If in law income has to be taxed in hands of AOP, it has to be taxed as such, and mere fact that the income is taxed in hands of individual members of AOP, does not bar Assessing Officer from taxing AOP-ITAT 

In a recent case of Pradeep Agencies-v.- Income-tax Officer Delhi Tribunal held that even if the income is taxed in hands of individual members of AOP, does not bar Assessing Officer from taxing AOP.

The assessee, an association of persons (AOP), was constituted by joint venture agreement entered into by five different entities on 30-3-2002. It was constituted for carrying on the business of procuring orders on behalf of a party for supply of acid. In the relevant previous year, the assessee earned commission amounting to Rs. 2,40,61,937 and after meeting expenses, apportioned the net profit of Rs. 2,37,55,912 amongst its members according to their profit sharing ratio. For the relevant assessment year, the members of AOP filed returns of income declaring share of profit received from the assessee and the Assessing Officer assessed the said members under the provisions of section 67A and, accordingly, completed their assessments. Further, for the relevant assessment year, the assessee filed the return of income declaring the income at nil. The Assessing Officer required the assessee to explain as to why its income of Rs. 2,37,55,912 should not be charged to tax in the status of AOP under the provisions of section 167B(2). In reply, the assessee submitted that since there was a deed defining the share of profit of each member of the AOP and when the individual shares of all such members were determined and known, the provisions of section 167B(2) would not be applicable. The Assessing Officer did not accept the plea of the assessee. He held that since the total income of all the members of the AOP was admittedly exceeding, the maximum amount which was not chargeable to tax, tax had to be charged on the total income of the AOP at the Maximum Marginal Rate (MMR) as per section 167B(2). The Assessing Officer, therefore, assessed the entire income of Rs. 2,37,55,912 in the hands of the assessee under section 167B(2). In doing so, he followed the judgment of the Supreme Court in the case of ITO v. Ch. Atchaiah [1996] 218 ITR 239/84 Taxman 630.

Before the Commissioner (Appeals), the assessee contended that since the entire income of the AOP was subjected to tax in the hands of the members, the said income again could not be subjected to tax in the hands of AOP. The Commissioner (Appeals) however, rejected said contention. Aggrieved by the said order, the assessee filed the instant appeal before the Tribunal, wherein the matter was referred to the Special Bench for the decision.

Prior to the pronouncement of decision by the Supreme Court in the case of Ch. Atchaiah (supra), a legal controversy was prevailing on the issue as to whether the Assessing Officer has option either to assess AOP or its members under th 1961 Act, or as it was thereunder the 1922 Act as held by the Supreme Court in the case of CIT v. Murlidhar Jhawar & Purna Ginning & Pressing Factory [1966] 60 ITR 95. Some High Courts have held that position under the 1961 Act is the same and some High Courts have held that the position under 1961 Act is different as under the 1961 Act no such option is available to the Assessing Officer. The legal position in this regard has been set at rest by the Supreme Court in the case of Ch. Atchaiah (supra). As per the decision of the Supreme Court in the case of Ch. Atchaiah (supra), it is very much clear that there is a marked difference in the provisions relating to assessability of AOP and its members as contained in the 1922 Act and as contained in the 1961 Act. Under the 1961 Act, there is no option available to the Assessing Officer to assess the members of AOP and the assessment of members of AOP cannot stand in the way of assessment to be made on AOP. In accordance with law declared by the Supreme Court, the `right person’ assessable under the 1961 Act is AOP in place of its members. Referring to the decision, in the case of Murlidhar Jhawar & Purna Ginning & Pressing Factory (supra) and also the decision in the case of CIT v. Kanpur Coal Syndicate [1964] 53 ITR 225 (SC), it was observed that these decisions were rendered under the 1922 Act. It was further observed that in the decisions of various High Courts in which it was held that the position of law in this respect is same under the 1961 Act as it was under the 1922 Act, due weight was not given to the marked difference in the language of the relevant provisions in the two enactments. Therefore, the contention of the assessee that there was no material change in the provisions of the 1961 Act as compared to similar provisions contained in the 1922 Act with respect to chargeability of tax relating to AOP and its members, was liable to be rejected. Further, the contention of the assessee that the assessment of AOP after the assessment of similar income in the hands of its members would make it a case of double taxation and, therefore, also assessment on the AOP was bad in law, was also liable to be rejected since as held by the Supreme Court in the case of Ch. Atchaiah (supra), that merely because a `wrong person’ has been assessed, the Assessing Officer is not precluded from taxing the `right person’ and `wrong person’ cannot seek remedy as available under law. Therefore, if in law, income in question has to be taxed in hands of AOP, it has to be taxed as such, and mere fact that said income was taxed in hands of individual members of AOP, does not bar Assessing Officer from taxing AOP. So on the ground of double taxation also, assessment on AOP, which was the right person, could not be held to be invalid.

Further, as share of income falling to the shares of respective members of AOP in all cases was above the exemption limit, the Commissioner (Appeals) was right in confirming the finding of Assessing Officer that tax on AOP should be levied at MMR. [Para 60].

Thus, the appeal filed by the assessee was to be dismissed.

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