1975 Supreme(Cal) 160

High Court Of Calcutta
Deb, Dipak Kumar Sen
RAMA DEVI AGARWALLA - Appellant
Versus
COMMISSIONER OF INCOME-TAX - Respondent
Income-Tax Reference 217  Of  1973
Decided On : 06/17/1975

The notice under Section 148 of the I. T. Act, 1961, issued on the 8th January, 1963, by the ITO, 'a' Ward, District III (2), Calcutta, was defective and did not conform with the provisions of the relevant sections of the I. T. Act, 1961.

Headnote:

INCOME TAX - Assessment - Association of persons - Whether the Tribunal was justified in holding that the assessment made in the status of an AOP is in order - Whether there is any illegality either in the issue or the service of the notice under Section 148 or in the assessment as made under Section 144 - Whether Smt. Rama Devi Agarwalla can be treated as the principal officer of the alleged association of persons as alleged by the ITO.

Fact of the Case:

The assessee is alleged to be an association of persons consisting of one Rama Devi Agarwalla along with Asrafii Devi Agarwalla, Gini Devi Agarwalla, Bimala Devi Agarwalla and Chameli Devi Agarwalla. On the 8th August, 1945, the said five ladies purchased from one Regent Estate Ltd. half share in premises Nos. 31 and 32, Tincori Basu Lane and 38 and 39, Bhairab Dutt Lane, all in Salkia, Howrah, for a sum of Rs. 1,68,000. On the 2nd April, 1946, the said five ladies by a deed of conveyance sold their shares in the premises to one New India Building and Land Improvement Society Ltd. for a sum of Rs. 4,20,000 resulting in a surplus of Rs. 2,50,000 earned by them. On the 27th January, 1978, the ITO, Special Circle-Ill, Calcutta, issued a notice under Section 34 (1) (a) of the Indian I. T. Act, 1922, for the assessment year under reference upon Rama Devi Agarwalla and others. On receipt of the said notice, they moved an application under Article 226 of the Constitution before this court challenging the legality and validity of the said notice. By its judgment and order dated 12th December, 1958, this court held the said notice under Section 34 (1) (a) and also the proceedings thereunder to be invalid and bad. Thereafter, on the 20th December, 1961, the ITO, Dist. III (2), Calcutta, issued a letter to Rama Devi Agarwalla whereby he intimated his intention to appoint her as the principal officer of the association of persons formed by the said five ladies under Section 2 (12) (b) of the Indian I. T. Act, 1922, for taxing the said amount of Rs. 2,50,000 earned by the said association during the accounting year relevant to the assessment year in question. By her letter dated 29th December, 1961, Rama Devi Agarwalla intimated the ITO that she never was nor is the principal officer of any association of persons, and as such, she cannot be appointed as the principal officer and that each of the ladies mentioned in the said letter was assessed by the ITO, I-Ward, Dist. III (2), Calcutta, individually. The ITO, however, by his letter dated 23rd February, 1962, rejected the contentions of Rama Devi, who raised further objections by her letter dated the 28th February, 1962. Thereafter, the ITO after obtaining the approval of the then Central Board of Revenue, issued a notice under Section 148 of the I. T. Act, 1961, on the 8th January, 1963, addressed to "rama Devi Agarwalla and others". By her letter dated the 21st February, 1963, Rama Devi Agarwalla again challenged the legality of the said notice and on the 13th November, 1963, she filed a return of income in her capacity as an individual. Subsequently, on the basis of the said notice dated 8th January, 1963, the ITO made an assessment on Rama Devi Agarwalla and others in the status of an association of persons under Section 144 read with Section 147 of the I. T. Act, 1961, and taxed the said amount of Rs. 2,50,000 as capital gains arising out of the sale of the said property. Being aggrieved by the order of the ITO, the said persons preferred an appeal to the AAC. It was contended before the AAC that the ITO failed to establish that the said five ladies had joined together in buying the said property with a view to sell the same with a profit and in the absence of such finding the assessment order was bad in law. It was further contended that as the said five ladies had contributed equally in the purchase of the said property by drawing from separate accounts, in view of Sections 47 and 48 of the Transfer of Property Act they should be presumed to have acquired an equal share in the said property and also be presumed to have received an equal share of the said consideration. The AAC accepted the contentions made on behalf of the said persons and cancelled the assessment by his order dated the 15th March, 1971. The revenue came up in appeal against the order of the AAC before the Tribunal. The Tribunal by its order dated 26th July, 1972, set aside the order of the AAC and restored the assessment made by the ITO. From this order of the Tribunal the following questions have been referred to us:

Finding of the Court:

1. The notice under Section 148 of the I. T. Act, 1961, issued on the 8th January, 1963, by the ITO, 'a' Ward, District III (2), Calcutta, was defective and did not conform with the provisions of the relevant sections of the I. T. Act, 1961.2. The Tribunal was not justified in law in holding that the assessment made in the status of an AOP is in order.3. There is no illegality either in the issue or the service of the notice under Section 148 or in the assessment as made under Section 144.4. Smt. Rama Devi Agarwalla can be treated as the principal officer of the alleged association of persons as alleged by the ITO.

Issues: 1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the assessment made in the status of an AOP is in order ?2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that there is no illegality either in the issue or the service of the notice under Section 148 or in the assessment as made under Section 144 ?3. Whether, on the facts and in the circumstances of the case, Smt. Rama Devi Agarwalla can be treated as the principal officer of the alleged association of persons as alleged by the ITO ?

Ratio Decidendi: 1. The notice under Section 148 of the I. T. Act, 1961, issued on the 8th January, 1963, by the ITO, 'a' Ward, District III (2), Calcutta, was defective and did not conform with the provisions of the relevant sections of the I. T. Act, 1961.2. The Tribunal was not justified in law in holding that the assessment made in the status of an AOP is in order.3. There is no illegality either in the issue or the service of the notice under Section 148 or in the assessment as made under Section 144.4. Smt. Rama Devi Agarwalla can be treated as the principal officer of the alleged association of persons as alleged by the ITO.

Final Decision: Question No. 1 and 2 are answered in the negative and in favour of the assessee. Question No. 3 has become purely academic and is not answered.