a grievance which he could agitate in an appeal under Section 246(c).
20. For the reasons as aforesaid, we are unable to accept the decision of the Tribunal as correct. We answer the question referred in the negative and in favour of the assessee. We remand the matter to the Tribunal with a direction that the Tribunal should go into the question of title and determine the same. The Tribunal will also consider whether in view of the fact that no other assessment in respect of the same income has been made on any other person, the assessment made by the Income-tax Officer has become a substantive assessment. The Tribunal will take note of the submission of the assessee made before us at the hearing that in the subsequent years, the assessee had been treated as the owner of the said properties and had been assessed to tax accordingly.
21. There will be no order as to costs.
Monjula Bose, J.
22. I agree.