1. All these five appeals have been filed by the Revenue and are decided by this common order as the same issue is involved.
2. The Settlement Commission had passed an order under Section 245D(1) of the IT Act in the case of Dr. Narendra Prasad on 27th Oct., 1987, for the asst. yrs. 1982-83 to 1984-85. The Authorised Representative of the assessee refers to para 8.6 of the order. The Settlement Commission had accepted both Dr. Narendra Prasad and Dr. (Mrs.) Leela Prasad as 50:50 owner of the nursing home in respect of the rental income as well as other income shown from the nursing home for the three assessment years, i.e., 1982-83, 1983-84 and 1984-85. The Authorised Representative of the assessee wants this decision of the Settlement Commission to be followed in subsequent years also. But it is well-settled that the decision of the Settlement Commission is binding and final only for the years covered by that decision. In other years the facts considered by the Settlement Commission may be considered by the AO/appellate authorities and a decision taken independently. This may mean that if it is found that the decision of the Settlement Commission is not there, so far as the relevant years are concerned, then the AO/appellate authorities ate not bound by the decision of the Settlement Commission for some other years.
3. M/s Alok Nursing Home had claimed the status of co-ownership by the said doctor couple and thus it was claimed that no tax shall be payable by the nursing home. Instead, the income of the nursing home was shown 50 : 50 in the hands of the two doctors named above.
(i) That the nursing home is to be assessed in the status of AOP--Commr. of Agil. IT v. Raja Ratan Gopal (1966) 59 ITR 728 (SC) and Meera & Co., Etc. v. CIT (1997) 224 ITR 645 (SC). She has also quoted from these decisions.
The CIT(A) in his order has tried to distinguish the facts of the case law relied upon by the AO.4. There is an inclusive definition of 'person' in Section 2(31). It does not mention 'ownership' as a 'person' but the case of ownership will generally fall either under the status of a 'firm' or under that of 'AOP' (association of persons)/BOI (body of individuals). Having been received jointly by two or more persons, it is to be taxed in that joint status, excepting for the purpose of the income from the house property where Section 26 provides that the joint ownership shall not be taxed (subject to certain conditions) and the income is to be taxed in the hands of the co-owners themselves. Here in the case of the nursing home, there is no income during this year from the house property. Therefore, the income has to be taxed in the hands of the nursing home itself in the status of AOP. Accordingly, the decision of the AO is confirmed. As a result, the income is to be taxed in the name of Alok Nursing Home and till it becomes final, the income is also to be included on protective basis in the total income of the said Dr.
Narendra Prasad and Dr. Leela Prasad.
1. I have gone through the order of my learned Brother. However, I am unable to persuade myself to agree with his findings and that is why I am recording a separate order.
2. These appeals are by Revenue but since these appeals concern to the same assessees and as facts and circumstances giving rise to them are identical and so are grounds of appeal, and as such we have taken up hearing of these appeals together.
3. There are five appeals and in each appeal issues have been raised variously but in effect they are against one issue not treating M/s Alok Nursing Home as AOP and assessing the income earned from it in the hands of Dr. Narendra Prasad and Dr. (Mrs.) Leela Prasad proportionately at 50 per cent each.
4. It is to be noted that M/s Alok Nursing Home was a proprietary concern of Dr. (Mrs.) Leela Prasad. There was a search operation under Section 132 of the IT Act in the residential premises of Dr. Narendra Prasad and Dr. (Mrs.) Leela Prasad and in the business premises of M/s Alok Nursing Home. Consequent to that search Dr. Narendra Prasad and Dr. (Mrs.) Leela Prasad approached to the Settlement Commission and the Settlement Commission by its order dt. 27th Oct., 1987, under Section 245D(4) of the IT Act for the asst. yrs. 1982-83, 1983-84 and 1984-85 assessed the income from M/s Alok Nursing Home in the hands of Dr.
Narendra Prasad and Dr. (Mrs.) Leela Prasad at ratio of 50 per cent each. Thereafter, the income from M/s Alok Nursing Home was being assessed in the same way till asst. yr. 1994-95. For the first time in the asst. yr. 1995-96 the Department proceeded to take M/s Alok Nursing Home as a separate taxable entity and treated it as AOP.5. To go ahead with the assessment proceedings the AO considered the matter in detail and in view of the provisions under Section 2(31) of the IT Act coupled with the decision of Hon'ble Supreme Court in the case of Meera & Co., Etc. v. CIT (1997) 224 ITR 645 (SC) and ITO v. Ch.
Atchaiah (1996) 218 ITR 239 (SC) he was of the view that income earned either by profession or business by more than one person jointly should be brought within the definition of Section 2(31) of the IT Act as company, firm, AOP or BOI. According to the AO, Section 2(31) of the IT Act does not recognise co-owner as assessable person or unit, He examined the matter in the light of exact position of facts and finally came to the conclusion that business of M/s Alok Nursing Home was that of Dr. Narendra Prasad and Dr. (Mrs.) Leela Prasad as AOP and income should be assessed in that status instead of assessing the income in their individual hands at the proportionate rate of 50 per cent each.
According to him the Department was not debarred to question the assessment even if the members of the AOP have been taxed separately relating to their respective shares. To him the decision taken by Settlement Commission under Section 245D(4) of the IT Act could not be followed all times to come. He, therefore, treated M/s Alok Nursing Home as AOP and determined the total income at Rs. 8,26,190. However, at the same time he also completed the assessments of Dr. Narendra Prasad and Dr. (Mrs.) Leela Prasad separately but added the respective share income from M/s Alok Nursing Home on protective basis. Against those orders for all these assessment years the assessees preferred appeals before the CIT(A) who reversed the order of the AO and that is why now the Revenue is in appeal.
6. It is to be noted that before 27th Oct., 1987, when Settlement Commission passed its order under Section 245D(4) of the IT Act, M/s Alok Nursing Home used to be declared as 100 per cent proprietary concern of Dr. (Mrs.) Leela Prasad. But, however, there was a search in the business premises of M/s Alok Nursing Home including the residential premises of Dr. Narendra Prasad and Dr. (Mrs.) Leela Prasad and both of them approached the Settlement Commission. The order dt.
27th Oct., 1987, under Section 245D(4) of the Settlement Commission is placed at p. 7 of the paper book. The Settlement Commission while disposing of the petition of doctor couple made the following observations : "As ownership of the nursing home we accept that both the husband and wife own the same in equal proportion. Therefore, rental income and other income shown from nursing home in these three assessment years would be taxed in equal proportion in the hands of applicant and his wife." 7. It is to be noted that the Settlement Commission recorded the aforesaid order for the asst. yrs. 1982-83, 1983-84 and 1984-85. The computation of income by the Settlement Commission is at pp. 9 to 11.
At pp. 11 and 16 of computation for the asst. yr. 1984-85 it has been made clear that income of nursing home has to be assessed in the ratio of 1/2 each in the hands of Dr. Narendra Prasad and Dr. (Mrs.) Leela Prasad. It is to be further noted that the regular assessments of Dr.
Narendra Prasad and Dr. (Mrs.) Leela Prasad for the asst. yrs, 1985-86 to 1994-95 have been made under Section 143(3) of the IT Act. The assessments are respectively compiled at pp, 23 to 31 and at pp. 32 to 35 of the paper book. In all these assessment years the same method was adopted which the Settlement Commission has defined. Income from M/s Alok Nursing Home has all along been assessed in the hands of doctor couple at 50 per cent each. This very fact shows and proves that the Revenue Department has never treated Alok Nursing. Home as separate entity. It is to be noted that concept of AOP and provision of Section 2(31) were very much in existence even at the relevant period when the Settlement Commission passed the order under Section 254D(4) of the IT Act.
8. In fact, the learned CIT(A) has examined the matter in great detail and he has distinguished those decisions on which the AO has relied upon. The CIT(A) has primarily found that the AO has pre-supposed that there existed an AOP and has applied those decisions. The finding of the CIT(A), to my mind, appears to be correct. The AO has not given the factual aspect or material as to how and in what way and when the doctor couple have constituted an AOP. Theoretically, supported with the provision of law, a hypothetical situation can be defined that there exists AOP but unless there are materials to prove and establish virtually there exists an AOP is yet to be conceived. It has to be noted that the same facts and circumstances are coming ever since 1982-83. How, when and in what manner Dr. Narendra Prasad and Dr.
(Mrs.) Leela Prasad constituted an AOP and in what manner and to what extent, that aspect has to be found out. The Revenue Department has been accepting and assessing the income from Alok Nursing Home in the hands of doctor couple at the ratio of 50 per cent each for long.
Making a departure without bringing any material as pointed out above is not justified. In fact, the Department itself is not clear as to in what way the income from Alok Nursing Home is to be determined. From the papers compiled in the paper book with the notice under Section 154 of the IT Act it is to be noted that for the asst. yrs. 1993-94 and 1994-95 the AO issued notice under Section 154 of the IT Act with a purpose to make rectification with effect that income of Dr. (Mrs.) Leela Prasad is to be clubbed in the hands of Dr. Narendra Prasad. But that exercise has yet to be finally carried out. At this occasion also there is no allegation that if M/s Alok Nursing Home is an AOP. It is to be further noted that though for the asst. yr. 1995-96 the Department treated M/s Alok Nursing Home as AOP but even then in the individual assessment of Dr. Narendra Prasad and Dr. (Mrs.) Leela Prasad, the assessment has been allowed as usual. Relating to assessment of Dr. (Mrs.) Leela Prasad for the asst. yr. 1995-96 which was completed on 12th Dec., 1997, the AO made the following observations : "But the assessee has herself shown her total income at Rs. 3,39,110 and tax payable at Rs. 1,05,801. The assessment is accordingly completed on protective assessment as per the returned income." 9. Similarly, for Dr. Narendra Prasad for the asst. yr. 1995-96 which was completed on 2nd Feb., 1998, the following observations have been made : "50 per cent share income from Alok Nursing Home on protective basis has been assessed as per return." 10. This fluctuating action on the part of the Department clearly shows the Department is still not sure if there exists any AOP so far as it relates to M/s Alok Nursing Home. It is to be reiterated that for almost one decade or more the income from M/s Alok Nursing Home has been assessed at the ratio of 50 per cent each in the hands of Dr.
Narendra Prasad and Dr. (Mrs.) Leela Prasad. For making any departure, the AO has to bring some material to show that in fact there exists an AOP but that has not been done. Relating to consistency that is why the Hon'ble Supreme Court in the case of Radhasoami Satsang v. CIT (1992) 193 ITR 321 (SC) has said "Strictly speaking, res judicata does not apply to income-tax proceedings. Though each assessment year being a unit, what was decided in one year may not apply in the following year where fundamental aspects permeating through different assessment years has been found as a fact one way or other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year." 11. As said above in the present case also there is no change in the facts in the present years as it has existed before. The AO has not given any specific finding as to when, how and in what manner Dr.
Narendra Prasad and Dr. (Mrs.) Leela Prasad have created and constituted an AOP relating to M/s Alok Nursing Home and so in such a situation mere saying coupled with some principles of law as laid down by the Hon'ble Supreme Court, the AO's finding that M/s Alok Nursing Home is to be treated as AOP cannot be accepted. The learned CIT(A) has rightly appreciated this fact and has reversed the order of the AO. I uphold his order.
On being difference of opinion among us the following questions in view of provision under Section 255(4) of the IT Act are referred : "1. Whether, on the facts and in the circumstances of the case, M/s Alok Nursing Home, Patna, is to be taken as AOP under Section 2(31) of the IT Act and income earned from it is to be assessed in its hands? 2. Whether, on the facts and in the circumstances of the case, the AO has any material to treat M/s AloK Nursing Home as AOP though for the last couple of years income earned from it has been assessed in the hands of Dr. Narendra Prasad and Dr. (Mrs.) Leela Prasad?" 1. I find it convenient to pass a consolidated order in the case of Alok Nursing Home and two persons, namely, Dr. Narendra Prasad and Dr.
(Mrs.) Leela Prasad associated with the same association. These appeals have come up for hearing before me as Third Member as a result of difference of opinion amongst the Members of the Division Bench who originally heard these appeals.
2. The relevant facts briefly stated are that Dr. Narendra Prasad is a doctor by profession. His wife Dr. (Mrs.) Leela Prasad is a doctor (Ph.D) by virtue of educational qualification. She is in the teaching profession and employed as a professor in a teaching college. A building was constructed at Khazanchi Road, Patna, which was originally shown as exclusively belonging to Dr. (Mrs.) Leela Prasad. There was a search operation under Section 132 of the IT Act, 1961 in the residential premises of Dr. Narendra Prasad/Dr. (Mrs.) Leela Prasad and at Alok Nursing Home. After the search, Dr. Narendra Prasad and Dr, (Mrs.) Leela Prasad approached the Settlement Commission for settlement of dispute. It was pleaded before the Settlement Commission that Alok Nursing Hone was owned by Dr. Narendra Prasad and Dr. (Mrs.) Leela Prasad in equal proportion and not exclusively by any one of them. The Settlement Commission accepted the claim and directed the assessment of rental income as well as other income in the hands of the two individuals. The assessments for asst. yrs. 1982-83, 1983-84 and 1984-85 were made accordingly on the directions of the Settlement Commission. It is observed from the order of the Settlement Commission that for asst. yrs. 1982-83 and 1983-84, income from the nursing home was disclosed only on account of lodging and no other receipts have been shown. However, for asst. yr. 1984-85, the income has been shown from lodging as well as from other services. For asst. yrs. 1982-83 and 1983-84, the income from lodging has been divided between the two co-owners and assessed accordingly. For asst. yr. 1984-85, the income from lodging as well from other activities has been divided amongst the two persons in the ratio of 50 : 50. The husband and wife disclosed the income from the nursing home for the subsequent assessment years also in the ratio of 50 : 50. The AO had accepted the returns filed by the two assessees without any objection. However, in asst. yr. 1995-96, the AO was of the view that since the business of Alok Nursing Home is carried on by two persons and the profit and loss shared in the ratio of 50 : 50, Alok Nursing Home is assessable as a separate unit of assessment in the status of AOP. He, accordingly, issued a notice under Section 148 dt. 12th Sept., 1997, which was served upon Dr. Narendra Prasad as member of AOP. Since no return was filed in response to the notice under Section 148, a notice under Section 142(1) was issued and the assessee was also informed as to how the Department was thinking that the AOP's income had escaped assessment. However, no return was filed. The AO, accordingly, passed an ex parte order under Section 144/147 on 12th Nov., 1997, in the case of Alok Nursing Home in the status of an AOP. The individual assessments in the cases of husband and wife were also completed and the share income from the nursing home disclosed by them was assessed as a protective measure. The learned CIT(A) allowed the appeal of the assessee mainly on the reasoning that the factual existence of the AOP has not been established. Therefore, he deleted the addition of Rs. 8,26,186 by cancelling the assessment which was the income as per the income and expenditure statement of M/s Alok Nursing Home.
3. Revenue appealed to the Tribunal against the decision of the CIT(A).
The learned AM of the Bench proposed an order allowing the appeal of the Revenue and supporting the order of the AO in the case of M/s Alok Nursing Home as well as in the case of the husband and wife associated With the said nursing home. However, the learned JM differed with the view expressed by the learned AM and proposed an order dismissing the appeal of the Revenue.
4. I have been nominated as Third Member in regard to the point of dispute between the Members of the Division Bench. I have heard the parties and perused the records including the respective orders passed by the learned AM as well as learned JM.5. The assessee is mainly relying upon the order of the Settlement Commission for asst. yrs. 1982-83, 1983-84 and 1984-85 as also upon the decision of the CIT(A). The learned counsel for the assessee contended that in this case the Department had all along accepted that the nursing home was owned by husband and wife in equal proportion and that its income was assessable in the individual hands separately in the same ratio. The income of the nursing home was never assessed separately in the hands of AOP or any other status. The decision of the Settlement Commission was for asst. yrs. 1982-83 to 1984-85. So, however, the IT Department accepted the decision upto the asst. yr.
1994-95 and that the income from the nursing home has all along been assessed in the hands of the co-owners in the ratio of 50 : 50. No separate assessment has been made in the name of M/s Alok Nursing Home.
The Department having accepted the claim of the assessee for several years, according to the learned counsel, it was not open to it to take a different view in the asst. yr. 1995-96 and subsequent years. In this connection, reliance was placed on the decision of the Supreme Court in the case of Radhasoamy Satsang v. CIT (1992) 193 ITR 321 (SC). Relying upon the said decision it was contended that since there was no change in facts in the year under appeal as compared with the earlier years and since the IT Department has accepted the claim of the assessee that the income of the nursing home is assessable separately in the hands of the two persons individually in the ratio of 50 : 50, it was not open to the Department to make an assessment in the hands of the AOP when there is no change in facts or in law. The learned counsel pointed out that the wife, viz., Dr, (Mrs.) Leela Prasad, is not a doctor by profession. She is an educationalist employed in a teaching college.
Therefore, she was not contributing her skill and experience in running of the nursing home. Dr. Narendra Prasad is admittedly a doctor by profession but employed in a hospital and also makes his services available to the patients in the nursing home. Since the nursing home is owned by husband and wife in equal proportion, the income derived therefrom was rightly disclosed in the hands of two individuals and there does not exist any AOP which could be assessed separately under the provisions of the IT Act. The learned counsel contended that existence of the AOP has not been established by the Revenue and as such the issue of notice under Section 148 and assessment of the nursing home in the status of AOP is unwarranted and has rightly been cancelled by the CIT(A). It was, accordingly, pleaded that the view of the learned JM may be followed and the appeals of the Revenue dismissed, 6. The learned Departmental Representative, on the other hand, contended that the order of the Settlement Commission related to asst.
yrs. 1982-83 to 1984-85 and since the said decision is binding upon the Revenue for such assessment years, the same has been followed by the Department. Subsequently, the assessee had filed the returns disclosing share income from the nursing home and the same got assessed upto the asst, yr. 1994-95. In the year 1995-96, the AO on consideration of the facts and circumstances of the case and the legal aspect was satisfied that the income of the nursing home is to be assessed in the status of AOP. He, accordingly, issued a notice under Section 148 to the assessee calling for the return of income. Since the assessee did not file the return in the name of M/s Alok Nursing Home, assessment was completed under Section 144. So, however, the income disclosed by the assessee in the statement of accounts was not disturbed and the income assessed as disclosed. The assessment in the hands of the individuals has been made on protective basis. The learned Departmental Representative contended that the principles of estoppel do not apply in this case insofar as there is no direction by the Settlement Commission for asst. yr.
1995-96. The order of the Settlement Commission is binding for the asst. yr. 1982-83 to 1984-85 only. The Revenue has never decided as to whether AOP is assessable or not. This is an omission by the Revenue authorities. So, however, the assessee does not get any legal right to capitulate on the mistake committed by the Department. According to the learned Departmental Representative, the principles of estoppel do not apply against the statutory provision. It was pointed out that the nursing home is being run in an organised manner and the activities are being carried on on behalf of the two persons who are also co-owners of the building, etc. The profits and gains are also distributed amongst the co-owners in equal proportion. The activities of the nursing home are not carried on by the husband and wife individually but are being carried on on their behalf by their employees. Relying upon the decision of the Supreme Court in the case of Meera & Co., Etc. v. CIT (1997) 224 ITR 645 (SC), it was contended that since the business was carried on on behalf of the husband and wife, the income derived from the activities was assessable in the status of AOP. It was, accordingly, pleaded that the decision of the CIT(A) may be reversed and that of the AO restored.
7. I have given my careful consideration to the rival contentions. In order to arrive at a fair conclusion about the point of dispute involved in this case, I consider it necessary to ascertain the following factors on the basis of which final conclusion can be arrived at : (i) The first and foremost issue involved in this case is as to whether there exists an AOP which could be assessed to tax in respect of the income of the nursing home?; (ii) If the AOP exists, whether the Revenue has any option to assess its members individually and not the AOP?; (iii) Whether the order of the Settlement Commission for asst. yrs.
1982-83 to 1984-85 debars assessment of AOP when it is silent on that issue?; (iv) Whether the Department of Revenue is estopped to proceed in this case in accordance with law because of its failure to act in accordance with law in earlier years? 8. I, accordingly, proceed first to consider as to whether there exists an AOP for running of M/s Alok Nursing Home. It is not disputed that the nursing home was originally claimed to be the sole proprietary concern of Dr. (Mrs.) Leela Prasad. However, on the basis of search in the premises of Dr. Narendra Prasad and Dr. (Mrs.) Leela Prasad, the Department wanted to assess the income of the nursing home in the hands of Dr. Narendra Prasad. So, however, it was pleaded before the Settlement Commission that before conversion of the building into the nursing home, the fund belonging to the wife of Dr. Narendra Prasad was utilised for its acquisition. It was pointed out that the moneys had been withdrawn by Dr. Prasad's wife from her GPF account and loans had been taken from Bihar State Housing Federation. On the basis of the evidence produced before the Settlement Commission, it was decided as under : "6. In his counter-reply, Shri L.N. Rastogi, advocate, stated that a dilapidated building together with land was initially purchased in 1975 by the lady's own resources which had been properly explained from her earnings and her Stridhan in the form of gifts, etc.
received at the time of her marriage. The investment in the property had been shown at Rs. 4,07,000 upto the asst. yr. 1984-85 and Rs. 1 lakh has already been agreed to be surrendered towards the real cost of construction from the applicant's resources upto 31st March, 1989, in addition to the loans of Rs. 1,49,000 shown initially in the lady's name but now admitted to be the husband's income because of surrender. The ownership of the nursing home and the income therefrom should reasonably be divided between the husband and the wife. Shri Rastogi stated that considering all the aspects of the case, the applicant offered that the net professional income subject to depreciation be calculated as follows : It was clarified that this should cover the following surrender already made during the hearing : (i) Loans shown for investment in the nursing home: 1,49,000 (ii) Additional investment in the construction of nursing home: 1,00,000(iii) Credit in the bank a/c of Shri Alok Abhijit, applicant's son: 25,000(iv) Additional household expenses which were admitted to have been understated : 50,000(v) Additional amount invested in house property in Kankarbagh, Patna : 50,000 ___________ The applicant also offered that the income from nursing home and the rental income offered in the computation of Dr. (Mrs.) Leela Prasad upto 31st March, 1984, be taxed in equal proportions in the hands of the applicant and his wife." "8. As a result, the net professional income of the applicant should be taken subject to depreciation at Rs. 1,72,000, Rs. 2,32,000 and Rs. 2,70,000, respectively, for the asst. yrs. 1982-83, 1983-84 and 1984-85. As regards ownership of the nursing home we accept that both the husband and the wife own the same in equal proportions and, therefore, the rental income and the other income shown from nursing home in these three assessment years would be taxed in equal proportions in the hands of the appellant and his wife. The first floor of the building is used for residence of the applicant and his family. Interest on the loan taken by the wife and not surrendered in the case of the applicant would be deducted from the income of Dr. (Mrs.) Leela Prasad and not the income from nursing home before division of the same in equal proportion between the husband and the wife. The annual letting value of the AOP is being taken at 7 per cent of the cost of construction, after taking into consideration the provisions of the Bihar (Lease, Rent and Eviction) Control Act, 1992 and the Rules made thereunder. The total income for each of the assessment year would be as per Annexs. I, II and III to this order." 10. From the aforementioned portion of the order of the Settlement Commission, it is evident that the admitted position by the assessees as well as Department is that the nursing home property is jointly owned by Dr. Narendra Prasad and his wife Dr. (Mrs.) Leela Prasad in equal proportion. It is also not disputed that for asst. yrs. 1982-83 to 1984-85 the income from the nursing home was disclosed by Dr. (Mrs.) Leela Prasad as her own income and the Settlement Commission decided that the rental income and income from nursing home in asst. yrs.
1982-83 to 1984-85 be assessed, in equal proportion in the hands of the appellant and his wife. Assessments for asst. yrs. 1982-83 to 1984-85 have been made as per the decision of the Settlement Commission.
Subsequently, Dr. Narendra Prasad and his wife Dr. (Mrs.) Leela Prasad have been filing the return of income in which 50 per cent of the nursing home income is also reflected in the return as share income from the nursing home. From the computation of income forming part of the order of the Settlement Commission, it is observed that for asst.
yrs. 1982-83 and 1983-84 the income from the nursing home was disclosed only on account of lodging and in asst. yr. 1984-85 the income from nursing home has been shown on account of lodging as well as on account of other receipts. After asst. yr. 1984-85, the AO has been accepting the returns filed by the two individuals and there has never been an effort or a suggestion for assessment of Alok Nursing Home in the status of AOP. A notice under Section 148 was issued for asst. yr.
1995-96 calling for the return in the name of Alok Nursing Home in the status of AOP for the first time. The issue that assumes importance in this case is as to whether the AO had any material in his possession on the basis of which he could have reasons to believe that the income in the hands of the AOP had escaped assessment. In this connection, it would be necessary to consider as to whether the running of the nursing home, viz., Alok Nursing Home by the two individuals can be said to be an AOP. Dr. (Mrs.) Leela Prasad claims that she is not actively involved in the running of the nursing home. Dr. Narendra Prasad also claims that he is providing professional services to the nursing home for which he is remunerated. In order to decide this issue it will be relevant to refer the statement of accounts of Alok Nursing Home which forms part of the record. For asst. yr. 1995-96, i.e., as on 31st March, 1995, the balance sheet of the nursing home is reproduced hereunder : P&L a/c for the year ended 31st March, 1995, is also relevant which is reproduced hereunder : The owners' capital account as on 31st March, 1995 is also relevant which is reproduced hereunder : The details of the administrative and other expenses are also on record, a perusal of which reveals that a sum of Rs. 1,80,000 has been paid as fee to the chief consultant, who incidentally is Dr. Narendra Prasad, professional fee to other doctors is Rs. 5,20,300, salary and honorarium to ordinary staff is Rs. 2,84,680, nursing charges is Rs. 3,26,597, contribution towards EPF of Rs. 23,888 has also been made, chemicals and other consumables have also been debited under the head 'administrative and other expenses'. The sum total of administrative expenses is Rs. 31,21,188. From the statement of account itself it is evident that the income from the nursing home is not merely income on account of providing accommodation to the patients but is an organised activity of providing residential and medical care and treatment to the patients under the supervision of doctors, nursing and other staff. In the light of these facts, it is not difficult to visualise that organised activities are being carried on for running of the Alok Nursing Home for the purpose of earning profits and gains. Dr. Narendra Prasad has acted as chief consultant of the nursing home and for rendering his services to the nursing home, a separate fee of Rs. 1,80,000 has been paid to him. This amount is deducted in working out the profit derived on account of running of the nursing home. On these facts whether the AOP exists or not, it will be necessary to consider some of the relevant decisions which may be helpful in deciding the issue.
11. An AOP, as the name suggests, must be one in which two or more persons join in a common purpose or common action, and as the words occur in a section which imposes tax on income, the association must be one the object of which is to produce income, profits or gains. This was held by their Lordships of the Supreme Court in the case of CIT v.Indira Balkrishna (1960) 39 ITR 546 at 551 (SC). In the case of G.Murugesan & Bros. v. CIT (1973) 88 ITR 432 (SC), their Lordships of the Supreme Court held that when two or more individuals voluntarily combine together for a certain purpose, it gives rise to an AOP. In the case of N.V. Shanmugham & Co. v. CIT (1971) 81 ITR 310 (SC), their Lordships of the Supreme Court held that the word "associate" means to join in common purpose or to join in an action. Therefore, the word "AOP" as used in Section 3 of the Act means an association in which two or more persons join in a common 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 this case before the Supreme Court, there was a dispute amongst the erstwhile partners of the firm. Receivers were appointed for carrying on the business on behalf of the partners. It was contended before the Supreme Court that for purposes of Section 3 of the IT Act, an AOP must mean an association in which two or more persons voluntarily join in common purpose or common action. It was further contended that for a business to be carried on by an AOP, there must be a unity of control and unity of management. As no such unity existed amongst the erstwhile partners of the firm, it cannot be said that the receivers represented an AOP. Their Lordships of the Supreme Court repelled the contention on behalf of the assessee and held--"But in fact the business was continued in pursuance of the orders of the Court, All the owners of the business including the persons who objected to the continuance of the business were given, month by month, some amounts from the proceeds of the business. It was not said that any of them declined to receive the same. That means all of them acquiesced in the continuance of the business". Their Lordships further held-- "It is not denied that the business was carried on by the receivers on behalf of the erstwhile firm and that considerable profits were earned from the business. The control and the management of the business was in the hands of the receivers. That control and management was a unified one. The receivers had joined in a common purpose and they acted jointly. When they did so they acted on behalf of the persons who were the owners of the business. The receivers did not and could not have represented the individual interest of the various owners of the business. If they had done so there would have been chaos in the business. The profits to which those owners lay claim and which they were not averse to pocket, were earned on behalf of an 'AOP'." Their Lordships further held--"Liability to tax depends upon the earning of profits by a unit and not upon the ultimate division of the profits." 12. In the case of Mohamed Noorullah v. CIT (1961) 42 ITR 115 (SC), one Oomer Sahib used to carry on business of manufacture and sale of Spade Clover brand beedies. After his death his minor son and his widow and four children by her who were all minors at the date of the death of Oomer Sahib, carried on the business. Noorullah through his next friend applied to sue in forma pauperis and during the pendency of those proceedings, two advocates of the High Court were appointed as joint receivers of the properties of the deceased on 17th March, 1943. On 10th May, 1943, the widow of the deceased filed a suit for partition and also applied for the continuance of the joint receivers. The receivers as per the Court order continued the business as before. In due course a preliminary decree for partition was passed. The question that came up for consideration of the Hon'ble Supreme Court was the status in which the income of the business was to be taxed. Their Lordships held that the income was the income of a business which was carried on as a single business by the consent of all the parties. The mere fact that a suit was pending at the time for the administration of the estate of the deceased or for the separation of the shares of the co-heirs did not affect the incidence of taxation.
13. In the case of Meera & Co. v. CIT (supra), the business was carried on by widow on her behalf and on behalf of minor children. The issue considered by the Hon'ble Supreme Court was as to the status in which the assessee was to be assessed after the death of the individual.
Their Lordships held that when the minors along with their mother formed a body to generate income, the levy of tax under Section 4 of the IT Act was on that body. The mother could not insist that the income of the joint venture must be assessed separately on the minors and her, even when a joint business was carried on.
14. Let me now consider the facts of this case in the light of the principles of law laid down by their Lordships of the Supreme Court referred to above. It is not disputed that the nursing home is jointly owned by Dr. Narendra Prasad and his wife Dr. (Mrs.) Leela Prasad. It is also not disputed that the income is distributed amongst the husband and wife in equal proportion. It is not also disputed that the husband and the wife have admitted to be the joint owners of the business. From the statement of accounts quoted elsewhere in this order it becomes abundantly clear that the business of the nursing home is not only to provide lodging facilities to the patients but also organised treatment and other services for which qualified doctors, nurses and other staff have been appointed by the organisation. In the light of the principles laid down by the Hon'ble Supreme Court quoted above, it is not material as to whether Dr. (Mrs.) Leela Prasad and/or Dr. Narendra Prasad actively participated or not in carrying on the business of running the nursing home. From the facts on record it is evident that Dr. Narendra Prasad provided his professional services to the nursing home at the salary of Rs. 1,80,000 which was separately paid to him in addition to the profit derived from the running of the nursing home activities. The business having been carried on on behalf of the owners of the nursing home, the mere fact that there does not exist a written agreement between the parties for carrying on such business will not, in my view, deter the finding that the business has been carried on on behalf of the joint owners in an organised manner which constitutes a joint business. Since Dr. Narendra Prasad and his wife Dr, (Mrs.) Leela Prasad are established to have joined together for a common cause, i.e., earning of profits and gains from running of the nursing home, it gives birth to an AOP within the meaning of Section 4 of the Act. Thus, in my considered view, there exists an AOP, which is a separate assessable entity under the provisions of the IT Act, 1961.
15. Now, I proceed to: consider as to whether the AO had the option to assess only the individual members in respect of the respective shares they received from the AOP instead of assessing the AOP. In this connection, reference to Section 4 of the IT Act, 1961 would be relevant. It reads as under: "4. (1) Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions (including provisions for the levy of additional income-tax) of this Act in respect of the total income of the previous year of every person : Provided that where by virtue of any provision of this Act income-tax is to be charged in respect of the income of a period other than the previous year, income-tax shall be charged accordingly." From the plain reading of the charging section quoted above, it is evident that the charge is in respect of the total income of the previous year of every person. The person is also defined under Section 2(31) of the Act which reads as under: (v) an association of persons or a body of individuals, whether incorporated or not, a local authority, and (vii) every artificial juridical person, not falling within any of the preceding sub-clauses." The above definition of person is inclusive definition and it is noteworthy for the purpose of present controversy that a company is also included in the definition of person as also an AOP.16. Section 3 of the Indian IT Act, 1922, provided that in respect of the total income of an AOP the tax shall be charged either on the AOP or on the members of the AOP individually. Though the section expressly treated an AOP and individual members of the association as different assessable entities, the language of Section 3 was such that it gave an option to the AO to levy tax on either the AOP or the members of the association individually. On the terms of Section 3 of the 1922 Act, it was held that if any one or more members of an AOP had already been assessed to tax in respect of his or their share income, assessment thereafter could not be made on the association itself because the option to the ITO exhausted with the assessment of the member or members. The decision of the Supreme Court in the case of CIT v. Kanpur Coal Syndicate (1964) 53 ITR 225, 228 (SC) is relevant for this proposition of law. Similar was the position in the case of the firm which was sought to be assessed as unregistered firm. However, in 1956 there was an amendment in Section 23(5) of the 1922 Act by virtue of which both firm as well as its individual partners were made exigible to tax in the manner provided therein. As a result thereof, an assessment could well be made on the registered firm even after the individual partners had been assessed on their respective share income.
Similarly, under the IT Act, 1961, the option of assessing either AOP or its members under the IT Act, 1922, is not available to the AO. The position of law relating to the option available to the AO of assessing, either the AOP or the individual members, was explained by their Lordships of the Supreme Court in the case of ITO v. Ch. Atchaiah (1996) 218 ITR 239 (SC), wherein the distinction between the provisions of 1922 Act and the provisions under 1961 Act is explained. It has been held by their Lordships that under the 1961 Act even in the case of collective entities, the ITO has no option to assess either such entity itself or its individual constituents. Thus, it is abundantly clear that the AOP being recognised as an entity in itself is separately assessable to tax de hors the assessment of the individual members. As per the scheme under the 1961 Act, the individuals, HUFs, shareholders of companies or others being partners of a firm or members of an AOP are also separately assessable to tax besides the assessment of company, firm or AOP. In the case of the registered firm as per the law as existed prior to the change in the scheme of taxation of firms from asst. yr. 1993-94, the tax was payable by the firm on its total income and its partners were also separately assessable to tax in respect of the share income from the firm. In the case of unregistered firm, whereas the firm was to be assessed as a separate entity, share income of the partners from unregistered firm was to be included in their individual assessments for rate purposes only. It is thus evident that the taxation of collective entities and individual entities is provided separately under the provisions of the Act of 1961 and it is, therefore, necessary to examine the other provisions of the Act relating to the AOP and its members for determining the issue involved in this appeal.
17. At this stage, it would be relevant to refer to Section 167B which is quoted hereunder: "167B. (1) Where the individual shares of the members of an association of persons or body of individuals [other than a company or a co-operative society or a society registered under the Societies Registration Act, 1860 (21 of 1860), or under any law corresponding to that Act in force in any part of India] in the whole or any part of the income of such association or body are indeterminate or unknown, tax shall be charged on the total income of the association or body at the maximum marginal rate: Provided that, where, the total income of any member of such association or body is chargeable to tax at a rate which is higher than the maximum marginal rate, tax shall be charged on the total income of the association or body at such higher rate.
(2) Where, in the case of an association of persons or body of individuals as aforesaid [not being a case falling under Sub-section (1)],-- (i) the total income of any member thereof for the previous year (excluding his share from such association or body) exceeds the maximum amount which is not chargeable to tax in the case of that member under the Finance Act of the relevant year, tax shall be charged on the total income of the association or body at the maximum marginal rate; (ii) any member or members thereof is or are chargeable to tax at a rate or rates which is or are higher than the maximum marginal, rate, tax shall be charged on that portion or portions of the total income of the association or body which is or are relatable to the share or shares of such member or members at such higher rate or rates, as the case may be, and the balance of the total income of the association or body shall be taxed at the maximum marginal rate.
Explanation.--For the purposes of this section, the individual shares of the members of an association of person or body of individual in the whole or any part of the income of such association or body shall be deemed to be indeterminate or unknown if such shares (in relation to the whole or any part of such income) are indeterminate or unknown on the date of formation of such association or body or at any time thereafter" 18. It is evident from the language of Section 167B quoted above that the legislature has ensured levy of tax on AOP at maximum rate under various circumstances. It thus becomes evident that the legislature has treated an AOP as a separate assessable entity de hors the members of the AOP. The AOP being a separate assessable entity is obliged to file the return of income and also pay taxes as per the provisions of the Act. Section 139(1) makes it obligatory for the AOP to file the return of income within the prescribed time if its income exceeds the maximum amount which is not chargeable to income-tax. The assessment in the case of an AOP is required to be made under the provisions of the' Act, such as Section 143 or 144 and/or Section 147.
19. As pointed out elsewhere in this order, the Supreme Court in the case of ITO v. Ch. Atchaiah (supra) held that there is difference between Indian IT Act, 1922 and the IT Act, 1961, in regard to the option of the AO to assess the AOP or its members individually. Whereas under the IT Act, 1922, there was an option with the AO to either assess the AOP or its members individually, under the IT Act, 1961, there is no such option with the AO. The AOP under the IT Act, 1961, is a unit of assessment and the ITO shall have to make an assessment in respect of the profits and gains derived by it and even if the members of the association have been assessed separately, that will not be a bar to assessment of AOP. Thus, the issue as to whether the AO has any option not to assess the AOP when its existence is established and when the members have been assessed individually, the issue is covered by the decision of the Supreme Court referred, to above. In asst. yr.
1995-96 as well as in asst. yr. 1997-98, the assessment of the members has been made on protective basis. On the authority of the decision of the Supreme Court in the case of ITO v. Ch. Atachiah (supra), even if the assessment in the case of members of the AOP had been made by the AO in respect of the share income from the AOP, it would not be a bar for the AO to assess the AOP separately as a unit of assessment.
20. That leaves me to consider is as to whether the order of the Settlement Commission relating to asst. yrs. 1982-83 to 1984-85 accepting the proposal of assessing the income derived from the nursing home in the hands of Dr. Narendra Prasad and his wife Dr. (Mrs.) Leela Prasad in the ratio of 50 : 50 is a bar for assessment of AOP. This issue is also more or less covered by the decision of the Supreme Court in the case of ITO v. Ch. Atachiah (supra), referred to above, insofar as the Settlement Commission did not consider the assessability of the AOP as such. The order of the Settlement Commission, which relates to asst. yrs. 1982-83 to 1984-85 only, provides for assessment of the individual members, but it does not specifically debar the assessment of AOP. Therefore, the order of the Settlement Commission does not come in the way of the assessment of the AOP as such even for asst. yrs.
1982-83 to 1984-85. Moreover, in subsequent years, i.e., after 1984-85, there is neither any order of the Settlement Commission nor any order of the AO to the effect that the AOP does not exist. The fact of the matter is that the income of the nursing home has been assessed in the individual hands in the ratio of 50 : 50. As held by the Hon'ble Supreme Court in the case of ITO v. Ch. Atachiah (supra), even the assessment in the same assessment year in the hands of individual members will not debar the AO to assess the AOP separately, To my mind, the mere fact that in earlier years only the members of the AOP have been assessed to tax in respect of the share income will not preclude the AO from assessing the AOP in the years under appeal.
21. In my considered view, there being sufficient evidence on record to establish that the activities of Alok Nursing Home are being carried on in an organised manner on behalf of its owners, viz., Dr. Narendra Prasad and his wife Dr. (Mrs.) Leela Prasad, there is an AOP in existence for carrying out such activities. Since the AOP is an independent unit of assessment under the provisions of the IT Act, the AO was dutybound to assess the same in accordance with law. Therefore, the issue of notice under Section 148 in the name of the AOP was justified for making the assessment in the hands of the AOP.22. The contention advanced on behalf of the assessee that the Revenue having assessed the individual owners separately in earlier years and the Settlement Commission also having decided so, the IT Department was estopped to assess the income in the hands of the AOP is bereft of substance. Firstly, there is no estoppel against the statute. Their Lordships of the Supreme Court in the case of CIT v. B.N. Bhattachargee (1979) 118 ITR 461 (SC) held that the statutory power cannot be nullified by the doctrine of estoppel. It was further held by their Lordships of the Supreme Court that "where public duties cast by statute are involved, private parties cannot prevent their performance by invoking estoppel." 23. In this case, there is neither a decision of the Settlement Commission or of the Revenue authorities about the existence or non-existence of the AOP. In fact, to my mind, there is non-application of mind. In the absence of any decision about the existence or non-existence of the AOP, it is futile to even plead that the principles of estoppel are applicable against the Revenue. As already pointed out, even the assessment on the individual members of the AOP separately does not debar the ITO to assess the AOP, as held by the Hon'ble Supreme Court in the case of ITO v. Ch. Atachiah (supra). The claim of the assessee that the Revenue was estopped from assessing the AOP is thus devoid of any merit. I, therefore, concur with the view of the learned AM and hold that the assessment on the AOP made by the AO on the disclosed income is perfectly in order, in accordance with law and no interference is warranted. The decision of the CIT(A) is contrary to law and the facts on record. The same deserves to be set aside and the order of the AO deserves to be restored. I hold accordingly.
24. As far as the assessments of Dr. Narendra Prasad and his wife Dr.
(Mrs.) Leela Prasad are concerned, the same are required to be modified as the mere declaration of income by the individual members in their assessments does not bind them to be assessed in respect of that income, which is found to be assessable in the hands of the AOP. The share income of the members has got to be treated for the purpose of taxation in their respective assessments in accordance with provisions of Section 67A and other provisions of law and the AO shall have to give consequential effect in the assessments of the individual members.
25. Let this order be placed before the regular Bench for passing the consequential order in accordance with the majority view.
1. There was a difference in opinion between the Members of the Bench and following questions were referred to the Third Member for his opinion : "Whether, on the facts and in circumstances of the case, M/s Alok Nursing Home, Patna, is to be taken as AOP under Section 2(31) of the IT Act and income earned from it is to be assessed in its hands? "Whether, on the facts and in the circumstances of the case, the AO has any material to treat M/s Alok Nursing Home as AOP though for the last couple of years income earned from it has been assessed in the hands of Dr. Narendra Prasad & Dr. (Mrs.) Leela Prasad?" 2. The learned Third Member has agreed with the order of the learned AM. At the time of hearing of this matter for passing order in conformity with the order passed by the learned Third Member none was present on behalf of the assessee. On the other hand, the learned Departmental Representative agreed with the order of learned Third Member. Therefore, in accordance with the majority view the issue is decided in favour of Revenue and we hold that the assessment on AOP made by the AO on the disclosed income is perfectly in order, in accordance with law and no interference is warranted. The decision of the CIT(A) is contrary to law and the facts on record. The same deserves to be set aside and the order of the AO deserves to be restored. As far as the assessments of Dr. Narendra Prasad and his wife Dr. (Mrs.) Leela Prasad are concerned, the same are required to be modified as the mere declaration of the income by the individual members in their assessments does not bind them to be assessed in respect of that income, which is found to be assessable in hands of the AOP. The share income of the members has got to be treated for the purpose of taxation in their respective assessments in accordance with provisions of Section 67A and other provisions of law and the AO shall have to give consequential effect in the assessments of the individual members.
3. In the result ITA No. 278/Pat/2000 and 61/Pat/2001 are allowed, and ITA No. 266/Pat/2000, 277/Pat/2000 and 213/Pat/2001 are allowed and subject to the modification in the order of the AO as discussed above.