Late K. Bhoomiamma v. Commissioner of Income-tax — 1991 DIGILAW 345 (KAR)

JUDGMENT K. Shivashankar Bhat, J.—These are references under the provisions of section 256 of the Income Tax Act, 1961 ("the Act" for short). The common question referred to us reads thus : "Whether, on the facts and in the circumstances of the case, the Tribunal was competent in directing the Income Tax Officer to compute income as if it belonged to an association of persons and later on to distribute the same among the members even though there was no assessment made in the hands of the association of persons on the said income ?" 2. The question pertains to the assessment year 1976-77. The undisputed facts are that one Gururaja Achar died intestate on February 9, 1969, and one of his assets left by him was a hotel premises including the hotel business. The assets were inherited by his two widows. The widows leased the business under which rents were received separately for the premises and for the use of other equipment. Subsequently, the entire business as such was leased in the year 1973 as a going concern. The income from the lease was claimed as belonging to the association of persons comprising the two widows during the assessment years 1974-75 and 1975-76. The statement of the case states that this contention was accepted by the Appellate Assistant Commissioner as well as by the Tribunal. A further sentence however states that, "it appeared that the assessments of the individuals were restored to the Income Tax Officer for making fresh assessments and they are still pending". Subsequently the entire business as a going concern was sold on October 30, 1975. The recipients of the consideration filed returns as individuals as well as an association of persons. The capital gains thus received was assessed in the status of individual by the assessing authority. This order was substantially affirmed by the Commissioner (Appeals) from which appeals were filed by the assesses as well as by the Revenue. The assesses contended that the capital gains must be assessed only in the hands of an association of persons. The Revenue contended in its appeals questioning the computation of the capital gain. The Appellate Tribunal has rejected the Revenue's appeals and, therefore, we are not concerned with the said question. 3. The assesses contended that the capital gains must be assessed only in the hands of an association of persons. The Revenue contended in its appeals questioning the computation of the capital gain. The Appellate Tribunal has rejected the Revenue's appeals and, therefore, we are not concerned with the said question. 3. The Appellate Tribunal however accepted substantially the contention of the assesses that capital gains were received by the association of persons and has to be assessed in its hands. In the words of the Appellate Tribunal : "Admittedly, after the lease deed of 1973, there was a voluntary association of persons to earn income out of the business asset and, therefore, the income earned from Neo Mysore Care belonged only to the association of persons. When that asset which belonged to the association of persons was sold, capital gains that arose was income which arose to the association of persons and had to be assessed in its hands." 4. Thereafter, the Appellate Tribunal said that under section 4 of the Act, Income Tax shall be charged in respect of the total income of every person and since a person includes an association of persons or an individual Income Tax has to be charged either in the hands of the association of persons or in the hands of the person to whom the income accrues. There is also a reference to section 86 which pertains to the consideration of the individual share of the income, to apply the rate of taxation regarding his other income with which we are not concerned here. Ultimately, the Tribunal set aside the orders of the authorities and remitted the matter to the Income Tax Officer for computing the income of the association of persons and then divided it between the two assesses. 5. The assessees are aggrieved by this direction. 6. Learned counsel for the assessees contended that the Appellate Tribunal having found that the capital gain was the income of the association of persons it had no competence to further direct the Income Tax Officer to divide the said income among the individuals comprised in the association of persons. There is no such option left with the Revenue under the Income Tax Act, 1961, unlike the case under the provisions of the earlier Act, i.e, the Indian Income Tax Act, 1922. There is no such option left with the Revenue under the Income Tax Act, 1961, unlike the case under the provisions of the earlier Act, i.e, the Indian Income Tax Act, 1922. On the other hands, learned counsel for the Revenue argued that the scheme of the present Act is in no way different from the earlier Act and that the substance of the present section 4 is the same as the earlier section 3 (under the earlier Act). 7. Before answering the question referred to us, we would like to emphasise once again that the status of the recipient of the capital gain has become final by the finding of the Appellate Tribunal and the same has not been questioned by the Revenue by seeking any reference. Therefore, the basic fact has to be accepted to the effect that the income was received in the hands of the association of persons. 8. Under the provisions of the earlier Act of 1922, the charging section is section 3, which reads thus : "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, Hindu undivided family, company and local authority, and of every firm and other association of persons or the patterns of the firm or the members of the association individually." 9. The said earlier Act did not go beyond defining the word "person" as including a Hindu undivided family and a local authority as per section 2(9). However, the charging section, given above, provided for charging to tax the total income of the previous year of the several entities enumerated in the said section. Under this section, tax may be charged in respect of the total income of the previous year of every association of persons or the members of the association individually (other words omitted here as unnecessary). It is clear from the said section 3 that the income received by a member of the association as such may be assessed either in the hands of the association of persons or the member. It is clear from the said section 3 that the income received by a member of the association as such may be assessed either in the hands of the association of persons or the member. If the income received by the association of persons was not taxable in the hands of the member, then the word "or" found in the said section will have no meaning. A member of the association can receive the income qua member only because the income initially is received by the association of persons. In spite of this, the section provides for charging such an income to tax either in the hands of the association of persons or in the hands of the members. Because of this alternative charge created under section 3, it was held that the assessing authority had an option to assess the income in the hands of the association of persons or assess it in the hands of the members by dividing the income of the association of persons amongst the members according to their shares. In Commissioner of Income Tax, U.P.,Lucknow Vs. Kanpur Coal Syndicate, AIR 1965 SC 325 , the Supreme Court observed that section 3 of the earlier Act, by implication, gave an option to assess the total income of either the association of persons or the members of the association individually. The Supreme Court further observed that exercise of this option is not confined to the Income Tax Officer alone but that it is part of the process of assessment and the option can be exercised by the higher authorities as well, having regard to the scope of the appellate powers. At page 228, the Supreme Court negatived the idea that, under section 3, the assessment shall be only on the association of persons as a unit. The observations are : "Section 3 imposes a tax upon a person in respect of his total income. The persons on whom such tax can be imposed are particularized therein, namely, Hindu undivided family, company, local authority, firm, association of persons, partners of firm or members of association individually. The section, therefore, does not in terms confer any power on any particular officer to assess one of the persons described therein, but is only a charging section imposing the levy of tax on the total income of an assessable entity described therein. The section, therefore, does not in terms confer any power on any particular officer to assess one of the persons described therein, but is only a charging section imposing the levy of tax on the total income of an assessable entity described therein. The section expressly treats an association of persons and the individual members of an association as two distinct and different assessable entities. On the terms of the section the tax can be levied on either of the said two entities according to the provisions of the Act. There is no scope for the argument that under section 3 the assessment shall be only on the association of persons as a unit though after such assessment the share of the income of a member of that association may be added to his other income under section 14(2) of the Act. This construction would make the last words of the section, viz, 'members of the association individually' a surplusage. This argument is also contrary to the express provisions of section 3, which mark out the members of the association individually as a separate entity from the association of persons." 10. From the above observation, it is clear that the specific reference to charge the income, to tax, in the hands of the members of the association individually was a substantial basis for the conclusion of the Supreme Court on the question. Mr. Chanderkumar, learned counsel for the Revenue, referred to another decision of the Supreme Court in M.M. Ipoh and Others Vs. Commissioner of Income Tax, Madras, AIR 1968 SC 317 , wherein the scheme of the Act was considered to uphold the validity of the option given under section 3 of the earlier Act. In the said case, the assessee contended that the earlier Act did not set out any principle and guidance to the Income Tax Officer in exercising the option and hence, according to the assessee, the option was arbitrary. This was repelled by pointing out that the Income Tax Officer is to administer the Act in the interest of public revenue and to prevent evasion or escapement of tax legitimately due to the State and this being the scheme and the purpose of the Act, the option given to the Income Tax Officer was sustainable. 11. This was repelled by pointing out that the Income Tax Officer is to administer the Act in the interest of public revenue and to prevent evasion or escapement of tax legitimately due to the State and this being the scheme and the purpose of the Act, the option given to the Income Tax Officer was sustainable. 11. The decision proceeded on the basis that there was an option and the question pertained to the existence of the guiding factors to exercise such an option. From this, learned counsel for the Revenue wants to contend that a similar approach should be adopted to interpret the present enactment because the scheme and purpose of the Act are the same as the one under the old Act. 12. It is a well-known principle that a taxing statute will have to be literally read and understood. There is no scope for assuming a subject as liable to charge for taxation. The charge should flow out of the language used. Under the provisions of section 3 of the old Act, the language necessarily resulted in creating an option. In the above M.M. Ipoh and Others Vs. Commissioner of Income Tax, Madras, AIR 1968 SC 317 , the contention of the assessee was that such an option would render the provision arbitrary and the Supreme Court was considering the said question. The Supreme Court was not attributing a meaning to the charging section with reference to the scheme and object of the Act so as to create an option in the Income Tax Officer to assess the income of one unit in the hands of the members of such an unit. If the reasoning of learned counsel for the Revenue is to be accepted, then it follows that even in the case of a Hindu undivided family, an option should be inferred to assess the Hindu undivided family or the members of the Hindu undivided family by dividing the income amongst the coparceners. That has not done and, in fact, learned counsel is not prepared to go so far as to stretch the provisions of section 3 of the old Act or section 4 of the present Act. That has not done and, in fact, learned counsel is not prepared to go so far as to stretch the provisions of section 3 of the old Act or section 4 of the present Act. As already noted by us, the express language of section 3 of the old Act resulted in the Supreme Court holding that an option was given to the authorities under section 3 of the old Act either to assess the association of persons or its members individually (see Commissioner of Income Tax, U.P., Lucknow Vs. Kanpur Coal Syndicate, AIR 1965 SC 325 referred to above). 13. The present section 4, which is the charging section now, to the extent of its relevancy, reads thus : "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." 14. The word "person" is defined under section 2(31) as including an individual, Hindu undivided family, etc., etc.,; this definition also includes an association of persons or a body of individuals whether incorporated or not in the concept of the word "person". According to Mr. Chanderkumar, learned counsel for the Revenue, section 4 of the present Act has conveyed the same meaning as section 3 of the earlier Act; instead of repeating the various entities liable to tax, the present Act refers to all of them by the phrase "every person" in section 4. But for this change, there is no difference between the earlier provision and the present section. 15. We cannot agree with this contention because the present section 4, in no way, refers to the "members of the association individually". Under the earlier section 3, an individual and an association of persons are referred to. Section 4 of the present Act cannot be read in the same manner. Section 2(31) of the present Act does not, in any manner, treat the members of the association individually as a distinct unit for taxation, unless they could be brought under the word "an individual". This, however, will not take us anywhere because "individual" was separately referred to in the earlier Act, section 3. Section 2(31) of the present Act does not, in any manner, treat the members of the association individually as a distinct unit for taxation, unless they could be brought under the word "an individual". This, however, will not take us anywhere because "individual" was separately referred to in the earlier Act, section 3. The idea of the present section 4 seems to make the provision simpler and to divest the authorities of any discretion to treat the income of one unit as the income of another unit. The concept of association of persons has been recognised as a taxable unit for which purpose a statutory status is recognised. 16. Under section 4 of the present Act, tax shall be charged in respect of the total income of the previous year of every person, which means, in the case of an association of persons, it will read as, that tax shall be charged in respect of the total income of every association of persons. No option to treat the income of the association of persons as the income of the members of the association of persons individually is forthcoming (except for the purpose of section 86 with which we are not concerned here). The above reasoning of ours finds full support from a Bench decision of the Andhra Pradesh High Court in Choudry Brothers Vs. Commissioner of Income Tax, (1986) 158 ITR 224 AP. The Andhra Pradesh High Court also has referred to an earlier decision of the Patna High Court in Mahendra Kumar Agrawalla's case [1976] 103 ITR 688 (Patna) and that of the Punjab & Haryana High Court in RODAMAL LALCHAND Vs. COMMISSIONER OF Income Tax, PATIALA-II., (1977) 109 ITR 7 P&H. The Andhra Pradesh High Court observed at page 229 thus : "A group of persons came together and acted together for doing business and earning profits. They, therefore, constitute an association of persons only. Under section 4 of the Income Tax Act, 1961, the unit for the Section 4 of the Income Tax Act, 1961, charges the income earned by such an association of persons called 'person' within the meaning of the definition clause of section 2(31), with liability to suffer Income Tax. It is no doubt true that an association of persons is a body of persons. It is no doubt true that an association of persons is a body of persons. But from this, it does not necessarily follow that in the matter of assessing the income earned by an association of persons, the Income Tax Officer has an option either to assess that body of persons called the association of persons or its individual members. Under section 4 of the Income Tax Act, 1961, the Income Tax Officer is left with no choice to assess the association of persons or alternatively the individual persons comprising that association of persons. Under section 4 of the Act, he has to levy tax only on the appropriate unit of Income Tax. It, therefore, becomes necessary to find out which is the appropriate unit of Income Tax in this case. The income was earned in this case not by the individuals but by an association of persons. Willy-nilly the Income Tax Officer had to levy tax on the association of persons which is the only appropriate unit of Income Tax assessment in this case. In fact, the Income Tax Officer in a case of this nature would be acting contrary to law if he assess as the assessee suggests before us on the facts of individual personal income." 17. Again, at page 231, the Bench pointed out that a perusal of section 4 of the 1961 Act would clearly show that the Income Tax Officer has been left with no discretion unlike the case under section 3 of the old Act. The relevancy of the last phrase found in section 3 of the old Act, i.e., ("or the members of the association individually") has been discussed at page 233. An earlier decision of the same High Court was dissented from because the said decision had not considered the change in the language of section 4. 18. Laxmichand Hirjibhai Vs. CIT, 1981 (128) ITR 747 is a decision of the Gujarat High Court. Two questions were considered by the Bench in the said decision (at p. 749) : "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that, even after assessing the partner of the firm, the firm could be taxed as unregistered firm under the Income Tax Act, 1961 ? Two questions were considered by the Bench in the said decision (at p. 749) : "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that, even after assessing the partner of the firm, the firm could be taxed as unregistered firm under the Income Tax Act, 1961 ? and (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the circular was not binding on the Income Tax Officer, and, therefore, the assessee was not entitled to the benefit thereof ?" 19. The court actually had to consider the effect of the circular issued by the Board which stated that the effect of the decision of the Supreme Court in Commissioner of Income Tax, Bombay South Vs. Murlidhar Jhawar and Purna Ginning and Pressing Factory, AIR 1966 SC 1536 : "... is that once the Income Tax Officer assesses directly an assessee's share of income from an association of persons or firm, it is not open to him to assess the same income again in the hands of the association of persons or firm. In other words once the assessment of a partner or a member of an association has been made by taxing directly his proportionate share from the firm or association, the Income Tax Officer is precluded from assessing the firm in the status of an unregistered firm or association of persons. Thus, all the partners of the firm or members of the association will have to be assessed as partners of a registered firm, even though while dealing with the assessment of the firm, the Income Tax Officer comes to the conclusion that the firm is not entitled to registration. Although the Supreme Court's decision is under the Indian Income Tax Act, 1922, the Board is advised that it will equally apply to the assessments made under the Income Tax Act, 1961. In view of the above decision, the Income Tax Officer assessing the partners of a firm should not normally complete the regular assessments of the partners by including their share from the firm unless the assessment of the firm had already been made. The Income Tax Officers assessing the firms must give priority to the disposal of the firm's assessments. In view of the above decision, the Income Tax Officer assessing the partners of a firm should not normally complete the regular assessments of the partners by including their share from the firm unless the assessment of the firm had already been made. The Income Tax Officers assessing the firms must give priority to the disposal of the firm's assessments. They should realise that if they delay the assessments of the firms, they would be responsible for the assessments of all the partners being held up. In an exceptional case if the Income Tax Officer assessing the firm feels that the assessment of the firm is likely to be delayed so that there would be unnecessary delay in the assessment of the partners, he may consider the firm's claim for registration and pass a suitable order under section 26A of the 1992 Act/184-185 of the 1961 Act even before passing the order of assessment. After an order on the firm's claim for registration has been passed by the Income Tax Officer, the Income Tax Officer assessing the partners can proceed with their assessments and include their share in the firm accordingly. The share so included can later be modified by the Income Tax Officer under section 155 after the firm's assessment or reassessment has been made." 20. The Bench held that the reasoning which went into this circular and the directions of the Board was that the provisions of the 1992 Act were on the same lines as the provisions of the Income Tax Act, 1961. The Bench further pointed out that (at p. 752) : "... even if there was deviation from the provisions of law in force and the circulars deviated from the legal position, the circulars were required to be followed by the Income Tax Officers since the circulars were benevolent circulars which would go to the assistance of the assessee." 21. At page 753, the Bench held : "Applying the principles laid down by the Supreme Court in Ellerman Lines Ltd. Vs. At page 753, the Bench held : "Applying the principles laid down by the Supreme Court in Ellerman Lines Ltd. Vs. Commissioner of Income Tax, West Bengal, Calcutta, AIR 1972 SC 524 , it is clear that even if in the case of the circular of August 24, 1966, referred to above, there was a deviation from the correct legal position on the part of the Central Board of Direct Taxes in stating that the provisions of the Act of 1961 were on the same lines as the provisions of the Act of 1922 and even if that deviation from the law was there when it was stated that the decision of the Supreme Court in Commissioner of Income Tax, Bombay South Vs. Murlidhar Jhawar and Purna Ginning and Pressing Factory, AIR 1966 SC 1536 , would apply equally to assessments made under the Income tax Act, 1961, that statement in the Board's circular would be binding on all officers functioning under the Act." 22. Thereafter, the Bench referred to the principle that income was subject to tax in the hands of the same person only once; thus, if an association or a firm was taxes in respect of its income, the same could not be charged again in the hands of the members individually and vice versa. It is in the context of this principle that the circular of the Board was understood as a benevolent circular and held to be binding on the Department or the Revenue. 23. In the case before the Gujarat High Court, the assessing authority sought to ignore the circular while the assessee insisted that the circular was bound to be followed by the Income Tax Officer. The court was concerned only with this question and not with whether the assessee was also bound by the circular. The circular, in no way, specifically states that, under section 4 of the 1961 Act, there is an option vested in the Income Tax Officer to assess the firm or its members. Similarly, the circular in no way, states that, under section 4, the Income Tax Officer has the option to assess the individual members or the association of persons. It simply states that the other entity shall not be charged to tax; in fact, the circular is confined to cases of firms and their partners; it does not refer to associations of persons. 24. It simply states that the other entity shall not be charged to tax; in fact, the circular is confined to cases of firms and their partners; it does not refer to associations of persons. 24. From the decision of the Gujarat High Court, it is not possible to infer that the court recognised an option having vested in the Income Tax Officer either to assess the firm or its partners or vice versa' the court was not at all concerned with the interpretation of section 4. 25. A circular issued by the Board is binding on the subordinate officer of the Income Tax Department. However, such a circular, if opposed to the provisions of the Act, is not enforceable against an unwilling assessee. The assessee is entitled to ignore the circular if its terms are beyond the scope of the provisions of the Act. Thus, if, under section 4 of the Act, no option is vested in the Income Tax Officer to assess the association of persons or its members individually, but tax has to be charged in the hands of the association of persons in respect of the income received by the association of persons, the ambit of section 4 cannot be widened by any circular issued by the Board so as to attract the charge on the members of the association of persons individually. The decision of the Gujarat High Court as also the scope of the circular are to be understood bearing in mind the above principle. 26. Under Section 3 of the Indian Income Tax Act, 1922, "body of individuals" was not taxable at all and a "body of individuals" which is not an association of persons was not a taxable entity. Under section 4 of the 1961 Act read with section 2(31) thereof, "body of individuals" is a taxable entity. In case the option existing in section 3 of the old Act is held to be found even in section 4 of the new Act, will this option extend to the case of "body of individuals" and its members ? The option was recognised under the old Act in view of the specific language of section 3 referring to "association of persons or member of association of persons individually"; can this be extended to the cases of "body of individuals" and its "members individually" by implication ? The option was recognised under the old Act in view of the specific language of section 3 referring to "association of persons or member of association of persons individually"; can this be extended to the cases of "body of individuals" and its "members individually" by implication ? Such an implication would hurt the doctrine that there is no implied power of taxation and the charging provisions cannot be extended beyond the clear language of the provisions. 27. In COMMISSIONER OF Income Tax, MADRAS-II Vs. BLUE MOUNTAIN ENGINEERING CORPORATION., (1978) 112 ITR 839 Mad, the Madras High Court had to consider the question whether the Income Tax Officer, having assessed the income in the hands of the partners, could assess the unregistered firm thereafter. It was contended on behalf of the Revenue that, under section 4 of the 1961 Act, there was no option left with the Income Tax Officer to assess except the unregistered firm which received the income and the unregistered firm was the right person who should be assessed to tax. The Bench observed (at page 847) : "Parliament, in enacting section 4 in the manner in which it appears in the statute did not apparently mean to make any change in the law as such as is clear from the Notes on Clauses accompanying the Bill. The obvious purpose behind the use of the word 'person' occurring in section 4 of the Act of 1961 was to shorten the provision and to eliminate repetition of the words found in section 2(31). There is no indication to show that Parliament intended to alter the powers of the Income Tax Officer in this behalf when it re-enacted section 4 in a slightly modified form. In fact, the decision of the Supreme Court or of the High Courts noticed above, where the question of option had come in for consideration, were all rendered subsequent to the passing of the Act of 1961, so that any intention to alter the law taking into account those pronouncements could not be attributed to it. However, we have to take into consideration the provision as it appears in the Act, and if the provision as it is in the statute would yield the construction of the option not being available to the Income Tax Officer as was the case under the preceding statute, then the provision will have to be given effect to. However, we have to take into consideration the provision as it appears in the Act, and if the provision as it is in the statute would yield the construction of the option not being available to the Income Tax Officer as was the case under the preceding statute, then the provision will have to be given effect to. The use of the word 'or' occurring in section 3 of the Act of 1922 and the use of the word 'and' in section 2(31), it is urged, show that the question of choice between the two alternatives is not available to the Income Tax Officer under the new Act. It is, however, to be remembered that in a definition provision the word 'or' would be out of place. The consequence of using the word 'person' in section 2(31) into section 4. If we read these words into section 4, then the use of the word 'and' would really involve the consequence of the elimination of a choice between the two alternatives. Thus there is something to be said in favour of the construction contended for by the Revenue." 28. The High Court referred to a decision of the Patna High Court in CIT Vs. Pure Nichitpur Colliery Co. [1975] 101 ITR 79 (Patna), as upporting its view. But, this decision of the Patna High Court actually flows out of section 183 of the 1961 Act, wherein a specific power to assess an unregistered firm or its partners is given. In fact, in all cases of an income accruing to a firm, specific provisions found in Chapter XVI of the Act are to be considered' the said chapter contains "special provisions applicable to firms". 29. In the aforesaid case before the Madras High Court, as a matter of fact, exercise of an option is not discernible; one of the partners of the firm was assessed by mistake and action to assess the firm was taken in the meanwhile, after service of notice on the firm. The observations at page 848 indicate that the Bench relied upon section 147 which empowers the assessment of an income which had escaped assessment in the hands of the right person. The observations at page 848 indicate that the Bench relied upon section 147 which empowers the assessment of an income which had escaped assessment in the hands of the right person. However, the Bench had to consider the scope of section 4 of the Act and the availability of the option in the light of the contention advanced on behalf of the Revenue which asserted that there was no such option. The existence of the circular issued by the Board (referred to by us already) was not brought to the notice of the Bench. The ultimate decision of the High Court resulted in giving full effect to the said circular which binds the Department of Income Tax. 30. In another decision rendered in Commissioner of Income Tax Vs. S.R. Kandan Chettiar and Sons, (1990) 186 ITR 339 Mad, the Madras High Court again held that the option that was found in section 3 of the 1992 Act continued to exist even in section 4 of the 1961 Act. The assessment made on the firm was set aside by the court with a direction to make further assessment according to law, since the constitution of the firm was found to be invalid; after this order was altered by the Appellate Tribunal, the Income Tax Officer proceeded to assess the firm treating it as an unregistered firm. The Appellate Assistant Commissioner held that the status of the assessee was that of an association of persons. Since the members of the association of persons were already assessed, it was not open to assess the income again in the hands of the association of persons. This view was altered by the Appellate Tribunal which held that the option having once been exercised to assess the income in the hands of the partners, the firm cannot be assessed. Reference was sought by the Revenue which mainly contended that there was no material at all to hold that the Income Tax Officer had exercised his option and, that therefore, he could not assess the firm again. Reference was sought by the Revenue which mainly contended that there was no material at all to hold that the Income Tax Officer had exercised his option and, that therefore, he could not assess the firm again. The question referred to the court is found at page 340 as under : "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding and had valid material to hold that the Income Tax Officer had exercised his option of assessing the income of the assesses-association in the hands of its members individually and that the assessments made in the hands of the assesses-association are not valid ?" 31. The Revenue, at the outset, contended that, under the 1961 Act, there was no option at all under section 4. This was considered at page 343 and the Bench followed the view expressed by the same High Court in COMMISSIONER OF Income Tax, MADRAS-II Vs. BLUE MOUNTAIN ENGINEERING CORPORATION., (1978) 112 ITR 839 Mad . On facts, the Bench held that the Income Tax Officer had in fact exercised his option already and, therefore, the firm could not be assessed again. Here again, the circular of the Board which binds the Department was not referred to. 32. Learned counsel for the Revenue relied upon the report found in 178 ITR 73 , which states that the decision of the Madras High Court in COMMISSIONER OF Income Tax, MADRAS-II Vs. BLUE MOUNTAIN ENGINEERING CORPORATION., (1978) 112 ITR 839 Mad was affirmed by the Supreme Court; the said report reads : "25-7-1989 : Their Lordships S. Ranganathan and T. Kochu Thommen JJ., dismissed the Department's special leave petition against the judgment dated October 20, 1986 of the Madras High Court in T. C. Nos. 338-346 of 1984 whereby the High Court, following COMMISSIONER OF Income Tax, MADRAS-II Vs. BLUE MOUNTAIN ENGINEERING CORPORATION., (1978) 112 ITR 839 Mad, answered against the Department the question whether, where the Income Tax Officer had already assessed each member of an association of persons (under the 1961 Act), he could again assess the association of persons. 338-346 of 1984 whereby the High Court, following COMMISSIONER OF Income Tax, MADRAS-II Vs. BLUE MOUNTAIN ENGINEERING CORPORATION., (1978) 112 ITR 839 Mad, answered against the Department the question whether, where the Income Tax Officer had already assessed each member of an association of persons (under the 1961 Act), he could again assess the association of persons. While dismissing the petition their Lordship made the following order : "In view of the fact that the view taken by the Tribunal is also the view that has been followed since 1966 as per Circular of the Central Board of Direct Taxes, dated August 24, 1966, extracted in 128 ITR 747, 751, we do not think this is a fit case for interference under article 136. The special leave petitions are, therefore, dismissed." 33. The ratio as indicated from the extract of the dismissal order does not refer to any option under section 4 of the Act. The decision of the Madras High Court was affirmed in view of the circular issued by the Board. 34. In fact the decision of the Andhra Pradesh High Court (reported subsequently in Choudry Brothers Vs. Commissioner of Income Tax, (1986) 158 ITR 224 AP was also affirmed by the Supreme Court as is clear from the report found in 1955 ITR 65 (item 7). This reads : "5-8-1985 : Their Lordships V. D. Tulzapurkar and V. Khalid JJ., dismissed a special leave petition by the assessee, a firm, against the judgment dated January 17, 184 of the Andhra Pradesh High Court in C. R. No. 93 of 1978, whereby the High Court answered against the assessee the question whether the Income Tax Officer was justified in assessing it as an association of persons and refusing registration on the ground that the partnership deed had been signed on behalf of one of the partners by his guardian because he was a minor, and the fact that the minor had, on attaining majority, informed the Registrar of Firms that he wished to continue as a partner, would have no effect because the partnership deed making the minor a full partner was void : Chowdhury Bros. v. CIT : SLP (Civil) No. 6438 of 1985." 35. Here again, the decision was affirmed by reference to the facts of the case. v. CIT : SLP (Civil) No. 6438 of 1985." 35. Here again, the decision was affirmed by reference to the facts of the case. Therefore, we have to proceed that there is no authoritative pronouncement by the Supreme Court on this vexed question. 36. The Revenue has been taking inconsistent stands before different High Courts. Before the Madras High Court, the Department asserted that the Income Tax Officer had no option under section 4 of the 1961 Act while, before the Andhra Pradesh High Court, it contended that it had such an option. But, in all these cases, basically, firms were involved and they are governed especially by Chapter XVI of the Act; similarly, the Income Tax Officer was bound by the circular issued by the Board; he has no option except to act as per the circular. 37. In the instant case, before us, the assessee questions the enforceability of the circular and contends that, under section 4 of the 1961 Act, there is no option to the Income Tax Officer to assess any person other than the proper person and if the recipient of the income is the association of persons, then, the share of the members of the association of persons cannot be assessed in their hands by invoking any implied option. 38. The circular certainly would not bind the assessee. The assessee is entitled to rely on the scope of the Act and contend that the circular is outside the said scope. The assessee, here, also contends that the circular, in no way, interprets section 4 of the Act and the circular has to be confined to the cases of the firms referred therein with a view to avoid double taxation. 39. We have heard these references at great length and considered the problem to the fullest extent possible by us. As already observed earlier, we prefer to follow the views expressed by the Andhra Pradesh High Court. Section 4 of the 1961 Act aims at simplification of the Act and reduces the discretionary power of the assessing authorities in the matter of assessing one unit as against another. If the law is susceptible of two interpretations, the interpretation which reduces the discretionary power in the executive, as against a specific power, should be followed. Section 4 of the 1961 Act aims at simplification of the Act and reduces the discretionary power of the assessing authorities in the matter of assessing one unit as against another. If the law is susceptible of two interpretations, the interpretation which reduces the discretionary power in the executive, as against a specific power, should be followed. When a specific taxable entity is recognised as a taxable person (such as an association of persons or a body of individuals), normally, such an entity is to be taxed in respect of the income received by it. Any power to tax someone else to the extent of his share in the said income should be clearly spelt out by law; doubt, if any, as to the scope of the charging section has to be resolved by holding that tax has to be charged in the hands of the recipient of the income which is clearly recognised as a "person", rather than implying a power to assess the said "person" or someone else. 40. Whenever a different entity has to be taxed from the one which received the income, the Act has taken care to specifically create such power as could be seen in the case of unregistered firms. The Act has recognised the association of persons as a taxable unit. Having recognised it as such full effect will have to be given to the said recognition and all the consequences flowing from such recognition will have to be respected. 41. Therefore, we are of the view that the Tribunal having found that the capital gain was earned by the association of persons could not have directed the Income Tax Officer to divide the said income among the members of the association of persons. The answer to the question referred to us will have to be in the negative and against the Revenue. References answered accordingly.