Commissioner of Income Tax (Central) vs Smt. Vandana Verma

List is being revised.

Neither learned Counsel for the respondent or respondent is present nor there is any request for pass over or adjournment of the case in spite of service having been reported to be sufficient, as per order-sheet.

Heard Sri D.D. Chopra, learned Counsel for the appellant and perused the records.

This appeal has been filed u/s 260A of the Income Tax Act, 1961 [hereinafter referred to as the ''Act'' for the sake of brevity] against the judgment and order dated 30.9.2008 passed by the Income Tax Appellate Tribunal, Lucknow Bench, Lucknow in Appeal No. I.T.A. No. 822/Luc/2009 & ITA No. 826/Luc/2006 for the Block Period 1.4.1995 to 17.10.2001.

This Court, vide order dated 27.3.2009, admitted the appeal on the following substantial question of law:

I. Whether on the facts and in the circumstances of the case, the learned Income Tax Appellate Tribunal was justified in holding that the assessment was not justified simply because the warrant of search was not in the single name of the assessee but included the name of her husband also.

II. Whether the learned Income Tax Appellate Tribunal was justified in law in holding that the assessment could have been made in both the names, as the warrant of search contained both the names, is contrary to the provisions of the I.T. Act, 1961 which does not provide for assessment in joint names.

Undisputed facts are that a warrant of authorization u/s 132(1)(C) of the Act, 1961 was issued duly signed by the competent authority in the joint name of Mr. Mudit Verma and Mrs. Vandana Verma to enter and search the residence at Bijwa House, 28, Park Road, Lucknow on 17.10.2001. Separate warrants of authorization u/s 132(1)(C) of the Act were also issued in the name of different persons covering different premises such as Sri Avdhesh Kumar, Jaiswal Complex, 6-B, Park Road, Lucknow; M/s Mansarovar Sahkari Avas Samiti Ltd., D-Block, Indira Nagar, Lucknow; Mansarovar Urban Co-operative Bank Ltd., Ground Floor, A-969, Indira Nagar, Lucknow; Hotel Mansarovar International- Hardwar, Moti Bazar, Hardwar; Sh. P.K. Pandey-G.M.(Finance) of U.P. Avas Sangh Ltd.; Sri Anil Kumar and Amita Singh at Meerut; and Sri Ajay Kumar Lucknow on 17/18.10.2001. During the search operation, seizure operation was also carried out, seizing books of accounts, documents, papers and diaries including loose papers and other material of all the entities. Subsequently, proceedings were initiated under Chapter XIV-B of the Act, which prescribes special procedure for assessment of search cases. The said chapter comprises Sections 158B to 158BL. As the instant case is of search, a notice u/s 158BC of the Act in the name of Mrs. Vandana Verma was issued on 23.4.2003 for computation of undisclosed income of the block period 1.4.1995 to 17.10.2001 and the same was duly served on the assessee on 30.4.2003, to which the assessee tendered her reply but the reply so tendered by the assessee did not find favour with the Assessing Authority, resulting in the computation of total income including undisclosed income at Rs. 17,312,432/-for the said block period 1.4.1995 to 17.10.2001 and in pursuance thereof, a notice of demand was also issued. The said order of additions in the income was assailed by the assessee on about 90 grounds including legal objection that the Assessing Officer has utilized material seized from the possession and control of third party without following due procedure as prescribed u/s 158BD. The said legal ground did not find favour with the First Appellate Authority and the additions made on the basis of the documents seized from third party were not deleted. The First Appellate Authority, however, deleted certain additions made for ineligible expenditure and allowed the appeal partly.

Being aggrieved thereof, revenue as well as assessee preferred second appeal before the Income Tax Appellate Tribunal, where for the first time, a preliminary objection with regard to the framing of assessment in individual capacity has been raised by the assessee as the search warrant was in joint name and this fact was not disputed by the Revenue. The said objection was upheld by the Tribunal and accordingly, appeal of the assessee was allowed on the preliminary point itself. Further, the Tribunal observed that there is no necessity to deal with the revenue''s appeal on merit and accordingly, dismissed the appeal of revenue by the common order dated 30.9.2008. Hence this appeal has been filed for adjudication of the substantial question, referred to above.

In order to answer the question raised in the instant appeal, it would be appropriate to deal with the provisions of Section 132(1)(c) and other connected provisions. The relevant provisions of 132(1)(c) are reproduced as under:

Section 132(1) Where the [Director General or Director] or the [Chief Commissioner or Commissioner] [or any such [Joint Director] or [Joint Commissioner] as may be empowered in this behalf by the Board], in consequence of information in his possession, has reason to believe that

(a) ....

(b) ....

(c) any person is in possession of any money, bullion, jewellery or other valuable article or thing and such money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or property [which has not been or would not be, disclosed] for the purposes of the Indian Income Tax Act, 1922 (11 of 1922), or this Act (hereinafter in this section referred to as the undisclosed income or property) then,

(A) the Director General or Director or the Chief Commissioner or Commissioner, as the case may be, may authorise any Joint Director, Joint Commissioner, Assistant Director or Deputy Director, Assistant Commissioner or Deputy Commissioner or Income Tax Officer, or

(B) such Joint Director, or Joint Commissioner, as the case may be, may authorise any Assistant Director or Deputy Director, Assistant Commissioner or Deputy Commissioner or Income Tax Officer, (the officer so authorised in all cases being hereinafter referred to as the authorised officer) to

(i) enter and search any building, place, vessel, vehicle or aircraft where he has reason to suspect that such books of account, other documents, money, bullion, jewellery or other valuable article or thing are kept;

(ii) break open the lock of any door, box, locker, safe, almirah or other receptacle for exercising the powers conferred by Clause (i) where the keys thereof are not available;

(iia) search any person who has got out of, or is about to get into, or is in, the building, place, vessel, vehicle or aircraft, if the authorised officer has reason to suspect that such person has secreted about his person any such books of account, other documents, money, bullion, jewellery or other valuable article or thing;

(iib) require any person who is found to be in possession or control of any books of account or other documents maintained in the form of electronic record as defined in Clause (t) of Sub-section (1) of Section 2 of the Information Technology Act, 2000 (21 of 2000), to afford the authorised officer the necessary facility to inspect such books of account or other documents;

(iii) seize any such books of account, other documents, money, bullion, jewellery or other valuable article or thing found as a result of such search;

(iv) place marks of identification on any books of account or other documents or make or cause to be made extracts or copies there from;

(v) make a note or an inventory of any such money, bullion, jewellery or other valuable article or thing:

Provided that where any building, place, vessel, vehicle or aircraft referred to in clause(i) is within the area of jurisdiction of any Chief Commissioner or Commissioner, but such Chief Commissioner or Commissioner has no jurisdiction over the person referred to in Clause (a) or Clause (b) or Clause (c), then, not with standing anything contained in Section 120, it shall be competent for him to exercise the powers under this Sub-section in all cases where he has reason to believe that any delay in getting the authorisation from the Chief Commissioner or Commissioner having jurisdiction over such person may be prejudicial to the interests of the revenue: Provided further that where it is not possible or practicable to take physical possession of any valuable article or thing and remove it to a safe place due to its volume, weight or other physical characteristics or due to its being of a dangerous nature, the authorised officer may serve an order on the owner or the person who is in immediate possession or control thereof that he shall not remove, part with or otherwise deal with it, except with the previous permission of such authorised officer and such action of the authorised officer shall be deemed to be seizure of such valuable article or thing under clause(iii).

On perusal of the provisions of Section 132(1)(c), it reflects that the officer empowered by the Board has reason to believe that "any person" who is in possession of any money, bullion, jewellery or other valuable article or thing and such money bullion, jewellery or other valuable article or thing representing wholly or partly income or property, which has not been or would not be disclosed under the Income Tax Act, 1961, then, authorities, referred in Clause ''A'' of Section 132(1)(c), authorizes the authorities referred to in Clause ''B'' of Section 132(1)(c) to enter the premises and search any building, place, vessel, vehicle or aircraft and also seized any such books of account, other documents, money bullion, jewellery or other valuable article or thing etc., after making a note or an inventory of any such money, bullion, jewellery or other valuable article or thing. Thus, for authorizing action u/s 132, the conditions precedent are: (i) the information in the possession of the named authority; and (ii) in consequence of which he may have reason to believe that the person concerned is in possession of money, bullion, etc., which represents, either wholly or partly, income which has not been or would not be disclosed for the purpose of the Act. If either of these conditions are missing or have not been adhered to, then power u/s 132 cannot be invoked. Thus, the basis of exercise of power u/s 132(1) has to be formation of belief and the belief has to be formed on the basis of receipt of information by the authorising officer that the person is in possession of money, etc., which represents undisclosed income. "Information", in consequence of which the Director-General or the Chief Commissioner, etc., as the case may be, has to form his belief has not only to be authentic but capable of giving rise to the inference that a person is in possession of money, etc., which has not been or would not be disclosed for the purpose of the Act. In other words, it must necessarily be linked with the ingredients mentioned in the section.

The words ''reason to believe'' u/s 132(1)(C) refer to a belief that money or other asset belongs to a particular individual and such money or other asset represented undisclosed income of that individual. What is important and relevant is the reason to believe that it is the undisclosed income of a person and not in whose physical possession the same is. see Gulab and Company and Another Vs. Superintendent of Central Excise (Preventive) and Others,

In order to resolve the controversy as to who will be "any person", it will be necessary to comprehend the meaning of "any person".

It is pertinent to mention here that the definition of word "any" has not been defined under the Income Tax Act, 1922 but the meaning of word "person" has been defined u/s 2(31) of the Income- tax Act.

For the purpose of resolving the controversy, it is necessary to have meaning of word "any" though as mentioned above, there is no meaning of word "any" under the Income Tax Act. The word "any" has a diversity of meanings and may be employed to indicate "all" or "every" as well as "some or "one" and its meaning in a given statute depends upon the context and the subject matter of the statute. It is often synonymous with "either", "every" or "all". Its generality may be restricted by the context.

Now, let us consider a few particular cases when the General Clauses Act would assist in the interpretation of the Income Tax Act 1961. The word "Person" as defined u/s 2(31) of the Income Tax Act, 1961 "person" includes -

(i) an individual,

(ii) a Hindu undivided family

(iii) a company,

(iv) a firm,

(v) an association of persons or a body of individuals, whether incorporated or not,

(vi) a local authority, and

(vii) every artificial juridical person, not falling within any of the preceding sub- clauses;

Explanation.-For the purposes of this clause, an association of persons or a body of individuals or a local authority or an artificial juridical person shall be deemed to be a person, whether or not such person or body or authority or juridical person was formed or established or incorporated with the object of deriving income, profits or gains.

This is an inclusive definition which is much beyond the scope of person as defined in Section 2(42) of the General Clauses Act, 1897 which merely states that "Person" shall include any company or association or body of individuals whether incorporated or not. Thus the definition of person in relation to proceedings under the Income- tax Act, 1961 would be as per its own Section 2(31) and not as per the General Clauses Act, 1897. Local Authority is not defined in the Income Tax Act separately but however defined u/s 2(31) of the General Clauses Act, 1897 as "shall mean a municipal committee, district board, body of Port Commissioners or other authority legally entitled to, or entrusted by the Government with, the control or management of a municipal or local fund". Thus a local authority is a person under the Income Tax Act, 1961, but what constitutes a local authority is defined in The General Clauses Act, 1897.

In the instant case, the relevant words in the definition of the persons are ''individual'' and ''association of persons'', which though has not been defined under the Income Tax Act but the expression has been considered by Hon''ble Apex Court in various cases.

Now, we deal with the relevant clauses of Section 2(31) of the Income Tax Act. An ''Individual'' means human being because it is used as something distinct from a joint family, firm and company. One cannot give to the word ''individuals'' in the expression ''association of individuals'' a different meaning to that which the word ''individuals'' bears where it appears in the same phrase COMMISSIONER OF Income Tax, BOMBAY RESIDENCY Vs. AHMEDABAD MILLOWNERS ASSOCIATION.,

The expression ''individual'' is now a unit of assessment and referable only to a natural person, i.e., a human being, a situation different from that in the 1922 Act - Udham Singh v. CIT (1987) 35 Taxman 275 (Ori.).

It is now well-settled that the word ''individual'' does not necessarily and invariably always refer to a single natural person. A group of individuals may as well come in for treatment as an individual under the tax laws if the context so requires Commissioner of Income Tax Vs. Shri Krishna Bandar Trust,

''Family'' connotes a group of people related by blood or marriage. According to Shorter Oxford English Dictionary, 3rd edition, the word ''family'' means the group consisting of parents and their children, whether living together or not; in a wider sense, all those who are nearly connected by blood or affinity; a person''s children regarded collectively; those descended or claiming descent from a common ancestor; a house, kindred, lineage; a race; a people or group of peoples. According to Aristotle''s Politics I, it is the characteristic of man that he alone has any sense of good and evil, or just and unjust, and the association of living beings who have this sense make a family and a State.

The word ''family'' always signifies a group. Plurality of persons is an essential attribute of a family. A single person, male or female, does not constitute a family. He or she would remain, what is inherent in the very nature of things, an individual, a lonely wayfarer till per chance he or she finds a mate. A family consisting of a single individual is a contradiction in terms. Section 2(31) of the 1961 Act treats a HUF as an entity distinct and different from an individual and it would be wrong not to keep that difference in view - C. Krishna Prasad Vs. Commissioner of Income Tax , Bangalore,

''Firm'' is a collective noun, a compendious expression to designate an entity, not a person. In Income Tax law a firm is a unit of assessment by special provisions but is not a full person - Commissioner of Income Tax, Madras Vs. R.M. Chidambaram Pillai and Others,

The word ''associate'' means, according to the Oxford Dictionary, ''to join in common purpose or to join in an action''. Therefore, an association of persons must be one in which two or more persons join in a common purpose or common action, and as the word occurs in Section 3 of the 1922 Act, which imposes a tax on income, profits or gains, the association must be one of the objects, which is to produce income, profits or gains - Commissioner of Income Tax, Bombay Vs. Smt. Indira Balkrishna,

''Association of persons'' as used in Section 2(31) means an association in which two or more persons join in a common purpose or common action, and as the words occur in a section which imposes a tax on income, the association must be one, the object of which is to produce income, profits or gains - N.V. Shanmugam and Co. Vs. The Commissioner of Income Tax, Madras,

For forming an ''association of persons'' the members of the association must join together for the purpose 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. Even a minor can join an ''association of persons'' if his 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'' G. Murugesan and Brothers Vs. Commissioner of Income Tax , Madras,

To ''Associate'' is to join in a common purpose or action. ''Association'' does necessitate the exercise of volition of those who form the association. The exercise of that volition can be by or on behalf of those who form the association - Estate of khan Sahib Mohd. Oomer Sahib and Another Vs. Commissioner of Income Tax, Madras, An association of persons does not mean any and every combination of persons. It is only when they associate themselves in an income-producing activity that they become an association of persons. They must combine to engage in such an activity; the engagement must be pursuant to the combined will of the persons constituting the association; there must be a meeting of the minds, so to speak. In a nutshell, there must be a common design to produce income. If there is no common design, there is no association. This interpretation of the expression ''association of persons'' flows from the meaning of the word ''association'' Deccan Wine and General Stores Vs. Commissioner of Income Tax,

Joining together by the members of the association for the purpose of producing income is a prerequisite for formation of an association of persons. Such coming together or combining is a consensual act and depends upon the volition of the parties. Merely because certain persons are constituted joint owners, such as by inheriting the property of a person on his death, they do not become an association of persons, for, in that event, the jointness is the result of operation of law and not of volition of parties COMMISSIONER OF Income Tax Vs. T. V. SURESH CHANDRAN AND OTHERS.,

The expression ''body of individuals'' should receive a wide interpretation, perhaps not wide enough to include a combination of individuals who merely receive income jointly without anything further as in the case of co-heirs inheriting shares or securities, but certainly wide enough to include a combination of individuals who have a unity of interest but who are not actuated by a common design, and one or more of whose members produce or help to produce income for the benefit of all Deccan Wine & General Stores v. CIT (1976) 105 ITR 111 .

The body of individuals with which the Income Tax Act is concerned must be carrying on an activity with a view to earn income because it is only with such a body of individuals that the Income Tax Act is concerned and again the words ''body of individuals'' derive colour from the context in which they occur, namely, an ''association of persons'' and, therefore, the only course open as a matter of interpretation is to attribute the second meaning out of the three meanings set out hereinabove to the words ''body of individuals''. The words ''body of individuals'' occurring in the Income Tax Act in the definition of the word ''person'' in Section 2(31), therefore, could only mean a conglomeration of individuals, who carry on some activity with the object of earning income Commissioner of Income Tax, Gujarat III Vs. Harivadan Tribhovandas,

Thus, the expression ''person'' as defined in Section 2(31) includes ''an Association of Persons (AOP) or Body of Individuals (BOI), whether incorporated or not''. The Legislature had definitely some purpose in mind while specifically including a BOI in the category of persons along with ''AOP''. It will not be proper to say that ''BOI'' must be given the same meaning as attributed to ''AOP'' by the Supreme Court in Commissioner of Income Tax, Bombay Vs. Smt. Indira Balkrishna, Doing so, will render the entire exercise of defining the expression and incorporating specifically ''BOI'' within the ambit of particular category of persons redundant. The expression ''BOI'' must be given a definite meaning of its own. ''AOP'' and ''BOI'' convey two different combinations of persons and it will not be proper to try to apply the principle of ejusdem generis to give the same restricted meaning to the newly introduced expression ''BOI'' as had been given by the Supreme Court to AOP on interpretation of the word ''association''. The fact is that the expression ''BOI'' must receive a wider interpretation than Commissioner of Income Tax Vs. Modu Timblo (Individual),

The absence of a common design is what principally distinguishes a body of individuals from an association of persons. Another distinguishing feature is that the one refers to persons and the other to individuals Deccan Wine and General Stores Vs. Commissioner of Income Tax,

It is possible to attribute any one of the following three meanings to the expression ''body of individuals'' occurring in the Income Tax Act, 1961:

(1) on the same basis as an ''association of persons'', that is, the members of the body must have joined together for the purpose of producing income;

(2) a conglomeration of individuals who happened to have come together but who carry on some activity with a view to earn income or profits or gains; and

(3) any conglomeration of individuals whatsoever irrespective of the object which brought them together and irrespective of the activities which they carry on.

It is clear that if the first meaning were to be adopted, that would be the narrowest meaning and adoption of that meaning would mean attributing tautology to the Legislature and there would be no difference between an ''association of persons'' and ''a body of individuals''. Acceptance of the meaning would mean that the Legislature had used the words ''body of individuals'' in vain to describe one and the same group of individuals. On the other hand, if the third meaning is accepted, then the principle of noscitur a sociis would be lost sight of. Though the principle of ejusdem generis cannot be applied to the definition of the word ''person'' occurring in Section 2(31), since there is no specific genus to which an individual, a HUF, a company, a firm or an association of persons can be said to belong, the principle of noscitur a sociis can certainly apply in the facts of this case. The body of individuals with which the Income Tax Act is concerned must be carrying on an activity with a view to earn income because it is only with such a body of individuals that the Income Tax Act is concerned and again the words ''body of individuals'' derive colour from the context in which they occur, namely, an ''association of persons'' and, therefore, the only course open as a matter of interpretation is to attribute the second meaning out of the three meanings set out hereinabove to the words ''body of individuals''. The words ''body of individuals'' occurring in the Income Tax Act in the definition of the word ''person'' in Section 2(31), therefore, could only mean a conglomeration of individuals who carry on some activity with the object of earning income Commissioner of Income Tax, Gujarat III Vs. Harivadan Tribhovandas,

In view of the provisions of Section 132 of the Income Tax Act, which specifically lays down the conditions precedent for authorizing any officer to enter and search the premises that he had information in his possession in consequence of which he has reason to believe that the person concerned is in possession of money, bullion etc. and only then, he will sign the warrant of authorization. In the instant case, undisputedly, warrant of authorization u/s 132 of the Income Tax Act was issued in the joint name of Mudit Verma and Vandana Verma and as such, the authority who signed the warrant had information in his possession and had reason to believe that Mudit Verma and Vandana Verma are in possession of undisclosed assets such as money, bullion etc. and have also undisclosed income jointly as word "and" means jointly. Accordingly, he has signed the warrant as aforesaid in the joint name of ''Mudit Verma and Vandana Verma''. In case, authorizing authority had information in his possession in consequence of which he had reason to believe that Mudit Verma and Vandana Verma though living in single premises as husband and wife, possessed undisclosed assets including income separately, then, he might have issued warrant of search individually for conducting the search as both Mudit Verma and Vandana Verma are assessed to income tax in their individual capacity, which reflects from the orders passed by the assessing authority as well as First Appellate Authority. Moreover, as the warrant of authorization has been issued in the joint name of Mudit Verma and Vandana Verma, who are husband and wife living together in a single premise, it is not open for the assessing authority to assess Smt. Vandana Verma on the basis of the assets and documents seized during the course of search in pursuance to the warrant of authorization which is in the joint name and that too by invoking the provisions of Chapter XIV-B in an individual capacity but she can be assessed jointly only as association of persons or body of individual as per the definition of word ''person'' under the Income- tax Act as the intention of the legislature by inserting Chapter XIV-B in the statute book, which provides for special procedure for assessment of search cases only. Search cases arise on the basis of warrant of authorization u/s 132 of the Act and in pursuant thereof, search is carried out and the undisclosed assets are seized and assessment is made of undisclosed income by issuing the notice u/s 158BC for computation of undisclosed income of the Block Period.

In view of the above, in our opinion, the warrant of authorization must be issued individually by the Director/Commissioner at the time of issuing the same. If the same is not issued individually, then assessment cannot be made in an individual capacity as done by the Assessing Officer in the instant case. The warrant was issued jointly, as stated hereinabove, so the assessment will have to be made collectively in the name of both the persons in the status of AOP/BOI. Thus, the Tribunal has rightly held that assessment could not be framed in an individual capacity but it should be framed either as association of persons or as body of individual.

In the light of the above discussions and by considering the totality of the facts and circumstances of the case, we uphold the impugned order passed by the Tribunal, who has rightly set-aside the assessment orders which were passed in individual capacity of the assessee. However, it will be open to the assessing authority to proceed and pass fresh assessment order in accordance with law, if so desire.

The appeal is, therefore, dismissed.