TMI Blog1983 (9) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... firm were agreed to be sold for a sum of Rs. 3,50,000 to one Krishnaswami Chettiar, Santha Devi, Sulochana and Sukumaran. The sale deed in relation to immovable properties was executed on July 29, 1974, by the three partners on production of a certificate under s. 230A of the I.T. Act, hereinafter referred to as "the Act ", and registered on October 10, 1974. Earlier, the theatre had been mortgaged to M/s. Kapur Investments Private Limited under a mortgage deed dated December 24, 1962. For the assessment year 1975-76, corresponding to the accounting period ending October 10, 1974, the ITO, while making the assessment under s. 143(3) read with s. 176 sought to assess: (1) rental receipts, (2) capital gains, and (3) s. 41(2) profits arising out of the sales referred to earlier treating the assessee as an association of persons consisting of Hussain, Sampathkumar and Rajagopal ignoring the assessee's return filed on August 24, 1974, declaring " nil " income and stating that there was no association of persons in existence. However, the assessee later filed revised return showing a loss of Rs. 1,900. Before the ITO, the assessee's case was that after the dissolution, the assets of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty. The ITO assessed the rental receipts not as a business income but under the head " Other sources ". On these facts, the Tribunal held that the material on record did not justify a conclusion that there was an association of persons from April 1, 1974, for the purpose of earning any business income. In that view, the Tribunal allowed the assessee's appeal. Since the Tribunal set aside the assessment on the ground that the assessment cannot be made as an association of persons, the other questions, viz., whether s. 176 applies and whether s. 41(2) profits are assessable in the hands of the association of persons, were not gone into. Aggrieved by the decision of the Tribunal, the Revenue has sought and obtained a reference to this court on the following question : " Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that M/s. Hussain Sahib, K. C. Sampath Kumar and K. C. Rajagopal did not constitute an association of persons for the assessment year 1975-76 and, accordingly, was not liable to tax as an association of persons? " In this case, before the year 1970-71, the assessee was assessed as registered firm. However, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respective partners did not acquire any legal right or title to any share in the theatre. Even otherwise, notwithstanding the recital in the deed of dissolution that the property has been handed over to the members of the respective families, the quondam partners have been in receipt of the lease income from the theatre and they have ultimately sold the property by executing a sale deed in which the other members of the family of the quondam partners had not been added as vendors. On a due consideration of the matter and on the facts referred to above, we are not inclined to agree with the conclusion arrived at by the Tribunal that there has been no association of persons. According to the Tribunal, there is no evidence of any agreement to associate for earning income after they agreed to dissolve the firm and the mere receipt of lease amount will not constitute a " business activity ". It is no doubt true the question whether the lease income is received as members of an association of persons or as co-owners has to be decided on the facts of each case. It is also true that there is no specific document between the quondam partners to join together in a business activity after t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly in them. Thus, on the peculiar facts of this case where the lease income from the theatre was all along treated as business income of the three partners constituting an association of persons from the year 1970-71 and the fact that the assessee has not questioned or disputed such a status, that during the assessment year in question they are in receipt of the same lease income and that the members constituting an association of persons have in fact sold the property during the assessment year, the conclusion is inescapable that the assessee is an association of persons as they have joined together to earn income which has to be treated as business income. Reference has been made to a decision of this court in CIT v. Deghamwala Estates [1977] 109 ITR 416. In that case, after the death of a Mohammedan intestate, three of his heirs released their rights, title and interest in the properties left by him in favour of two remaining heirs pursuant to which the two persons became entitled to a half share each in the properties which included a half share in a land in Baroda State. The two heirs sold the property Which came to their share and along with the other owners sold the proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, the question arose as to whether the two persons who were tenants-in-common in respect of the shares inherited from their father but did not constitute an association of persons could be assessed as a body of individuals. The court pointed out the distinction between an association of persons and a body of individuals by observing that in order to constitute an association of persons, they must be joining together in a common purpose, or in a common action, the object of which is to produce income, profits and gains, that though a body of individuals is not identical with an association of persons, they have common similarities, that an association of persons may consist of non individuals also but a body of individuals has to consist only of individuals or human beings and that the word " body " would require an association for some common purpose or for common cause or there must be unity under some common tie or occupation and in the absence of such a common purpose or common cause, mere collection of individuals without a common tie or common aim cannot be taken to be a body of individuals falling within s. 2(31) of the Act. This decision also cannot help the assessee for t ..... 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