Full Judgment Text
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PETITIONER:
M/S. MEERA COMPANY,LUDHIANA
Vs.
RESPONDENT:
THE COMMISSIONER OF INCOME TAX,PUNJAB, J&K AND CHANDIGARH,PA
DATE OF JUDGMENT: 11/03/1997
BENCH:
B.P. JEEVAN REDDY, SUHAS C. SEN, G.T. NANAVATI
ACT:
HEADNOTE:
JUDGMENT:
(WITH C.A. Nos.1664-66/1986. 4365-69/1985 AND 1694/1995
J U D G M E N T
SEN, J.
This is an appeal against an order passed by the
Division Bench of the Punjab & Haryana High Court disposing
of an Income Tax Reference relating to assessments of the
Assessment years 1963-64 to 1967-68.
The following questions of law had been referred to the
High Court by the Income Tax Appellate Tribunal:
"1. Whether on the facts and in
the circumstances of the case, the
Tribunal was circumstances of the
case, the Tribunal was right in
law, in holding that Meera & Co. is
a body of individuals and is
assessable as such?
2. Whether on the facts and in
the circumstances of the case, the
Tribunal was right in holding that
the assessment of the body of
individuals identified as Meera &
Co. should be made under Section 4
read with Section 2(31)(v) and not
under Section 160, 161 or 166?:
The High Court has given brief summary of the relevant
facts as under:
Shri Prem Narain, an individual, carried on business
under the name M/S. Meera & Co. at Ludhiana. He died
intestate on August 25, 1962 survived by his mother, widow
and three minor children. All the assets of the deceased
including the business styled as Meera & Co. devolved on his
five legal heirs. The mother of the deceased relinquished
her interest in the assets of the deceased against a lump
sum payment. For the purpose of these references, we are
concerned with the widow and three minor children of the
deceased. The business of M/S. Meera & Co. was continued as
a single unit in the same name by Smt. Krishna Gupta, widow
of the deceased, obviously on her behalf and on behalf of
all the three minor children as their guardian, The accounts
were maintained in the name of m/s. Meera & Co. The yearly
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profits were ascertained and divided. The Income Tax Return
for the assessment years 1963-64 to 1967-68 were filed by
Smt. Krishan Gupta on behalf of m/s. Meers & Co. The status
of the assessee was described as ‘association of persons’.
These returns reflected the entire income from business
previously carried on by shri Prem Narain, deceased. On
January 25, 1968, Smt. Krishna Gupta filed the return under
protest and further revised the returns for the assessment
years 1963-64 to 1966-67, declaring the same income that had
been shown in the returns already filed but without
specifying the status therein. It was contended that the
income from the business should be assessed in equal shares
in the hands of four legal heirs of the deceased. The minor
children of the deceased also filed separate returns where
the share of profit from m/s. Meera & Co. was included for
rate purposes only. The Income-tax Officer did not agree
with the altered position taken by the assessee that the
income from the business was liable to be assessed in equal
shares in the hands of the four heirs of the deceased. He
held that the business was for one and common unit and the
same was assessable in the status of ‘body of individuals’.
The assessee, being dissatisfied with the order of the
Income Tax Officer, filed an appeal and the Appellate
Assistant Commissioner held that the entire income of the
business was assessable in the hands of Smt. Krishna Gupta
as a person carrying on business in individual capacity. The
Revenue and the assessee both filed appeals before the
Income Tax Appellate Tribunal. The Accountant member of the
Appellate Tribunal found that the business was carried on as
an organic unit by Smt. Krishna Gupta on her own behalf and
on behalf of her three minor children as their natural
guardian. On the death of Shri Prem Narain, his estate fell
to his legal heirs under Section 8 of the Hindu Succession
Act as tenants-in-common. The special provisions regarding
the minors and guardians contained in Sections regarding the
minors and guardians contained in Sections 160. 161 or 166
of the Income Tax Act, (hereinafter referred to as the
‘Act’) shall apply and will override the general provisions
contained in Sections 4 and 2(31)(v) of the Act. The
Judicial member took a different view. According to him, the
entity was liable to be assessed under Section 4 read with
Section 2(31)(v) of the Act. He repelled the contention of
the assessee that the assessments of the minors should have
been done under the special provisions meant for
representative assessees, i.e. Sections 160 etc. He held
that before the assessee could be so treated, he must filter
through the charging Section 4 read with Section 2(31)(v) of
the Act and if he cannot do so, he must stay there. In the
event of the assessee being a body of individuals, as
defined in Section 2(31)(v), the question of the
applicability of Sections 160, 161 etc. of the Act did not
arise. As the two members of the Appellate Tribunal
differed, the matter was referred to a third member who
agreed with the view taken by the Judicial member and the
appeals of the assessee were consequently dismissed.
Before the High Court, the contention made on behalf of
the appellant was that Smt. Krishna Gupta had two capacities
in this matter. She was managing the business of Meera & Co.
in her own right as well as a guardian of the minor
children. As a guardian-trustee of the minor children, she
should have been assessed as a representative assessee in
accordance with the provisions of Sections 160, 166 of the
Act. Krishna Gupta acted on behalf of the minors in running
the business of Meera & Co, Income from the business
representing the share of the minors accrued to them or to
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their guardian representing them. That being the case, the
mode of assessment contained in Chapter XV of the Act shall
get precedence being special provisions relating to the
minors and assessment should be made accordingly. It was
further contended that the assessments could not be made in
the status of ‘body of individuals’ which postulates more
than one individual. In this case, the business was being
managed by Krishna Gupta on her own behalf and also on
behalf of the minors. There is no question of assessing the
income of the father in the status of ‘body of individuals’.
The High Court was, however, of the view that the
expression ‘body of individuals’ should receive wide
interpretation to include a combination of individuals who
have unity of interest (mother and her three minor children)
and were actively engaged in the business carried on for the
benefit of all of them by one of them and therefore, they
would constitute a ‘body of individuals’. In the instant
case, on the death of Prem Narain, business under the trade
name Meera & Co. passed on to Krishna Gupta and her three
minor children. The fact that the minors had no legal
capacity to enter into an agreement was irrelevant for
determining their status as a constituent in the ‘body of
individuals’ in terms of Section 2(31)(v) of the Act. In
that view of the matter, the High Court answered both the
questions in the affirmative and in favour of the Revenue.
In the appeal before us, it has been contended that in
the facts of this case, it could not be said that the mother
and three assessable as a unit. The business profit should
have been apportioned and assessed in the hands of each of
the heirs of Prem Narain separately and in the status of
individual. Secondly, it was contended that the special
provisions relating to the minor contained in Chapter XV of
the Act will override the general provisions relating to
assessment in other parts of the Act. When the income of the
firm accrued to the minor, assessment should have been done
in accordance with the provisions of Sections 160, 161 and
166 of the Act,
We are unable to uphold any of these two contentions.
The business of Meera & Co. was set up by Prem Narain who
ran this business as a sole-proprietory concern till his
death. After his death, the entire business devolved upon
his mother, widow and minor children. The mother’s share was
bought by the widow and her children and they carried on the
business in the name of Meera & Co. The business was carried
on as before jointly by the widow on her own behalf as well
as on behalf of the minor children. The profits that arose
out of the business were a result of the business activities
carried on jointly by the mother on her own behalf and also
on behalf of minor children. In such a situation, the
assessments had to be made in respect of the income
generated in the business in the status of ‘body of
individuals’.
On behalf of the appellant it has been contended that
"a body of invididuals" is an altogether different entity
and should not be equated to "an association of persons".
The phrase "an association of persons" is well un-derstood
in the Income Tax Act and has been explained in a number of
cases. The legislature is presumed to know the judicial
interpretations given to the phrase "Association of Person".
"Body of individuals" in this background of facts must be
held to be some other entity not akin to "Association of
Persons". A Board of Trustees or a society of persons can be
treated as "a body of individuals". A group of individuals
cannot be treated as "a body of individuals". A group of
individuals cannot be treated as "a body of persons" more so
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when the group is receiving income from an enterprise not
set up by that group. The meaning ascribed to "association
of persons" cannot be applied to "body of individuals".
Before examining this question, we shall notice how the
expression "association of persons" had been understood
under the Tax Act, 1922 over the Years.
Initially, the charge under Section 3 of the Indian
Income Tax Act, 1922 was on income of "individual, company,
firm and other association of individuals". These words were
substituted by Section 3 of the Indian Income Tax
(Amendment) Act, 1939 by the words "individual, Hindu
undivided family, company and local authority, and of every
firm and other association of persons or the partners of the
partners of the firm or the members of the association
individually". Commenting on this charging Section, it was
observed by Beamount, C.J. in Commissioner of Income Tax,
Bombay v. Laxmidas Devidas and another, (1937) 5 ITR 584 at
page 589 as under:
"It seems to me that an association
of two or more persons for
acquisition of property which is to
be managed for the purpose of
producing income, profits or gains
falls within the words "other
association of individuals".
The fact that one of the
assessees during the year of
assessment was a minor, does not, I
think affect the question......What
we have got is the ownership of
property by that property of
profits or gains."
In the case of Commissioner of Income Tax, Madras v.
Salem District Urban Bank Ltd. 8 ITR 269, a Bench of three
judges of the Madras High Court took the view that
‘association of individuals’ in Section 3 of the Income Tax
Act, 1922 would apply even to a corporate body which for the
most part was composed of co-operative societies. On behalf
of the appellant reliance was placed on the judgment in the
case of Commissioner of Income Tax, Bombay v. Ahmedabad
Mill-owners’ Association. 7 ITR 369, where it was held that
the expression ‘association of individuals’ in Section 3
meant an association of human beings. Leach, C.J.,
considered the opinion expressed in The Trustees of Sir
Currimbhoy Ebrahim Baronetcy Trust v. Commissioner of Income
Tax. (1932) 5 ITC 484, preferable to that expressed in the
case of Ahmedabad Mill Owners’ Association, (supra) and held
that ‘Association of Individuals’ did not mean an
Association of human beings only. Leach, C.J., observed:-
"If a corporate body created by a
statute is an individual within the
meaning of the section and I hold
that it is, a cooperative society
registered under the Co-operative
Societies Act must fall within the
same category, It is a corporae
body and has perpetual succession.
I consider that it is not
reasonable to suppose that the
Legislature intended that there
should be a difference in the
meaning of the word ‘individual’
and the plural ‘individuals’. If
the word ‘individual’ includes a
corportion, the words ‘association
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of individuals’ must embrace an
association of corporate bodies,
and therefore, the assessee is an
‘association of individuals’."
Possibly because of this difference of the opinion
about the meaning of the phrase ‘association of
individuals’, Section 3 of the 1922 Act was amended in 1939
and charge was imposed on "every individual, Hindu undivided
family, a company and local authority, every firm and other
association of persons or the partners of the firm or the
members of the association individually".
This amendment took care of the controversy as to
whether the phrase "association of individuals" will take in
association of natural and artificial persons or bodies like
co-operative societies. Derbyshire, C.J. explained the
amended charge in the case of Re. B.N.Elias & Others, 3 ITR
408, in the following words:
"Previous to the year 1924, the
words of the section in question
were "individual, company, firm and
Hindu undivided family". By the
Indian Income Tax Amendment Act of
1924 (Act XI of 1924) the words
"individual, Hindu undivided
family, company, firm and other
association of individuals" have to
be construed in their plain,
ordinary meaning. There is no
difficulty about the word
"individuals". "Associate" means,
according to the Oxford Dictionary,
"to join in common purpose. or to
join in an action". Did these
individuals join in a common
purpose, or common action, thereby
becoming an association of
individuals? In my view, they
did....In arriving at that
conclusion, I am fortified by the
words of LORD JUSTICE COTTON in the
case of Smith v. Anderson (15 Ch.
247. at page 282). There the
learned LORD JUSTICE is discussing
the meaning of the word
"association" as used in Section 4
of the Companies Act of 1862. The
word occurs along with the words
"company or partnership". Cotton,
L.J. says at page 282: "U do not
think it very material to consider
how far the word "association"
differs from company or
partnership, but I think we may say
that if "association" is intended
to denote something different from
a company or partnership, it must
be judged by its two companions
between which it stands, and it
must denote something where the
associates are in the nature of
partners. It seems to me (not
that I think it material) that it
might have been intended to hit the
case which we have frequently seen,
of
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a number of persons or a number of
firms joining themselves together
for the purpose of carrying on a
particular adventure in order to
make gain by it". Then he goes on
to describe instances of that.
In my view, these persons have
joined themselves together and
remained, joined together for the
purpose of buying, holding, and
using that property "Norton
Buildings" in order to make gain by
it. In so doing they have become
and were, at the time of this
assessment an "association of
individuals" within the meaning of
Section 3 of the Indian Income Tax
Act."
Costello, J. in his concurring
judgment observed:
"Mr. Banerji was at very great
pains to demonstrate to us that the
combination of individuals with
which we are concerned could not
properly be described as
partnership and he emphasised the
face that they were co-owners of
the property which is known as the
"Norton Building". I have no doubt
whatever that Mr. Banerji was
perfectly justified and correct in
inviting us to take the view that
this was not a partnership but it
seems to me bearing in mind the
juxtaposition which I have
mentioned, that although these four
persons did not constitute a body
which was the same as partnership
it was in many respects similar to
a partnership and was approximate
to a partnership and it may well be
that the intention of the
legislature was to hit combinations
of individuals who were engaged
together in some joint enterprise
but did not in law constitute
partnerships within the meaning of
both Section 3 and Section 55 of
the Indian Income Tax Act, 1922,"
Costello, J.‘s observation that the intention of the
legislature was to hit combinations of individuals who were
engaged together in some joint enterprise but did not in law
constitute partnerships aptly sums up the position. Bodies
or Associations which were neither companies nor
partnerships in law were sought to be taxed if the persons
or individuals constituting the body of the association
combined to engage in an activity to produce income.
It is also important to note that in that case
Costello, J. was invited to give a general definition of the
expression "association of individuals". He observed:-
"Mr. Banerji invited us to take
upon ourselves the difficult but
not indeed impossible of the
expression "association of
individuals". In my opinion that is
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not desirable from any point of
view whatever. Each case must be
decided upon its own peculiar facts
and circumstances. When we find, as
we do find in this case, that there
is a combination of persons formed
for the promotion of a joint
enterprise banded together if I may
so put it, as co-adventurers to use
an archaic expression then I think
no difficulty whatever arises in
the way of saying that in this
particular case these four persons
did constitute an "association of
individuals" within the meaning of
both Section 3 and Section 55 of
the Indian Income Tax Act, 1922."
We were also referred to the case of Re: Keshardeo
Chamria, 5 ITR 246 and it was contended that in a family
business, a situation may arise where some members of the
family carry on the business jointly, From that it does not
follow that the members of the family must be assessed as an
"association of persons". In that case, there was a
partition suit followed by appointment of a Commissioner for
Partition for dividing the Properties among the members of
the family. Panckridge, J. observed that the status of the
members of a Mitakshara family changed after the preliminary
decree of partition. He went on to observe:
"The members of such a family
appear to me to be in the same
position as the members of a
Dayabhaga family, and it has never
been suggested as far as I know
that members of such a family
cannot be individually assessed in
respect of their shares"
It was held in that case that the members of the family
could not be treated as an "association of persons". It is
to be noted that in that case no business was carried out
jointly by two individual members of the family, but after
partition the members of the family held properties as
tenants in common like the members of a Dayabhaga family.
In the case of Commissioner of Income Tax, Bombay North
Kutch and Saurashtra v. Indira Balkrishna, (1960) 39 ITR
546, this Court held that "association of persons" meant an
association in which two or more persons joined in a common
purpose or common action. As the words occurred in a section
which imposed a tax on income, the association must be one
the object of which was to produce income, profits or gains.
In that case, co-widows of a Hindu governed by Mitakshara
law inherited his estate which consisted of immovable
properties, shares, money lying in deposit and a share in a
registered firm. The Appellate Tribunal found that they had
not exercised their right to separate enjoyment and that
except for jointly receiving the dividends from the shares
and the interest from the deposits, they had done no act
which had helped to produce income. This Court held that the
co-widows succeeded as co-heirs to the estate of the
deceased husband. It was held that since the widows had an
equal share in the income from immovable properties, Section
9(3) of the Indian Income Tax Act, 1922 will apply. So far
as other incomes were concerned, it was held:
"Coming back to the facts found by
the Tribunal, there is no finding
that the three widows have combined
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in a joint enterprise to produce
income. The only finding is that
they have not exercised their right
to separate enjoyment, and except
for receiving the dividends and
interest jointly, it has been found
that they have done no act which
has helped to produce income in
respect of the shares and deposits.
On these findings it cannot be held
that the three widows had the
status of an association of persons
within the meaning of section 3 of
the Indian Income Tax Act."
The meaning of "an association of persons" was also
examined by this Court in the case of G. Murugesan &
Brothers v. Commissioner of Income Tax Madras, (1973) 88 ITR
432. It was held in that case that an association of persons
could be formed only when two or more individuals
voluntarily combined together for certain purposes. Volition
on the part of the members of the association was an
essential ingredient. It was further held that even a minor
could join "an association of persons" if his lawful
guardian gave his consent. The income in that case arose
under two heads house property and dividends from shares.
The question before this Court was whether the dividend
income should be assessed in the hand of an association of
persons or individuals. One Sinnamani Nadar executed a
settlement deed in favour of his four grand-sons. The
property covered by the settlement deed comprised of a house
property which had been let out and some shares. The donees
were to enjoy the income of these properties during their
life-time. Thereafter, the properties were to devolve on
their children. In that case, it was Pointed out that Income
Tax return was filed in the status of association of persons
prior to the assessment year 1959-60 to 1962-63, the returns
were submitted as individuals specifically stating that the
donees were not functioning as an association of persons.
In the case of Mohamed Noorullah v. Commissioner of
Income Tax, Madras, (1961) 42 ITR 115, one Oomer Sahib used
to carry on business of manufacture and sale of Spade Clover
brand beedies. After his death minor son, Mohamed Noorullah,
and his widow Luthfunnissa Begum, and four children by her
who were all minors at the date of the death of Oomr Sahib,
carried on the business. Noorullah through his next friend
applied to sue in forma pauperis and during the pendency of
those proceedings two advocates of the High Court were
appointed joint receivers of the properties of the deceased
on March 17, 1943. On May 10. 1943, the widow, Luthfunnissa,
filed a suit for partition and also applied for the
continued and they carried on the business as before. In due
course a preliminary decree for partition was passed. The
High Court noted that none of the parties wanted to break
the continuity of the business after the death of Oomer
Sahib. The joint receivers continued the business till
November 25, 1946 when the business was put up for sale by
auction and was purchased by Noorullah. The question was as
to the status in which the income of the business was to be
taxed.
This Court held that the High Court had rightly come to
the conclusion that the business was the business of an
association of persons. None of the partners wanted to break
the unity of control of the business or its continuity and
the business was of such a natural that it could not be
carried on without such consensus. The income was the income
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of a business which was carried on as a single business by
the consent of all the parties. The mere fact that a suit
was pending at the time for the administration of the estate
of the deceased or for the separation of the shares of the
co-heirs did not affect the incidence of taxation.
Although strong reliance was placed on these three
decisions on behalf of the appellant, none of these
decisions come to the aid of the contentions made on behalf
of the appellant.
The finding fact in the case of Indira Balakrishna
(supra) was that the widows except for receiving the
interest and dividend jointly had done no act which had
helped to produce the income.
In the case of G.Murukesan (supra), dividend from
shares and income from properties were received by the
heirs. Here again no business activity was involved.
Mohamed Noorullah’s (supra) comes very close to the
facts of the case before us. The business was continuing
after the death of the father. None of the heirs wanted the
business to come to an end. Although the widow and the minor
children had not started the business together. Therefore,
income from the business had to be assessed without dividing
the income between the widow and the minor children. To
borrow the language of Costello, J., the intention of the
charging Section even under the Act of 1961 is to hit the
combinations of individuals who engaged together in some
joint enterprise, even though they did not in law constitute
a partnership.
The contention on behalf of the appellant is that the
assessment has been wrongly done in the status of "body of
individuals". This phrase is not to be found in the repealed
Act of 1922 and the meaning ascribed to this phrase must be
quite distinct and separate from the meaning given by the
Courts to the phrase "association of persons".
Section 4 is the charging section under the 1961 Act.
It has imposed a tax on the income earned by a ‘Person’ in
the previous year. ‘Person’ has been defined in Section
2(31) of the Act as under:
"(31) ‘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;"
In this definition, in clause (v), both ‘association of
persons’ and ‘body’ of individuals’ have been included with
the added words "whether incorporated or not". Another thing
to note is that clause (v) speaks of "an association of
persons or a body of individuals". This implies that an
"association of persons" is not something distinct and
separate from "body of individuals". It has been added to
obviate any controversy as to whether only combinations of
human beings are to be treated as a unit of assessment. The
intention clearly is to hit combinations individuals and
individuals, combinations of individuals and non-individuals
and also combinations of non-individuals with other non-
individuals who are engaged together in some joint
enterprise when such joint enterprise does not fall within
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any of the other categories enumerated in sub-section (31)
of Section 2 of the Act.
It is of interest to note that the phrase "body of
individuals" has been used by the Parliament in a revenue
Act even before the Income Tax Act, 1961 was passed. Under
the Gift Tax Act, tax was imposed on gifts made in course of
every assessment year commencing on and from the first day
of April, 1987 at the prescribed rate by a "person".
"person" was defined in clause (xviii) of Section 2 as
under:
"(xviii) ‘person’ includes a Hindu
undivided family or a company or an
association or a body of
individuals or persons, whether
incorporated or not;"
When the Gift Tax Bill was introduced in the
Parliament, ‘person in clause (xviii) of Section 2 was
defined as " ‘person’ includes a Hindu undivided family".
The charge of Gift Tax was on gifts made by a person during
the previous year.
In the Statement of Objects and Reasons to the Gift Tax
Bill, it was stated:-
"The object of this Bill is to lavy
a tax on gifts made by individuals,
Hindu undivided families,
companies, firms and associations
of persons. Gifts from one person
to another provide a convenient
means of avoiding or reducing
liability to estate duty, income-
tax, wealth-tax and expenditure-
tax."
In spite of this Statement of Objects and Reasons,
there was no specific mention of any other entity apart from
Hindu undivided family in the inclusive definition of
‘person’ in the Bill, although it was stated that one of the
objects of the Bill was to prevent evasion or reduction of
income tax liability.
After the Bill passed through the Select Committee
clause (xviii) of Section 2 was modified and ‘person’ was
defined as under:-
"(xviii) ‘person’ includes a Hindu
undivided family or a company or an
association or a body of
individuals or persons, whether
incorporated or not :-
The Income Tax Bill was introduced in Parliament in
1961. There the charge was on total income of a person. In
the Notes on Clauses it was explained in Clause 4 that for
the different entities, individual, Hindu undivided family
etc. mentioned in Section 3 of the existing Act, the word
‘person’ had been substituted. Sub-clause (31) of Clause 3
explained the definition of ‘person’ in the following
words:-
"(31). The definition of ‘person’
in section 2(9) of the existing Act
has been amplified. The existing
definition includes (a) a Hindu
undivided family and (b) a local
authority. The General Clauses Act
defines ‘person’ as including a
company or association or body of
individuals, whether incorporaed or
not. The charging section of the
existing Act enumerates the units
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for taxation as "individual, Hindu
undivided family, company, local
authority, firm and other
association of persons or the
partners of a firm or the members
of the association individually".
Section 4 of the existing Act
refers to a ‘person’. It is ,
therefore, desirable to have a
comprehensive definition of the
word ‘person’ so as to cover all
the entities mentioned in (i) the
existing definition in section
2(9), (ii) the existing charging
provisions in sections 3 and 4 and
(iii) the General Clauses Act."
In the Indian Income Tax, 1922 ‘person’ has been
defined to include a Hindu undivided family and a local
authority. The object of giving the expanded definition was
to cover all entities taxable under the Indian Income Tax
Act, 1922 as well as the entities falling within the
definition of ‘person’ under the General Clauses Act. In
other words, the intention of the Legislature was not to
limit the charge to certain specified entities only.
In the background of these definitions, when several
individuals are found to have joined together for the
purpose of making profit, the group of individuals may be
conveniently described as "a body of individuals". We have
seen how the controversy arose under the Indian Income Tax
Act as to the meaning of "association of individuals". There
was a conflict of opinion on whether ‘individuals’ include
artificial or non-juridical persons. But there can be no
scope of any controversy now. "An association of person" or
"a body of individuals", whether incorporated or not, has
been brought within the net of taxation. The intention of
the legislature is clearly to hit combination of individuals
or other persons who were engaged together in some joint
enterprise. The combinations of or may not be incorporated.
A profit-yielding joint venture has to be taxed as a single
unite.
In the case before us, we have a window and her minor
sons who are engaged in the business activity which sons who
are engaged in the business activity which generates income.
It does not make any difference that the window and the
minor sons did not start the business. The business was
inherited. But the fact that the business has been continued
by the widow on her own behalf as well as on behalf of the
minor sons after buying the interest of the mother goes to
show that there is an organised activity jointly carried on
to produce income. It is a clear case of joint business
venture of a few individuals. The income of this business
has been rightly assessed in the status of a "body of
individuals".
We are of the view that the High Court has come to a
correct decision. It is not necessary to refer to the large
number of cases that have been cited before us but it is
well settled by this Court under the Act of 1922, by a
series of judgments that ‘association of persons’ must be an
association is also well settled by a number of decision
right from the case of Commissioner of Income Tax, Bombay
Laxmidas and another (supra).
Two more arguments were advanced on behalf of the
appellant which must be noted. The first was that a "body of
individuals" implied an artificial body like a Board of
Trustees or Board of Commissioners etc. Such bodies may be
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brought within the ambit of the expression "body of
individuals". But that will not limit the scope of the
expression "body of individuals’. It may take in artificial
persons as well as natural persons.
The second argument was made with reference to Sections
160, 161 and 166 of the Income Tax Act that since the mother
was acting as guardian of the minors, the mother’s liability
under the Income Tax Act was as representative assessee.
Sections 161 and 166 of the Income Tax Act are as under:
"161. Liability of representative
assessee. (1) Every representative
assessee, as regards the income in
respect of which he is a
representative assessee, shall be
subject to the same duties,
responsibilities and liabilities as
if the income were income received
by or accruing to or in favour of
him beneficially, and shall be
liable to assessment in his own
name in respect of that income; but
any such assessment shall be deemed
to be made upon him in his
representative capacity only, and
the tax shall, subject to the other
provisions contained in this
Chapter, be levied upon and
recovered from him in like manner
and to the same extent as it would
be leviable upon and recoverable
from the person represented by him.
(1a) Notwithstanding anything
contained in sub-section (1), where
any income in respect of which the
person mentioned in clause (iv) of
sub-section (1) of section 160 is
liable as representative assessee
consists of, or includes, profits
and gains of business, tax shall be
charged on the whole of the income
in respect of which such person is
so liable at the maximum marginal
rate:
Provided that the provisions of
this sub-section shall not apply
where such profits and gains are
receivable under a trust declared
by any person by will exclusively
for the benefit of any relative
dependent on him for support and
maintenance, and such trust is the
only trust so declared by him.
Explanation-For the purposes of
this sub-section, "maximum marginal
rate" shall have the meaning
assigned to it in Explanation 2
below sub-section (3) of Section
164.
(2) Where any person is, in respect
of any income, assessable under
this Chapter in the capacity of a
representative assessee, he shall
not, in respect of that of that
income, be assessed under any other
provision of this Act".
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"166. Direct Assessment or recovery
not barred. Nothing in the
foregoing sections in this Chapter
shall prevent either the direct
assessment of the person on whose
behalf or for whose benefit income
therein referred to is receivable,
or the recovery from such person of
the tax payable in respect of such
income."
It was contended on behalf of the appellant that the
minors’ income had to be assessee. It could not be clubbed
with any other income of the mother. Mother was the legal
guardian and her personal income must be assessed separately
altogether. In view of the provisions of Section 161 it was
not open to the Income Tax Officer to tax the income of the
minors as well as the mother in the status of "body of
individuals".
We are unable to uphold this argument. Section 161 is
an enabling provision. The charge that is imposed by Section
4 may be computed and recovered in the manner laid down in
the Act including Section 160,161 and 166. When the minors
along with their mother form a body to generate income, levy
of tax under section 4 is on that body. The mother cannot
insist that the income of the joint venture must be assessed
separately on the minors and her even when a joint business
is carried on.
The underlying idea behind these sections was explained
by Addison, J. in the case of Hotz Trust of Simla v. The
Commissioner of Income Tax, Punjab and N 1 Frontier
Provinces, 5 ITC 8 at 16. Dealing with the corresponding
provisions of the 1922 Act, it was held that where trustees
carried on a business under a testamentary trust, the
assessment in respect of the business profits should be made
not on the beneficiaries in repsect of their individual not
shares of the profits but on the trustees as an "association
of persons". It was observed :
"Section 40 is merely a machinery
section, making the trustee liable
for beneficiaries are difficult or
impossible to get at, and where the
trustee acts as a conduit-pipe for
the conveyance of the income to the
beneficiaries. It does not affect
the charging sections 3 and 10 of
the Indian Act under which the
trustees as an association of
individuals, carrying on a
business, are liable to be assessed
in respect of the gains of the
business carried on by them. In
fact it is clear that this is the
only way that the profits and gains
of the business, carried on by the
trustees, can be taxed. For it is
obvious that, if what goes to each
beneficiary every year only can be
taxed, much of the income acquired
by the business will altogether
escape taxation, and that the
income received by the
beneficiaries is not the true
assessable income as many of the
expenses incurred by the trustees,
which would be paid out before the
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distribution takes place, would not
be admissible under the Act. The
profits and gains of this business
carried on by the trustees, can
only be calculated in the hands of
the trustees as such and the
assessment in the hands of the
beneficiaries would be in reality
inconsistent with the intention of
the Income-tax Act. The trustees
both carry on the business and are
in receipt of the profits and it is
they who must be taxed under the
charging sections."
The full Bench of Madras High Court in the case of J.V.
Saldhana v. The Commissioner of Income-tax, Madras 6 ITC
114, reiterated the same principle in a case where a widow
with her six minor children succeeded to the estate of her
deceased husband consisting of coffee plantations, house
properties and a third share in a firm of coffee curers and
settlers. The widow continued to carry on the business in
the same manner as was done by the deceased. It was held by
the Full Bench that when properties of a number of
individuals were put together and one business was carried
on with the combined resources, it was open to the Income
Tax Officer to regard it as one business carried on by an
"association of individuals" within the meaning of section
3 of the Act. A single assessment should be made under
Section 10(1) of the Income Tax Act on the entire income
from the business. It was also held that Section 40 and the
following sections were machinery and enabling sections and
not charging sections.
In our view, these two decisions correctly stated the
law under the Act of 1922. These principles will also apply
to the corresponding provisions of the Income Tax Act, 1961.
In view of the aforesaid, the appeals are dismissed.
There will be no order as to costs.
C.A.NOS. 1664-66/86 AND 4365-69/85
In view of our judgment in C.A. No. 1297-1301/1980,
these appeals are also dismissed with to order as to costs.
C.A. No. 1694 of 1995.
In appears that in this case, the question was whether
there was a sub-partnership between A.N.Agarwal and his
wife and minor son and as such the income of the sup-
partnership could not be assessed in the hands of the
assessee under Section 64(1)(i) and (iii) of the Income Tax
Act, 1961. It has also been stated in the appeal that in the
case of A.N.Agarwal, assessment was made in the status of
individual for the years 1964-65 and 1965-66. In those
proceedings special leave petitions have also been filed.
The point involved in this case is not the same as the point
that came up for consideration in the case of C.A. No. 1297-
1301/1980. Therefore, this appeal is directed to be delinked
from the other appeals that are being disposed of today.