P L D 1971 Supreme Court 1 (PLP)

The learned Judges in the High Court relying on a number of decisions from Indian jurisdiction held that once members of an association have been individually charge to tax, it is not open to the Income-tax authorities to again assess the same income as the income of the association. This proposition was spelt out of section 3 of the Income-tax Act which provides as herein-after. "Where any (Central Act) enacts that income-tax shall be charged for any year at any rate or rates 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 the previous years, as the case may be) of every individual, Hindu undivided family, company and local authority, and of every firm and other association of persons or the partners of the firm or members of the association individually: (Provided that whereby virtue of any provision of this Act- (a) income-tax is to be charged in respect of the income of a period other than the previous year or previous years, as the case may be, income-tax shall be charged accordingly ; (b) income-tax is to b; deducted at source or paid in advance it shall be so deducted or paid, as the case may be.)" In construing these previsions,. the learned Judges relied on the following remarks of the Indian Supreme Court in the case of Commissioner of Income-tax, U. P. v. Kanpur Goal Syndicate ((1964) 10 Taxation 175) "Section 3 imposes a tax upon a person in aspect of his total income. The persons on whom such tax can be imposed are particularized therein, namely, Hindu undivided family, company, local authority, firm, association of persons, partners of firm or members of association individually. The section, therefore, does not in terms confer any power on any particular officer to assess one of the persons described therein, but is only a charging section imposing the levy of tax on the total income of an assessable entity described therein. The section expressly treats as association of persons and the individual members of an association as two distinct and different assessable entities. On the terms of the section the tax can be levied on either of the said two entities according to the pro visions of the act." The rule issued in the case was in this view made absolute by the Division Bench of the High Court and the impugned notice under section 34 set aside, from which leave to appeal was granted to consider whether it was a case of double assessment or a case of rectification of assessment wrongly made upon individual partners in respect of the income of an unregistered firm under section 25 of the Income-tax Act. The respondent-company did not put in appearance at the hearing of the appeal while the other two associates were not a party to these proceedings from the very start. We have in the circumstances the benefit only of the arguments raised by the learned counsel for the Revenue. An examination of the provision of section 35 of the Income tax Act which provides for rectification of mistakes shows that the submission made at the leave stage that it was a case of rectification of assessment already made on the respoadent company is not well founded. Section 35 of the Income-tax Act inter alia provides :- "35.-(1) The Commissioner or Assistant Commissioner may, at any time within four years from the date of any order passed by him in appeal or, in revision, as the case may be, and the Income-tax Officer may, at any time within four years from the date of any assessment order or refund order passed by him, on his own motion rectify any mistake apparent from the record of the appeal, revision assessment or refund, as the case may be, and shall within the like period rectify and such mistake which has been brought to his notice by an assessee, or, in the case of an order in appeal, by any party to such appeal: Provided that no such rectification shall be made, having the effect of enhancing an assessment or reducing a refund unless the Commissioner, the Assistant Commissioner or the Income-tax Officer, as the case may be, has given notice to the assessee of his intention so to do and has allowed him a reasonable opportunity of being heard. (2) (3) (4) Where any such rectification has the effect of enhancing the assessment (or reducing a refund), the Income-tax Officer shall serve on the assessee a notice of demand in the prescribed form specifying the sum payable, and such notice of demand shall be deemed to be issued under section 29, and the pro visions of this Act shall apply accordingly. (5) . (6) . (7) . (8) . Firstly, the impugned notice was issued by the Income-tax Officer, Companies Circle 111, Narayanganj, appellant, and not by the Commissioner or the Assistant Commissioner. Secondly, the Notice was issued under section 34 on the specific allegation that the income of the respondent-company and its associates in the year ending 30th June 1959, had escaped assessment. No case of mistake apparent from the record of assessment of the three associates already carried out by their respective Income-tax Officers, could therefore be made out for exercise of jurisdiction under section

35. It is plain that under this section an assessment already made is not to be annulled or a fresh assessment made as, in the case under section

34. On the contrary, assessment made under section 23 or section 34 is to hold the field. Similarly, an order passed on appeal, revision or refund application will continue to operate but m either case the error, apparent from the record is to be rectified. A case in which there is an allegation that income has altogether escaped assessment within section 34 cannot therefore fall in the scope of, section

35. The ground on which leave to appeal was given thus fails. Mr. A. Matin Khan Chowdhury, appearing in support of the appeal urged that the association of persons comprising of the respondent-company and its associates namely, Kundanmul Jain and Khorgsing Jain, had not been taxed as such although the three partners were taxed for the same income, separately, In his view, after the association was charged to tax, the tax charged on the same income from the individual associates could be refunded to avoid double assessment. A question of general public importance arises on the submission made by the learned counsel, whether more than one notice can issue to an assessee in respect of the same income, under section 34 of the Income-tax Act. It will be recollected that both Kundunmal Jain and Khorgsingh Jain were at first assessed to tax under section 23 of the Income-tax Act in the year 1960 and later on notices under section 34 were issued to them by the Income-tax Officer, Investigation Circle, Dacca, in respect of their share of the income of the joint venture which had already been taxed along with their other income. Fresh assessments were completed on them on the 27th January 1964. Question arises how could another Income-tax Officer issue fresh notices to them under the same provision of law on the allegation that their income. from the joint venture had escaped assessment whereas in fact the income had been declared in the earlier returns and charged to tax. No authority was cited by Mr. Matin in support of such an astounding proposition. While it is conceivable that more than one notice may issue to an assessee in respect of income derived from different sources which has been either effectively concealed or had otherwise escaped notice, it cannot in principle be countenanced that repeated action under section 34 may be taken in respect of the same income. There is a specific provision in section 34 applicable to cases of under assess ment or assessment at too low a rate or excessive relief granted -C under the Act. But we are not concerned with any one of these contingencies. A proper test would be that in case of a second notice under section 34 the previous assessment stands and does not require annulment or modification. in other words, a fresh notice can issue only in respect of an income which has not already been charged to tax under section

34. In the instant case, the respondent-company and its associates had declared their full share from the income derived from the joint venture) `' and it was charged to tax in their hands. The concern of the Income-tax authorities, however, was that the Association of Persons as a separate entity had escaped assessment. In that the Income-tax Officers were worthy of blame. As soon as they came to know in each individual case that some income was derived by the assessee from a venture carried out jointly with others they should have excluded that income from the account year and issued notice to each associate under section 34 directing them to file a return of the income for the year ending 30th June 1959, derived from the joint venture. Having failed to do so on account of their negligence they cannot be permitted to turn round and issue a fresh notice under section 34 to the same assessees as members of an association in respect of the income which had already been charged to tax in their hands. It was also anomalous to maintain that an income which had already been taxed has `escaped assessment' or has been taxed `at too low a rate' etc. The position which emerges out therefore is that the income derived from the joint venture by the three associates having been charged to tax in their respective hands and no step taken for annulment of their assessments the same income could not be taxed again in their hands as income of a separate entity. There is another flaw in the impugned notice Annexure `F' at page 23 of the typed record. It does not purport to have been issued to an Association of Persons comprising of the respondent company and two others. On its face the notice is issued to three persons requiring them to file return of their escaped income for the year ending 30th June 1959. Since they had already been charged to tax in respect of the same income it was essential to notify that they were required to file a joint return of the income derived by them as an association of persons and that they would be given refund of the tax already charged from them as individuals. The notice did not give as such intimation and simply required them to file return of their income which returns they had already filed. The notice issued by the appellant to the respondent-company was thus from every point of view without lawful authority. The High Court has in this view rightly set it aside under Article 98 of the Constitution and no interference by this Court is called for. As a result, we dismiss the appeal, but as the respondent company has not put in appearance make no order as to costs. s. Q, Appeal dismissed.