ORDER
A.V. Balasubramanyam, Judicial Member
1. The appeal by the assessee and cross objection by the revenue arise out of the assessment for 1970-71 made in the status of AOP.
2. In the impugned assessment, made under Section 143 read with Section 146, the status of AOP was attributed by the Income-tax Officer and following are the germane facts. There was a joint Hindu family of which one M. R. Puttaswamy was the karta. This joint family had, inter alia, two cinema theatres, one at Hassan and the other at Arsikere. M.R. Puttaswamy died on 12-7-1968 leaving him surviving two sons, M.P. Jayaram and M.P. Basavaraj, and an unmarried daughter, M.P. Padmavathi. After the d6ath of Puttaswamy, his undivided share, which works out to 4/13th, as per the law applicable to the local area, devolved upon his two sons and the unmarried daughter being class I heirs. The remaining 9/13th share continued in the HUF, namely, M.P. Jayaram (major HUF).
3. After the death of Puttaswamy, the cinema business continued as before. The Income-tax Officer was of the view that M.P. Jayaram (major HUF), M.P. Jayaram (ind.), M.P. Basavaraj (ind.) and M.P. Padmavathi (ind.) were jointly carrying on the business of running the theatres and that these parties constituted an AOP. Hence this status was adopted was in the assessment.
4. In appeal, the matter took a different turn. In the view of the Commissioner of Income-tax (Appeals), there was no AOP, but a body of individuals (BOI). In this behalf he relied upon the decision of the Madras High Court in the case of N.P. Saraswathi Ammal v. CIT [1982] 138 ITR 19. He, therefore, held that the correct status to be adopted in this case was BOI.
5. The assessee is in appeal challenging not only the finding of the Commissioner (Appeals) but also that of the Income-tax Officer in the matter of status. According to assessee, there was no AOP or BOI. The prayer is that the assessment order passed by the Income-tax Officer should be annulled.
6. The cross objection by the revenue is that the status of AOP adopted by the Income-tax Officer should be restored reversing the order of the Commissioner (Appeals) in this regard.
7. Shri Nagin Khincha, the learned representative of the assessee, argued that the circumstances in which the business of running the cinema theatres was conducted after the death of Puttaswamy would not justify adoption of status of either AOP or BOI. It would appear that the 4/13th share which devolved upon the class I heirs of Puttaswamy is assessed in the hands of the sons and daughter as per their share in the income. It was also stated that the 9/13th share of the income has been assessed in the hands of the HUF which is now represented by M.P. Jayaram, as karta. The argument of Shri Khincha was that, in view of these assessments rightly made, the impugned assessment now made by the Income-tax Officer is not valid in law, and liable to be cancelled. For the revenue, it was argued by Shri Sreedhar that the heirs of Puttaswamy had jointly carried on trade of conducting cinema theatre business along with M.P. Jayaram (major HUF) which held 9/13th share and that the combination of these persons, in the circumstances, could only mean that they had come together to earn income and that AOP is the only status that can rightly be attributed.
8. The authorities cited on behalf of the assessee are : the decision of the Karnataka High Court in the case of G.N. Sunanda v. CIT [1988] 174 ITR 664; the decision of the Madras High Court in the case of Venkatakrishna Rice Co. v. CIT [1987] 163 ITR 129; the decision of the Bombay High Court in the case of CIT v. V.H. Sheth [1984] 148 ITR 169; the decision of the Madhya Pradesh High Court in the case of CIT v. Mrs. Banno E. Cowasji [1984] 147 ITR 744; the decision of the Calcutta High Court in the case of CIT v. C. Ratan & Co. and S.N. Agarwalla [1981] 128 ITR 39; the decision of the Patna High Court in the case of Mahendra Kumar Agrawalla v. ITO [1976] 103 ITR 688 the decision of the Supreme Court in the case of CIT v. Murlidhar Jhawar & Puma Ginning & Pressing Factory [1966] 60 ITR 95. In support of the submission that there cannot be an assessment in the status of BOI our attention was invited to the decision of the Kerala High Court in the case of CIT v. A.P. Parukutty Mooppilamma [1984] 149 ITR 131 by Shri Sreedhar.
9. We have gone through the authorities. Beforehand we wish to put on record certain facts. After the death of Puttaswamy, his undivided share in the property was devolved upon his class I heirs, namely, two sons and a daughter. What remained in the HUF was only 9/13th share and the remaining 4/13th share was inherited by the three heirs in equal proportion. 4/13th share went out of the joint family and the three heirs held that share as tenants-in-common. As pointed out by Bhagwati, CJ. (as he then was) in the case of CWT v. Kantilal Manilal [1973] 90 ITR 289 (Guj.) the two cinema theatres should be taken to have been held by the Hindu undivided family and the class I heirs (two sons and a daughter) as tenants-in-common.
10. Returns had been filed by the HUF declaring 9/13th share of income from the cinema theatres and accordingly an assessment has been made. The three individuals declared l/3rd share out of 4/13th share in their individual returns and accordingly assessments have followed. We have on record a copy of the assessment order made against M.P. Jayaram (Indl.) in respect of his l/3rd share of the income out of 4/13th share, because the 9/13th, share had been assessed in the assessment made against M.P. Jayaram (major HUF). After completion of the assessments in that fashion, the Income-tax Officer issued notices under Section 148 being of the view that the entire income from the two cinema theatres is assessable in the status of AOP. The assessee disclosed ‘nil’ income, but however, the Income-tax Officer made an assessment under Section 143(3) read with Section 146 on 10-3-1986 and brought the entire income to the tax in the status of AOP which is now the subject matter of this appeal.
11. The principle i clear. When two or more individuals voluntarily combine together for a certain purpose, an “Association of Persons” is formed and volition on the part of the members of the association is an essential ingredient – see G. Murugesan & Bros. v. CIT [1973] 88ITR 432 (SC). The Income-tax Officer infers that the legal heirs had joined together to run the theatres and by that he presumes avolition on their part to give the status of AOP ignoring the claim of the assessee that the heirs had no other choice but to continue the running of theatre business for a division by metes and bounds was not practical or possible.
12. The Commissioner (Appeals) places great dependence upon the decision of the Madras High Court in the case of N.P. Saraswathi Ammal (supra) to attribute the status of BOI. Plurality of individuals who, in the gross, have a nexus to the source of income from BOI and this necessarily excludes common intention or common . activity which are the real characteristics of AOP. It is true that this decision, to some extent, helps the conclusion the Commissioner (Appeals) has reached.
13. The decision of the Kerala High Court in the case of A.P. Parukutty Mooppilamma (supra) is very helpful for the present discussion and we may, with advantage, set out the facts. Certain properties belonged to an HUF. There was a partition and the properties were divided among the shares who were eighteen. Some of the properties were left out of the division, but the deed, however, made it clear that each member of the HUF had l/18th share. Therefore, after partition, all the members of the family held the assets as tenants-in-common. One of the erstwhile members of the HUF was authorised to manage the properties. Some trees were sold and the profits were assessable to tax. Before the assessing officer, there was a plea that no assessment could be made in the status of BOI because each member had a defined share, namely, l/18th. The Income-tax Officer made an assessment In the status of BOI and the Tribunal differed with that view. Their Lordships of the Kerala High Court held that there was no community of profit and the income accrued directly to the members although for the sake of convenience it was received by one of them and the erstwhile members of the HUF were assessable directly as individuals. The rule laid down in this case supports the assessee before us and there cannot be an assessment either in the status of AOP or BOI.
14. A reference to the decision of the Karnataka High Court in the case of GJV. Sunanda (supra) would be apposite. In this case, certain M was a partner in firms as karta of HUF and on his death his wife had become a partner. The wife and her minor children had defined shares in partnership interest. Their Lordships held :
that in the present case, all that had happened was that M’s wife had merely carried on the business as it was done earlier and there was no overt or tacit act on her part to indicate that she was not carrying on the business as partner of the firm in her own capacity and on behalf of the minors in a representative capacity as guardian. There could not be any unity of interest as the partnership interest was clearly divisible and the assessee and her children had defined shares in the same and could receive profits in the same ratio. The assessment of the share income from the three firms in the hands of an association of persons or a body of individuals for the year 1974-75 was not valid.
The decision of the Madras High Court in the case of N.P. Saraswathi Ammal (supra) is distinguished by their Lordships of the Karnataka High Court in the case of G.N. Sunanda (supra) for the late minors had allowed the integrity of the business to continue which, as the High Court points out, was a clear indication of the mother and children keeping in step as a body of individuals. The width of the decision in the case of G.N. Sunanda (supra) is good enough to cover a case of the type before us.
15. After the death of Puttaswamy, the HUF had a defined share (9/13th). So the class I heirs of Puttaswamy. The HUF and class I heirs were all tenants-in-common as we have indicated above. When this position is reached, it would be clear that there can be no AOP or BOI as explained by the Karnataka High Court in G.V. Sunanda’s case (supra) and the Kerala High Court in the case of A.P. Parukutty Mooppilamma (supra). The objection of the assessee is well founded and the Income-tax Officer could not have made an assessment in the status of AOP, much less the Commissioner (Appeals) could have changed it to BOI. The impugned assessment is liable to be quashed.
16. There is yet another point which needs our consideration. To repeat, the Income-tax Officer had made substantive assessments against the members and the major HUF in respect of their share income. Subsequently he took a step to assess the whole income in the status of AOP and to this Shri Nagin Khincha has objection. The Madras High Court has in the case of Venkatakrishna Rice Co. (supra) held :
Under the scheme of the Income-tax Act, an association of persons and its members are two distinct entities and the Income-tax Officer has a choice of either assessing the association as a whole on its total income or alternatively assessing the respective share income of the individual members. Courts have repeatedly held that when once the Income-tax Officer makes an assessment of the share income of a member of an association, thereafter he could not proceed to assess the income of the association of persons as such and all that would remain to be done in such a case would be for the Income-tax Officer to proceed to deal with the other members’ shares of income in their respective assessments. Accordingly, when the Income-tax Officer makes an assessment on the share income of the assessee from a joint venture, he exercises his option of assessment which was valid in law and in accordance with law.
The High Court of Bombay has taken the same view in the case of V.H. Sheth (supra). In that, the partners or members had been assessed separately on their respective shares in profits and subsequent assessment in the status of firm or AOP was held to be not permissible. Similar is the view taken by the Calcutta High Court in the case of C. Ratan & Co. and S.N. Agarwala (supra) and the Patna High Court in the case of Mahendra Kumar Agrawalla (supra).
17. A converse case, but laying down the same principle, is the decision of the Madhya Pradesh High Court in the case of Mrs. Banno E. Cowasji (supra). Here, income had been assessed in the hands of AOP and it was held that the same income could not be assessed in the hands of the individual members. The reason is that once the Income-tax Officer has exercised his choice between the association as a whole and the individual in respect of their income as assessed he cannot pass a second assessment in the alternative.
18. The principle is clear. The income is subject to tax in the hands of the same person only once. If an association or firm is taxed in respect of its income, the same income cannot be charged again in the hands of the members individually or vice versa. This position is made clear by the Supreme Court first in the case of CIT v. Murlidhar Jhawar & Purna Ginning & Pressing Factory [1966] 60ITR 95 which has been followed by the same court in the case of State of Uttar Pradesh v. Raza B uland Sugar Co. Ltd. [ 1979] 118 ITR 50. These decisions have been followed by the High Courts of Madras, Bombay and Calcutta to which case law we have already made a reference. The Income-tax Officer having assessed the respective share income of the individual members, it was not open for him to proceed against the association as a whole on the total income. Even from this standpoint of diagnosis the impugned assessment made by the Income-tax Officer is required to be annulled. For the foregoing, the assessment made in the status of AOP by the Income-tax Officer is annulled. We also hold that there cannot be an assessment either in the status of BOI and the order of the Commissioner (Appeals) in this behalf is set aside.
19. The appeal by the assessee is allowed and the cross objection by the revenue is dismissed.