COMMISSIONER OF INCOME TAX Vs. SHETH V H

JUDGEMENT

(1.) THIS is an application under S. 256(2) of the IT Act, 196l, for directing the Tribunal to refer to this Court for determination the three questions set out in para 5 of the application. The main question is whether the ITO was entitled to tax the respondent assessee as an AOP. The assessment year involved is 1976 77. The order of assessment taxing the assessee as an AOP was passed on March 20, 1979. Prior to that, the same ITO had assessed the three members of the said association as individuals and taxed their shares in the same income in their capacity as individuals. It may be pointed out that Mr. V. V. Sheth, one of the members, was assessed on February 8, 1979, Mr. V. H. Sheth, another member was assessed on August 31, 1978, and Mrs. Jayaben Seth, the third members, was assessed on February 30, 1979. As per the Circular of the CBDT issued on August 24, 1966, and set out in the judgment of the Gujarat High Court in Laxmichand Hirjibhai vs. CIT (1981) 21 CTR (Guj) 181 : (1981) 128 ITR 747 (Guj), at page 751, the effect of the decision of the Supreme Court in CIT vs. Murlidhar Jhawar & Purna Ginning & Pressing Factory (1966) 60 ITR 95, is that once the ITO assesses directly an assessee on his 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 an AOP. The circular clarifies that although the Supreme Court's aforesaid decision is under the Indian IT Act, 1922, the Board is advised that it will equally apply to assessments made under the IT Act, 1961.

(2.) THIS Circular set out in the above paragraph is binding on the IT Department as per the decisions of the Supreme Court in the cases of Navnit Lal C. Zaveri vs. K. K. Sen, AAC (1965) 56 ITR 198 (SC) and Ellerman Lines Ltd. vs. CIT 1972 CTR (SC) 71 : (1971) 82 ITR 913 (SC). In view of this, it is clear that the ITO was not entitled, in the facts and circumstances of the case, to tax the assessee as an AOP. In view of this conclusion, question No. 1 sought to be referred becomes academic because the same position would prevail whether the revised return was valid or not.