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Income Tax Appellate Tribunal - Delhi

Pradeep Agencies-Joint Venture vs Income Tax Officer on 31 August, 2007

Equivalent citations: (2007)111TTJ(DELHI)346

ORDER

I.P. Bansal, J.M.

1. This Special Bench is constituted by the Hon'ble President under Section 255(3) for deciding the following question and also for the disposal of appeal filed by the assessee against the order of CIT(A) dt. 13th Nov., 2006:

Whether, the assessment made on the AOP is invalid, in the light of the Board's circular dt. 24th Aug., 1966 or is valid in the light of the judgment of the Supreme Court in ITO v. Ch. Atchaiah and/or statutory amendments of the IT Act ?

2. Grounds of appeal as raised by the assessee in this appeal read as under:

1. That on the facts and circumstances of the case the learned CIT(A) erred in fact and in law in confirming the finding of the AO that the commission income of Rs. 2,37,55,912 was taxable in the hands of the appellant in the status of AOP and not in the hands of the respective members of the joint venture.

2. That on the facts and circumstances of the case the learned CIT(A) also erred in fact and in law in confirming the finding of the AO that the tax should be levied at the maximum marginal rate.

3. That on the facts and circumstances of the case the learned CIT(A) also erred in fact and in law in confirming the finding of the AO even though the AO acted in contravention of the Board's instructions which are binding on him (the AO).

Facts:

3. The assessee in the present case is an Association of Persons (AOP) constituted by joint venture agreement entered into by five different entities on 30th March, 2002. The constitution of the AOP is as under:

  Sl No.             Name of member                                 Share in P&L
                                                                     of JV
 1.   Laxmi Traders (Regd. firm)                                      25%
 2.   Bijay Paper Trading Co. (Prop. Shri Bijay Kumar Pasai)          25%
 3.   Pradeep Agencies
      (Prop. Shri Pradeep Kumar Pasai)                                25%
 4.   Biswanath Industries Ltd.                                     12.50%
 5.   Bishwanath Traders & Investment Ltd.                          12.50%
 

4. A copy of joint venture (JV) agreement has been placed at pp. 1 to 6 of the paper book. The above association was constituted for carrying ,on the business of procuring orders on behalf of M/s Reliance Industries Ltd. (RIL) for supply of purified terephthalic acid (PTA) to M/s Indo Rama Synthetics India Ltd.

5. During the year under consideration the AOP has earned commission of Rs. 2,40,61,937 and after meeting expenses, net profit at Rs. 2,37,55,912 is shown by the assessee which has been apportioned amongst the members of JV according to their profit sharing ratio. During the year under consideration all the members of AOP have income above the exemption limit. The tax amounting to Rs. 13,63,810 was deducted at source from the payment of the said commission made to the assessee. A return of income was filed at nil on 31st Dec, 2003 claiming therein the refund of TDS. The return was first processed under Section 143(1) and later on notice was issued under Section 143(2) in pursuance to which present assessment has been framed.

6. During the course of assessment proceedings the assessee was required to explain as to why its income of Rs. 2,37,55,912 should not be charged to tax in the status of AOP under the provisions of Section 167B(2) of IT Act, 1961 (for short "1961 Act"). In reply, it was submitted that the AOP has distributed the profit amongst its members as per their respective shares which are determined and defined in the JV agreement dt. 30th March, 2002 and some of the members have already been assessed for their share in the AOP under the provisions of Section 67A of the Act. It was submitted that since there is a deed defining the share of profit of each member of the AOP and when the individual shares of all such members were determined and known, the provisions of Section 167B(2) will not be applicable. The AO did not accept such plea of the assessee. According to the AO, since the total income of all the members of the AOP was admittedly exceeding the maximum amount which is not chargeable to tax, tax has to be charged on its total income at the maximum marginal rate as per Section 167B(2). In this manner, present assessment has been framed.

7. Aggrieved, the assessee filed an appeal before CIT(A) before whom detailed written submissions were submitted. It was contended that share of each member of the AOP is known and determined. The profit is received by the members as per their profit sharing ratio which has been offered in their hands separately and has also been subjected to tax. The same cannot be taxed again in the hands of the AOP as in that case it will be a case of double taxation of the same income. Reliance was placed on the following decisions:

(a) CIT v. Murlidhar Jhawar & Puma Ginning & Pressing Factory ;

(b) CIT v. Kanpur Coal Syndicate ;

(c) CIT v. Chandrasekaran; SLP (Civil) Nos. 1782-1784/1988 reported at (1989) 178 ITR 73 (St);

(d) Laxmichand Hirjibhai v. CIT (1981) 21 CTR (Guj) 181 : (1981) 128 ITR 747 (Guj);

(e) CIT v. V.H. Sheth ;

(f) Narnauli Jewel Corporation v. CIT ;

(g) CIT v. Taj Oil Traders (2003) 130 Taxman 585 (Raj).

8. Further reliance was placed on Board's Circular No. 75/19/191/62-ITJ, dt. 24th Aug., 1966 (for short "the circular"). It was pointed out that Section 86 and Section 167B of the Act have no relevance in the present context. It was contended that these sections come into play when the income is first assessed in the hands of AOP and not in those cases where first assessment has not been made in the hands of AOP. It was pleaded that as members of the AOP are assessed without making prior assessment in the hands of the AOP, therefore, Sections 86 and 167B cannot be applied in the present case. It was pleaded that second proviso to Section 86 itself contemplates a situation where, when no income-tax is chargeable on the AOP tax will be levied on the members. Therefore, it was contended that it cannot be said that legally tax is to be levied only in the hands of AOP. It was pleaded that no assessment could be made in the hands of AOP as its members were first assessed by the Department.

9. It was contended that the entire work from which the commission has been earned was divided into five segments and the share in profit and loss was determined on the basis of quantum of work involved and attention required in each segment. It was explained that each of the member was to perform a specific duty to carry out the activity of JV and due to this arrangement JV could perform large activity to enable it to earn substantial commission. It was pleaded that the amount of commission received by JV was not its income but was received on behalf of its member as an agent for onward distribution in the predetermined ratio and, therefore, no assessment can be made in the hands of AOP on the facts and judicial pronouncements relied upon in the written submissions.

10. Considering these submissions learned CIT(A) observed that the JV was entered into with the object to carry on business to act as an agent to M/s RIL as sales and service representative for promotion and to secure order for its product PTA. He analyzed the terms of JV agreement. He also analyzed the various activities carried out by the AOP to perform the said agreement and concluded that it was joint effort put into by all the five constituents. Their work could not be separated in terms of execution of contract with RIL. Thus he rejected the contention that the share earned by members of AOP was their individual income. He observed that members in their individual capacity had no role to play in the entire process. The income had accrued to the AOP for its services rendered to RIL for procuring orders. The assessee has maintained books of account and appointed staff and has also incurred the expenditure. After taking into account such expenditure profit has been computed accordingly. Commenting on the arguments of the assessee that since the income was offered in the hands of the members, the same income could not be taxed in the hands of the AOP, the learned CIT(A) observed that the said argument would not stand in the eyes of law. He pointed out that various judicial decisions referred to by the assessee were delivered in the context of old Act. He observed that IT Act was amended so as to levy tax on "every person" who is having taxable income and, therefore, the decisions relied upon by the assessee cannot be applied in the present context of facts and in view of law as it stood on the relevant date. He held that since the income has accrued to the assessee it should be taxed in the hands of the AOP and the shares of members of such AOP will be subject to tax as per provisions of law. He observed that to examine the contention of the assessee that the income was offered to tax in the hands of members, therefore, the same cannot be again subjected to tax is required to be examined in view of relevant provisions of law. He referred to Section 4 of the 1961 Act which is charging section which enables the Department to levy tax on the total income of the previous year of "every person". It was pointed out by him that the language used in charging section i.e. Section 4 is different from the corresponding charging section of IT Act, 1922 (for short "1922 Act"). He examined the provisions of Sections 67A, 86 and 167B of 1961 Act to consider the taxability or otherwise of income of AOP/members of AOP. He referred to the definition of 'person' as given in Section 2(31) of 1961 Act in which both the AOP and members of AOP are included as 'persons' and expressed the opinion that there is a certain liability of taxation imposed in respect of AOP. According to CIT(A) Section 167B deals with taxation of income of AOP irrespective of the fact that whether shares of members of AOP are determinate or not. In a case where shares of members are unknown and indeterminate the total income of AOP will be subjected to maximum marginal rate and in a case where shares of members of AOP are known and determinate the income of AOP will be subject to tax either at normal rate or at maximum marginal rate or at a higher rate of tax which will depend on the total income of each member of the AOP. He referred to Section 86 also which indicates the taxability of income of AOP vis-a-vis members of AOP. According to Section 86 if the income of AOP is subject to tax at maximum marginal rate, it was income of such AOP which shall not be included in the total income of the individual member and in a case where the AOP is subjected to tax at normal rate the income of the members in the AOP is includible in the hands of the individual and the member can claim rebate of tax paid by the AOP on the share of his income. He also referred to provisions of Section 67A which deal with the method of computing member's share of AOP and on analysis of the section he held that income of the AOP is necessarily to be taxed irrespective of the fact that such income was already subjected to tax in the hands of members thereof.

11. He mentioned to the decision of Hon'ble Punjab & Haryana High Court in the case of Rodamal Lalchand v. CIT (1977) 109 TTR 7 (P&H) wherein it is held that assessment of the assessee as unregistered firm was valid in a case where two of its partners had already been assessed separately in respect of their shares of income from the partnership business. It was held that there was no prohibition in Section 4 of the 1961 Act to restrain the assessing authority to proceed against the firm which is a taxable entity irrespective of the fact that two of its partners had been assessed separately in respect of their shares of income from such partnership concern. A distinction was made in Section 3 of 1922 Act and Section 4 of 1961 Act.

12. He also referred to the decision of Hon'ble Supreme Court in the case of ITO v. Ch. Atchaiah (1996) 130 CTR (SC) 404 : (1996) 218 TTR 239 (SC) wherein it is held that under the 1961 Act, the ITO has no option like the one he had in 1922 Act but to tax 'right person' and the right person alone. It was held that by right person it means the person who is liable to be taxed according to law with respect to a particular income. It was held that merely because a wrong person is taxed with respect to a particular income, the AO is not precluded from taxing the right person with respect to that income and this is so irrespective of the fact that which course is more beneficial to the Revenue. It was held that under old provisions the option was available to assessing authority to take more advantage of the Revenue position and thus once such option was exercised by the AO, he could not proceed to tax the said income again in another hand. Reference was also made to the decision of Hon'ble Allahabad High Court in the case of Bhagmal Saudagar Mal v. CIT and it has been held by learned CIT(A) that the assessment on the assessee is valid and does not amount to double taxation as is contended by the assessee.

13. He further prepared a chart showing therein the taxable income returned by the constituents of the AOP and found that much less tax was paid on the income returned by the constituents as compared to the tax liability of the AOP. Thus he arrived at a conclusion that it was a sophisticated plan devised by the assessee to avoid tax on the commission income. Thus he found no force in the contention of the assessee that the entire income of the AOP was subjected to tax in the hands of the members and thus the said income again cannot be subjected to tax in the hands of AOP. Thus CIT(A) arrived at a conclusion that AO was right in assessing the entire income in the hands of the AOP. The assessee is aggrieved hence in appeal.

14. Mr. Ajay Vohra, learned Authorised Representative, argued the case on behalf of the assessee. He contended that all the five members of AOP are independently assessed to income-tax and their shares are determined and specified. Their assessments were completed by the AO prior to the assessment of the AOP. In case of the AOP, AO has held that the income can be assessed only in the hands of AOP. He contended that according to law the AOP cannot be assessed in a case where AO has already exercised his option to assess its members. He referred to the abovementioned circular of the Board, a copy of which is placed at pp. 216 and 217 of the paper book wherein CBDT referring to the decision of Hon'ble Supreme Court in the case of CIT v. Murlidhar Jhawar & Puma Ginning & Pressing Factory (supra) has expressed the opinion that though the said decision of Hon'ble Supreme Court is rendered under 1922 Act but the same will be applicable to the assessments made under the 1961 Act.

15. Learned Authorised Representative carried us through various amendments touching the assessments in the hands of AOP and its members. Referring to Section 86 he pleaded that the said section was on the statute right from the beginning. This section corresponds to Section 14(2)(b) of 1922 Act wherein it was specified that income-tax shall not be payable by an assessee if he is a member of AOP, etc. in a case where income-tax has already been paid by the AOP/body of individuals (BOI). He contended that in Section 86 an amendment was brought w.e.f. 1st April, 1989 when new Clause (v) was inserted in place of earlier clause and there was no material change in the section which conveyed that where the assessee is a member of AOP, etc. his share of income in the said association will be computed in the manner provided in Section 67A. It provided further that when such association is chargeable to tax on its total income at maximum marginal rate or at any higher rate under the provisions of IT Act then the share of a member computed as aforesaid shall not be included in his total income and in any other case the share of the member computed as aforesaid shall form part of his total income. It also provides that where no income-tax was chargeable on the income of such association, the share of members as computed under Section 67A shall be chargeable to tax as part of its total income.

16. Learned Authorised Representative pleaded that a further change was brought into Section 86 w.e.f. 1st April, 1993 which also enacted similar provisions as it was on the statute w.e.f. 1st April, 1989 and thus he contended that there is no material change except renumbering of the earlier section.

17. Learned Authorised Representative then carried us through s. 167A. He contended that Section 167A as it stood on the statute w.e.f. 1st April, 1981 to 31st March, 1985 provides the chargeability of a tax where shares of members were unknown. In such a situation Section 167A provides that the tax will be charged on the total income of AOP/BOI at the maximum marginal rate. However, he pleaded that said section has no relevance in the present case as undisputedly the shares of members of the AOP are known and determined. Section 167A as it stood from 1st April, 1985 to 31st March, 1989 also prescribes the chargeability of tax where shares of members of AOP are unknown. Thus Section 167A does not have any application.

18. Learned Authorised Representative further referred to Section 167B which has been brought on the statute by Direct Tax Laws (Amendment) Act, 1989 w.e.f. 1st April, 1989 which prescribes charge of tax in a situation where shares of members in AOP or BOI are unknown and also in a situation different to that. Section 167B(1) makes a provision regarding the chargeability of tax on the total income of AOP or BOI in a case where the individual share of members of such AOP/BOI in whole or any part of the income of such AOP/BOI is indeterminate or unknown. In such a situation, it has been provided that tax shall be charged at the total income of AOP/BOI at maximum marginal rate. It is also provided that in a case where on the total income of any member of such AOP or BOI tax is chargeable at the rate higher than the maximum marginal rate, then tax shall be charged on the total income of AOP/BOI at such higher rate. Thus according to Section 167B(1) where the shares of members of AOP/BOI are indeterminate or unknown then tax either shall be payable on the total income of such body or association at the maximum marginal rate or at a higher rate if such higher rate of tax is chargeable on any part of the income of its member. However, the said sub-section has no applicability on the facts of the present case as it has already been pointed out that in the present case the shares of members are determinate and known.

19. Section 167B(2) governs the chargeability of tax in the present case as it refers to a situation which is different from situation prescribed under Section 167B(1) and such situation includes a situation where the shares of the members of AOP/BOI are determinate and known. In such a situation it has been provided that if total income of any of the members of such AOP or BOI exceeds the maximum amount which is not chargeable to tax, in that situation tax shall be charged on the total income of AOP or BOI at the maximum marginal rate. It is also provided that in a case where any member or members of such AOP/BOI are chargeable to tax at a rate or rates which is or are higher than the maximum marginal rate, tax shall be charged on that portion or portions of the total income of the AOP or BOI which is or are relatable to the share or shares of such member or members at such higher rate or rates, as the case may be, and the balance of the total income of such AOP or BOI shall be taxed at maximum marginal rate.

20. Reading from these sections, learned Authorised Representative vehemently pleaded that even according to Sub-section (2) of Section 167B the chargeability of tax in the hands of AOP/BOI cannot be determined if tax liability is not first computed in the hands of members of such AOP/BOI. He contended that from reading all these sections one thing is clear that the AO is not precluded from making assessment on the members of AOP/BOI prior to making assessment on AOP/BOI. He contended that according to the scheme of the Act it is rather necessary to first assess the members of such AOP/BOI and thus AO cannot be said to have wrongly proceeded to assess members of AOP/BOI prior to making assessment in the hands of AOP or BOI. Advancing his arguments on these lines he pleaded that in the present case as AO has exercised his option to assess members of AOP prior to making assessment in the hands of AOP, he could not have proceeded to assess the AOP. He contended that not only such action of AO was against the principle of avoidance of double taxation but also against the aforementioned circular of CBDT dt. 24th Aug., 1966 which clearly prescribes that position of law as enunciated under 1922 Act is similar under 1961 Act. He contended that by various judicial pronouncements it has been held that in view of the said circular the AO could not proceed to assess AOP in a case where he has already exercised his option for assessing the members of AOP.

21. Learned Authorised Representative further contended that Section 167B(2) is not a charging section but this section has been enacted to find out the rate applicable on AOP/BOI.

22. Learned Authorised Representative then referred to the decision of the Hon'ble Supreme Court in the case of Murlidhar Jhawar & Puma Ginning & Pressing Factory (supra) to contend that the partners of an unregistered firm might be assessed individually or they might be assessed collectively in the hands of an unregistered firm and AO could not however, seek to assess the one income twice i.e. once in the hands of partners and again in the hands of unregistered firm.

23. Referring to the decision of Hon'ble Supreme Court in the case of ITO v. Ch. Atchaiah (supra) on which reliance has been placed by the Revenue, he pleaded that the said decision was rendered on the facts of that case and, therefore, is not applicable to the case of the assessee. He pleaded that in the said case Hon'ble Supreme Court has not considered the aforementioned circular dt. 24th Aug., 1966 issued by the CBDT in which it is clearly mentioned that under 1961 Act also the decision of the Hon'ble Supreme Court in the case of Murlidhar Jhawar & Puma Ginning & Pressing Factory (supra) was applicable. He contended that assessment framed by the AO on the members of AOP is valid assessment in accordance with the circular and the said circular being beneficial circular was binding on the IT authorities. In this respect he referred to the decision of Hon'ble Gujarat High Court in the case of Laxmichand Hirjibhai v. CIT (supra) wherein it has been held that CBDT circulars are binding on the IT authorities even if they deviate from the correct legal position. CBDT stating that provisions for assessments of partners and unregistered firm in 1961 Act were on the same lines as in 1922 Act, circular of Board dt. 24th Aug., 1966 must be followed and even a deviation from the legal position cannot be a ground to ignore the binding effect of a circular.

24. Learned Authorised Representative further referred to the decision of Hon'ble Bombay High Court in the case of CIT v. V.H. Sheth and Ors. (supra) wherein the abovementioned circular was held to be binding on the Department.

25. Learned Authorised Representative further referred to the decision of Hon'ble Karnataka High Court in the case of CIT v. Manjunatha Motor Service & Canara Public Conveyances wherein it is held that assessment having been made on each member of AOP in individual status, assessment in respect of the same income cannot once again be made on the AOP as such course would amount to double taxation, more so in view of CBDT Circular No. F. No. 75/19/191/62-ITJ, dt. 24th Aug., 1966 which is binding on the Revenue.

26. Learned Authorised Representative contended that though there cannot be any dispute to the legal proposition that in a case of subsequent change in legislation the circular issued will not be applicable but he contended that it has been made clear in the earlier discussion that so far as it is concerned with the provisions relating to taxation of AOP and its members, there is no material change in the scheme of the 1961 Act as compared to the scheme under the 1922 Act.

27. Learned Authorised Representative further contended that circular is beneficial for the reason that in case members of the AOP are assessed then the tax burden will be lighter as compared to tax charged in the hands of AOP. He contended that in the case of the assessee if tax is assessed in the hands of the members, the tax charged will be lighter and thus the circular is beneficial in the case of assessee and such beneficial circular is binding on the IT authorities. For this proposition he relied on the following decisions:

(i) Navnit Lal C. Javeri v. K.K. Sen, AAC wherein it has been held as under:

It is clear that a circular of the kind which was issued by the Board would be binding on all officers and persons employed in the execution of the Act under Section 5(8) of the Act. This circular pointed out to all the officers that it was likely that some of the companies might have advanced loans to their shareholders as a result of genuine transactions of loans, and the idea was not to affect such transactions and not to bring them within the mischief of the new provision.

(ii) Ellerman Lines Ltd. v. CIT in which apex Court referring to the notification dt. 1st Feb., 1942 wherein CBDT issued instructions to assessing authorities laying down the principles to be applied in assessing foreign shipping companies. The said notification did not refer to any development rebate as there was no provision for development rebate at that time. It was held that the fact that the proviso to Section 10(2)(vib) of 1922 Act was incorporated into the Act after the Board issued its instructions cannot affect the force of the instructions issued by the Board of Revenue.

(iii) K.P. Varghese v. ITO and Anr. wherein it is held that the CBDT circulars, apart from being binding on the Revenue authorities are clearly in the nature of contemporaneous exposition furnishing legitimate aid in the construction of Sub-section (2) of Section 52. The rule of construction by reference to contemporaneous exposition is a well-established rule for interpreting a statute by reference to the exposition it has received from contemporary authority, though it must give way where the language of the statute is plain and unambiguous. It is worth noting that circulars issued by the CBDT are legally binding on the Revenue and this binding character attaches to the aforesaid two circulars dt. 7th July, 1964 and 14th Jan., 1974, even if they be found not in accordance with the correct interpretation of Sub-section (2) and they depart or deviate from such construction.--Navnit Lal C. Javeii v. K.K. Sen AAC and Elleiman Lines Ltd. v. CIT relied on.

(iv) Keshavji Ravji & Co. Etc. Etc. v. CIT wherein it has been held as under:

The Board cannot pre-empt a judicial interpretation of the scope and ambit of a provision of the Act by issuing circulars on the subject. This is too obvious a proposition to require any argument for it. A circular cannot even impose on the taxpayer a burden higher than what the Act itself on a true interpretation envisages. The task of interpretation of the laws is the exclusive domain of the Courts. The Tribunal, much less the High Court, is an authority under the Act. The circulars do not bind them. But the benefits of such circulars to assessees have been held to be permissible even though the circulars might have departed from the strict tenor of the statutory provision and mitigated the rigour of the law. But that is not the same thing as saying that such circulars would either have a binding effect in the interpretation of the provision itself or that the Tribunal and the High Court are supposed to interpret the law in the light of the circular. There is, however, the support of certain judicial observations for the view that such circulars constitute external aids to construction.

(v) UCO Bank v. CTF wherein it is held that CBDT has power, inter alia, to issue circulars to tone down the rigour of the law and ensure fair enforcement of its provisions; so long as such a circular is in force it would be binding on the Departmental authorities in view of the provisions of Section 119 to ensure a uniform and proper administration and application of the IT Act.

(vi) Commr. of Customs Etc. Etc. v. Indian Oil Corporation Ltd. and Anr. (2004) 187 CTR (SC) 297 : (2004) 267 FTR 272 (SC) wherein following the decision of apex Court in the case of CCE v. Dhrren Chemical Industries it has been held that when a circular issued under Section 151A of the Customs Act remains in operation, the Revenue is bound by it and cannot be allowed to plead that it is not valid or that it is contrary to the terms of the statute. Although a circular is not binding on a Court or an assessee, it is not open to the Revenue to raise a contention contrary to a binding circular. A show-cause notice and demand contrary to existing circulars of the CBEC are ab initio bad. Further, it is not open to the Revenue to advance an argument or file an appeal contrary to the circular.

(vii) CCE v. Dhiren Chemical Industries (supra) wherein it has been held as under:

Where the raw material is not liable to excise duty or such duty is nil, the exemption notification in question will not apply; however, if there are circulars which have been issued by the CBEC which place a different interpretation upon the said phrase, that interpretation will be binding upon the Revenue.

(viii) ITO v. Bir Engg. Works (2005) 93 TTJ (Asr)(SB) 257: (2005) 94 ITD 164 (Asr)(SB) wherein it has been held as under:

Instructions issued by the CBDT prescribing monetary limit for filing the appeals before the Tribunal, High Court or the Supreme Court are binding on the IT authorities and therefore Tribunal did not commit any error in dismissing the Department's appeal by relying on Instruction No. 1979, dt. 27th March, 2000.

28. Referring to all these decisions learned Authorised Representative finally pleaded that circular issued by CBDT dt. 24th Aug., 1966 is binding and thus assessment made by AO on the AOP is contrary to that circular and assessment should be set aside.

29. On the other hand, learned Departmental Representative pleaded that the assessment in the present case is framed under the provisions of Section 167B(2) of the Act. He contended that ss. 86 and 67 are only consequential in nature. He contended that there is no force in the argument of the learned Authorised Representative that the AC) is debarred from making assessment in the hands of the AOP as its members have already been assessed by the AO. He contended that such argument of the learned Authorised Representative is wrong in view of mandate given in ss. 154 and 155 of the Act. He referred to the provisions of Section 155(2) of the 1961 Act which provides that in respect of any completed assessment of a member of AOP/BOI it is found that on assessment or reassessment of such AOP or BOI or on any reduction or enhancement in such case in pursuance of some order passed under Sections 154, 250, 254, 260, 262, 263 and 264 in the income of such AOP or BOI or in pursuance of any order passed under Sub-section (4) of Section 245D on the application made by such AOP or BOI that the share of the member in the income of AOP or BOI has not been included in the assessment of member and if included is not correct, then the AO has an authority to amend the order of assessment of such member. Thus he pleaded that Act in itself contemplates a situation where the assessment is made in hands of the AOP and if interpretation as argued by the learned Authorised Representative is accepted then the provisions of Section 155(2) will become redundant.

30. Learned Departmental Representative further argued that Section 67A provides method of computing a member's share in the income of AOP and thus it is not describing the chargeability of income of AOP or its member. Referring to Section 86 he pleaded that it provides that where the income of AOP is chargeable to tax at the maximum marginal rate or any higher rate under any of the provisions of the Act, the share of member computed as per main provisions of Section 86 shall not be included in his total income and in any other case the same will form part of member's total income. Thus he pleaded that it provides the manner in which the share of a member of AOP/BOI in the income of such AOP will be dealt with and thus the same also cannot be said to be a charging section.

31. Learned Departmental Representative further contended that option to assess either the members of an AOP or AOP itself was under the 1922 Act. He contended that with the introduction of Section 167B no such option was available with the AO. He contended that circular also cannot be said to be applicable as there was an amendment in the Act after the issue of circular. He contended that in view of introduction of Section 167B to the statute by the Direct Tax Laws (Amendment) Act, 1989 w.e.f. 1st April, 1989, the circular of 24th Aug., 1966 had lost its effect. He contended that when base is removed superstructure cannot stand. He contended that substantial provisions are to be applied rather than the circular. Reading from the circular of 1966, he contended that it was only an advice given by CBDT to its officer to complete the assessment of AOP first and the said instruction was given only for avoiding further complication and it was not intended to give any benefit to the assessee. He contended that instead of applicability of the circular of 1966, the circular explaining the provisions of Section 167B i.e. Circular No. 551 (1990) 82 CTR (St) 325 will be applicable and with the issue of the said circular i.e. Circular No. 551 earlier circular of 1966 had become redundant. He contended that the moment the amendment was introduced in the Act by way of introduction of Section 167B the circular of 1966 had died its natural death. He further relied on the following decisions:

(i) Jagdish Raj Chauhan, Sohagwanti & Gurbachan Singh (AOP) v. ITO (2006) 99 TTJ (Asr) 45 : (2006) 100 ITD 525 (Asr) to contend that in view of decision of Hon'ble Supreme Court in the case of ITO v. Ch. Atchaiah (supra), the assessment has necessarily to be made in the case of AOP as there was a difference between the provisions of Indian IT Act, 1922 and the IT Act, 1961;

(ii) CIT v. Boots Co. (I) Ltd. wherein it has been held that it should not be forgotten that rules of interpretation are not rules of law. They have been devised to assist the Court in the interpretation of statute where the words or the language used therein are ambiguous and there is a doubt about meaning thereof. For this purpose, the doubt as to the true meaning should be 'real', and not merely conjectural or fanciful. If the Court does not think that the words or expressions are open to diverse interpretation, it is not entitled to say that there is ambiguity merely for the reason that some ingenious assessee or his counsel could suggest another meaning;

(iii) IPCA Laboratory Ltd. v. Dy CIT wherein it has been held that even though a liberal interpretation has to be given to a beneficial provision, the interpretation has to be as per wordings of that section. If the wordings of the section are clear, then benefits, which are not available under the section, cannot be conferred by ignoring or misinterpreting words in the section.

(iv) Smt Tarulata Shyam and Ors. v. CIT to contend that where the language of sections is clear and unambiguous, there is no scope for importing into the statute words which are not there. Such importation would be not to construe, but to amend, the statute. Even if there be a casus omissus the defect can be remedied only by legislation and not by judicial interpretation. Once it is shown that the case of assessee comes within the letter of the law, he must be taxed, however great the hardship may appear to the judicial mind to be.

(v) Orissa State Warehousing Corporation v. CIT wherein it has been held that a fiscal statute shall have to be interpreted on the basis of the language used therein and not de hors the same. No words ought to be added and only the language used ought to be considered so as to ascertain the proper meaning and intent of the legislation. The Court is to ascribe the natural and ordinary meaning to the words used by the legislature and the Court ought not, under any circumstances, substitute its own impression and ideas in place of the legislative intent as is available from a plain reading of the statutory provisions.

Learned Departmental Representative further contended that under the Act Board has power to issue beneficial circulars and there is also no doubt that such circulars are binding on IT authorities but he pleaded that the circular had lost its validity in view of subsequent decision of Hon'ble Supreme Court in the case of ITO v. Ch. Atchaiah (supra) and also in the light of subsequent amendment by which Section 167B was inserted. He contended that, therefore, assessment framed by the AO on AOP is a valid assessment.

Further referring to the order of CIT(A), he pleaded that it has been held by CIT(A) that it was a dubious method adopted by the assessee and those findings have not been challenged by the assessee. Therefore, on merits also assessee has no case. He contended that assuming circular of 1966 is binding on the Revenue but in view of findings given by learned CIT(A) in para 14 that benefit cannot be extended to the assessee as it was a sophisticated plan adopted by the assessee to reduce its taxation and those findings have not been challenged in the grounds of appeal by the assessee.

32. In the rejoinder, the learned Authorised Representative submitted that the case law relied upon by the learned Departmental Representative are not applicable to the facts of the present case. Referring to the decision of the Tribunal in the case of Jagdish Raj Chauhan, Sohagwanti & Gurbachan Singh (AOP) (supra) he contended that the said decision was rendered on the applicability of Section 249 i.e. payment of admitted tax before filing the appeal before CIT(A) and thus the same is not applicable to the facts of the present case. He reiterated his arguments that there is no change in the scheme of both the Acts and therefore circular issued by CBDT in 1966 has its application on the case of the assessee. Thus he pleaded that the assessment in the hands of AOP should be set aside.

33. We have carefully considered the rival submissions in the light of material placed before us. Firstly it will be relevant to examine that what is the position of law regarding chargeability of tax on AOP and its members under the provisions of 1961 Act. Prior to the pronouncement of decision in the case of ITO v. Ch. Atchaiah (supra) a legal controversy was prevailing on the issue as to whether the AO has option either to assess AOP or its members under 1961 Act as it was there under 1922 Act as held by Hon'ble Supreme Court in the case of CIT v. Murlidhar Jhawar & Puma Ginning & Pressing Factory (supra). Some High Courts had held that position under 1961 Act was the same and some High Courts had held that the position under 1961 Act is different as under 1961 Act no such option was available to the AO. The legal position in this regard has been set at rest by the Hon'ble Supreme Court in the case of ITO v. Ch. Atchaiah (supra). In this respect, to correctly appreciate the legal position it will be necessary to discuss in detail the said decision of Hon'ble Supreme Court.

34. In the said case their Lordships have referred to the provisions of 1922 Act and also the provisions of 1961 Act. The controversy in the said case related to asst. yrs. 1965-66 and 1968-69. In the said case Shri Ch. Atchaiah and another person namely, Shri Kondal Reddy purchased land measuring 454.11 acres in a village in Medak District in Andhra Pradesh from Shri Ikramuddin and Smt. Azizunnisa Begum under a sale deed dt. 20th Oct., 1962, for a consideration of Rs. 75,000. Prior to the execution of the sale deed, the said land had been notified for acquisition under the Land Acquisition Act. One of the purchasers, namely, Shri Kondal Reddy appeared before the Land Acquisition Officer claiming compensation and vide award dt. 4th Feb., 1964, the Land Acquisition Officer determined the compensation at Rs. 1,38,794.12 annas which amount was received by both the purchasers of the land on 4th Dec, 1964 in equal shares. Further, the land compensation was enhanced by Rs. 3,95,026 and the said enhanced compensation was also shared between the purchasers of the land. In the assessment proceedings relating to asst. yr. 1965-66 the AO included a sum of Rs. 35,397 treating the same as capital gain in the income of Shri Ch. Atchaiah (the said amount was calculated after considering the cost of the land). Again in the assessment relating to asst. yr. 1968-69 the enhanced compensation was brought to tax as capital gain and the co-purchaser was also taxed in the similar manner. On 18th Feb., 1972 the AO issued notice to Shri Ch. Atchaiah and Shri Kondal Reddy under Section 148 of the IT Act stating that he has reasons to believe that the income chargeable to tax for asst. yr. 1964-65 has escaped assessment. He called upon both of them to file the return. In response a nil return was filed on 3rd April, 1972. On 3rd Aug., 1972 AO issued notice to both of them stating that they have not mentioned status in the return so filed. The AO also proposed to tax them as AOP and bring the entire profit made by them to tax as capital gain in the hands of such AOP. Certain objections were raised by both of them but AO was inclined to proceed with the assessment. Both of them approached the Andhra Pradesh High Court by way of a writ petition questioning the aforesaid notice dt. 18th Feb., 1972. The main contention urged by them was that ITO having assessed the share of each of them in their respective individual hands has no jurisdiction to assess the same income as the income of the AOP. Having exercised the discretion vested in him to assess them individually with respect to their shares, it was contended, it was not open to him to assess them as an AOP with respect to the very same income.

35. The High Court accepted such contentions of both of them and rejected the contention of the Revenue that decisions relied upon by petitioners were all rendered under the provisions of 1922 Act and that the principle of law laid down in those decisions cannot be extended to the cases arising under 1961 Act. The High Court found that the position under the present Act is no different from the position under the 1922 Act notwithstanding the difference in the language employed in the relevant provisions of 1961 Act. It was opined that even under the present Act, the ITO has an option to assess either the AOP as a unit or the members thereof individually and that having exercised the option to assess the members of AOP as individuals and he cannot seek to tax the AOP with respect to the very same income. It is against such decision of Andhra Pradesh High Court, an appeal was filed by the Revenue before the Hon'ble Supreme Court.

36. It was urged before the Supreme Court that the High Court was clearly in error in holding that under 1961 Act, the ITO has an option to tax either the AOP or its members individually. It was pleaded that though there was an option with the Revenue to do so under 1922 Act but the said option is not available under 1961 Act. It was pleaded on behalf of the Revenue that the right person has to be taxed and merely because a wrong person is taxed, it does not operate as a bar to tax the right person. The contention of the Revenue was that if in law the income in question had to be taxed in the hands of AOP, it had to be taxed as such and the mere fact that the said income was taxed in the hands of individual members of the AOP does not bar the ITO from taxing the AOP. On the other hand, it was contended on behalf of the assessee that there is no difference between the position obtaining under 1922 Act and 1961 Act and that, therefore, the decision rendered under 1922 Act holds good equally under the present enactment. It was pointed out that a different view was taken later on by Andhra Pradesh High Court in the case of Choudry Brothers v. CIT but the said view was overruled by Full Bench in the case of CIT v. B.R. Constructions wherein the decision in the case of the assessee was affirmed.

37. Considering the submissions of both the parties their Lordships of Hon'ble Supreme Court found merit in the contention of counsel appearing on behalf of the Revenue. They opined that under 1961 Act the ITO has no option like the one he had under the 1922 Act. They also opined that ITO can and he must, tax the right person and the 'right' person alone. They observed that by 'right person' means 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 expression 'right person'. They also observed that merely because a wrong person is taxed with respect to a particular income the AO is not precluded from taxing right person with respect to that income. It was held that this is so irrespective of the fact that which course is more beneficial to the Revenue. Going through the language of relevant provisions of 1961 Act they observed that it is quite clear and unambiguous. After referring to s. 183 to show that where Parliament intended to provide such an option it has provided so expressly. It was observed that where a person is taxed wrongfully, he is entitled to be relieved to it in accordance with law but that is a different matter altogether and the person who is lawfully liable to be taxed cannot claim immunity. Further elaborating the proposition, they discussed provisions of Section 3 of 1922 Act as amended by Indian IT (Amendment) Act, 1939. Section 3 of 1922 Act is a charging section which describes chargeability of income-tax in respect of total income of previous year of "every individual, HUF, company and local authority, and of every firm and other AOP or the partners of the firm or members of association individually". Further they referred to the definition of person as given in Clause (9) of Section 2 of 1922 Act which reads as under:

(9) 'person' includes an HUF and a local authority As against the above provisions, they referred to Section 4 of the 1961 Act [before it was amended by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1st April, 1989] which reads thus:

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 of this Act in respect of the total income of the previous year or previous years, as the case may be, 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 Sub-section (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.

[They expressed that amendments made by Direct Tax Laws (Amendment) Act, 1987 in Section 4 of 1961 Act do not make any difference so far as it relates to controversy raised in that case].

38. They also referred to the definition of person given in Clause (31) of Section 2 in 1961 Act which is as under:

(31) 'person' includes

(i) an individual,

(ii) an HUF,

(iii) a company,

(iv) a firm,

(v) an AOP or a BOI, whether incorporated or not,

(vi) a local authority, and

(vii) every artificial juridical person, not falling within any of the preceding subclauses.

39. Comparing the provisions of both the enactments apex Court observed that it brings out the difference between Section 3 of 1922 Act which provided that in respect of total income of a firm or an AOP, the income-tax shall be charged either on the firm or the AOP or on the partners of the firm or on the members of AOP individually. Thus they observed that it is evident that this option was to be exercised by the ITO keeping in view interest of the Revenue. Whichever course was more advantageous to the Revenue, the ITO was entitled to follow it. They observed that in such a situation it was generally held that once the ITO opted for one course, the other course was barred to him. Referring to the provisions of Section 4 of 1961 Act, they observed that income-tax shall be charged on the total income of 'every person' and the expression 'person' as defined in Clause (31) of Section 2 merely says that the expression 'person' includes, inter alia, a firm and an AOP or BOI whether incorporated or not. They observed that there are no words in the present Act (1961 Act) which empowers the ITO or gives him an option to tax either the AOP or its members individually or for that matter to tax the firm or its partners individually. They observed that if it is the income of the AOP in law the AOP alone has to be taxed; the members of the AOP cannot be taxed individually in respect of the income of the AOP and consideration of the interest of the Revenue has no place in the scheme of 1961 Act. They referred to Section 183, where an option has been given to AO to assess either the unregistered firm or its partners in a case where it is beneficial to the Revenue. They also mentioned that Section 183 corresponds to Section 23(5)(b) of 1922 Act. Thus they observed that where such option was intended to be given by the legislature, it has so been given and the same has not been extended to the AOP and its members. Their Lordships referred to various decisions rendered under 1961 Act holding therein that such option was available to the ITO even under 1961 Act and also to the decisions which have taken the view that no such option was available under 1961 Act. They observed that in the decisions where the view has been taken by various High Courts that such option is available even under 1961 Act appeared to have been influenced largely by the decisions of Supreme Court in the cases of CIT v. Kanpur Coal Syndicate (supra) and CIT v. Murlidhar Jhawar & Purna Ginning & Pressing Factory (supra) and observed that these decisions were rendered under 1922 Act and no due weight was given in those decisions to the marked difference in the language of relevant provisions in the two enactments. Thus they held that AOP being the assessable entity has to be taxed on its income and under 1961 Act no such option was available with the ITO to assess the members on the income of AOP and even if the members of AOP have been assessed, that will be the assessment on 'wrong person'. The assessment of a 'wrong person' cannot stand in the way of the assessment of 'right person' as 'wrong person' can adopt, legal course to get its assessment annulled.

40. As per above decision of the Hon'ble Supreme Court, it is very much clear that there is a marked difference in the provisions relating to assessability of AOP and its members as contained in 1922 Act and as contained in 1961 Act. Under 1961 Act, there is no option available to the ITO to assess the members of AOP and the assessment of members of AOP cannot stand in the way of assessment to be made on AOP which is the right person to be assessed under 1961 Act. It therefore follows that the AOP in the present case is the right person to be assessed under 1961 Act as held by Hon'ble Supreme Court in the case of ITO v. Ch. Atchaiah (supra). In accordance with law as declared by Hon'ble Supreme Court in the aforementioned case of Ch. Atchaiah (supra), the 'right person' assessable under 1961 Act is AOP in place of its members. Referring to the decision in the case of CIT v. Murlidhar Jhawar & Puma Ginning & Pressing Factory (supra) and also the decision in the case of CIT v. Kanpur Coal Syndicate (supra) it was observed that these decisions were rendered under 1922 Act. It was further observed that in the decisions of various High Courts in which it was held that the position of law in this respect is same under 1961 Act as it was under 1922 Act, due weight was not given to the marked difference in the language of the relevant provisions in the two enactments. In view of the decision of apex Court in the case of ITO v. Ch. Atchaiah (supra), the contention of the learned Authorised Representative that there is no material change in the provisions of 1961 Act as compared to similar provisions contained in 1922 Act with respect to chargeability of tax relating to AOP and its member is liable to be rejected and accordingly rejected. The contention of learned Authorised Representative that assessment of AOP after the assessment of similar income in the hands of its members will make it a case of double taxation and therefore also assessment on the AOP is bad in law is also liable to be rejected since as held by Hon'ble Supreme Court in the case of ITO v. Ch. Atchaiah (supra), merely because a 'wrong person' has been assessed, the AO is not precluded from taxing the 'right person' and 'wrong person' can seek remedy as available under law. So on the ground of double taxation also, assessment on AOP (which is the right person to be assessed under the 1961 Act) cannot be held to be invalid and the argument raised by the assessee in this regard is also liable to be rejected and is rejected.

41. Now we have to consider the arguments of the learned Authorised Representative of the assessee regarding applicability of the circular dt. 24th Aug., 1966 relying on which it is pleaded that it is a beneficial circular and therefore the same was binding on AO and CIT(A) and thus assessment made on AOP subsequent to the assessment of its members could not be validly made by AO, and CIT(A) has wrongly upheld the same. To examine such contention, it will be relevant to reproduce the text of the circular:

33. Share income from AOP or firm once assessed directly in the hands of member or partner-Whether open to ITO to assess the same income in the hands of AOP or firm as unregistered firm--Decision of Supreme Court in Murlidhar's case to that effect whether applies to assessments under 1961 Act

1. The effect of this decision [CIT v. Murlidhar Jhawar & Puma Ginning & Pressing Factory ] is that once the ITO assesses directly an assessee's share of income from an AOP or firm, it is not open to him to assess the same income again in the hands of the AOP or firm. In other words, once the assessment of a partner or a member of an association has been made by taxing directly his proportionate share from the firm or association, the ITO is precluded from assessing the firm in the status of an unregistered firm or AOP. Thus, all the partners of the firm or members of the association will have to be assessed as partners of a registered firm, even though while dealing with the assessment of the firm, the ITO comes to the conclusion that the firm is not entitled to registration. Although the Supreme Court's decision is under the Indian IT Act, 1922, the Board is advised that it will equally apply to the assessments made under the IT Act, 1961.

2. In view of the above decision, the ITO assessing the partners of a firm should not normally complete the regular assessments of the partners by including their share from the firm unless the assessment of the firm has already been made. The ITOs assessing the firms must give priority to the disposal of the firms' assessments. They should realise that if they delay the assessments of the firms, they would be responsible for the assessments of all the partners being held up. In an exceptional case if the ITO assessing the firm feels that the assessment of the firm is likely to be delayed so that there would be unnecessary delay in the assessment of the partners, he may consider the firm's claim for registration and pass a suitable order under Section 26A of the 1922 Act/Section 184/185 of the 1961 Act even before passing the order of assessment. After an order on the firm's claim for registration has been passed by the ITO, the ITO assessing the partners can proceed with their assessments and include their share in the firm, accordingly. The share so included can later be modified by the ITO under Section 155 after the firm's assessment or reassessment has been made.

Letter: F. No. 75/19/191/62-ITJ, dt. 24th Aug., 1966.

42. As pointed out earlier, the abovementioned circular was issued on 24th Aug., 1966. It is also important to note that after the date of issue of abovementioned circular two important events happened. Firstly, subsequent to the date of issue of above circular, the judgment of Hon'ble Supreme Court in the case of ITO v. Ch. Atchaiah (supra) came to be delivered on 11th Dec, 1995 propounding that the position of law regarding chargeability of tax on the AOP and its member is different under 1961 Act as compared to the provisions of 1922 Act. As already discussed, Hon'ble Supreme Court has interpreted the law in this regard by comparing the provisions of Sections 3, 2(9) of 1922 Act and the provisions of Section 2(31) and Section 4 of 1961 Act. Further their Lordships have also observed that earlier decision of apex Court in the case of CIT v. Murlidhar Jhawar & Puma Ginning & Pressing Factory (supra) (based upon which the circular has been issued by CBDT) was rendered under 1922 Act and the same, therefore, could not be applied to 1961 Act as there was marked difference in the language of both the Acts. The reliance by the learned Authorised Representative on the decisions in the cases of Laxmichand Hirjibhai v. CIT (supra), CIT v. V.H. Sheth and Ors. (supra) and CIT v. Manjunatha Motor Service & Canara Public Conveyances (supra) taking a different view on the issue thus is clearly misplaced in view of the law declared subsequently by the Supreme Court in the case of ITO v. Ch. Atchaiah (supra).

43. Secondly, Section 167B regulating "charge of tax where shares of members in the AOP or BOI unknown, etc." was introduced in the statute by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1st April, 1989. Sub-section (2) of Section 167B governs the case of the assessee. Section 167B is reproduced below for the sake of convenience:

167B. Charge of tax where shares of members in AOP or BOI unknown, etc.-- (1) Where the individual shares of the members of an AOP or BOI [other than a company or a co-operative society or a society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India) in the whole or any part of the income of such association or body are indeterminate or unknown, tax shall be charged on the total income of the association or body at the maximum marginal rate:

Provided that, where the total income of any member of such association or body is chargeable to tax at a rate which is higher than the maximum marginal rate, tax shall be charged on the total income of the association or body at such higher rate.

(2) Where, in the case of an AOP or BOI as aforesaid [not being a case falling under Sub-section (1)],

(i) the total income of any member thereof for the previous year (excluding his share from such association or body) exceeds the maximum amount which is not chargeable to tax in the case of that member under the Finance Act of the relevant year, tax shall be charged on the total income of the association or body at the maximum marginal rate;

(ii) any member or members thereof is or are chargeable to tax at a rate or rates which is or are higher than the maximum marginal rate, tax shall be charged on that portion or portions of the total income of the association or body which is or are relatable to the share or shares of such member or members at such higher rate or rates, as the case may be, and the balance of the total income of the association or body shall be taxed at the maximum marginal rate.

Explanation--For the purposes of this section, the individual shares of the members of an AOP or BOI in the whole or any part of the income of such association or body shall be deemed to be indeterminate or unknown if such shares (in relation to the whole or any part of such income) are indeterminate or unknown on the date of formation of such association or body or at any time thereafter.

44. Section 167B regulates chargeability of tax on AOP and BOI. This section has given a clear mandate that the tax is chargeable in the hands of AOP alone and it has been brought in the statute subsequent to the issue of abovementioned circular of the CBDT.

45. In the light of the abovementioned factual aspects, we shall proceed to examine the contention of the learned Authorised Representative as to whether the benefit as sought under the said circular can be extended to the AOP.

46. There cannot be any dispute to the proposition that IT authorities are bound to follow the circulars issued by CBDT under Section 119 of the Act. At the same time, it is also well settled that it is not irrelevant for the judicial forum to examine the circumstances/context as well as the prevailing conditions under which such circular came to be issued. A close look at the circular will reveal that the basis of issue of circular is the decision of Hon'ble Supreme Court in the case of CIT v. Murlidhar Jhawar & Puma Ginning & Pressing Factory (supra), which was then available on the date of issue of circular. Considering the said decision, a view was expressed by the CBDT that the position as described in the said decision will continue to apply to the provisions of 1961 Act. Under these circumstances the said circular was issued.

47. The law is well established that the circular cannot overwrite, modify or amend the provisions of the Act or judicial decision. In other words, working within the ambit of Section 119 of 1961 Act, CBDT (Board) does not have power either to overwrite, modify and amend the provisions of law or to overcome over a judicial pronouncement either of a High Court or of an apex Court. Under Section 119, the Board is empowered to issue orders, instructions and directions to other IT authorities which are deemed fit by it for proper administration of the Act. This power is meant only for working within the four corners of the Act. Here the argument of the learned Authorised Representative is that the IT authorities are bound by the circular even if the same deviates from law and for that purpose reliance among other decisions is placed on the following three decisions of Hon'ble Supreme Court:

(i) Navnit Lal C Javeri v. K.K. Sen, AAC (supra);

(ii) Ellerman Lines Ltd. v. CIT (supra);

(iii) K.P. Varghese v. ITO (supra).

48. After considering all these three decisions the apex Court in the case of Hindustan Aeronautics Ltd. v. CIT has held that when High Court or Supreme Court has declared the law on some subject, it will not be open to a Court to direct that a circular should be given effect to and not the view expressed in the decision of High Court or Supreme Court. It will be relevant to reproduce the following observations of their Lordships from the said decision:

5. However, the learned Counsel for the appellant relied on the decisions in Navnit Lal C. Javeri v. K.K. Sen AAC , Ellerman Lines Ltd. v. CIT 1972 CTR (SC) 71 : (1972) 82 ITR 913 (SC) : TC 69R.265 and K.P. Varghese v. ITO (1980) 24 CTR (SC) 358 : (1980) 131 ITR 597 (SC): TC 69R.266, to contend that the circular issued by the Board under Section 119 of the Act is binding on the CIT in terms of which he was bound to examine the revision of the appellant on merits and the order of the learned single Judge merely gives effect to such a course. Dr. Gauri Shankar, learned senior advocate for the Revenue, however, pointed out by referring to several decisions of this Court to the effect that the circulars or instructions given by the Board are no doubt binding in law on the authorities under the Act but when the Supreme Court or the High Court has declared the law on the question arising for consideration it will not be open to a Court to direct that a circular should be given effect to and not the view expressed in a decision of the Supreme Court or the High Court. We find great force in this submission made by the learned senior advocate for the Revenue and find absolutely no merit in this appeal and the same stands dismissed, but in the circumstances of the case, there shall be no orders as to costs.

(emphasis, italicised in print, ours)

49. Following the above decision the jurisdictional High Court in the case of CIT v. Blaze Advertising (Delhi) (P) Ltd. (2002) 173 CTR (Del) 482 : (2002) 255 ITR 460 (Del) has observed as under:

14. Circulars issued under Section 119 of the Act stand on a different footing. The Hon'ble Supreme Court in UCO Bank v. CIT has held that circulars under Section 119 are meant for ensuring proper administration of the statutes and mitigate rigours of provisions of law. These circulars are binding and enforceable against the Revenue. However, when Supreme Court or High Court has declared law on a question, it is not open to the Court to direct that a circular should be given effect to and not the decision [See Hindustan Aeronautics Ltd. v. CIT ].

50. Reference also can be made to the decision of jurisdictional High Court in the case of Geep Industrial Syndicate Ltd. and Anr. v. CBDT wherein it is held that circular cannot override judicial decisions rendered on the statute. In fields which are covered by judicial decisions, the circular will not be conclusive even so far as the ITO is concerned. The following observations are reproduced from the said decision:

Secondly, even assuming that the ITO may have had the circular in mind, he did not treat it as conclusive and binding on himself and preferred to base his conclusion on the decisions referred to in his order under Section 154. This is, therefore, a case where the circular has not been considered applicable proprio vigore. At worst, all that can be said is that the circular has also been taken into account and considered in the light of the judicial decisions referred to by the ITO. It is clear that while a circular of the Board will be binding upon an ITO in matters relating to the general interpretation of any provisions of the statute, the circular cannot override judicial decisions rendered on the statute. In fields which are covered by judicial decisions, the circular will not be conclusive even so far as the ITO is concerned.

(emphasis, italicised in print, ours)

51. Learned Authorised Representative referred to the decisions of Hon'ble Supreme Court in the cases of CCE v. Dhiren Chemical Industries (supra) and Commr. of Customs Etc. Etc. v. Indian Oil Corporation Ltd. and Anr. (supra) to plead that despite the law declared by Supreme Court in the case of Ch. Atchaiah (supra), the circular issued by the Board will be binding on the Revenue. In Commr. of Customs, Etc. v. Indian Oil Corporation Ltd. and Anr. (supra) apex Court has followed its earlier decision in the case of CCE v. Dhiren Chemical Industries (supra). We find that the decision in the case of CCE v. Dhiren Chemical Industries (supra) was later on considered by Hon'ble Supreme Court in the case of Kalyani Packing Industry v. Union of India and Anr. and the abovementioned decision was explained by their Lordships as under:

We have noticed that para 9 (para 11 in SCC) of Dhiren Chemical's case is being misunderstood. It therefore, becomes necessary to clarify para 9 (para 11 in SCC) of Dhiren Chemical's case (supra). One of us (Variava, J.) was a party to the judgment of Dhiren Chemical case (supra) and knows what was the intention in incorporating para 9 (para 11 in SCC). It must be remembered that law laid down by this Court is law of the land. The law so laid down is binding on all Courts/Tribunals and bodies. It is clear that circulars of the Board cannot prevail over the law laid down by this Court. However, it was pointed out that during hearing of Dhiren Chemical case (supra) because of the circulars of the Board in many cases the Department had granted benefits of exemption notifications. It was submitted that on the interpretation now given by this Court in Dhiren Chemical case (supra), the Revenue was likely to reopen cases. Thus, para 9 (para 11 in SCC) was incorporated to ensure that in cases where benefits of exemption notification had already been granted, the Revenue would remain bound. The purpose was to see that such cases were not reopened. However, this did not mean that even in cases where the Revenue/Department had already contended that the benefit of an exemption notification was not available, and the matter was sub judice before a Court or a Tribunal, the Court or Tribunal would also give effect to circulars of the Board in preference to a decision of the Constitution Bench of this Court. Where, as a result of dispute the matter is sub judice, a Court/Tribunal is, after Dhiren Chemical case (supra), bound to interpret as set out in that judgment. To hold otherwise and to interpret in the manner suggested would mean that Courts/Tribunal have to ignore a judgment of this Court and follow circulars of the Board. That was not what was meant by para 9 of Dhiren Chemical case (supra).

(Emphasis, italicised in print, ours)

52. Thus the decisions relied upon by the learned Authorised Representative, namely, CCE v. Dhiren Chemical Industries (supra) and Commr. of Customs, Etc. v. Indian Oil Corporation Ltd. and Anr. (supra) are distinguishable.

53. The Special Bench decision in the case of ITO v. Bir Engg. Works (supra) also does not advance the case of the assessee as the circular considered in the said decision was neither contrary to the judicial pronouncement of apex Court nor against the provisions of the statute.

54. It is thus clear that mandate of law is that effect cannot be given to a circular in preference to the view expressed by the Court, and this being so, we are of the view that the AO cannot be said to be bound to follow the aforementioned circular in preference to the decision of Hon'ble Supreme Court in the case of ITO v. Atchaiah (supra). On the contrary, he was bound to follow the proposition as propounded by Hon'ble apex Court in the case of ITO v. Atchaiah (supra) which was directly applicable in the present case. Thus, in our opinion, the AO did not commit any mistake in not following the said circular and rather he was right in framing the assessment on the AOP applying the law as declared by the Hon'ble Supreme Court in the case of ITO v. Atchaiah (supra) on the point in issue.

55. The other aspect of the matter is that whether a circular is binding on the AO even if it is contrary to the provisions of the Act. The law in this regard has been explained by Hon'ble Supreme Court in the case of Keshavji Ravji & Co. Etc. Etc. v. CIT (supra). In the said decision it was held by Hon'ble Supreme Court that the Tribunal is not an IT authority under the Act, therefore, circulars do not bind it. Though the benefits of such circulars to the assessee have been held to be permissible even though the circulars might have departed from the strict tenor of the statutory provisions and mitigate the rigour of law. But that is not the same thing as saying that such circulars would either have a binding effect in the interpretation of the provision itself or that the Tribunal and the High Court are supposed to interpret the law in the light of the circular. The following observations of their Lordships from the said decision are reproduced below:

This contention and the proposition on which it rests, namely, that all circulars issued by the Board have a binding legal quality incurs, quite obviously, the criticism of being too broadly stated. The Board cannot pre-empt a judicial interpretation of the scope and ambit of a provision of the Act by issuing circulars on the subject. This is too obvious a proposition to require any argument for it. A circular cannot even impose on the taxpayer a burden higher than what the Act itself, on a true interpretation, envisages. The task of interpretation of the laws is the exclusive domain of the Courts. However, this is what Sri Ramachandran really has in mind--circulars beneficial to the assessees and which tone down the rigour of the law issued in exercise of the statutory power under Section 119 of the Act or under corresponding provisions of the predecessor Act are binding on the authorities in the administration of the Act. The Tribunal, much less the High Court, is an authority under the Act. The circulars do not bind them. But the benefits of such circulars to assessees have been held to be permissible even though the circulars might have departed from the strict tenor of the statutory provision and mitigated the rigour of the law. But that is not the same thing as saying that such circulars would either have a binding effect in the interpretation of the provision itself or that the Tribunal and the High Court are supposed to interpret the law in the light of the circular. There is, however, the support of certain judicial observations for the view that such circulars constitute external aids to construction.

(Emphasis, italicised in print, ours)

56. The above stand was reiterated by the Hon'ble Supreme Court in the case of UCO Bank v. CIT (supra) where their Lordships have observed that circulars considered in that decision were having no inconsistency or contradiction over the provisions of IT Act. Their Lordships observed that circulars are not meant for contradicting or nullifying any provisions of the statute. It will be relevant to reproduce the following observations of their Lordships from the said decision:

The said circulars under Section 119 of the IT Act were not placed before the Court in the correct perspective because the later circular continuing certain benefits to the assessees was overlooked and the withdrawn circular was looked upon as in conflict with law. Such circulars, however, are not meant for contradicting or nullifying any provisions of the statute. They are meant for ensuring proper administration of the statute, they are designed to mitigate the rigours of the application of a particular provision of the statute in certain situations by applying a beneficial interpretation to the provision in question so as to benefit the assessee and make the application of the fiscal provision, in the present case, in consonance with the concept of income and in particular, notional income as also the treatment of such notional income under accounting practice.

It is further held as under:

We do not see any inconsistency or contradiction between the circular so issued and Section 145 of the IT Act. In fact, the circular clarifies the way in which these amounts are to be treated under the accounting practice followed by the lender. The circular, therefore, cannot be treated as contrary to Section 145 of the IT Act or illegal in any form. It is meant for a uniform administration of law by all the IT authorities in a specific situation and, therefore, validly issued under Section 119 of the IT Act. As such, the circular would be binding on the Department.

(emphasis, italicised in print, ours)

57. In the case of CIT v. Sahney Steel & Press Works Ltd. [affirmed by apex Court in Sahney Steel & Press Works Ltd. Etc. Etc. v. CIT ] it has been held that powers conferred by the Board under Section 119 cannot be put on a higher footing than the rule making effect and it is well settled that rule making authority cannot travel beyond the four corners of the Act nor can it make rule contrary to the provisions of the Act. The following observations from the said decision are reproduced below:

54. The power is conferred upon the Board 'for the proper administration of this Act' and it would follow that this power has to be exercised consistent with and within the four corners of the Act. In other words, the Board is given the power to fill in the details or to prescribe procedures where the Act and the Rules are silent. But the said power can never be construed as one enabling the Board to issue circulars overriding, modifying or in effect amending the provisions of the Act. Mr. Anjaneyulu argues that the circulars which are favourable to the assessee are binding but not those which are against the interests of the assessees. Again we are unable to discern any principle behind such a distinction. The power conferred by the Board by Section 119 cannot be put on a higher footing than the rule making power and it is well-settled that the rule-making authority cannot travel beyond the four comers of the Act nor can it make a rule contrary to the provisions of the Act. Indeed in Jalan Trading Co. (P) Ltd. v. Mill Mazdoor Sabha , the provision empowering the Central Government to remove doubts or difficulties in giving effect to the provisions of the Act was struck down as amounting to delegation of the legislative power to executive authority which is impermissible.

(emphasis, italicised in print, ours)

58. Thus it is clear from the above position of law as described in the aforementioned decisions that powers of CBDT exercised under Section 119 are not wide enough to travel beyond the scope of the Act. Its powers are same as are the powers of the rule making authority. Moreover, it has already been pointed out that in any case the circular had lost its validity as per law declared by the apex Court by way of the decision in the case of ITO v. Atchaiah (supra) when the controversy prevailing on the issue was resolved and it was interpreted that under 1961 Act no option was vested with the ITO to either assess the AOP or its members. Such option though was available under 1922 Act but was not provided in 1961 Act as there was a difference in the language of both the Acts. It has also been pointed out in this order that there was subsequent change in the legislation when Section 167B was introduced. Thus relying on the circular it cannot be held that AO had no jurisdiction to assess the AOP (assessee) as he had already assessed its members.

59. In view of the above discussion our answer to the question referred to the Special Bench is that assessment made by AO on AOP is valid in the light of the judgment of Hon'ble Supreme Court in the case of ITO v. Ch. Atchaiah (supra) and also in the light of the statutory amendments brought in the statute. For the reasons discussed above Board's circular dt. 24th Aug., 1966 cannot be relied upon to hold that the assessment on AOP is invalid. The said circular had lost its validity.

60. Our findings with regard to grounds raised by the assessee in its appeal are as under:

1. Apropos ground No. 1 it is held that CIT(A) was right in confirming the findings of the AO that commission income of Rs. 2,37,55,912 was taxable in the hands of assessee (i.e. in the status of AOP) and the said income was not taxable in the hands of respective members of joint venture;

2. Apropos ground No. 2 it is held that as share of income falling to the shares of respective members of AOP in all cases is above the exemption limit, the CIT (A) was right in confirming the finding of AO that tax on AOP should be levied at maximum marginal rate.

3. Apropos ground No. 3 it is held that the Board Instruction dt. 24th Aug., 1966 was not binding on AO in view of aforementioned decision of Hon'ble Supreme Court in the case of ITO v. Ch. Atchaiah (supra) and also in the light of subsequent amendment in the statute. Therefore, AO was right in making assessment in the hands of the AOP and such assessment is valid in accordance with law and CIT(A) was right in confirming the same.

61. Keeping in view our abovementioned conclusions, the appeal filed by the assessee is dismissed.