M/S VIDYA DEVI AND ORS. vs. ASSISTANT COMMISSIONER OF INCOME TAX, ABOHAR

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ITA/217/2010HC Punjab & HaryanaPHHC01093128201026 July 2012Author: MR. JUSTICE AJAY KUMAR MITTAL,MR. JUSTICE GURMEET SINGH SANDHAWALIA21 pages
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What did the High Court hold?

The High Court held that the Tribunal erred in concluding that the status of the assessees would be an Association of Persons (AOP). The core question was whether the appellants were to be assessed as an AOP or as individuals. The Court found considerable force in the submissions of the learned counsel for the appellants. It was observed that for individuals to be assessed as an AOP, they must have joined their resources and acquired property in the name of an AOP, and the property should have been commonly managed. Merely accruing income jointly to more than one person does not constitute an AOP. The co-owners inherited the property and there was nothing to show they acted as an AOP. The income was thus to be assessed in the status of individuals. Section 167B of the Act was not attracted. The appeals were allowed, with the income to be assessed in the status of individuals. The conclusion of the Tribunal was not legally sustainable.

What were the facts?

The assessees, co-owners of agricultural land inherited from their forefathers, granted a General Power of Attorney to Sudhir Nagpal to construct plinths and lease them out. They leased plinths to Punjab State Civil Supplies Corporation Limited for the assessment year 2004-05. Sudhir Nagpal filed his return, including this rental income, and paid tax. Subsequently, the Assessing Officer (AO) issued notices under Section 148 to all co-owners, proposing to treat them as an Association of Persons (AOP) and assess the rental income as escaped income in the hands of the AOP. The assessees filed nil returns, arguing they were individual co-owners, not an AOP, and the income was already assessed individually. The AO assessed the income as an AOP, which was upheld by the CIT(A) and the ITAT. The assessees appealed to the High Court.

What were the issues?

1. Whether on the facts and circumstances of the case, the learned ITAT is justified in upholding the action of the learned AO initiating proceedings under Section 147 of the Act on mere change of opinion or on any other ground? (This question was not pressed by the appellant). 2. Whether on the facts and circumstances of the case, the plinth rental income is not assessable as income of the AO (Assessing Officer) and is assessable as individual income of the co-owners? Assessee's arguments: The lease deed was entered into by co-owners for letting out plinths. The AO, CIT(A), and Tribunal erred in treating the income as belonging to an AOP. Income can only be taxed as belonging to an AOP if persons have joined hands for that purpose. Treating income from other sources as income of an AOP is contrary to basic principles. Reliance was placed on CIT v. Indira Balkrishna, Mohamed Noorullah v. CIT, CIT v. Raja Ratan Gopal, G Murugesan and Bros v. CIT, R Valsala Amma v. CIT, CIT v. Shiv Nagar Estates, and CIT v. Kerala AP Parukutty Mooppilamma. Revenue's arguments: Since one joint account was opened by the assessees, they were rightly assessed as an AOP. Form 16A was also issued in one name.

Which sections of the Income-tax Act were involved?

Section 147,Section 167B

AI-generated summary — verify with the full judgment below

65 S IN THE HIGH COURT OF PUNJABAND HARYANAAT CHANDIGARH ITANo17 of 2010 OSMI Dateof Decisionll72012 Mls VidyaDevi S others Appellants 1 Versus r The Assistant Commissioner of IncomeTax Abohar 0 0 espondent I C9 CORA HONBLE MRJUSTICE AJAY KUMAR MITTAL I HONBLE MRJUSTICE G SANDHAWALIA Z PRESENT Ms Radhika Suri Advocatefor theappeliant 2 Mr KuldeepSinghAdvocate for Mr S Hooda Advocatefor the respondent I C0 Z Delayin filingand refilingthe appealis condoned D For orderS see ITA No 463 of 2009 1SudhirNagpaland ewo Z others v The Income Tax Officer Ward Abohar JUDGE J el July6 2012 gbs j Parkash Om 2012.11.17 12:25 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 integrity of this document

66 1 1 01 1 2012.11.17 12:25 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 integrity of this document 2012.11.17 12:25 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 integrity of this document 2012.11.17 12:25 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 integrity of this document

69 ITA N 463 of 2009 a4e she does not press questionNol Accordinglythe same is disposedof as not pressed Addressing on questionNo2 Iearnedcounsel for the appellantsubmitted that with regardto Iease deed the same was entered by the coowners for Iettingout plinthson rent to the Punjab CiviI SuppliesCorporationLtrl and was Iet out as co owners whereas theAssessingOfficer theCITV41 and the Tbunal had erred in treatingthe income as that belongingto the association of 1 persons Itwas contendedthatunless the persons hadjoinedhands as an associationof persons for carrying on any venture income therefrom 0 0 couid not have been taxed as belonging to association of persons It I was also arguedthat while treatingthe cowners as association of C5 persons the AssessingOfficer had treated the income from other I sources which was contraryto the basic principlethat if jointventure Z was there then income could be assessed as income fromthe business 2 r only Reference was madeto thefollowing judgmentsl I 1 Commissionerof Income Tax v Indira Balkrishna t 1960139 ITR 546 SCl Z Il Mohamed Noorullah v Commissionerof IncomeTax m 1961142 ITR 115 SCI 7 Z Ill Commissioner of AgricultureIncome Tax V Raja Ll Ratan Gopal 1966159 ITR 728SCl IV G Murugesanand Bros v Commissioner of Income Tax 1973188 ITR 432 SCl V R ValsalaAmma v Commissionerof Gift Tax 3691 72 ITR 579 Kerl Vl Commissioner of IncomeTax v Shiv NagarEstates Parkash Om 2012.11.17 12:25 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 integrity of this document 2012.11.17 12:25 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 integrity of this document

71 ITANo163 of 2009 6 Persons or as Individuals 10 In ITA NosA9 51 and 217 to 219 of 2010 besides the aforementionedissue appellantshave raised substantialquestionNo2 therein that the income arisingfrom rentingof plinthswas assessable under Section 26 of the Act At the outset it may be noticed that in so far as the head under which the income from rental of plinthsisto be assessed the same stands settled bythe Division Bench judgmentof this Coutl in Gowardhan Das S Sons v Commissioner of Incomem Tax Jalandhar 120071 288 ITR 481 wherein it has been held that it 0 would fall under Income from other sources and not Income from 0 House propertyRelevantobservationsthereinread thusl C A plainreadingthereof providesthat it is the income I from propeilyconsistingof any building or Iand Z appurtenant thereto which is assessed undersection 22 of the Act and not the income from rentingout of open I Iandor some kutchaplinthonlyl the presentcasenO t buildinghavingbeen Iet out there is no questionof Z treatingthe rentreceived m What is covered bythe expressionappurtenantIS 3 Z the Iand which is necessary for enjoymentof the ll buildingand not the Iandonly Similarissue came up for consideration before Madras High Court In M Ramalakshmi Reddyv ClT 3981232 ITR 281 where the issue was decided againstthe assessee and in favouroftherevenue 12 Accordinglyit is heid thatthe rent receivedfromIettingout the plinthsis Parkash Om 2012.11.17 12:25 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 integrity of this document 2012.11.17 12:25 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 integrity of this document 2012.11.17 12:25 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 integrity of this document

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80 ITANo63 of 2009 45m theirdeceased husband and took a jointtenancywith the right of survivorshipand equal beneOcial enjoyment They were entitled as between themselvesto an equalshare of the income Either of them could not enforce an absolute partition thoughfor the purposeof convenience of enjoyment they could divide the propertyand enjoy their 1 respectiveshares of the income therefrom The questionarose whethertheyshould be assessed as 0 0 individuals or as an AOP Das J speakingfor the I Court acceptedthe followingtest to ascertain 0 whether two or more persons constituted an association of individuals withinthe meaningof the Z ITActl An AOP must be one in which two or more persons I joinin a common purpose or common action and as L the words occur in a section which imposesa tax on Z income the association must be one the objectof m which is to produceincome profitsor gains l3 7 Z The Iearnedjudgethengivesthe cautionthatthere is no formula of universai applicationand that the questionmust dependon the particularfacts and circumstances of each case On the facts found in that case the Court held that the widows were oniy coleirs of the estate of the deceased husband and thattheycould not be assessed as an AOP withinthe Parkash Om 2012.11.17 12:25 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 integrity of this document

81 12:25 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 integrity of this document 2012.11.17 12:25 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 integrity of this document

83 ITANo63 of 2009 e18e propenies Il 17 Dealing with identical issue BombayHighCoun in Shiv SagarEstates case Isupralwhere 65 persons purchasedproperty not as an AOP but as coowners and there was no changein their statusas coowners qua the propenyit was held that the 65 persons whohad purchasedthe propertyhavingdefiniteand determinateshares could not be heid as an AOP onlyon the groundthat the Iease was m executedbya singledocument While adjudicating the issue in favourof the assessee itwas observed 0 We have carefullyconsidered the rival submissions C I We have alreadyset out thefacts of the case and also 0 given our observations in regardthereto at diHerent I placesSo far as the Iaw is concernedit is well settled Z bythe decision of the SupremeCoun in ClT v Indira m Balknhna 1960139 ITR 546l this case the SupremeCourt considered what constitutes an L3 association of personst was held that an association Z of persons must be one in which two or more persons C join in a common purpose or common action and as 3 Z the words occur in a section which imposesa tax on income the association must be one the objectof which is to produceincome profitsor gains The SupremeCourt however made it clear that there IS no formula of universal applicationas to what facts how many of them and of what nature are necessanj to come to a conciusion thatthere is an association of Parkash Om 2012.11.17 12:25 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 integrity of this document

84 ITANo63 of 2009 e19n persons It must dependon the particularfacts and circumstances of each case as to whether the conciusion can be drawn or not The Court made it further clear that no test is conciusive or determinative 18 Civil appealagainstthe aforesaid decision was dismissed by the Honble SupremeCourt as reportedin Commissioner of 1 Income Tax v Shiv SagarEstate I20021257 ITR 59 1SCl r 19 From the above it emerges that in order to assess 0 individualsto be formingassociation of persons the individual cov 0 I owners should have joinedtheir resources and thereafter acquired C5 in the name of association of persons and the propenyshould I have been commonlymanagedonlythen it could be assessed in the Z hands ofassociations ofpersonsl Converselythemere accruingof m r incomejointlyto more persons than one would not constitutethereon an I association of persons Ill respectof such incon In other words t0 unless the associates have done some acts or performedsome Z operationstogetherwhich have helpedto producethe income in C0 question and have resulted in that income theycannot be termed as Z association of persons UnIess the members combine or Join in a tl common purpose it cannot be held thattheyhave formed themselves into an association of person In the presentcase the coeowners had inheritedpropertyfrom their ancestors and there was nothingto show thattheyhad acted as associationof persons The income was thus to be assessed in the status of individual and theAssessingOmcer CIT Al and the Tribunal were not rightin treatingthe income arisingto Parkash Om 2012.11.17 12:25 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 integrity of this document 2012.11.17 12:25 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 integrity of this document

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