INCOME TAX OFFICER versus CH. ATCHAIAH

Citation: [1995] SUPP. 6 S.C.R. 543 · Decided: 11-12-1995 · Supreme Court of India · Bench: B.P. JEEVAN REDDY, B.N. KIRPAL · Disposal: Appeal(s) allowed

Judgment (excerpt)

( 
INCOME TAX OFFICER 
v. 
CH. ATCHAIAH 
DECEMBER 11, 1995 
[B.P. JEEVAN REDDY AND B.N. KIRPAL, JJ.] 
Income Tax Act, 1961-Section 4(1)-Levy of income tax on total in-
come of every person-Charge of income t~ncome Tax Officer must tax 
right person and right person alone-No option availabl-Tax has to be levied 
A 
B 
on that person, whether an individual, HUF, Company, Finn, Association of C 
persons/BOP etc.-D1fference between 1922 Act and 1961 Act. 
The respondent and another person K purchased certain land under 
a sale deed dated 20.10.1962 for a consideration of Rs. 7.5.000. Eve~ prior 
to the execution of the sale deed, the lands had been notified for acquisition 
under the Land Acquisition Act. The compensation amount was received D 
by the respondent aud K in equal shares. Ou reference, the compensation 
as enhanced was also shared between the respondent and K in equal 
proportion. 
In the assessment proceedings relating to Assessment year 1965-66, 
the Income Tax Officer include a sum of Rs. 35,397, au amount determined 
after deducting the amount contributed by the respondent towards the 
purchase of the lauds, treating it as the capital gain, in the income of the 
respondent. Again in the assessment relating to Assessment Year 1968-69, 
the enhanced compensation falling to the share of respondent was brought 
to tax as capital gain. The assessee K was also taxed in the same manner 
for both these assessment years. 
In February 1972 the ITO issued a notice to both the respondent and 
E 
F 
K u/s 148 of the Income Tax Act stating that he had reason to believe that 
income chargeable to tax for the Assessment Year 1964-65 had escaped G 
assessment. He called upon them lo file a return. The respondent and K 
filed a 'Nil' return. The ITO proposed ·to tax them as an Association of 
persons and bring the entire profit made by them as capital gain in the 
hands of such Association of Persons. The respondent and K challenged 
the notice by filing a writ petition alleging that the ITO having assessed 
the share of each of them in their respective individual hands, had no H 
543 
544 
SUPREME COURT REPORTS (1995] SUPP. 6 S.C.R. 
A jurisdiction to assess the same income as the income of and in the hands 
of the Association of Persons as having exercised the discretion vested in 
him to assess them individually with respect to their shares, it was not 
open to him to assess them as an Association of Persons with respect to 
the very same income. The High Court allowing the petition held that the 
B ITO has an option to" assess either the Association of persons as a unit or 
the members there of individually and having exercised the option to 
assess the members of the Association of Persons individuals, he cannot 
seek to tax the Association of Persons with respect to the very same income. 
This appeal had been filed against the judgment of the High Court 
C allowing the writ petition and issuing a writ of prohibition restraining the 
appellant from taking any action pursuant to the notice. 
The appellant urged that the High Court was in error in holding that 
under the 1961 Act, like the 1922 Act option is available to the Income Tax 
Officer to tax either Association of Persons or its members individually. 
D The right person has to be taxed and merely because a wrong person is 
taxed, it does not operate as a bar to taxing the right person and if in law 
the income bad to be taxed in the hands of Association of Persons, it had 
to be taxed as such and the mere fact that the said income was taxed in 
the hands of individual members of Association of Persons does not bar 
E the Income Tax Officer from taking the Association of Persons. 
F 
The appellant-assessee contended that there was no difference be-
tween the position obtaining under the 1922 Act and the present Act. 
Allowing the appeal, this Court 
HELD : Under the Income tax Act, 1961, the Income Tax Officer bas 
no option like the one he had under the 1922 Act. He can, and be must, 
tax the right person and the right person alone. By "right person', it means 
the person who is liable to be taxed, according to law, with respect to a 
particular income. The expression "wrong person" is used as the opposite 
G of the expression "right person". Merely because a wrong person is taxed 
with respect to a particular income, the Assessing Officer is not precluded 
from taxing the right person with respect to that income. This is so 
irrespective of the fact which cou

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