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Judgment
S. Kannan, Member (A)
Giving rise as they do to a single common question, these five appeals by the assessees were heard together and are disposed of by a common
order.
The material facts of the case are that at the relevant point of time the assessees before us were the members of an AOP called ""Makshri
Shrimathi Enterprises"" (hereinafter referred to as the ""small AOP""). In its turn, the small AOP was a member of another AOP called ""Maxima
Andal Enterprises"" (hereinafter referred to as the ""main AOP"").
It is common ground that the income of the main AOP was brought to charge in its hands. The share of the small AOP of the income of the main
AOP was chargeable to tax in its hands, subject of course to the provisions of s. 86(v) of the Act. Since the small AOP did not have any income
other than its share of the income of the main AOP, the application of s. 86(v) meant that no tax was payable by the small AOP. The assessments
of the small AOP were made on the said basis.
In the case of the assessees before us, their share of the income of the small AOP was chargeable to tax in their hands subject of course to the
provisions of s. 86(v) of the Act. In the assessment as made initially the provisions of s. 86(v) were applied and necessary rebate granted.
Subsequently, the AO found that since the two assessees before us were the members of the small AOP which did not pay tax by reason of the
application of the provisions of s. 86(v) to its share of the income of the main AOP, rebate under s. 86(v) was wrongly allowed in the assessments
as originally made. He, therefore, initiated rectification proceedings under s. 154 of the Act and invited the objections of the assessee. The
assessees responded by contending that even though the small AOP had not paid tax on its total income, the entire income of the small AOP came
out of the income of the main AOP which itself had paid tax. Therefore, rebate under s. 86(v) was rightly allowed to them and that consequently
there was no mistake apparent from record. The said contentions did not find favour with the AO who proceeded to pass rectification orders with
drawing the benefit of rebate under s. 86(v) earlier granted to the assessees in the original assessment.
The assessees were unsuccessful before the first appellate authority. It is in these circumstances that the assessees are now before us.
Shri S. A. Balasubramaniam, the learned counsel for the assessee, took us through the facts of the case and reiterated the arguments that had
earlier been advanced unsuccessfully before the lower authorities. According to him, since the only source of income of the small AOP was its
share of the income of the main AOP, rebate under s. 86(v) of the Act rightly allowed to the assessee before us.
The second limb of Shri Balasubramaniams argument was that, in any event, this was not a fit case for invoking the provisions of s. 154 of the Act
because the issue involved is a debatable one.
On her part, Smt. Leelawathi Mohapatra, the learned Departmental Representative, strongly supported the impugned orders of the lower
authorities. She contended first that in the assessment as originally made on the assessees before us, rebate under s. 86(v) of the Act came to be
allowed under the mistaken impression or misconception that the assessees share of income came out of the income of the main AOP which was
not the case. The assessees income came only out of the small AOP. Therefore, there is a factual mistake which was rightly rectified under s. 154
of the Act.
Secondly, the provisions of s. 86(v) of the Act are very clear. Those provisions apply to each and every AOP and the benefit of rebate
contemplated by and under that section is available only to the members of the respective AOPs. There is nothing in the section to suggest even
remotely that the benefit of that section must be extended to cases of the type under consideration. In other words, since the assessees before us
were not themselves members of the main AOP, the question of their getting a rebate under s. 86(v) does not arise, notwithstanding the fact that
the only source of income of the small AOP of which they were members was traceable to the income of the main AOP.
We have looked into the facts of the case. We have considered the rival submissions.
The material facts of the case have already been set out. It is, therefore, unnecessary to repeat them. It is, however, necessary to notice closely
the provisions of s. 86(v) of the Act.
Sec. 86 of the Act occurs under Chapter VII - which deals with Income forming part of total income on which no Income Tax is payable. Of
relevance to the purpose on hand are the provisions of s. 86(v), which reads as under :
Income Tax shall not be payable by an assessee in respect of the following -..........
if the assessee is a member of an association of persons, or a body of individuals other than an HUF, a company or a firm, any portion of the
amount which he is entitled to receive from the association or body on which Income Tax has already been paid by the association or body.
(Explanation to s. 86(v) is not reproduced here as it is not relevant).
A plain reading of the said provisions will indicate that the benefit contemplated by them will be available to an assessee only if the prescribed
conditions are satisfied. In relation to an assessee who is a member of an AOP the conditions are :
(a) The assessee must be a member of an AOP;
(b) He must be entitled to receive some amount from the AOP; and
(c) Income Tax must have been already paid by the AOP on the sum referred to in (b) above.
It is self-evident that unless the aforesaid three conditions are satisfied cumulatively, the benefit of relief under s. 86(v) will not be available to the
assessee. It is equally self-evident that when the section talks of an assessee being member of an AOP, it talks only of that AOP of which he is
directly a member. It does not talk of any other AOP with which the assessee might be remotely or indirectly connected. It is also self-evident that
s. 86(v) exhausts itself, once it is applied to the share of a particular person in the income of an AOP of which he is the member.
In the case before us, the assessees are members of only the small AOP. They are not members of the main AOP. It is the small AOP which is
a member of the main AOP. In relation to its share in the income of the main AOP, the small AOP has enjoyed the benefit of s. 86(v). Thus, vis-a-
vis the small AOP and qua a member of the main AOP, s. 86(v) has exhausted itself.
Now, it is a matter of record that Income Tax was not paid by the small AOP. True, the small AOP did not pay tax on its share of the income of
the main AOP by virtue of s. 86(v). But this factor does not alter the fact-situation that the small AOP did not pay tax in its share of the income of
the main AOP. And if the small AOP had not paid tax on its income, the question of its members (viz., the assessees before us) getting the benefit
of rebate under s. 86(v) does not arise. In such a situation there is no question of harking back to the main AOP and its income.
In view of the foregoing, therefore, we hold that evidently the grant of rebate to the assessee in the original assessment was a mistake - a
mistake occasioned by misconception as to facts and law. We, therefore, decline to interfere in the matter.
In the result, the appeals filed by the assessees are dismissed.