KAILASH LAMBA Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THESE two references can be disposed of by common judgment. They relate to the assessments for the asst. year 1963 -64 of two persons, Kailash Lamba and Madan Lal Lamba. The question referred in both the cases is identical and reads as follows :

(2.) THE facts out of which the question arises are the same in both the cases and can be briefly stated. The assessee was a member of an AOP consisting of four persons, namely, Madan Lal Lamba, Kailash Lamba, Harish Lamba and Jagdish Lamba. They ran a guest house at 9, Kitchenar Road, New Delhi, during the period November 15, 1961, to April 30, 1962, for the delegates to the World Council of Churches at New Delhi. It is common ground that the four persons formed an association and that they had equal shares in the profit earned by the association in the above activities. The share of profit of each of the two assessees has been determined at Rs. 5,265 and included in his personal assessment. It is, however, also common ground that there has been no direct assessment on the association itself. The short point taken by each of the assessees is that, without there being a direct assessment on the association itself, the share income of a member of the association cannot be included in his total income. This contention was accepted by the AAC but not by the Tribunal. The aggrieved assessees have sought a reference to this Court.

(3.) THE assessee's counsel pointed out that there is a substantial distinction between the provisions of S. 3 of the Indian IT Act, 1922, and those of S. 4 of the INCOME TAX ACT, 1961. The former conferred an option on the ITO to assess either the association (or an unregistered firm) or the individual member (or partner) thereof but not both. The scope of such option has been considered and dealt with by the Supreme Court in the case of CIT vs. Kanpur Coal Syndicate (1964) 53 ITR 225 (SC) and CIT vs. Murlidhar Jhawar & Purna Gining & Pressing Factory (1966) 60 ITR 95 (SC) and other cases. However, this difference has no relevance to the present case. Indeed, even in the decisions under the old Act, it was not held that a member of an association or firm could not be assessed directly on his share of income from the association. On the other hand, these decisions only arose because the Officer had assessed the individual members before assessing the association or firm and they held that where the ITO had exercised an option and made an assessment directly on the member of an association or partner of a firm in respect of his share of income therefrom, the ITO would not be entitled to make a direct assessment also on the association or firm. That was because the old Act authorised the ITO to proceed either against one or the other but not both. The absence of such an option in S. 4 clearly indicates that there is no obstacle in the way of the ITO directly assessing a member of an association or a firm without making an assessment on the association or firm itself.