# M. M. IPOH & ORS v. COMMISSIONER OF INCOME·TAX, MADRAS

- **Citation:** [1968] 1 S.C.R. 65
- **Court:** Supreme Court of India
- **Decided:** 1967-07-26
- **Case number:** Civil Appeals Nos. 10601064 of 1965
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-m-ipoh-ors-v-commissioner-of-income-tax-madras-4156
- **Pages:** 17

## Headnote

A
B
M. M. IPOH & ORS.
v.
COMMISSIONER OF INCOME·TAX, MADRAS
July 26, 1967
IJ. C. SHAH. s. M. SiKRI AND v. RAMASWAMI, JJ.J
65
Income-tax Act, 1922. s. 3-Whether violati11e of A rt. 14 of the
Constitution-Quasi-Judicial function of Income-tax Officer in assess-
~ng income to tax a-nd dutu to prevent evasion-If constitute sufficient
guidance-Individuals minor and firm trading
together-Whether
association of persons-Whether doctrine of res judicata applies to
finding in assessment proceedings in one 11ear in relation to proceedC ing for another 1}ear-'Whether determi.nati.on a!ld declarrttion necessary as to who is principal officer of an associatwn of persons before
assessment proceedings take place.
The Karta of a Hindu undivided family was assessed to incometax from year to year until the assessment year 1953-54 either. as
an individual or as the Karla. But later, the Income-Tax Officer issued notices to him under s. 34(1) of the Income-tax Act, 1922, for the
assessment years 1951Ji2 to 1953-54 and under s. 22(2) for the years
D 1954-55 to 1956-57 for assessment of the ineome as having been received by an association of persons consisting of the Karta and his
minor son in 1951-52. and the Karla, his minor son and a firm in the
years 1952-53 to 1956-57, and assessed the income received as income
and associations of persons. The Appellate Assistant Commissioner
and the Tribunal. in appeals filed before them. substantially cgnfirmed the order of the Income-tax Officer. The High Court. upon a
reference. held that the in"Oille for the assessment year 1951-52 did
E not accrue to an association of persons. but confirmed the view taken
by the Income-tax Officer in respect of the income for the years 195253 to 1956-57.
The Karla then moved the High Court under Art. 226 of the Constitution and contended that s. 3 of the Income-tax Act, 1922, invested the Income-tax Officer with arbitrary and unguided power to
assess the income of an association of persons in the hands either
F of the association or of the persons constituting that association and
it therefore offended Art. 14 of the Constitution. The High Court
rejected the petitions.
·
In appeals to this Court against the decisions
·p~ the
Hi'gh
Court in the writ petition and the reference under s. 66 of the Income·tax Act.
HELD: (i) S. 3 of .the Income-tax Act, 1922, was not violative
G of Art. 14 ?f the Constit.ution. The duty of the Income-tax Officer
1s to admm1ster the provJS1on~ of the Act in the interests of public
revenue, and to prevent evasion or escapement of tax legitimately
d~e. to t~e State. Though an executive Officer engaged in the adm1mstrat1on of the Act. the function of the Income-tax Officer is
fundamentally quasi-judicial. His decision to bring to tax either
the income of the association collectively or the shares of the members of the association separately is not final: it is subject to appeal
B to the Appellate Assistant Commissioner and to the Tribunal The
natu~e of the authority exercised by the Income-tax Officer in ~ proceedmg to asse~ t.o. tax income. and his duty to prevent evasion or
es~apement of hab1ht~ to pay tax legitimately due to the State. constitute adequate enuc<:ation of nrinciplce and policy for the "Uidance
of the Income-tax Offirer. [72R-H]
·
C•
'
l./P(N)lSCT
66
SUPltE'llli: COURT REPORTS
[1968) 1 S.C.B.
Sura; MaUJ Mohta & Co. v. A. V. Visvanatha
Sas11,; and An.-. A
(1954) 26 I.T.R. 1, distinguished.
Shri Ram Krishna Dalmia v. Shri Justice S.R. Tendolkar and
Ors. (1959] S.C.R. 279. Jyoti Pershllld v. The Admtnietrator for the
Union Territory of Delhi. fl962J 2 S.C.R. 125 and Commissioner of
Income-ta.r U.P. v. Kanpur Coa Syndicate, (1964) 53 I.T.R. 225. referred to.
There is no force in the contention that s. 23A of the Income-tax B
Act, as it was incorporated by Act 21 of 1930 laid down certain principles for the guidance of the Inoome Tax Officer in exercising his
.option, but since the repeal of that secthn by Act 7 of 1939, the discretion

## Text

_Characters 0–39,882 of 48,249. This is a partial read: ask again with offset=39882 for what follows._

A
B
M. M. IPOH & ORS.
v.
COMMISSIONER OF INCOME·TAX, MADRAS
July 26, 1967
IJ. C. SHAH. s. M. SiKRI AND v. RAMASWAMI, JJ.J
65
Income-tax Act, 1922. s. 3-Whether violati11e of A rt. 14 of the
Constitution-Quasi-Judicial function of Income-tax Officer in assess-
~ng income to tax a-nd dutu to prevent evasion-If constitute sufficient
guidance-Individuals minor and firm trading
together-Whether
association of persons-Whether doctrine of res judicata applies to
finding in assessment proceedings in one 11ear in relation to proceedC ing for another 1}ear-'Whether determi.nati.on a!ld declarrttion necessary as to who is principal officer of an associatwn of persons before
assessment proceedings take place.
The Karta of a Hindu undivided family was assessed to incometax from year to year until the assessment year 1953-54 either. as
an individual or as the Karla. But later, the Income-Tax Officer issued notices to him under s. 34(1) of the Income-tax Act, 1922, for the
assessment years 1951Ji2 to 1953-54 and under s. 22(2) for the years
D 1954-55 to 1956-57 for assessment of the ineome as having been received by an association of persons consisting of the Karta and his
minor son in 1951-52. and the Karla, his minor son and a firm in the
years 1952-53 to 1956-57, and assessed the income received as income
and associations of persons. The Appellate Assistant Commissioner
and the Tribunal. in appeals filed before them. substantially cgnfirmed the order of the Income-tax Officer. The High Court. upon a
reference. held that the in"Oille for the assessment year 1951-52 did
E not accrue to an association of persons. but confirmed the view taken
by the Income-tax Officer in respect of the income for the years 195253 to 1956-57.
The Karla then moved the High Court under Art. 226 of the Constitution and contended that s. 3 of the Income-tax Act, 1922, invested the Income-tax Officer with arbitrary and unguided power to
assess the income of an association of persons in the hands either
F of the association or of the persons constituting that association and
it therefore offended Art. 14 of the Constitution. The High Court
rejected the petitions.
·
In appeals to this Court against the decisions
·p~ the
Hi'gh
Court in the writ petition and the reference under s. 66 of the Income·tax Act.
HELD: (i) S. 3 of .the Income-tax Act, 1922, was not violative
G of Art. 14 ?f the Constit.ution. The duty of the Income-tax Officer
1s to admm1ster the provJS1on~ of the Act in the interests of public
revenue, and to prevent evasion or escapement of tax legitimately
d~e. to t~e State. Though an executive Officer engaged in the adm1mstrat1on of the Act. the function of the Income-tax Officer is
fundamentally quasi-judicial. His decision to bring to tax either
the income of the association collectively or the shares of the members of the association separately is not final: it is subject to appeal
B to the Appellate Assistant Commissioner and to the Tribunal The
natu~e of the authority exercised by the Income-tax Officer in ~ proceedmg to asse~ t.o. tax income. and his duty to prevent evasion or
es~apement of hab1ht~ to pay tax legitimately due to the State. constitute adequate enuc<:ation of nrinciplce and policy for the "Uidance
of the Income-tax Offirer. [72R-H]
·
C•
'
l./P(N)lSCT
66
SUPltE'llli: COURT REPORTS
[1968) 1 S.C.B.
Sura; MaUJ Mohta & Co. v. A. V. Visvanatha
Sas11,; and An.-. A
(1954) 26 I.T.R. 1, distinguished.
Shri Ram Krishna Dalmia v. Shri Justice S.R. Tendolkar and
Ors. (1959] S.C.R. 279. Jyoti Pershllld v. The Admtnietrator for the
Union Territory of Delhi. fl962J 2 S.C.R. 125 and Commissioner of
Income-ta.r U.P. v. Kanpur Coa Syndicate, (1964) 53 I.T.R. 225. referred to.
There is no force in the contention that s. 23A of the Income-tax B
Act, as it was incorporated by Act 21 of 1930 laid down certain principles for the guidance of the Inoome Tax Officer in exercising his
.option, but since the repeal of that secthn by Act 7 of 1939, the discretion vested in the Income-tax Officer to select either the income
of the asoociation or the individual member is unfettered. By the
repeal of s. 23A(l) the essential nature of the power Qf. the Incometax Officer was not altered. He remained as before under a duty to C
administer the Act, for the benefit of public revenue, but his powers
were to be exercised judicially and so as to avoid double taxation
of the same income. [73A-B; 74F-G)
(ii) There was abundant material IQn the record to prove that
the Karta, his minor son and the firm formed an association in the
years 1952-53 to 1956-57.
Under s. 2(9) of the Income-tax Act. 1922. read with cl. (42) of D
s. 3 of the General Clauses Act, a finn is a person within the meaning of the Income-tax Act and a firm and an individual or group of
individuals may form an association of persons within the meaning
of s. 3 of the Income-tax Act. [75F, G]
There is nothing in the Act to indicate that a minor cannot become a member of an association of persons for the purposes of the
Act. In any event the High Court had rightly held that the mother E
and guardian of the minor son must, on the facts, be deemed to have
given her implied consent to the participation of the· mrnor in the
association of persons. [75HJ
'
Commissioner of Income-tax, Bombay v. LB.rmidas & Anr. (1937)
I.T.R.. 5841 and Commis~oner of Income-tax, Bombay North, Kutch
Saurashtra v. Indira Balkrishna, (1960) 39 I.T.R. 546, referred to.
(iii) The doctrine of res ;udicata does not apply so as to make F
a decision on a question of fact or law in a proceeding for assess-
. ment in one year binding in another year. The assessment and the
facts found are conclusive only in the year of assessment : the finding on questions of fact may l;>e good and cogent evidence in ·subsequent years, when the same question falls to be determined in
another year but they are not binding and conclusive. The finding
recorded by the High Court that in the year 1951-52 there was no association of persons constituted by the Karta and his minor son did G
not in the present case have any effect on the finding of the Tribunal that in year 1952-53 and the subsequent years such an asSOCilttion existed. Furthermore, the association of persons which traded
in 1952-53 and the subsequent years was different from the association in 1951-52 because in 1952 an association was formed of the
Karta, his son and a firm. [75B-C]
(iv) If the person described. as a principal 'Officer of an aSS()Ciation is duly served with a notice under s. 23(2) in the manner pres- B
· cribed by s. 23(2), an adjudication of his status as the principal officer, before assessment proceedings may take place, is not obligatory.
The order assessing the association containing a finding that ·the perl!On served is the principal officer is sufficient complial)ce with the
11. 11. IPOH v. O. I. T. (Shah, .T.)
67
A requirements of the statute. It is open to the association to challenge
the finding of the Income-tax Officer in appeal before the Appellate
Assistant Commissioner and in further appeal to the Appellate Tribunal. But the order declaring him as the principal officer of an association of persons will not be deemed to be void merely because
the proceeding for assessment was not preceded by a declaration of
his status as the principal officer. [80G-81B)
B
Commissioner of Income-tax, Punjab & N.W.F.P. v. Natval Kishore
Kharaiti Lal, (1938) 6 I.T.R. 61, referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 10601064 of 1965.
Appeals by special leave from the judgment and order dated
April 3, 1961 of the Madras High Court in Tax Case No. 20 l of
c 1960.
AND
Civil Appeals Nos. 1103-1107 of 1966.
Appeals by special leave from the judgment and order dated
November 29, 1963 of the Madras High Court in Writ Petitions
D Nos. 1374--1378 of 1961.
M. M. Nambiyar,
K.
Narayanaswami,
B.
Manivannan,
B. Partlratarathy, J; B. Dadachanji, O.C. Mathur and Ravintler
Narain, for the appellants (in all the appeals).
S. T. Desai, R. Gqnapathy Iyer and R. N. Sachtl1ey, for the
11 respondent (in all the appeals) and for the Attorney-General for
India (in C. As. Nos. 1103-1107 of 1966).
The Judgment of the Court was delivered by
Shah, J.-Meyyappa (1), Alagammal his wife, an.d Chokalin·
gam and Meyyappa (IU his two minor sons formed in 1940 a
I' H.indu Undivided Family which traded in the name of "M.S.
M.M.". The family carried on extensive business in moneylending, rubber plantations, and in real estates in the Federated
States of Malaya, Burma and India.
The property of the undivided family was divided between
the three male members on February 22. 1940. To Meyyappa
(I) were allotted at the partition "business of
the family" at
G Rangoon and at Karaikudi in the Ramnath District and three
rubber estates in the Federated States of Malaya and some houses.
Even after· the partition Meyyappa (I) continued to remain in
management on behalf of himself and his two minor sons of all the
properties and the businesses carried on by the family when it was
joint, and the businesses were carried on in the name of
R "M.S.M.M.".
The houses and the three rubber estates allotted exclusively
to Meyyappa (l) were entered in the .books of accounts opened
in the name of "M.M. lpoh" from the date of the division. In
G8
SUPREME COURT REPORTS
[1968] l s.c.n.
December 1941 Alagammal gave birth to a son who was named A
Chettiappa. Meyyappa (I) and Chettiappa then constituted a
Hindu coparcenary which owned the property and the business as
allotted to Meyyappa (I) in the partition of 1940. On December
30, 1949 a deed of partition was executed between Meyyappa (I)
and Chokalingam (who had by then attained the age of majority),
in respect of the businesses carried on in the name of "M.S.M.M." B
The businesses were thereafter carried on in partnership between
Meyyappa ([) representing himself and the minor Chettiappa and
Chokalingam Meyyappa (II) was admitted to the benefits of that
partnership.
On April 13, 1950 partition was effected between
Meyyappa (I) and the minor Chettiappa by posting entries in the
books of account of ,M.M. Jpoh. It was agreed that the properties
entered in the book;!; of account of M.M. lpoh shall be held by C
Meyyappa (I) and Chettiappa in two equal shares, and that the
properties shall continue to remain in the management of the
firm M.S.M.M. tu the benefit of which Chettiappa was admitted.
A deed of partition recording the terms of that partition was executed on May 28, 1953 by Meyyappa (J) and Alagammal acting
as guardian of the minor Chettiappa.
D
lh 1951 Meyyappa (I) acceded to a demand made by Chockalingam on behalf of the M.S.M.M. firm for a half share in the
"M.M. lpoh properties". There was however no division of the
properties by metes and bounds, and the management of those
properties as a single unit continued to remain with the M.S.M.M.
firm as before.
B
Mcyyappa (I) was assessed under the Indian Income-tax Act
1922 to tax year after year till the assessment year 1953-54 in
respect of the income from the "M. M. Jpoh properties" as a
respect individual or as a karta of a Hindu undivided family.
Later the Income-tax Officer, Karaikudi, Ramnath District, issued
notices under s. 34(1) of the Income-tax Act for the assessment J
years 1951-52 to 1953-54 and under s. 22(2) for the years 1954-55
to 1956-57 for assessment o( the income of "an association of
persons styled M. M. Ipoh". The Income-tax Officer rejected
the contentions raised by Meyyappa (I) that there was no association of persons of the nature described in the notices and brought
to tax the income of the "M.M. Ipoh properties" as income receiv- G
ed by an association of persons formed by Meyyappa (I) and
Cbcttiappa in 1951-52, and by Meyyappa (J), the M.S.M.M. firm
and Chettiappa in the years 1952-53 to 1955-57.
In appeals filled by M. M. Jpoh, the Appellate Assistant
Commissioner confirmed the orders passed by the Income-tax
Officer subject to the modification that the income from the H
houses be assessed under s. 9(3) of the Income-tax Act in the
hands of the members individually. and not as the collective income of the association of persons. The Appellate Tribunal confirmed the order of the Appellate Assistant Commissioner.
(
•
lll. 11. Il'OH ti. c. r. ·r. (Sliah, J.)
69
A
The Tribunal drew up a statement of case arid submitted
under s. 66(1) of the Indian Income-tax Act, the following question for determination of the High Court of Madras:
"Whether the assessments on the 'Association of
persons' for assessment years 1951-52 to 1956-57 arc
valid?"
B and declined to submit a statement of the case on five other
questions, the first out of which alone is material in these appeals
and need be set out :
0
D
"Whether on the facts and in the circumstances of
the case, there are any materials to hold the assessee as
the principal officer of M.M. lpoh assessed in the status
of an association of persons?"
At the 'hearing of the reference on the principal question, the
High· Court on the application of the assessce proceeded to. deal
apparently without any objection from the Commissioner with
the additional question which had not been referred by the Tribu•
nal.
The High Court held that the income brought lo tax in the
assessment year 1951-52 did not accrue to an association of persons, but the income in the years 1952-53 to 1956-57 accrued to
an association of persons
formed by Meyyappa rn, M.S.M.M.
firm and the minor Chettiappa. The. High Court was of the view
E that Meyyappa (l) acted on behalf of Chettiappa in forming the
association, that the affairs of. this association were under the
management of Meyyappa (!) during the account years relevant
to the assessment years 1952-53 to 1956-57, that the association
of persons was engaged in a joint enterprise for the purpose of
produdng inoome, that there being "unity purpose and objectivity" the ultimate object of the associatiou lo earn income 011
F behalf of the members of the association was "fully established''.
The High Court also held that by the notices for assessment of the
ipcome for the years 1952-53 to 1954-55 Meyynppa (!) did in fact
have notice of the intention of the lncor,1c-tax Officer to treat him
as the principal officer of the association, and the proceedings for
assessment and reassessment were properly
commenced. The
G High Court accordingly by order dated April 3, 1961 answered
the first question in favour of the aso,cssec in respect of the assess·
ment year 1951-52 and agaiust the assesscc for the subsequent live
assessment years.
The High Court recorded in <111swer to the
second question that I.he Income-tax Oflice1· was justified in holdB
ing Meyyappa (J) to be the principal officer of "MM. Jpoh".
On November 21, 1961 five petitions were moved in the High
Court of Madrns under Art. 226 of the Constitution for a writ
of prohibition restrainin~ t~e Income-tax Officer from enforcing
the demands made by him m respect of the tax assessed against
70
SUl'lllllll!i COUllT UPOl\TS
(1968] 1 8.C.l\
"the associ11tion of persons M.M. lpoh". In supj>ort of the peti· A
tions it was urged that s. 3 of the Indian Income-tax Act invested
the Income-tax Officer with arbitrary and unguided power to
assess to tax the· income of an association of persons in the hands
either of the association or of the persons constituting that association, and on that account s. 3 offended Art 14 of the Constitution, and was to that extent void. The High Court flliected the B
petitions. Against the orders passed by the High Court in the
petitions for writs, Meyyappa (I) has
appealed. . Against the
orders recorded by the High Court in references under s. 66 the
association of persons "M.M. Ipoh" has appealed.
Section 3 of the Income-tax Act invests the taxing authority
with an option to assess to tax the income collectively of the asso- 0
ciation of persons, in the hands of the association or in separate
shares in the hands of the members of the association. Counsel
for the assessee contends that the Act sets out no principles and
discloses no guidance to the Income-tax Officer in exercising the
option: the Act therefore confers arbitrary and uncontrolled
authority upon the Income-tax Officer to select either the associa- D
tion or its members for assessment to tax according to his fancy,
and may on that account be discriminatively administered by subjecting persons similarly situate to varying rates of tax.
Counsel in support of that plea relied upon the judgment of
this Court in Suraj Mall Mohta & Co. v. A. V. Visvanatha Sastri
and Anr.(') but that case is of little assistance to the a.ssessee. In I
Suraj Mall Mohta's case(') this O>urt declared sub-s. (4) of s. S
of the Taxation of Income (Investigation Commission) Act 30 of
1947 and the procedure prescribed by that Act, insofar as it affected
the persons proceeded against under that sub-section, invalid as
a piece of discriminatory legisiation and on that account offond·
ing against Art. 14 of the Constitution of India. The Court held r
that sub-s. (4) of s. 5 of Act 30 of 1947 dealt with the same class
of persons who fall within the ambit of s. 34 of the Indian Incometax Act 1922 and whose income can be brought to tax by proceeding under that section : The result in the view of the Court
was that some assessees who had
evaded
payment oi tax by
failing to disclose fully and truly all material facts necessary for G
assessment of tax could be dealt with under Act 30 of 1947 at the
choice of the Commission, though they could also ~ proccocf..
ed with under s. 34 of the Indian Income-tax Act. Persons discovered as evaders of income-tax during an investiaation under
s. 5( I) of Act 30 of 1947, and persons discovered by the Income.
tax Officer to have evaded payment of tax had in the view of the
Court common properties and ......... common characteristics'', and B
since the procedure prescribed under Act 30 of 1947 was more
1'l (!OM) 26 I.T.R, I.
•
M. 14. ll'OK ~. C. t. T. (Sha/&, J.)
71
A drastic and deprived the assessee of valuable rights of appeal,
second appeal and
revision, s. 5(4) of Act 30 of 19~7 under
which a person could be selected for discriminatory treatment at
the choice of the Investigation Commission was void as infringing
the guarantee of equality before the law.
But here no question of application of a more drastric proB cedure, or deprivation of valuable rights of appeal. and revision,
by the ;idoption of one of two alternative procedures arises. The
procedure for assessment is the same whether the income is assessed in. the hands of the association or the share of each member
of the association is assessed separately. In Shri Ram Krishna
Dalmia v. S/iri Justice S. R. Tendolkar and Ors,(') S. R. Das,
c C. J ., observed at p. 299:
D
E
"In determining the question of the validity or otherwise of ......... a statute the court will not strike down the
law. out of hand only because no classification appears
on its face or because a discretion is given to the Govern·
ment to make the
selection or classification but
will go on to examine and alScertain if the statute has
laid down any principle or policy for the guidance of the
exercise of discretion or classification. After such scrutiny,
the court will strike down the statute if it does not lay
down any principle or policy for guiding the exercise of
discretion by the Government in the matter of selection
or classification, on the ground that the statute provides
for the delegation of arbitrary and uncontrolled power
to the Government so as lo enable it to discriminate between persons or things similarly situate and that,
therefore, the discrimination is inherent in the statute
"itself."
1
In Jyoti Pershad v. The Administrator for the Union Territory of Delhi(') this Court observed that where the Legislature
lays down the policy and indicates the rule or line of action which
should guide the authority, Art. 14 is not violated, unless the rules
or the policy indicated lay down different criteria to be applied
to persons or things similarly situate. It is not however essenG tial for the Legislature lo comply with the guarantee of equal protection that the rules for the guidance should be laid down in
express terms. Such guidance may be obtained from or afforded
by (a) the preamble read in the light of the surrounding circumstances which necessitated the legislation, taken in conjunction
with well-known facts of which the
Court might take judicial
B notice or of which it is apprised by evidence before it in the form
of affida-.;its, (b) or even from the policy and purpose of the enactment which may be gathered from
other operative provisions
(') 119ii9] S.C.R. ~79.
<'> [1962J 2 s.c.n. 125.
72
BUPHEllE COURT REPORTS
(1968] I s.c.B.
applicable to analogous or oomparaible situations or generally A
from the object sought to be achieved by the enactment.
Section 3 of the Income-tax Act does not. it is true, expressly
lay down any policy for the guidance of the Income-tax Officer in
selecting the association or the members individually as entities in
bringing to tax the income earned by the association. G.uidance
may still be gathered from the other provisions of the Act, its B
scheme, policy and purpose, and the surrounding circumstances
which necessitated the legislation. In considering whether the
policy or principles are disclosed, regard must be had to the
scheme of the Act.
Under the Act of 1922 the Income-tax Officer
is required to issue a general notice calling upon all persons whose
total income during the previous year exceeds the minimum not o
chargeable to tax to submit a return of income.
The Income-tax
Officer may also serve an individual notice requiring a person
whose income in the opinion of the Income-tax Officer is liable to
tax to submit a return of income. Primarily the return of income would be made by an association, where the association has
earned income, ancj the Income-tax Officer would also call upon
the association to submit a return of its income, and would ordi- D
narily proceed to assess· tax on the return · so made. But for
diverse reasons, assessment of the income of the association may
not be possible or that such assessment may lead to evasion of
tax.
It would be open to the Income-tax Officer then to assess
the individual members on the shares received by them. The
duty of the Income-tax Officer is to administer the provisions of B
the Act in the interests of public revenue, and to prevent evasion
or escapement of tax legitimately due to the State. Though an
executive officer
enga~ed in the administration of the Act the
function of the Income-tax Officer is fundamentally quasi-judicial.
The Income-tax. Officer's decision of bringing to tax either the
income of the association collectively or the shares of the mem- r
hers of the association separately is not final, it is subject to appeal
to the Appellate Assistant Commissioner and to the Tribunal.
In Commissioner of Income-tax,
U.P.
v.
Kanpur Coal Syndicate(') it was held by this Court that the Appellate Tribunal has
ample power under s. 33(4) to set aside an assessment made on
an association of persons and to direct the Income-tax Officer to
assess the members individually or to direct amendment of the G
assessment already made on the members. Exercise of this
power is from its very nature contemplated to be governed not
by considerations arbitrary but judicial. The nature of the authority exercised by the Income-tax Officer in a proceeding to assess
to tax income, and his duty to prevent evasion or escapement of
liability to pay tax legitimately due to the State, constitute. in o::r B
judgment, adequate enunciation of principles and policy for the
guidance of the Income-tax Officer.
l'l [1964J oa r.u~. 22s.
M. M. !POil v. c. I. T. (Sha/i, J.)
73
A
Counsel for the appellants
contended that s. 23-A of the
Income-tax Act, as it was incorporated by Act 21 of 1930, laid
down certain principles for the guidance ot the Income-tax Offi.
cer in exercising his, option, but since the Legislature by Act 7 of
1939 repealed that provision the discretion vested in the Income'
tax Officer to select either the . income of the association or the
B individual members is unfettered. To appreciate the argument
it is necessary to set out in some detail the legislative history.
Under the Indian Income-tax
Act, 1922, as originally enacted,
an association of persons or individuals was not an entity the
income whereof was charged to tax. By 11 of 1924 "association
of individuals" was added ins. 3 and an entity of which the income
is charged to tax under the .Income-tax Act, but the Act as it
C stood amended contained no statutory safeguard against double
taxation of income earned by an association of individuals. S.
14(1) of the Act (as it then stood) which aimed at avoiding double
taxation of the same income was applicable to the .income of a
Hindu undivided family, to the income of a company distributed
as dividends to share-holders, and to the income of a firm proD fits whereof were asl>essed in its hand&; The Legislature amended s. 14 of the Act by Act 22 of 1930 and remedied the defect by
modifying cl. (c) of sub-s. (2) of s. 14 of the Act and provided
that "any 5um which he (the assessee) received as his share of the
profits or ·gains of an association of individuals, other than a
Hindu undivided family, company or firm, where ouch profits or
E gains have been assessed to income-tax", shall not be subject to
tax. The Legislature also enacted Act 21 of 1930 which made
several modifications in the Income-tax
Act. It provided for
registration. of firms and added s. 23A which provided:
r
G
"(!) Where the Income-tax Officer is satisfied that
any firm or other association of individuals carrying on
any business, other than a Hindu undivided family or a
company, is under the control of one member thereof,
and that such firni or association has been .formed or is
being used for the purpose of evading or reducing the.
liability to tax of any member tljereof, he may, with the
previous approval· of the Assistant Commissioner pas5
an order that the sum payable as income-tax by the firm
or association shall not be determined, and thereupon
the share of each member in the profits and gains of
the firm or association shall be included in his total income for the llurpose of his assessment thereon."
II A similar provision with regard to companies was also incorporated in sub-s. (2) of s. · 23A. Broadly speaking, by the· amended
provision discretion was given to the Income-tax Officer to treat
as separate entities for the purpose of taxation the individuals
formed. any association carrying on business, of which only one
74
st11'lllliYE COUl\T REPORTS
[1968) 1 s.c.11.
member was competent to bind the association by his acts, and &
to give to the Income-tax Officer discretion to·treat the members ·
of a company as separate entities in certain conditions. But s.
23A (I) as enacted by Act 21 of 1930 applied only to firms and
association of individuals if the management was in the hands of
one person: it did not in terms apply to cases where the management was in the hands of more persons than one, even if it was •
formed for the purpose of evading or reducing the liability to tax
of any member thereof.
By Act 7 of 1939 the expression "association of persons" was substituted for "association of individuals"; s. 23A(l) was deleted; and sub-s. (5) was added to s. 23.
Sub-section (5) of s. 23 prescribed the mechanism for bringing to
tax the income of a firm registered or unregistered. If the firm 0
was registered, the share of each partner was to be separately
taken into account together with his other income and brought
to tax. If it was an unregistered firm, the income of the firm
itself was brought to tax, unless the Income-tax Officer was of the
opinion that the correct amount of the tax including super-tax,
if any, payable by the partners under the procedure applicable to
a registered firm would be greater
than the aggregate amount D
payable by the firm and the partners if the firm is assessed as an
unregistered firm.
Jn respect of unregistered firms a practical
scheme which aimed at preventing evasion of tax was devised
by enactment of s. 23(5)(b).
After the repeal of s. 23A ()) as introduced by Act 21 of 1930
no similar provision conferring discretion upon the Income-tax •
Officer similar to the discretion which is prescribed by the terms
of s. 23(5)(b) in respect of the income of the unregistered firms was
expressly enacted. But it cannot be inferred that it was intended
to make the discretion of the Income-tax Officer qua the assessment to tax the income of an association of persons in the hands
of individual members collectively, . arbitrary or unfe\tered. By I'
the repeal of s. 23A(I) the essential nature of the power of an
Income-tax Officer was not altered. He remained as before under
a duty to adniinister the Act, for the benefit of public revenue,
but his powers were to be exercised judicially and so as to avoid
double taxation of the same income.
This resume of the legislative provisions discloses that the G
relevant provisions were made with a view to ensure against
evasion of tax, while ensuring that the same income shall not be
charged more than once.
The policy and the purpose of the Act may be gathered from
"other operative provisions applicable to analogous or compar· B
able situations": Jyoti Pershad's case(') at p. 139: and there ca1•
('I r1D&212 s.o.n. us.
X. IL IPOR v. c. L T. (Skali, J.)
T5
A be no doubt that -an unregistered firm and an association of per·
sons are closely analogous. If the income is earned by an association of persons, normally a return would be made or asked
for under s. 22 from the association, and the income of tho association would be brought to tax.
If, it appears to tTie Income-tax
Officer that by taxing the association of p..,sons eyasion of tax
B or escapement of tax liability may result, he 'is given a discretion
to tax the individual members: but the disctetion i:.- to be exer·
cised judicially and not arbitrarily, and its eltercise is capable of
rectification by superior authorities exercising judicial functions.
It cannot therefore be said that there is, by investing authority in the Income-tax Officer to select the association of persons
c or individual members thereof for the purpose of assessing to tax
the income of the association, denial oi equality before the law
between persons similarly situate within the meaning of Art. 14
of the Constitution so a.s to render s. 3 insofar as it confers power
upon the Income-tax Officer to select either the assi>ciation of
persons or the members thereof fo1 assessment to tax in respect
D of the income of the association void. Appeals Nos. 1103-1107
of 1966 must therefore fail.
In the group of appeals which arise out of the order passed
by the High Court in exercise of its advisory jurisdiction under
the Income-tax Act, counsel for the assessee
urged that there
was no association in fact; that Chettiappa being at all material
E times a minor there could in law be no association of which the
income could be brought to tax, and that in any event there was
no evidence to prove that any one on behalf of Chettiappa had
assented to the formation of the association.
The expression "person" is defined in s. 2(9) of the Indian
Income-tax Act, 1922 as including "a Hindu
undivided family
r and a local authority". The
definition is inclusive and resort
may appropriately tie, had to the General Clauses Act to ascertain
the meaning of the e~pression "person". Clause (42) of s. 3 of the
General Clauses Act defines a. "person" as inclusive of any com·
pany, association or body of individuals whether incorporated
or not, and that inclusive definition in the General Clauses; Act
would also apply under the Income-tax Act. A firm is therefore
G a "person" within the meaning of the Income-tax Act, and a
firm and an individual or group of individuals may form an
association of persons within the meaning of s. 3 of the In4ian
Income-tax Act.
·
There is nothing in the Act which indicates that a minor
cannot become a member of an association of perso_ns for the
B p4rposes of the Act.
1n • .,.::om111issioner. of Income-tax, Bombay
v. Laxmidas and Anr.('l it was held that the fact that one of the
(') [IU37] l.TJt. 084.
76
SUPREME COIJRT l.ll:PORTB
[1968] 1 8.C.L
individuals was a minor did not affect the existence of the associa- A
tion, if in point of fact, the assessees bad associated together for
the purpose of gain.
In Commissioner of Income-tax, Bombay
North, Kutch and Saurashtra v. Indira 811/krishna(') it was held
"that the word "associate"
means, .... 'to join in common
purpose, or to join in an . action'. Therefore, an' association of
persons must be one in which two or more persons join in a com- B
mon purpose or common action, and as the words occur in a
section which imposes a tax on income, the association must be
one the object of which is to produce income, profits or gains."
·In the case before us, there is abundant material. to prove
that Meyyappa (I), his minor .son Chettiappa and M.S.M,M. firm
formed an association in the years 1952·53 to 1956-57. To review
the relevant facts: the "M.M. Ipoh properties" which were allot· Cl
ted to Meyyappa (I) at the partition in 1940 became on the birth
of Chettiappa, Properties of a coparcenary, and it is common
ground that Chettiappa
acquired a share in the income which
Meyyappa (I) received from the M.S.M.M. firm: the "M.M. fpoh
properties" were used in a trading venture and were managed
by the M.S.M.M. firm: the selling agency was common between D
M.S.M.M. firm and "M.M. Ipoh": the stocks and expenditure of
the M.M. lpoh firm were not separately determined and common books of account were maintained for the management of
the M.M. Ipoh properties and the M.S.M.M. firm dealings.
Alagammal-mother of Chettiappa-had executed the deed
of partition dated April 13, 1950 as the guardian of Cbi:ttiappa. 1
By the deed she acknowledged having received the share of Chetti-
~ppa in the property. The Tribunal found that the management
was entrusted to the M.S.M.M. firm on behalf of "M,M. Ipoh",
and that in entrusting the management Alagammal must have
given )!er consent.
In paragraph 11 of the statement of the case,
the Tribunal observed:
"The integrity and management of the estates have
P
continued undisturbed right throughout the period, only
· the holding thereof by various members having changed
from time to time. The volition necessary is only all too
. apparent; the entrustment of the management to
M.S.M.M. firm for a proper management implies a prior
agreement to which the guardian of the minor must have
a
given her consent too."
These observations relate to the entire period of six years
1951-52 to 1956-57 . .In the view of the High Court division of
the status of joint Hindu family on April 13, 1950 between Mey·
yappa (I) and Chettiappa was brought · about not as a result
of any mutual agreement between the coparceners, but by Mey- 8
yappa (I) in exerdse of his power to do so under the Hindu law,
und "solely from the feature that the share of minor son Chhetti·
uppa was not separated ·by metes and bounds, a conclusion could
-(') [1960] 39 I.T.R. 646.
~
-
M, M. IPOH V, C. I, T. (Shah, J)
77
A not be "reached that Meyyappa (I) and Chettiappa continued as
members of an association of persons. The minor had no volition
of his own to express, and the fact that at the partition the minor
was represented for purposes of form and nothing. more. by his
father, cannot be taken to mean that the mother. as his guardian
exercised any volition on behalf of the minor." In the view of
B the High Court "to form an association of persons no agreement
enforceable at law was necessary": but that "is· not the Slime.
thing as to say that an agreement-express or implied-may be
inferred, where none can possibly exist." The High Court
rejected the contention raised oil behalf of the Revenue that the
father must have acted as the guardian of the minor in forming the
association in.1951-52. The High Court however held that in
0 the year 1952-53 and. subsequent years an association of persons
was formed and Meyyappa (l) joined that assodation on behalf
of himself and Chettiappa. Counsel for the assessee contends
thai once the High Court reached the conclusion that in the year
1951-52 there was no association of persons, the conclusion that
an association of persons existed in the subsequent years could
D not be reached in the absence of positive evidence to show that
after the close of the year 1951-52 an .association of persons was
actually formed.
We are not called upon· in these appeals to consider whether
the learned Judges of the High Court were right in the view
& which they have taken insofar as it relates to the assessment year
·
1951-52. We are only called upon to consider whether the conclusion of the Tribunal that in fact an association of persons
existed in the year 1952-53 and subsequent years was based on
any evidence.
In our judgment the facts proved clearly show
that there was such an association in the years 1952,53 ,.and the
subsequent years. Pursuant to the three partitions no division
F by metes and bounds of the shares of the owners was made, only
the shares in the income of .the owner. were entered in the books
of account. There was common management of the properties,
and there was even a common selling agency.
Alagammal bad
acted as a guardian of Chettiappa in the deed of partition. .The
Tribunal inferred that Alagammal must have assented to the forG mation of the association on behalf of Chettiappa and· in the
various transactions relating to the entrustrnent of management. It
is true that this finding related to the year 1951-52 as well, and
the High Court has disagreed with that finding insofar as it
related to the year 1951-52. But on that account the finding of
the Tribunal in respi;ct of the subsequent years cannot be discarded. The Association which has earned · income ·in the years
B 1952-53 and thereafter is an association different from the association in 1951'52. In 1951 Chokalingam had demanded a share
in the "properties of M.M. Ipoh" and he was given a half share.
The shares of Meyyappa1 (Il and Chettiappa . in the properties were
78
BUPllJ:lllil COUIIT llDOllTS
(1968] 1 s.c.11.
reduced, and thereafter
ownership in the "properties of M.M. A
lpoh" and its activities vested in an as~iation' formed by Meyyappa ([), the M.S.M.M. firm and
Chettiappa. It is common
ground that "M.M. Ipoh" was a trading venture and its management was entrusted in the relevant years to the M.S.M.M. firm.
The doctrine of res judicata does not apply so as to make a B
decision on a question of fact or law in a proceeding for assessment in one year binding in another year. The assessment and
the facts found are conclusive only in the year of assessment:
the findings on questions of fact may be good and cogent evidence
in subsequent years, when the same question falls to be deter·
mined in another year, but they are not binding and conclusive.
The finding recorded by the High Court that in the year 1951·52 C
there was no association of persons constituted by Meyyappa (I)
and Chettiappa for earning income from M.M. lpoh properties
will not in the present case have any effect on the finding of the
1 Tribunal that in year 1952-53 and the subsequent years such an
association existed. It must again be remembered that the association of persons which traded in 1952-53 and the subsequent D
years was an association different from the association in 1951-52.
After the reduction in the shares of Meyyappa (I) and Chettiappa
in the "M.M. lpoh properties" a fresh arrangement for entrustment
of the management ofc the properties to the M.S.M.M.