COMMISSIONER OF INCOME TAX Vs. DHANDAYUTHAM R

JUDGEMENT

(1.) FOUR persons by name, Dhandayutham, Subramaniam, Govindan and Mahalakshmi Ammal purchased certain vacant lands for Rs. 80,000 on 9th October, 1960. On 17th October, 1960, they agreed to sell the said lands to a co-operative society for a sum of Rs. 1,58,725 resulting in a profit, which was assessable in the assessment year 1962-63. On 29th February, 1964, a part of the land was sold and one of them was assessed on a sum of Rs. 17,617 as his share of the capital gains arising from the said transaction. In the course of the assessment order the Income-tax Officer stated as follows :

(2.) THIS assessment was made on 29th February, 1964. The Income-tax Officer, who was assessing the association of persons, consisting of the said four persons, had earlier served a notice under Section 139(2) of the Act, in February, 1963. A nil return was filed on behalf of the association on 19th December, 1963, claiming that no income was liable to be assessed as there was no intention to sell the land and that the sale was forced under a threat of compulsory acquisition. The Income-tax Officer rejected the claim of the assessee and brought to tax a sum of Rs. 79,325 as business profit arising from the sale of the association. On appeal, the Appellate Assistant Commissioner confirmed the assessment and the association filed a further appeal to the Tribunal. One of the contentions taken before the Tribunal and accepted by it was that the department, having earlier assessed one of the members, Subramaniam, individually on his share income, could not later on assess the unit consisting of the four persons as "association of persons" on the whole of its income. Against this conclusion of the Tribunal two questions were set out in the application for reference as follows:

(3.) ON a perusal of the order of the Tribunal, particularly the evidence referred to in the statement of the case, we consider that the inference of the exercise of the option was drawn from the fact that the assessment was made on the individual prior to the assessment on the association of persons. From the extract given from the assessment order it is clear that the Income-tax Officer was aware of the fact that another Income-tax Officer was in charge of the assessment of the association of persons. In one view there can be no exercise of option by the Income-tax Officer, who assessed the individual, when he had no jurisdiction to assess the association as such. However, the point adverted to before us is that the choice is by the department as such and not by the individual. In other words, the point sought to be made out is that all the Income-tax Officers are functioning under the Income-tax Act to assess the income of any person liable to tax and that though, for convenience, they are invested with the jurisdiction over particular cases territorially or otherwise, still as all of them are discharging the same function, when one of them is exercising a choice, then he in a way forecloses the power available to the department to assess the association. As pointed nut by the Supremo Court in M. M. Ipoh v. Commis- sioner of Income-tax [1968] 67 ITR 106 at 113, primarily, the return of income would be made by an association, where the association has earned income, and the Income-tax Officer would also call upon the association to submit a return of its income, and would ordinarily proceed to assess tax on the return so made. Again, at page 115, the Supreme Court observed as follows: