S.K. Katriar and Kishore K. Mandal, JJ.
1. This batch of five appeals preferred under the provisions of Section 260A of the Income Tax Act 1961 (hereinafter referred to as 'the Act'), raise common issues of facts and law, and are with respect to the assessment years 1995-96, and 1997-98. Dr. Narendra Prasad, a Surgeon in Patna, and Dr. Leela Prasad, his wife and a Professor, are two individual assesses. According to the impugned order, they constitute an 'Association of Persons' (AOP, in short), in the name and style of M/s Alok Nursing Home, within the meaning of Section 2(31) of the Act. Misc. Appeal No. 145 of 2004, Misc. Appeal No. 146 of 2004, and Misc. Appeal No. 148 of 2004, are with respect to the assessment year 1995-1996. The remaining two appeals are with respect to the assessment years 1996-97 and 1997-1998. The primary question for consideration in these appeals is the same, whether or not Dr. Narendra Prasad and Dr. Leela Prasad, the two individual assesses, constitute an AOP, namely, M/s Alok Nursing Home, within the meaning of Section 2(31) of the Act. The three learned authorities below have disposed of the matters by common orders, and these appeals are accordingly being disposed of by a common judgment.
2. It may be clarified that Dr. Leela Prasad, the appellant of MA No. 146 of 2004, died on 19.2.2009, leaving behind her heirs and legal representatives. Her heirs have been substituted and are permitted to pursue this appeal by order dated 6.10.2009. We shall refer to Dr. Leela Prasad deceased as the original appellant hereinafter.
3. A brief statement of facts essential for the disposal of the appeals may be indicated. The basic facts shall be drawn from M.A. No. 148 of 2004. On 8.5.1984, there was a search and seizure within the meaning of Section 132 of the Act in the house and business premises of Dr. Narendra Prasad and the original appellant. They approached the Commission under the provisions of Section 245 of the Act. By order dated 27.10.1987, passed by the Settlement Commission under the provisions of Section 245D(4), the issues with respect to the assessment years 1982-83, 1983-84 and 1985-86, were concluded, and attained finality. The operative portion of the Commission's order is reproduced herein below:
8. As a result, the net professional income of the applicant would be taken subject to depreciation at Rs. 1,72,000/-, Rs. 2,32,000/-, and Rs. 2,70,000/- respectively for the assessment years 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 applicant 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 SOP is being taken at 7% of the cost of construction, after taking into consideration the provisions of the Bihar (Lease, Rent and Eviction) Control Act, 1982 and the Rules made thereunder. The total income for each of the assessment year would be as per Annexure-I, II and III to this order.
(Emphasis added)
It is thus evident that the Commission accepted the returns filed by the two individual assesses and upheld the position that the ownership of the nursing home is jointly owned by the husband and the wife in equal proportions and, therefore, the rental income and the other income earned from the nursing home in those three assessment years, would be assessed at the hands of the applicant and his wife. The Department continued to accept the returns of the two assesses on the same basis for all the years thereafter till such time their returns for the two assessment years in question came up for consideration. It is relevant to state that the Department has taken different stand only with respect to these two assessment years, and has reverted to the same position, and continued to follow the aforesaid basis formulated by the Settlement Commission, in the subsequent assessment years also.
4. The returns submitted by the assesses were scrutinized by the learned Assessment Officer by his order dated 12.11.1997. She provisionally came to the conclusion that it was a case of income escaping assessment under Section 147 of the Act and, therefore, issued notice in terms of Section 148 of the Act as to why Alok Nursing Home be not treated to be an AOP of the two assesses. On a consideration of the materials before her, she came to the conclusion that the two assesses constitute an AOP which has to be assessed and taxed accordingly. In other words, Alok Nursing Home as an AOP of the two assesses have to be separately assessed and taxed, apart from the individual assessment of the two assesses. Aggrieved by the order, the two assesses and the Alok Nursing Home preferred separate appeals which have been allowed by common order dated 18.6.2000, passed by the learned Commissioner of Income Tax (Appeal) at Patna, whereby he held that it is not proved that one of the two spouses have consciously formed an AOP to generate income. He further observed that the learned Assessing Officer has presumed formation and existence of AOP and proceeded to tax it accordingly. Aggrieved by the order, the Department preferred five appeals before the Income Tax Appellate Tribunal, Patna Bench, Patna. It is relevant to state that the Department preferred appeal before the Tribunal against the original appellant only with respect to the assessment year 1995-1996, and no appeal was preferred against her with respect to the assessment year 1997-98. By separate orders, the learned Accounts Member allowed the appeals, and the learned Judicial Member dismissed the appeals. On difference of opinion, the issues were referred to a third member who allowed the appeals of the Department, as a result of which the appeals of the Department stood allowed. The Tribunal has by a majority view of 2:1 set aside the order of the learned appellate authority, and has restored that of the learned Assessing Officer. Hence this batch of appeals at the instance of the two assesses and the AOP.
5. By order dated 15.12.2005, passed in M A No. 148 of 2004, the following substantial questions of law have been formulated for consideration by this Court:
(i) Whether on a reference being made to the Hon'ble Third Member, the Hon'ble Third Member is legally justified in investigating and relying upon the various facts which were not presented before the Division Bench of the Tribunal which heard the matter and there was a difference of opinion between the two members on the basis of facts as presented before the Division Bench at the time of hearing?
(2) Whether in view of the clear finding by the Settlement Commission that the income from Alok Nursing Home is to be assessed at the ratio of 50-50 basis in the hands of Dr. Narendra Prasad and Dr. Leela Prasad and in view of the fact that the revenue authorities have accepted the factual and the legal position for long years even after the order of the Settlement Commission, it is open to allow the revenue authorities to change its position and take a different stand and treat the Alok Nursing Home as an association of person and to tax on the aforesaid basis?
6. While assailing the validity of the impugned order, the learned Counsel for the appellants submits that it may be case of income escaping assessment within the strict and hyper-technical view of law of Section 147 of the Act, but is surely not a case of suppression of income. He next submits that the learned third member has travelled beyond the terms of the reference made to it by the two members of the Tribunal which is in violation of the provisions of Section 255(4) of the Act. He relies on the following reported judgments:
(i) : (1953) 23 ITR 15 (Jan Mohammad v. Commissioner of Income Tax)
(ii) : (1953) 23 ITR 505 (Hanutram Chandanmul v. Commissioner of Income Tax)
He submits in the same vein that it is not permissible for the learned third member to refer to Section 167B of the Act. He also submits that the view taken by the Settlement Commission has been consistently followed in all the succeeding periods except the two periods in question. He has also submitted that the Settlement Commission is a full-fledged Tribunal, being part of the process of assessment proceedings and tax determination, and should normally be followed by the authorities in the following years except where there is change of circumstances. Reliance may be placed on the judgment of the Supreme Court in CIT v. B.N. Bhattachargee : (1979) 118 ITR 461. It is not open to the authorities to take a different view other than that of the Settlement Commission in view of complete absence of new facts and circumstances. He relies on the judgment of the Supreme Court in the case of Radhasoami Satsang v. CIT (SC) : (1992) 193 ITR 321. He lastly submits that the learned Assessing Officer and the majority view of the learned Tribunal have not appreciated the following judgments of the Supreme Court in the perspective which were rendered in completely different factual background and, therefore, inapplicable to the facts and circumstances of the present case:
(i) Meera & Co. v. CIT (SC) : (1997) 224 ITR 635
(ii) ITO v. Ch. Atchaiah (SC) : (1996) 218 ITR 239
7. Learned Junior Standing Counsel has supported the impugned order. He submitted that, in view of the definition of 'person' occurring in Section 2(31) of the Act, an association of persons or a body of individuals, whether incorporated or not, is a separate legal entity for the purpose of assessment and taxation within the meaning of the Act. In other words, in his submission, the authorities are duty bound in law to determine, may be on the self-same facts, that the facts and figures returned by the assesses constitute an AOP or not. He has also submitted that once AOP is found to be in existence, then there is no discretion left with the authorities under the Act, and has to be taxed as AOP. In his submission, in view of the provisions of the order of the Settlement Commission is conclusive only for the period it dealt with. He also submits in the same vein that estoppel cannot be pleaded against Statute. He next submits that the learned third member has in substance confined himself to the issues referred to him by the two members on difference of opinion, and no unnecessary emphasis can be placed on discussion of incidental issues. He also submits that the learned authorities under the Act in the present case were free to take a different view, inter alia, for the reason that assessment of the periods in question had not commenced. He lastly submits that the learned Assessing Officer, as well as the learned Tribunal, have on consideration of the facts and figures returned by the two assesses, have recorded as an issue of facts that an AOP is in existence.
8. We have perused the materials on record and considered the submissions of learned Counsel for the parties. The over-arching reality in the protracted proceedings is that the learned authorities under the Act have nowhere, and at no point of time, found the two assesses guilty of suppression of material facts or suppression of income, which goes to the credit of the two assesses. The authorities have come to the conclusion that the two constitute an AOP, different and distinct from the two individual assesses, within the meaning of Section 2(31) of the Act, on the basis of the facts and figures returned by the two assesses. Neither have they found the two assesses guilty of suppression of the material facts, nor has the Department come across fresh materials. It is evident from the operative portion of the Commission's order reproduced herein above that both the husband and the wife own the nursing home in equal proportions, and after taking into the rental income and the other income earned from the nursing home in those three assessment years, would be taxed in equal proportions at the hands of the two assesses. In other words, on the facts presented before the Commission, it did not come to the conclusion that Alok Nursing Home constitutes an AOP. The Commission dealt with the periods 1982-83, 1983-84 and 1985-86, which attained finality, and the learned authorities under the Act continued to apply the same till the assessment years 1994-95. The learned Assessing Officer took a different view on the self-same facts for the two periods in question, and came to the conclusion that the venture does constitute an AOP. Except the two periods in question, the Department has continued to accept the position for all the periods after 1997-98.
9. Suppose for the sake of argument that it were open to the learned Assessing Officer to take a different view on the returns submitted by the two assesses. However, in the peculiar facts and circumstances of the present case, the Department will have to make out an extra-ordinary case for departure from the settled state of affairs. We do not find adequate justification for the learned authorities under the Act to take a different view for the two periods in question from the periods preceding thereto and following thereafter. It would need strong and adequate justification to take a sharp departure for the two years in-between which we find absent in the present case. Consistency is the hall-mark of the law and justice, and the individuals are entitled to organize their affairs in a manner they perceive to have been accepted by the authorities for such a long length of time. No such change of circumstances is discernible in the present case. The learned authorities under the Act have neither come across new facts or circumstances, nor suppression of fact, and is really a case of different view on the self-same facts as it obtained before the Settlement Commission. The view taken by the Settlement Commission has been followed by the learned authorities under the Act even for the periods that have followed the ones in question apart from the preceding periods. We agree with the view taken by the learned Judicial Member who has observed as follows in the impugned order:.Theoretically supported with the provision of law a hypothetical situation can be defined that there exist AOP but unless there are materials to prove and establish virtually there exist 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% each for long. Making a departure without bringing any material as pointed out above is not justified....
10. We are in this connection supported by the law laid down by the Supreme Court in the case of Radhasoami Satsang v. CIT (Supra), the relevant portion of which is reproduced herein below for the facility of quick reference:
This Court in Parashuram Pottery Works Co. Ltd. v. ITO : (1977) 106 ITR 1 at p. 10 stated:
At the same time, we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that state issues should not reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity.'
Assessments are certainly quasi-judicial and these observations equally apply.
We are aware of the fact that, strictly speaking, res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the 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.
On these reasonings, in the absence of any material change justifying the Revenue to take a different view of the matter - and, if there was no change, it was in support of the assessee - we do not think the question should have been reopened and contrary to what had been decided by the Commissioner of Income-tax in the earlier proceedings, a different and contradictory stand should have been taken. We are, therefore, of the view that these appeals should be allowed and the question should be answered in the affirmative, namely, that the Tribunal was justified in holding that the income derived by the Radhasoami Satsang was entitled to exemption under Sections 11 and 12 of the Income-tax Act of 1961.
We must add to the same the unfortunate development during the pendency of the present proceeding that Dr. Leela Prasad died as a result of which Alok Nursing Home as an AOP of the two individuals in question has come to an end. In other words, out of 17 assessment years, why should in identical situation a different view be taken for two years.
11. In view of the foregoing discussion, we answer the two questions formulated by this Court as follows:
(1) The learned Third Member did not take into account any fresh facts, and has indeed taken into account the facts and figures returned by the two assesses in their respective returns which were before the learned Accounts Member as well as the Judicial Member. This question is answered in favour of the Department.
(2) This question is answered in favour of the two assesses. Alok Nursing Home cannot be treated as an AOP of the two assessees.
12. In the result, the appeals are allowed, the order of the learned Tribunal is hereby set aside, and that of the learned Commissioner of Income Tax is hereby restored.