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

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ITA/218/2010HC Punjab & HaryanaPHHC01093129201026 July 2012Author: MR. JUSTICE AJAY KUMAR MITTAL,MR. JUSTICE GURMEET SINGH SANDHAWALIA21 pages
AI SummaryAllowed

What did the High Court hold?

The High Court allowed the appeals. On the primary issue, the Court held that the Tribunal had erred in concluding that the status of the assessees would be an Association of Persons (AOP). The Court noted that the co-owners had inherited the property and had definite and determinate shares. They did not form a unit for the promotion of any joint enterprise to earn income. The mere collection of income by one sharer or a common employee does not make it income from a joint venture. Each sharer gets income as an individual. The Court relied on Supreme Court decisions in G Murugesan and Bros and CIT v. Indira Balkrishna, which established that an AOP requires individuals to join in a common purpose or action with the object of producing income, profits, or gains. The Court also cited Kerala High Court in R Valsala Amma and Bombay High Court in CIT v. Shiv Nagar Estates, emphasizing that mere joint execution of a deed or individual ownership with separate rights does not constitute an AOP. Since the income was to be assessed as individual income, Section 167B was not attracted. The AO, CIT(A), and Tribunal were not right in treating the income as that of an AOP.

What were the facts?

The assessee, a group of co-owners of agricultural land, inherited from their forefathers, leased out plinths on this land to Punjab State Civil Supplies Corporation Limited. The co-owners executed a General Power of Attorney in favour of Sudhir Nagpal to construct plinths and lease them out on their behalf. Sudhir Nagpal filed his return for AY 2004-05, including this rental income, and paid tax. Subsequently, the Assessing Officer (AO) issued notices under Section 147 of the Income Tax Act, 1961, to all co-owners, alleging income had escaped assessment in the hands of an Association of Persons (AOP). The AO assessed the rental income as income of an AOP, applying Section 167B. The CIT(A) and the ITAT upheld the AO's action. The assessee filed appeals before the High Court.

What were the issues?

1. Whether, on the facts and circumstances, the ITAT was justified in upholding the AO's action of initiating proceedings under Section 147 of the Act on a mere change of opinion or any other ground? (Assessee did not press this issue). 2. Whether, on the facts and circumstances, the plinth rental income is not assessable as income of the AO (sic, AOP) and is assessable as individual income of the co-owners? Assessee's Arguments (on Issue 2): The lease deed was entered into by co-owners for letting out plinths. The AO, CIT(A), and ITAT erred in treating the income as belonging to an AOP. Income cannot be taxed as belonging to an AOP unless individuals have joined hands for a venture. The AO treated income from other sources, contrary to the principle that joint venture income should be assessed as business income. Relied 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, CIT v. Keralav AP Parukutty Mooppilamma. Revenue's Arguments (on Issue 2): Since one joint account was opened by the assessees, they were rightly assessed as an AOP. Form 6A was issued in one name only.

Which sections of the Income-tax Act were involved?

Section 147,Section 167B

AI-generated summary — verify with the full judgment below

63 INTHE HIGH COURT OF PUNJAB AND HARYANAAT CHANDIGARH ITANo 218 of 2010 O8M1 Dateof Decision26 2012 Mls VidyaDevi 8 others ppellants Versus 1 lr The Assistant Commissioner of incomeTax Abohar 0 7espondent 0 I C CORAM HONBLE MRJSTICE AJAY KUMAR MITTAL I HONBLE MR JUSTICE G SANDHAWALIA Z PRESENT Ms Radhika Suri Advocatefor the appellant C4 Mr KuldeepSinghAdvocatefor Mr GS Hooda Advocatefor the respondent I C Z Delayin fllingand refilingthe appealis condoned C For orders see ITA No 463 of 2009 1SudhirNagpaland 7 Z others v The Income Tax Officer Ward Aboharl ll JUDGE Cr J July26 2012 gbs J Parkash Om 2012.11.17 12:26 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 integrity of this document

64 1 1 01 1 2012.11.17 12:26 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 integrity of this document 2012.11.17 12:26 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 integrity of this document 2012.11.17 12:26 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 integrity of this document

67 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 12:26 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 integrity of this document 2012.11.17 12:26 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 integrity of this document

69 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 12:26 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 integrity of this document 2012.11.17 12:26 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 integrity of this document 2012.11.17 12:26 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 integrity of this document

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78 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 12:26 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 integrity of this document

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81 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 12:26 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 integrity of this document

82 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 12:26 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 integrity of this document 2012.11.17 12:26 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 integrity of this document

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