VENKATAKRISHNA RICE COMPANY Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE question referred to us by the Tribunal in this reference reads as follows :

(2.) THE question does not indicate what the order of the CIT was, on what basis the Tribunal upheld it as correct, and what was nature of the controversy raised by the assessee on it. A perusal of the stated case, however, tell us what the question is all about, a mercy for which we must be thankful. The assessee is a partnership firm carrying on a business of its own. It also indulged in a joint venture in sugar in association with certain other firms. While returning its income for 1969- 70, the assessee displayed therein its share income from the joint venture. The ITO accepted the return as he found it, and made an assessment on the basis of the return, charging to tax the total income returned by the assessee which included therein the assessee's share income from the joint venture. Subsequently, the CIT initiated proceedings for suo motu revision under s. 263 of the IT Act, 1961, on the score that the ITO action insofar as he brought to charge the assessee's share income from the joint venture was prejudicial to the interest of the Revenue. According to the CIT should have considered assessing the joint venture income in the hands of the AOP as a whole. By assessing the share income in the individual assessment of this assessee, the ITO had put it out of his reach to get at the AOP as a body and as a taxable entity. It was apparently the view of the CIT that the average rate of tax appertaining to the total income of the AOP was higher than the average rate of tax at which the share income was taxed appertaining to the other members of the AOP. He accordingly set aside the assessment in this case and directed ITO to first make an assessment on the AOP as such and then follow it up with the assessment of the share income of the assessee as member of that association.

(3.) ON the first question, it may be said that the position is now fairly well settled. Over a period of years, Courts have held that when once an ITO makes an assessment of the share income of a member of an association, thereafter he could not proceed to assess the income of AOP as such. All that would remain to be done in such a case would be for the ITO to proceed to deal with the other members' shares of income in their respective individual assessments. This position has been laid down as the pattern of assessment in all cases where an AOP as such earn income in which the members' thereof would be entitled to their aliquot shares. It may be conceived that this position regarding the modes of assessment of the AOP on the one hand and on the members of the association on the other was somewhat clear under the Indian IT Act, 1922, than they are under the present IT Act, 1961. However, it can be taken as fairly well settled now that the position is the same even under the present statute, to this effect, there is a ruling of Bench of our Court in CIT vs. R. Dhandayutham (1978) 113 ITR 602 (Mad) : TC 44R.1075. To the same effect are the decisions of Andhra Pradesh and Calcutta High Courts, vide ITO vs. Khalid Mehdi Khan (1977) 110 ITR 79 (AP) : TC 8R.1474 and Hindustan Mills Stores Supply Company vs. CIT (1979) 116 ITR 681 (Cal) : TC 33R.869.