High Court Of Andhra Pradesh
CIT vs. B.R. Constructions
Sections 4, 182, 183
Asst. Year 1968-69
Syed Shah Mohammed Quadri, N.D. Patnaik & S. Parvatha Rao, JJ.
RC No. 41 of 1980
19th June, 1992
Counsel Appeared
S.R. Ashok, for the Applicant : Y. Ratnakar, for the Respondent
SYED SHAH MOHD. QUADRI, J.:
At the instance of the CIT, Andhra Pradesh-I, Hyderabad, the Tribunal, Hyderabad, made this reference under s. 256(1) of the IT Act, 1961, for the opinion of the High Court on the following question of law :
“Whether, on the facts and in the circumstances, the assessment made on the assessee for the asst. yr. 1968-69 was valid?”
2. When this reference came up before a Division Bench of this Court, it referred the case to a Full Bench to resolve the difference of opinion expressed by two Division Benches in Ch. Atchaiah vs. ITO (1979) 116 ITR 675 (AP) and Choudry Bros. vs. CIT (1987) 60 CTR (AP) 151 : (1986) 158 ITR 224 (AP). It, however, added these two questions for the opinion of the Full Bench : “(1) Under what circumstances one Division Bench can differ from the view of an earlier Division Bench? and (2) Under what circumstances the doctrine of per incurium can be applied by a co-ordinate Division Bench for not following the earlier binding precedent of another Division Bench?”
First we shall take up the question referred to this Court by the Tribunal. Here it would be appropriate to notice the facts giving rise to the said question. The assessee is a firm carrying on business in contracts. Its status was that of a registered firm till the asst. yr. 1967-68. As no declaration under s. 184(7) in Form-12 was filed, the ITO assessed the assessee as an unregistered firm for the asst. yr. 1968-69. Before the completion of assessment of the assessee, the assessments of some of the partners, taking the share income from the assessee were completed, so the assessment of the same income in the hands of the assessee was questioned before the AAC. It was urged before the appellate authority that the ITO would be deemed to have exercised his option of assessing the income in the hands of the partners as such he could not have assessed the same income over again in the hands of the assessee, an unregistered firm. The appeal was rejected. On further appeal the Tribunal accepted the said contention of the assessee and allowed the appeal. The Commissioner, then got the above said question of law referred to the High Court.
Sri S.R. Ashok, the learned standing counsel for the Revenue, has contended that whatever might have been the position under s. 3 of the IT Act, 1922, now under s. 4 of the IT Act, 1961, no option is available to the assessing authority either to assess the unregistered firm or its members, therefore, the assessing authority is competent to assess the unregistered firm after completing the assessment of the partners in regard to their share income.
Sri Y. Ratnakar, the learned counsel for the assessee, contended that the IT Act, 1961 did not depart from the position under 1922 Act, and that the scope of the charging sections under both the Acts continued to be the same; 1961 Act substituted the word `person’ for the taxable entities mentioned in s. 3 of 1922 Act and separately defined `person’ in s. 2(31) which does not alter the position.
In the light of the contentions raised before us by the learned counsel for the parties, we shall consider the question referred to us by the Tribunal. It is now well-settled, in view of the judgments of the Supreme Court in CIT vs. Kanpur Coal Syndicate (1964) 53 ITR 225 (SC) and CIT vs. Murlidhar Jhawar & Purna Ginning and Pressing Factory (1966) 60 ITR 95 (SC), that if the ITO exercised option and assessed the share income in the hands of the partners of an unregistered firm or members of the association, he cannot assess the same income in the hands of the unregistered firm or association of persons. But those decisions were rendered on interpretation of s. 3 of the IT Act, 1922 (hereinafter referred to as “the old Act”). In the instant case, the AAC declined to follow the judgment of the Supreme Court in CIT vs. Murlidhar Jhawar & Purna Ginning and Pressing Factory (supra) on the ground that it was under s. 3 of the old Act which was different from the provisions of s. 4 of the IT Act, 1961 (hereinafter referred to as “the new Act”). The Tribunal followed the judgment of this Court in Atchaiah’s case (supra) which laid down that there was no difference between the provisions of s. 3 of the old Act and s. 4 of the new Act and in that view of the matter it held that the judgment of the Supreme Court in Murlidhar Jhawar’s case (supra) was applicable. The controversy, therefore, boils down to, whether the scope of s. 4 of the new Act is different from the ambit of the provisions of s. 3 of the old Act. Here it would be useful to read s. 3 of the old Act and s. 4 of the new Act. Sec. 3 of the IT Act, 1922 : “3. Charge of income-tax.—Where any Central Act enacts that income-tax shall be charged for any year at any rate or rates, tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of this Act in respect of the total income of the previous year of every individual, HUF, Company and local authority, and of every firm and other AOP or the partners of the firm or the members of the association individually.” Sec. 4 of the IT Act, 1961 :”4. Charge of income-tax.— (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. (2) In respect of income chargeable under sub-s. (1), income-tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of this Act.” It can immediately be noticed that whereas in s. 3 of the old Act taxable entities were mentioned in the body of the section, in s. 4 of the new Act the expression “every person”is used. The word `person’ is defined in s. 2(31) of the IT Act. It is an inclusive definition. Substituting the definition of `person’ in s. 4(1) it reads as follows : “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 (i) individual, (ii) HUF, (iii) company, (iv) firm (v) AOP or body of individuals, whether incorporated or not, (vi) local authority and (vii) every artificial juridical person, not falling within any of the preceding sub-clauses.”
On a comparison of the provisions of s. 3 of the old Act and s. 4 of the new Act it is evident that the words used in s. 3 of the old Act, namely, “or the partners of the firm or the members of the association individually”, are not to be found in s. 4 of the new Act as quoted above. But from this, can it be said that the Parliament changed the scope of the charge by enacting s. 4 and s. 2(31) of the new Act from what it was under s. 3 r/w s. 2(9) of the old Act ? From a perusal of the relevant provisions of the new Act it appears to us that the Parliament never intended to change the scope of the charge of income-tax by omitting the taxable entities from s. 4 and including them in the definition of the word `person’ in s. 2(31) of the new Act. The change in the phraseology of s. 4 is one of form and does not change the substance of charge under the old Act. It continues to be the same. Though s. 4 of the new Act is differently worded, it does not take away the option available to the assessing authority under s. 3 of the old Act in regard to assessment of income of unregistered firm or share income of the partners, so also of AOP or members of the association individually. There cannot be any dispute that in any taxation law the charging section is of paramount importance, but the scope of the charging section cannot properly be understood de hors the machinery provisions. Further, in interpreting a charging section, we must avoid such construction of the provisions which leads to double taxation unless that is expressly provided by the statute or that follows by necessary implications. The charge of income-tax is on the total income of every person as defined in the Act. If the same income passes hands from one taxable entity to another taxable entity, it cannot be assessed to tax over again. This is a general principle which has to be kept in mind while interpreting the provisions of a taxing statute. This is not to say that the Legislature cannot provide for double taxation of the same income. It is open to the Legislature to provide for taxing the same income twice in the hands of different taxable entities as e.g., in the case of a registered firm. The income of the registered firm is taxable in the hand of the registered firm as well as in the hands of the partners. What is the position in regard to an unregistered firm, will be examined now. Sec. 183 deals with assessment of unregistered firm. The assessment in question relates to the year 1968-69 and the said provision during the material period reads as follows : “183. In the case of an unregistered firm, the ITO— (a) may determine the tax payable by the firm itself on the basis of the total income of the firm; or (b) if, in his opinion, the aggregate amount of the tax payable by the partners if the firm were treated as a registered firm would be greater than the aggregate amount of the tax which would be payable by the firm under cl. (a) and the tax which would be payable by the partners individually, may proceed to make the assessment under cl. (ii) of sub-s. (1) of s. 182 as if the firm were a registered firm; and, where the procedure specified in this clause is applied to any unregistered firm, the provisions of sub-ss. (2), (3) and (4) of s. 182 shall apply thereto as they apply in relation to a registered firm.”
From a perusal of this section it is clear that the Assessing Officer had power to determine the tax payable by the unregistered firm itself on the basis of the total income of the firm under cl. (a) or make assessment under cl. (ii), sub-s. (1) of s. 182 by taxing the partners treating the firm as a registered firm, if in his opinion the aggregate amount of tax payable by them in that event would be greater than the aggregate amount of tax payable by the firm and the partners individually. He did not have power to assess both the unregistered firm as well as the partners. There is no other provision which authorises assessment of the income of unregistered firm twice—once in the hands of the unregistered firm as well as in the hands of the partners. Sec. 4 of the new Act cannot be so construed as to run counter to s. 183. They have to be construed harmoniously. Thus construed, absence of the words “or the partners of the firm or the members of the association individually”in s. 4 would not make any difference and the position obtaining under s. 3 of the old Act in regard to the assessment of taxable entities remains the same under s. 4 of the new Act.
7. Sec. 155 of the IT Act on which reliance was placed by the learned standing counsel for the Revenue does not also support the view that the assessing authority has power to tax the income in the hands of the partners of an unregistered firm as well as in the hands of the unregistered firm. Sec. 154 deals with rectification of mistakes and s. 155 deals with other amendments mentioned therein. A perusal of sub-s. (2) of s. 155 shows that in respect of any completed assessment of a member of an AOP or of a BOI which was assessed or reassessed or on any reduction or enhancement made in the income of association or body under s. 155, 154, 250, 254, 260, 262, 263 or s. 264 or consequent upon an order made by the association or body (sic) under sub-s. (4) of s. 245D, the share of the member in the income of the association or body, as the case may be, has not been included in the assessment of the member or, if included, is not correct, the Assessing Officer is empowered to amend the order of assessment of the member with a view to the inclusion of the share in the assessment or the correctness thereof. For that purpose the provisions of s. 154 are made applicable.
8. We may also refer to the object and reason of the legislation of s. 4 as mentioned in the notes on clauses of the IT Bill, 1961 to ascertain the intention of the Parliament in enacting the said section. The relevant portion is as follows : “Basis of charge : Clause 4.—This section corresponds to s. 3 of the existing Act with the following changes : (i) for the different entities, individual, HUF, etc., mentioned in the section, the word `person’ has been substituted; (ii) the proviso makes it clear that notwithstanding that tax is to be paid in respect of the income of a previous year, tax may be recovered on current income wherever so provided; (iii) it is made clear that even where tax is deducted at source or paid in advance liability to pay tax arises by virtue of this provision.” From the notes on the clauses also it is clear that s. 4 of the new Act corresponds to s. 3 of the old Act and the only change made in enacting s. 4 is, the word `person’ has been substituted for different taxable entities mentioned in s. 3 of the old Act. In Kanga and Palkhivala’s The Law and Practice of Income-tax (Eighth Edition, Vol. I, page 106) the learned authors dealing with s. 4 of the new Act write : “Sec. 4 (ss. 3 and 60B of 1922 Act). The charging section : The provisions of sub-s. (1) are the same as those of s. 3 of the 1922 Act except for two changes : (a) xxx xxx xxx xxx (b) the old section enumerated the categories of assessees, while this sub-section taxes every “person”, and the definition of “person”in s. 2(31) enumerates the categories of assessees including two which were not in the 1922 Act, viz., “body of individuals”and “artificial juridical person”.”
For all the above reasons we are of the view that s. 4 of the new Act embodies the same principle as contained in s. 3 of the old Act and that inspite of some changes in the form and phraseology, the substance of the charging section with regard to the options of assessing authority to assess the total income of the unregistered firm either in its hands or in the hands of the partners, remains the same and the Parliament while enacting s. 4 of the new Act did not contemplate change in the substance of s. 3 of the old Act.
The question as to whether the law laid down by the Supreme Court in Murlidhar Jhawar’s case (supra) would apply in view of the provisions of s. 4 of the new Act gave rise to conflict of opinion between different High Courts and also in the same High Court. The learned Judges of the Patna High Court and the Andhra Pradesh High Court differed in their views on this question. The Madras High Court, the Madhya Pradesh High Court and the Calcutta High Court took the view that it applies, whereas a contrary view is expressed by the High Court of Punjab and Haryana and the Delhi High Court. Before we address ourselves to the judgments rendered by different High Courts on the above question, we consider it appropriate to make a brief reference to the judgment of the Supreme Court in those cases. Kanpur Coal Syndicate’s case (supra), was a case dealing with an AOP. The Supreme Court held that s. 3 expressly treated an AOP and the individual members of the association as two distinct and different assessable entities, and on the terms of the section the tax could be levied on either of the two entities according to the provisions of the Act.
In Murlidhar Jhawar’s case (supra), three persons carried on business in partnership. The ITO assessed them in the status of an unregistered firm. The Tribunal held that the ITO had the option to assess the individual parties to the joint venture or the unregistered firm and that option having been exercised, it was not open to him thereafter to re-assess the same income collectively in the hands of three parties to the joint venture in the status of an unregistered firm. Referring to the judgment in Kanpur Coal Syndicate’s case (supra) the Supreme Court observed as follows : “The same principle would apply to the case of assessment of partners individually of an unregistered firm. The partners may be assessed individually or they may be assessed collectively in the status of an unregistered firm : the ITO cannot however, seek to assess the one income twice-once in the hands of the partners and again in the hands of the unregistered firm.”
In CIT vs. Pure Nichitpur Colliery Co. 1975 CTR (Pat) 83 : (1975) 101 ITR 79 (Pat) which arose under the new Act, the Patna High Court held that the judgments of the Supreme Court in Kanpur Coal Syndicate’s case (supra) and in Murlidhar Jhawar’s case (supra) continued to be applicable and once the option was exercised by the ITO by taxing the share income in the hands of the partners, he had no jurisdiction to tax the total income of the unregistered partnership firm in its hands. The Patna High Court was answering a reference under s. 256(1) of the new Act. The question before the High Court was similar to the one now before us. After noticing s. 3 of the old Act and s. 4 of the new Act the Bench observed that the charging section imposed a tax liability on the person and the machinery sections provided that in a given case who was the person to be assessed to income-tax-whether a firm or a partner or both. The Bench concluded thus : “It would thus be clear that even after the amendment brought about in the 1922 Act in the year 1956, which was incorporated in the 1961 Act, the ITO had the option in the case of an unregistered firm either to tax the total income in the hands of the firm, treating it as a separate entity, or to tax the share income in the hands of the partners. He could not do both. Neither the charging s. 4 nor any other provision of the 1961 Act empowered him to do so. It was still his option to do one or the other and not both. The law, therefore, laid down by the Supreme Court was still good, the new provisions did not bring about any change in respect of the exercise of the option, and once the option was exercised to tax the share income of the unregistered firm in the hands of the partners then, on computation of the income of the unregistered firm, the assessment of a partner could be rectified under s. 155 of the 1961 Act. But it was not open to the ITO to change his opinion and tax the unregistered firm itself.”
11. In Atchaiah’s case (supra), the petitioner challenged the validity of notice issued by the ITO under s. 148(2) of the new Act mainly on the ground that the ITO having assessed the share income in the individual hands of the petitioner and another person, had no jurisdiction to assess the same income in their joint hands. The petitioner and that other person purchased certain lands as joint venture. The lands were acquired by the Government. On receiving compensation and enhanced compensation, each of them was assessed to tax on the capital gains individually. The ITO sought to initiate proceedings to assess the same income in the hands of the AOP. That was questioned in the writ petition filed by the petitioner. After referring to s. 3 of the old Act and s. 4 of the new Act the Division Bench held : “In our view, this change in the wording of the section does not affect the legal position and all the decisions under the present Act. As observed by the Supreme Court in CIT vs. Murlidhar Jhawar and Purna Ginning and Pressing Factory (1966) 60 ITR 95 (SC) an AOP and the individual members of an association are two distinct and different assessable entities and under s. 3 of the Indian IT Act, 1922, the tax can be levied on either of the said two entities. The ITO cannot seek to assess the one income twice once in the hands of the partners and again in the hands of the association. This principle holds good even under the present Act.”
The judgment of the Patna High Court in Pure Nichitpur Colliery’s case (supra) was followed by the Madras High Court in CIT vs. Blue Mountain Engg. Corpn. 1978 CTR (Mad) 142 : (1978) 112 ITR 839 (Mad). In that case, the assessee was an unregistered firm consisting of three partners. It was carrying on business as contractors. The dispute was for the asst. yr. 1968-69. Assessment of one of the partners was completed taking his share income into account. Thereafter, the same income was assessed in the hands of the firm as an unregistered firm. Before the AAC, the assessee was unsuccessful. However, the Tribunal allowed the appeal holding the assessment of the firm as incompetent. On reference at the instance of the Revenue, the Madras High Court after considering the provisions of the old Act and the new Act and the case law on the point answered a similar question against the Revenue somewhat hesitatingly. The learned Judges, however, felt that in a case where the firm is functioning in one State and the partners are in different parts of the country, if any partner files return including his share income, the ITO cannot exclude his share income from the assessment and if he did so, the amount would escape assessment as the provisions of s. 147 would not be attracted; but if he assesses that share income his conduct would amount to exercise of option available to him and the firm would not pay tax on its total income and thus the construction of the provisions of the Act as giving options to the ITO, would tend to a situation of possible tax evasion and might lead to some abuse also. In the doubt expressed by them it was assumed that in the event of exclusion of share income from the assessment of the partners, the unregistered firm would be assessed which might not occur as there is no basis for such an assumption. The second doubt expressed by them is that a person with a five paise share in a firm may file his return and get assessed so as to stall the assessment of the firm as such, at any time thereafter, with the result that the Revenue stands to lose the tax due to it. In our view, the fear expressed can perhaps be allayed by following Departmental instructions issued by the Board in letter F.No. 75/19/191/62-II-J dt. 24th Aug., 1966 wherein among other things, the ITOs are directed to give priority to firms’ assessments.
In Ramanlal Madanlal vs. CIT (1979) 116 ITR 657 (Cal), for the asst. yrs. 1965-66, 1966-67 and 1967-68 the firm was assessed as unregistered firm subsequent to the assessment of the individual partners. The firm appealed to the AAC challenging the validity of the assessment on the ground that the partners were already assessed to tax, as such in respect of the same income there could not be the assessment. The appellate authority followed the judgment of the Supreme Court in Murlidhar Jhawar’s case (supra) and allowed the appeal. The Tribunal, however, set aside the order of the appellate authority and upheld the assessment. On reference, the Calcutta High Court held that there was difference between the language of s. 3 of the old Act and s. 4 of the new Act, but the scheme of the taxation in respect of the partners and the firm, or members of an AOP remains otherwise the same, and that the partners of an unregistered firm, until the amendment of the new Act by Amendment Act, 1970, were distinct assessable units both under the old Act as well as under the new Act, therefore, one income in the hands of two assessable units should not normally be made to suffer taxation twice unless the clear intention of the legislature is there to tax the same income twice. Sabyasachi Mukharji, J. (as he then was) speaking for the Bench held that though the charging section in any fiscal law is the most important provision, it must be understood and construed in the light of the machinery provided in the Act.
In CIT vs. Karkhana Zinda Tilismath (1980) 15 CTR (AP) 235 : (1980) 123 ITR 814 (AP) a Division Bench of our High Court held that the ITO had no authority to ignore the assessments already made on the partners and proceed to assess the firm in the status of an unregistered firm. It followed the judgment of the Supreme Court in Murlidhar Jhawar’s case (supra). To the same effect is the view of the Madhya Pradesh High Court in Ramchand Moolchand vs. CIT (1989) 77 CTR (MP) 12 : (1989) 179 ITR 1 (MP).
We shall now refer to the cases taking the contrary view. Another Division Bench of the Patna High Court in Mahendra Kumar Agrawalla vs. ITO 1975 CTR (Pat) 33 : (1976) 103 ITR 688 (Pat) took the contrary view. It held that under s. 4 of the new Act no option of election was available to the ITO between the two taxable units and he has power to initiate proceedings under s. 147 of the new Act to tax the income of an assessable unit if it has escaped assessment. That case dealt with an AOP. Though this judgment was delivered a few days after the judgment in Pure Nichitpur Colliery’s case (supra), it appears that judgment was not brought to the notice of the learned Judges who decided Mahendra Kumar Agrawala’s case (supra). In that case two owners of the colliery were being assessed as individuals from the asst. yr. 1957-58. In 1969 and 1971, the ITO issued notices under s. 148 of the new Act for the asst. yrs. 1960-61 to 1969-70 to assess them as association of persons. The legality of notices was questioned in writ petitions filed under Art. 226 of the Constitution. For the asst. yrs. 1960-61 and 1961-62, for which s. 3 of the old Act was applicable, it was held that the ITO had option to assess either the `association of persons’ or the members individually and as the option was exercised by assessing the members individually, the same income could not be assessed in the hands of the `association of persons’. For the asst. yrs. 1962-63 to 1969-70, the learned Judges relied on the judgment of the Supreme Court in ITO vs. Bachu Lal Kapoor (1966) 60 ITR 74 (SC) and held that under s. 4 of the new Act, the ITO had no such option. That was a case dealing with members of an HUF, who had been assessed to tax as individuals for different years of assessment. Subsequently, notice under s. 34 of the old Act was given to the Karta of the HUF requiring him to file a return of income within the prescribed time for the asst. yr. 1955-56 stating that the same had escaped assessment. The Allahabad High Court held that the notice was bad as it offended the principle against double taxation. The judgment of the Allahabad High Court was questioned before the Supreme Court. The Supreme Court observed that in the matter of assessment under s. 3 of the old Act there was no question of any election between HUF and the member thereof in respect of the income of the family and that while s. 3 conferred an option on the ITO to assess either the AOP or the members of the association individually, no such option was conferred on him in the case of an HUF as its existence excluded the liability of its members in respect of the income of the former received by the latter. From the observation of the Supreme Court above referred to, it is clear that existence of an HUF excludes liability of its members in respect of the income of the HUF received by its members and therefore, no option is available to the assessing authority between the members of the HUF and the HUF. There the fact that the members were assessed did not debar the authority from assessing the HUF. Their Lordships did not lay down any principle to the effect that the position of the AOP vis-avis its members or that of the unregistered firm vis-a-vis its partners is similar to that of an HUF and its members. In our view, the position of an HUF and its members cannot be equated to an unregistered firm or AOP and its partners/members and there is nothing in common between them and further the existence of an HUF excludes the liability of its members whereas the existence of an unregistered firm or AOP does not exclude the liability of its partners/members but only provides an option to the assessing authority to assess the income either in the hands of the unregistered firm/ AOP or in the hands of its partners/members. It may be noted here that that judgment was also rendered under s. 3 of the old Act. Therefore, this judgment cannot be taken as the basis for holding that under s. 4 of the new Act no option is available to the assessing authority between the unregistered firm or AOP and its partners/members for making assessment of income.
The view taken by the latter Bench of the Patna High Court was followed by the Punjab and Haryana High Court in Radamal Lal Chand vs. CIT (1977) 109 ITR 7 (P&H), the Delhi High Court in Punjab Cloth Stores vs. CIT 1978 CTR (Del) 257 : (1980) 121 ITR 604 (Del) and our High Court in Choudry Brothers case (supra).
We propose to refer to the last mentioned case decided by our High Court, viz., Choudry Brother’s case (supra). In that case the assessee partnership firm had a minor as one of its partners. That was the reason for refusing to grant registration of the firm by the ITO. The said minor partner, after attaining majority, elected to continue as partner and continued as such. For the asst. yr. 1966-67 the firm was assessed in the status of AOP. The Tribunal held that the assessee-firm was entitled to registration. The following questions were referred to the High Court for opinion under s. 256, of which the first question was at the instance of the assessee : “(1) Whether, on the facts and in the circumstances of the case, the assessment in the status of AOP is valid ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal can direct the assessee to file Form No. 11 and comply with conditions under s. 184 and directing the ITO to pass orders thereon ? (3) Whether, on the facts and in the circumstances of the case, the assessee is entitled to benefits of registration ?”
We are not concerned with questions 2 and 3 which were answered in favour of the Revenue and against the assessee. The Division Bench held that the partnership being void it could not be treated either as a registered partnership or as an unregistered partnership and the same can only be treated as AOP, as a group of persons had come together and acted together for doing business and earning profits, and that under s. 4 of the new Act an AOP is within the meaning of the word “person”as defined in s. 2(31). The Bench further held that under s. 4 of the new Act the ITO was left with a choice to assess the AOP or alternatively the individual persons comprising the AOP and that the discretion which he was enjoying under s. 3 of the old Act was withdrawn by the new Act. It relied on Bachu Lal Kapoor’s case (supra) and the judgment of the Division Bench of the Patna High Court in Mahendra Kumar Agrawalla’s case (supra) and held that under s. 4 of the new Act no such option of election between the two taxable units had been given to the ITO. Referring to Atchaiah’s case (supra) the Bench observed that the distinction between s. 3 of the old Act and s. 4 of the new Act was brought to the notice of the learned Judges and it had been urged on behalf of the Revenue that under the new Act there was no option left with the ITO to assess the tax either on the member of the association as individual or the AOP but the learned Judges summarily dismissed the contention by failing to notice that the last para of s. 3 of the old Act contemplated exercise of an option by the ITO between the AOP or the members of the association individually and concluded : “We are unable to agree with this reasoning of the learned Judges which is previously (obviously) based upon the fact that it had not noticed the significant changes the charging s. 3 had undergone by the omission of the words “or the members of the association individually”. We, therefore, consider the judgment in Ch. Atchaiah vs. ITO (1979) 116 ITR 675 (AP), as one made per incurium and would not be a binding precedent.”
It is this observation of the Bench which led to this reference. It may be observed that the question whether, after assessment of the individuals either as partners of unregistered firm or as members of AOP, it was competent for the ITO to assess the unregistered firm or AOP, was not one of the questions referred to the High Court for opinion. Therefore, the whole discussion on this question is only judicial dicta. (Mere passing remarks of a judge are known as “obiter dicta”, whilst considered enunciations of the Judge’s opinion on a point not arising for decision, and so not part of the ratio decidendi, have been termed “judicial dicta”. (Halsbury’s Laws of England, 4th Edition, para 574 at page 294). Further, for the reasons already given by us above, we are unable to agree with the conclusions of the Bench that the option available to the ITO under s. 3 of the old Act is not available now under s. 4 of the new Act
On a careful consideration of the cases and for the reasons above stated, we are in respectful agreement with the view expressed by the Division Bench of our High Court in Atchaiah’s case (supra) and of the Patna High Court in Pure Nichitpur Colliery;s case (supra), the Madras High Court in Blue Mountain Engineering Corporation’s case (supra) and the Calcutta High Court in Ramanlal Madanlal’s case (supra) and for the same reasons we are unable to agree with the contrary view taken by the latter Bench of the Patna High Court in Mahendra Kumar Agrawalla’s case (supra), the Punjab and Haryana High Court in Radamal Lalchand’s case (supra), the Delhi High Court in Punjab Cloth Stores’ case (supra) and our High Court in Choudry Bros. case (supra). Sri Y. Ratnakar, the learned counsel for the assessee, urged before us that the circular issued by the Central Board of Revenue (referred to above) to the effect that the position as obtaining under the old Act continues to apply under the new Act, is binding on the assessing authority and all other authorities under the Act. We do not propose to go into this question as it does not arise out of the reference made to this Court. However, we would add that the Central Board of Revenue understood the provisions of the new Act in the same way as held by us.
For the above reasons the question referred to this Court by the Tribunal, is answered in the negative; against the Revenue and in favour of the assessee. The two questions referred by the Division Bench to a Full Bench are inter-connected and we shall deal with them together. In a country like ours which is governed by Rule of Law, law has to be certain and uniform which is fundamental to the rule of law. In Mamleshwar vs. Kanahaiya Lal AIR 1975 SC 907 Krishna Iyer, J. speaking for the Supreme Court observed : “Certainty of the law, consistency of rulings and comity of Court<196>all flowering from the same principle converge to the conclusion that a decision once rendered must later bind like cases.”
In his concurring judgment in State of UP vs. Synthetics & Chemicals Ltd. (1991) 4 SCC 139 the observation of Sahai, J. on this aspect is : “Uniformity and consistency are core of judicial discipline.” That is why the doctrine of stare decisis is part of our judicial system. This doctrine means `to abide by former precedents’. Blackstone elucidated the doctrine thus : “For it is an established rule to abide by former precedents, where the same points come again in litigation : as well as to keep the scale of justice even and steady and not liable to waiver with every new Judge’s opinion, as also because the law in that case being solemnly declared and determined, what before was uncertain, and perhaps indifferent, is now become a permanent rule, which it is not in the breast of any subsequent judge to alter or vary from, according to his private sentiment….”
The ratio decidendi of a judgment is a binding precedent. The hierarchy of authority with regard to binding precedent is summed up in para 28 at page 158 of “Salmod on Jurisprudence”, Twelfth Edition, as follows : “The general rule is that a Court is bound by the decisions of all Courts higher than itself. A High Court Judge cannot question a decision of the Court of Appeal, nor can the Court of Appeal refuse to follow judgments of the House of Lords. A corollary of the rule is that Courts are bound only by decisions of Higher Courts and not by those of lower or equal rank. A High Court Judge is not bound by a previous High Court decision, though he will normally follow it on the principle of judicial comity, in order to avoid conflicts of authority and to secure certainty and uniformity in the administration of justice. If he refuses to follow it, he cannot overrule it; both decisions stand and the resulting antinomy must wait for a higher Court to settle.”
The principles applicable to Courts in India were laid down by Subba Rao, J. (as he then was) in K.C. Nambiar vs. The State of Madras AIR 1953 Mad 351 which were approved by a Full Bench of our High Court in Subbarayudu vs. The State (1955) (II) ALT (Crl) 53. They are as follows : “A Single Judge is bound by a decision of a Division Bench exercising appellate jurisdiction. If there is a conflict of Bench decisions, he should refer the case to a Bench of two Judges who may refer it to a Full Bench. A Single Judge cannot differ from a Division Bench unless a Full Bench or the Supreme Court overruled that decision specifically or laid down a different law on the same point. But he cannot ignore a Bench decision, as I am asked to do on the ground that some observations of the Supreme Court made in a different context might indicate a different line of reasoning. A Division Bench must ordinarily respect another Divisional Bench of co-ordinate jurisdiction but if it differs, the case should be referred to a Full Bench. This procedure would avoid unnecessary conflict and confusion that otherwise would prevail.”
15. The effect of binding precedent in India is that the decisions of the Supreme Court are binding on all the Courts. Indeed Art. 141 of the Constitution embodies the rule of precedent. All the subordinate Courts are bound by the judgments of the High Courts. A Single Judge of a High Court is bound by the judgment of another Single Judge and a fortiori judgment of Benches consisting of more Judges than one. So also, a Division Bench of a High Court is bound by judgment of another Division Bench and Full Bench. A Single Judge or Benches of High Court cannot differ from the earlier judgments of co-ordinate jurisdiction merely because they hold a different view on the question of law for the reason that certainty and uniformity in the administration of justice is of paramount importance. But if the earlier judgment is erroneous or adherence to rule of precedents results in manifest injustice, differing from earlier judgment will be permissible. When a Division Bench differs a judgment of another Division Bench, it has to refer the case to a Full Bench. A Single Judge cannot differ from a decision of a Division Bench except when that decision or a judgment relied upon in that decision is overruled by a Full Bench or the Supreme Court, or when the law laid down by a Full Bench or the Supreme Court is inconsistent with the decision. It may be noticed that precedent ceases to be a binding precedent— (i) if it is reversed or overruled by a higher Court, (ii) when it is affirmed or reversed on a different ground, (iii) when it is inconsistent with the earlier decisions of the same rank, (iv) when it is sub silentio, and (v) when it is rendered per incurium.
16. In para 578 at page 297 of Halsbury’s Laws of England, Fourth Edition, the rule of per incurium is stated as follows : “A decision is given per incuriam when the Court has acted in ignorance of a previous decision of its own or of a Court of co-ordinate jurisdiction which covered the case before it, in which case it must decide which case to follow; or when it has acted in ignorance of a House of Lords decision, in which case it must follow that decision; or when the decision is given in ignorance of the terms of a statute or rule having statutory force.”
In Punjab Land Devl. & Reclamation Corpn. Ltd. vs. Presiding Officer, Labour Court (1990) 3 SCC 682 the Supreme Court explained the expression “per incurium”thus : “The Latin expression per incurium means through inadvertence. A decision can be said generally to be given per incurium when the Supreme Court has acted in ignorance of a previous decision of its own or when a High Court has acted in ignorance of a decision of the Supreme Court.” As has been noticed above, a judgment can be said to be per incurium if it is rendered in ignorance or forgetfulness of the provisions of a statute or a rule having statutory force or a binding authority. But if the provision of the Act was noticed and considered before the conclusion was arrived at, on the ground that it has erroneously reached the conclusion the judgment cannot be ignored as being per incurium. In “Salmond on Jurisprudence”Twelfth Edition at page 151, the rule is stated as follows : “The mere fact that (as is contended) the earlier Court misconstrued a statute, or ignored a rule of construction, is no ground for impugning the authority of the precedent. A precedent on the construction of a statute is an much binding as any other, and the fact that it was mistaken in its reasoning does not destroy its binding force.”
In Choudry Brothers’s case (supra), as noticed above, the Division Bench treated the judgment in Atchaiah’s case (supra) a per incurium on the ground that the earlier Division Bench did not notice the significant changes the charging s. 3 has undergone by omission of the words “or the partners of the firm or the members of the association individually”. In our view, this cannot be a ground to treat an earlier judgment as per incurium. The change in the provisions of the Act was present to the mind of the Court which decided Atchaiah’s case (supra). Merely because the conclusion arrived at on construing the provisions of the charging section under the old Act as well as under the new Act did not have the concurrence of the latter Bench, the earlier judgment cannot be called as per incurium. Though a judgment rendered per incurium can be ignored even by a lower Court, yet it appears that such a course of action was not approved by the House of Lords in Cassel & Co. Ltd. vs. Broome (1972) 1 All ER 801 wherein the House of Lords disapproved the judgment of the Court of Appeal treating an earlier judgment of the House of Lords as per incurium. Lord Hailsham observed : “It is not open to the Court of Appeal to give gratuitous advice to Judges of first instance to ignore decisions of the House of Lords in this way.” It is recognised that the rule of per incurium is of limited application and will be applicable only in the rarest of the rare cases. Therefore, when a learned Single Judge or a Division Bench doubts the correctness of an otherwise binding precedent, the appropriate course would be to refer the case to a Division Bench or Full Bench, as the case may be, for an authoritative pronouncement on the question involved as indicated above. The above said two questions are answered as indicated above.
17. In the result, the questions referred to us are answered accordingly.
[Citation : 202 ITR 222]
