TMI Blog1982 (2) TMI 54X X X X Extracts X X X X X X X X Extracts X X X X ..... moter and was given authority to sign documents, etc. Though the decision to form the co-operative society was taken on 20th November, 1959, there was considerable delay in the actual formation of the society as the necessary licence to erect a sugar factory could not be obtained from the Govt. of India. The licence was obtained on 21st March, 1966, and then the society was registered on 14th May, 1966. The promoters had already collected a large amount towards the share capital of the persons who were to become members of the co-operative society and this amount was deposited with the West Khandesh District Co-operative Bank Ltd. and the Dhulia District Co-operative Bank Ltd. Interest was earned on these amounts. The total amount of interest received by the promoters on the fixed deposits and the deposits in the savings bank account after deduction of expenses was assessed in the hands of the Chief promoter in the status of an association of persons. Though the assessee objected to the status of association of persons before the AAC, the appeals were dismissed. The assessee then filed appeals before the Income-tax Appellate Tribunal. The Tribunal took the view that under the rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1882, in favour of individual contributors to the extent of funds contributed by them and the promoters who were constructive trustees were by reason of s. 95 of that Act subject to the same duties, liabilities and disabilities as if they were trustees of the money for the individual members for whose benefit they held it. The Tribunal further held that whether the promoters or body of individuals represented by the promoters were held to be agents of the members or were held to be constructive trustees for the members, the interest income was diverted from them, by an overriding title and a legal obligation, before its accrual and did not reach them. The Tribunal, therefore, held that though the correct status of the assessee was that of body of individuals, it was not assessable on the interest income as, in truth, the interest income never reached it as its income. Arising out of this order of the Tribunal, the following four questions have been referred to this court : "(1) Whether, on the facts and in the circumstances of the case: the Tribunal was justified in law in holding that the three promoters who collected share money from the persons who were desirous of becomin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of persons " is concerned, it is well established that it means an association in which two or more persons join with a common purpose or in a common action and in the context of the purpose for which those words are used in the I.T. Act, the association must be one the object of which is to produce income, profits or gains. [See CIT v. Indira Balkrishna [1960] 39 ITR 546 (SC)]. The question as to whether the three promoters can be treated as an association of persons must, therefore, be considered in the light of the test laid down by the Supreme Court in India Balkrishna's case. The first requirement required to be satisfied before a group of persons can be treated as an association of persons is that they must have joined in a common purpose or in a common action and the second requirement is that the association must have the object of producing income. Now, when we consider the manner in which these three promoters came to be appointed, we find that initially the proposed shareholders nominated a body called " Karyakari Mandal " consisting of 54 members. Literally translated, the body could be called a working committee. Then these 54 persons constituted a smaller body of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... definition of " person in s. 2(31) of the Act. As pointed out by the Gujarat High Court in CIT v. Harivadan Tribhovandas [1977] 106 ITR 494, the words " body of individuals " occurring in the I.T. Act in the definition of the word " person" in s. 2(31) mean a conglomeration of individuals who carry on some activity with the object of earning income and the body of individuals must be carrying on an activity with a view to earn income because it is only with such a body of individuals that the I.T. Act is concerned and it was further pointed out that the words " body of individuals " derive its colour from the context in which they occur, namely, an association of persons. Therefore, assuming for a moment that the three promoters, having regard to their number being more than two, may or could be generally described as a body of individuals, that would be of no assistance unless they had undertaken any activity to produce income. Apart from this, if the true character of the three promoters is considered in the right perspective, it would appear that they were really nominees or agents of the entire body of the proposed shareholders entrusted with the task of taking the necessary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view that the three promoters could not be called an association of persons. That was the only test which the Tribunal could have applied in order to decide the contention advanced on behalf of the revenue that the three promoters formed an association of persons. The answer to question No. 2 must, therefore, be in the affirmative. So far as question No. 3 is concerned, it arises out of the view of the Tribunal that the income by way of interest is not the income of the three promoters at all, but to that income the shareholders had a right even before the income was received by the promoters. The Tribunal seems to have held and, in our view, correctly-that the three promoters " were not the owners of the contributions, but merely received the contributions and held the same for and on behalf of the contributors without claiming any interest therein for enabling them to proceed ahead with the formation of the society " and they were thus in possession of the funds as agents of the individual contributors within the meaning of s. 182 of the Contract Act. The Tribunal has further found that instead of each contributor appointing a separate agent for the purpose, all the contributo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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