Kanchanlal Maganlal Kapadia - Petitioner(S v. Income Tax Officer - Respondent(S

IN THE HIGH COURT OF GUJARAT AT AHMEDABADSPECIAL CIVIL APPLICATION No.448 of 1997 For Approval and Signature: HONOURABLE MR.JUSTICE D.A.MEHTA Sd/- HONOURABLE MR.JUSTICE H.B.ANTANI Sd/- =================================================== 1[Whether Reporters of Local Papers ]NOmay be allowed to see the judgment ?2[To be referred to the Reporter or ]NOnot ?3[Whether their Lordships wish to see ]NOthe fair copy of the judgment ?Whether this case involves a substantial question of law as to 4theinterpretationofthe NOconstitution of India, 1950 or any order made thereunder ?5[Whether it is to be circulated to ]NOthe civil judge ? ===================================================KANCHANLAL MAGANLAL KAPADIA - Petitioner(s) Versus INCOME TAX OFFICER - Respondent(s) =================================================== Appearance : MR MANISH J SHAH for MR JP SHAH for Petitioner : 1MRS MM BHATT for Respondent(s) : 1, =================================================== CORAM : HONOURABLE MR.JUSTICE D.A.MEHTA and HONOURABLE MR.JUSTICE H.B.ANTANI Date : 26/06/2008 ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE D.A.MEHTA) SCA/448/1997 2/15 (1)This petition is filed by one Shri Kanchanlal Maganlal Kapadia & 14 others challenging the action of the respondent in issuing notice under Section 148 of the Income-tax Act, 1961 (the Act) in the name and style of Shri Kanchanlal Maganlal Kapadia & 14 others members (A.O.P.) for Assessment Year 1986-1987.Maganlal Kapadia & 14 others challenging the action of the respondent in issuing notice under Section 148 of the Income-tax Act, 1961 (the Act) in the name and style of Shri Kanchanlal Maganlal Kapadia & 14 others members (A.O.P.) for Assessment Year 1986-1987. (2)The facts which are not in dispute are that all the 15 persons jointly purchased lottery tickets, each having an equal share therein i.e. 1/15[th] each. Out of many tickets so purchased by the 15 individuals, one lottery ticket turned out to be a winning ticket bearing No.JM 2606390 for a sum of Rs.25,00,000/-. In the return of income filed by Shri Kanchanlal Maganlal (Individual) under the head “Income from Other Sources” income from winning of lottery at 1/15[th] share to the tune of Rs.1,66,667/- was shown and statutory deduction therefrom was claimed. The Assessing Officer vide notice dated 142(1) of the Act along with letter of the same date called for following particulars: “....In connection with your assessment proceedings, following particulars are required.proceedings, following particulars are required. (i)Along with your return of income, you have filed xerox copy of tax deduction certificate issued by Pay and Accounts Office of Government of Maharashtra. The original certificate is required to be filed.have filed xerox copy of tax deduction certificate issued by Pay and Accounts Office of Government of Maharashtra. The original certificate is required to be filed. (ii)It is your claim that you have only 1/15[th]interest in prize Winning lottery. You are requested to give names of other 14 persons who as per your claim have shared prize with you with their interest. Their complete address and Permanent Account Number should also be given, if they are assessed to tax.1/15[th]interest in prize Winning lottery. You are requested to give names of other 14 persons who as per your claim have shared prize with you with their interest. Their complete address and Permanent Account Number should also be given, if they are assessed to tax. (iii) Any other evidence which you desire to furnish in support of your claim that you have only 1/15[th] interest in the prize winning of lottery.furnish in support of your claim that you have only 1/15[th] interest in the prize winning of lottery. (iii) Any other evidence which you desire to furnish in support of your claim that you have only 1/15[th] interest in the prize winning of lottery.furnish in support of your claim that you have only 1/15[th] interest in the prize winning of lottery. (3)The assessee individual replied on 08.08.1988 and enclosed the following evidence in support of the claim that only 1/15 was assessable in and enclosed the following evidence in support of the claim that only 1/15 was assessable in hands of the individual: “C) Evidence in support of the claim that the assessee has only 1/15th shares of Interest in the prise amount is..the assessee has only 1/15th shares of Interest in the prise amount is.. (i)The Lottery ticker was purchased by all the persons Jointly and by the Natural Guardian of Minor co-shares. A copy of the agreement is enclosed herewith.all the persons Jointly and by the Natural Guardian of Minor co-shares. A copy of the agreement is enclosed herewith. (ii)The price tickets was discharged by all the Co-shares for submitting to the Government of Maharashtra for claimiry price amount. Photo copy of the discharged ticket is enclosed herewith.claimiry price amount. Photo copy of the discharged ticket is enclosed herewith. (iii) The receipt from the Finance Department Bombay acknowledging the Department Bombay acknowledging the receipt of the price ticket states that it has been received from Kanchanlal M. Kapadia & Others.that it has been received from Kanchanlal M. Kapadia & Others. (iv)The prise amount was deposited in Savings Account No.K-2348 with State Savings Account No.K-2348 with State Bank of India on 17th FEBRUARY, 1986 from where it was disbursed to all the Co-shares equally on 18th FEBRUARY, 1988.”the Co-shares equally on 18th FEBRUARY, 1988.” The assessee individual also placed reliance on the Apex Court decision in case of G. Murugesan & Brothers Vs. Commissioner of -Incometax, Madras, (1973) 88 ITR 432 (S.C.) by addressing the Assessing Officer in following terms: “E) As per the decision of Honerable Supreme Court in the case of G. Murugesan & Bros. V. CIT (1973) 88 ITR 432, Such a case where Lottery Tickets are purchased Jointly does not constitute on A.O.P. Since, the essential ingredients of an A.O.P. are not present. Photo copy of the gist of the said Judgment is enclosed herewith.” (4)On 13.09.1988 assessment was framed under Section 143(3) of the Act by the Assessing Officer and in case of one of the individual assessees the Assessing Officer observed as under: “In addition to the above evidence showing that 15 persons had collectively purchased the lottery ticket and prize winning was to be shared by all of them equally, the assessee has given written submission vide his letter dt. 8-8-88 discussing the various judicial decision showing that all the 15 persons who purchased the Ticket collectively are liable to be assessed on SCA/448/1997 their share of prize winning in Individual capacity. Considering the submission made by the assessee and evidence produced by him, the prize winning from lottery has declared by the assessee is assessed accordingly.”capacity. Considering the submission made by the assessee and evidence produced by him, the prize winning from lottery has declared by the assessee is assessed accordingly.” Thereafter,on 01.03.1996 the impugned notice under Section 148 of the Act has been issued. SCA/448/1997 their share of prize winning in Individual capacity. Considering the submission made by the assessee and evidence produced by him, the prize winning from lottery has declared by the assessee is assessed accordingly.”capacity. Considering the submission made by the assessee and evidence produced by him, the prize winning from lottery has declared by the assessee is assessed accordingly.” Thereafter,on 01.03.1996 the impugned notice under Section 148 of the Act has been issued. (5)The learned advocate for the petitioner has principally assailed the said action of the respondent by pointing out that the impugned notice has been issued beyond a period of four years from the end of the relevant assessment year and hence, unless and until the revenue is in a position to show that there was any failure on part of the assessee to make a return, or that there was any failure on part of the assessee to respond to a notice under Section 142(1) or Section 148 of the Act, or disclose fully or truly all material facts necessary for the assessment, the impugned notice be struck down as being without principally assailed the said action of the respondent by pointing out that the impugned notice has been issued beyond a period of four years from the end of the relevant assessment year and hence, unless and until the revenue is in a position to show that there was any failure on part of the assessee to make a return, or that there was any failure on part of the assessee to respond to a notice under Section 142(1) or Section 148 of the Act, or disclose fully or truly all material facts necessary for the assessment, the impugned notice be struck down as being without SCA/448/1997 7/15 jurisdiction. Referring to the aforesaid facts recorded hereinbefore it was submitted that all the 15 individuals had duly shown 1/15[th ]share each and as could be seen from the case of individual Shri Kanchanlal Maganlal, after thorough inquiry and application of mind, the Assessing Officer had assessed 1/15[th] share of the prize winning money in hands of the individual. That in fact the petitioner had, in response to notice under Section 142(1) of the Act, invited attention to the correct legal position by adverting to the decision of the Apex Court in case of G. Murugesan & Brothers (supra) and, therefore, even in law, the stand taken by the assessee individuals was justified and there was no entity like Shri Kanchanlal Maganlal Kapadia & 14 others (A.O.P.). That if the Assessing Officer was of the opinion, after considering the evidence placed on record and the submissions made by the individual assessees, that an association of persons was liable as an entity to file a return of income, it was open to the Assessing Officer to issue a notice under Section 139(2) of the Act calling upon such an association of persons to file a return of income. That the impugned notice was without jurisdiction as the same was based merely on a change of opinion. (6)On behalf of the respondent Ms.M.M.Bhatt, learned Standing Counsel, contended that as per reasons recorded there was an obligation in law on the association of persons to file a return of income and as no such return of income had been filed income had escaped assessment. Therefore, the respondent was within his right to issue the impugned notice even beyond the period of four years. It was further submitted that the association of persons was under a legal obligation to file a return of income as an association of persons and mere filing of returns by 15 individuals would not absolve the petitioner association of persons. (6)On behalf of the respondent Ms.M.M.Bhatt, learned Standing Counsel, contended that as per reasons recorded there was an obligation in law on the association of persons to file a return of income and as no such return of income had been filed income had escaped assessment. Therefore, the respondent was within his right to issue the impugned notice even beyond the period of four years. It was further submitted that the association of persons was under a legal obligation to file a return of income as an association of persons and mere filing of returns by 15 individuals would not absolve the petitioner association of persons. (7)The Proviso under Section 147 of the Act envisages three different contingencies, upon fulfillment of any one or more of them, an Assessing Officer would derive jurisdiction to initiate re-assessment proceedings beyond a period of four years from the end of the relevant assessment year. Either there has to be a failure on part of the assessee to file a return of income under Section 139 of the Act, or there has to be a failure to respond to a notice under Section 142(1) / 148 of the Act, or to disclose fully or truly all material facts necessary for the assessment of the assessment year in question. The reasons recorded as per extract appearing in the affidavit-in-reply by the respondent read as under: “The above AOP has won the price of lottery of Maharashtra State bearing No.JM 2606390 in which draw was held on 15/11/1985 and price amounting to Rs.25 Lakhs is paid by SCA/448/1997 concerned authority as per their regulation in the record. The AOP has neither filed any return of income nor declared it for taxation. Hence I have reason to believe that there is escaped assessment within the meaning of Section 147 of the I.T. Act, 1961. I, therefore, propose to issue notice U/s. 148 of the I.T. Act, 1961.” (8)Thus, it is apparent that the only reason for issuance of notice under Section 148 of the Act is failure on part of the association of persons to file a return of income and offering prize winning money for taxation. In the affidavit-in-reply certain extract from the Supreme Court decision in case of G. Murugesan & Brothers (supra) has been reproduced and the learned Standing Counsel also emphasized the said part of the Apex Court decision to contend that there was an association of persons which had come into existence and was thus duty bound to file a return of income declaring the entire prize winning money in hands of that one entity. SCA/448/1997 (9)The only question that the Court is therefore required to address is whether, in the first instance, it could be said with certainty that an association of persons existed on the day when the prize was declared on the draw of lottery; and whether there was any obligation on such an entity to file a return of income. The factum of Shri Kanchanlal Maganlal Kapadia & 14 other persons having entered into an agreement dated 07.11.1985 was already available on record. It is also available on record that the said 15 individuals had collectively purchased number of tickets of Maharashtra State Lottery, out of which one turned out to be a prize winning ticket. All 15 persons have discharged the said lottery ticket by appending their signatures on the reverse side of the lottery ticket. The receipt issued by the authority of Maharashtra State Lottery categorically indicates that the claim of prize winning ticket was made by 15 individual persons. Hence, it is apparent that 15 persons, in their individual capacity, had acted in unison and evidence thereof was available before the Assessing Officer at the time of original assessment. The Assessing Officer had applied his mind to the said aspect of the matter when along with notice under Section 142(1) of the Act by a separate letter of even date details of all the 15 persons were called for along with evidence in support of the claim that individual Shri Kanchanlal Maganlal had only 1/15[th] interest in the prize winning lottery ticket. (10) In case of G. Murugesan & Brothers (supra) the Apex Court has stated as under: “For forming an “association of persons”, the members of the association must join together for the purposes of producing an income. An “association of persons” can be formed only when two or more individuals voluntarily combine together for a certain purpose. Hence volition on the part of the members of the association is an essential ingredient. It is true that even a minor can join an “association of persons” if his JUDGMENT lawful guardian gives his consent. In the case of receiving dividends from shares, where there is no question of any management, it is difficult to draw an inference that two or more shareholders function as an “association of persons” from the mere fact that they jointly own one or more shares, and jointly receive the dividends declared. Those circumstances do not by themselves go to show that they acted as an “association of persons”. Applying the aforesaid ratio to the facts available on record it becomes apparent that for the purposes of purchasing a lottery ticket and collecting the winning prize, in the event of being successful, the act does not involve any management which would permit drawing of an inference that two or more lottery ticket holders function as an association of persons. The Apex Court was concerned with a fact situation where dividends were received by joint shareholders. (11) In the circumstances, it is not possible to accept the stand of the respondent authority that there was any obligation on an entity by the name of Shri Kanchanlal Maganlal Kapadia & 14 others members (A.O.P.) to tender a return of income under the provisions of the Act. In absence of any obligation in law it is not possible to state that there was any failure or omission on part of the petitioner to file a return of income. Once there was no failure on part of the petitioner to be treated as an assessee under the provisions of the Act the impugned notice under Section 148 of the Act which was admittedly issued beyond a period of four years from the end of Assessment Year 1986-1987 could not have been issued. Accordingly notice under Section 148 of the Act dated 01.03.1996 issued by the respondent authority is hereby quashed.the name of Shri Kanchanlal Maganlal Kapadia & 14 others members (A.O.P.) to tender a return of income under the provisions of the Act. In absence of any obligation in law it is not possible to state that there was any failure or omission on part of the petitioner to file a return of income. Once there was no failure on part of the petitioner to be treated as an assessee under the provisions of the Act the impugned notice under Section 148 of the Act which was admittedly issued beyond a period of four years from the end of Assessment Year 1986-1987 could not have been issued. Accordingly notice under Section 148 of the Act dated 01.03.1996 issued by the respondent authority is hereby quashed. (12) The petition is allowed accordingly. Rule made absolute. There shall be no order as to costs. absolute. There shall be no order as to costs. Sd/-