TMI Blog1997 (3) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... ces of the case, the Tribunal was right in holding that the assessment of the body of individuals identified as Meera and 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 a brief summary of the relevant facts as under : Shri Prem Narain, an individual, carried on business under the name Meera and Co., at Ludhiana. He died intestate on August 25, 1962, survived by his mother, his widow and three minor children. All the assets of the deceased including the business styled as Meera and 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 the three minor children of the deceased. The business of Meera and 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 Meera and Co. The yearly profits were ascertained and divided. The income-tax returns for the assessment y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions meant for representative assessees, i.e., sections 160, 161, 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 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 and 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, 161 and 166 of the Act. Krishna Gupta acted on behalf of the minors in running the business of Meera and Co. Income from the business representing the share o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ath, 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 and 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 individuals is an altogether different entity and should not be equated with an association of persons . The phrase an association of persons is well understood in the Income-tax Act and has been explained in a number of cases. The Legislature is presumed to know the judicial interpretation given to the phrase association of persons . 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciation 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 co-operative society registered under the Co-operative Societies Act must fall within the same category. It is a corporate 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 corporation, the words 'association of individuals' must embrace an association of corporate bodies and, therefore, the assessee is an 'association of individuals'. Possibly because of this difference of opinion about the meaning of the phrase association of individuals , section 3 of the 1922 Act was amended in 1939 and the 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 of individually . This amendment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 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 fact that they were co-owners of the property which is known as 'Norton building'. I have no doubt whatever that Mr. Ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essed 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 CIT v. Indira Balkrishna [1960] 39 ITR 546, this court held that association of persons meant an association in which two or more persons join in a common purpose or common action. As the words occurred in a section which imposed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of these properties during their life time. Thereafter, the properties were to devolve on their children. In that case, it was pointed out that the income-tax return was filed in the status of association of persons prior to the assessment year 1959-60. For the years 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. CIT [1961] 42 ITR 115 (SC), one Oomer Sahib used to carry on business of manufacture and sale of Spade Clover brand beedies. After his death his 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 Oomer 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 continuance of the joint receivers. By an order dated May 25, 1943, the receivers were ordered to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 impl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, whether incorporated or not ; The Income-tax Bill was introduced in Parliament in 1961. There the charge was on the 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 incorporated or not. The charging section of the existing Act enumerates the units 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt under the Act of 1922 by a series of judgments that association of persons must be an association which is formed by volition of the parties for the purpose of generation of income. This is the basic test. That a minor can be a member of such a body or association is also well settled by a number of decisions right from the case of CIT v. Laxmidas Devidas [1937] 5 ITR 584 (Bom). 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 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 asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 sections 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. CIT [1930] 5 ITC 8 (Lah) at page 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 respect of their individual net shares of the profits but on the trustees as an association of persons . It was observed : Section 40 is merely a machinery section, makin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 of 1986 and 4365-69 of 1985 : In view of our judgment in C. A. No. 1297-1301 of 1980, these appeals are also dismissed with no order as to costs. C. A. No. 1694 of 1995 : It 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 sub-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. Nos. 1297-1301 of 1980. Therefore, this appeal is directed to be delinked from the other appeals that are being disposed of to ..... 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