(1996) 218 ITR 239 (SC)
Charge of income-tax; representative assessees
No. Under the 1961 Act the Assessing Officer must tax the right person, and only the right person. The option that existed under the 1922 Act was deliberately removed, so an assessment on the wrong person is not saved by the availability of an alternative.
Where income may arguably be assessed either in the hands of an association or in the hands of its members, does the Assessing Officer have an option as to whom to tax?
Income had arisen from an activity carried on jointly by several persons. The question was whether it fell to be assessed in the hands of the association formed by them or in the hands of the individual members according to their shares. Under the predecessor legislation the Assessing Officer had an express option to assess either the association or its members. The successor legislation did not carry that language forward, and the Revenue nonetheless proceeded on the footing that the option survived.
The matter came before the Supreme Court, which compared the language of the two statutes and resolved a conflict on whether the option had been preserved by implication.
For the assessee
The words conferring an option in the earlier statute were dropped when the present Act was enacted. That omission must be given effect: Parliament having removed a power expressly conferred earlier, it cannot be read back in. The officer must determine who is properly chargeable and assess that person.
For the Revenue
The change in language was not intended to alter the substance. Where income is genuinely capable of being assessed in either set of hands, the officer should retain the flexibility to choose, and nothing in the new Act expressly forbids it.
The Court compared the two statutes and held that the omission of the words conferring an option was deliberate and decisive. Under the earlier Act the Assessing Officer was expressly empowered to assess either the association or its members; the present Act contains no such words, and the Court held that the power cannot be restored by construction. The officer is therefore required to determine who is the right person to be taxed in respect of the income in question, and to assess that person and no other. The Court held that assessing the wrong person is not cured by the fact that the income was in some sense assessable elsewhere; an assessment on a person not properly chargeable is simply bad. It observed that the scheme requires the officer to apply his mind to the correct identification of the taxable entity rather than to choose whichever assessment is administratively convenient or produces more revenue, and that this discipline is an important protection for taxpayers where income passes through intermediate entities.
Directly relevant to pooled vehicles, where the recurring question is whether income is chargeable in the vehicle or in the hands of unit holders and contributors. Under the IT Act 2025 that question is largely answered by the pass-through regime in Sections 221 to 224, which designates who is chargeable. Where a vehicle falls outside those provisions — a fund not registered in the required category, for instance — this decision requires the correct person to be identified rather than the more convenient one assessed. Reconcile with Kamalini Khatau, which recognises a specific statutory alternative for trusts.