TMI Blog1973 (9) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... ily owned considerable movable and immovable properties. By a partition deed dated September 11, 1958, there was a partition amongst the members of the Hindu undivided family and there was a complete disruption and the properties were also divided by metes and bounds. At the time of this partition of 1958, property hearing survey No. 170-1 was allotted jointly to the assessee and his two brothers. The partition deed showed that each of the three brothers was given one-third undivided share of the said property covered by survey No. 170-1 of Navrangpura village within the limits of Ahmedabad City. On the basis of the said partition deed the Hindu undivided family applied under section 25A of the Indian Income-tax Act, 1922, and on that application a finding was recorded by the competent authority that there was a complete partition by metes and bounds. On March 24, 1961, the property bearing survey No. 170-1 was divided amongst the assessee and his two brothers. According to this deed of March 24, 1961, the two other brothers of the assessee were given portions of land from survey No. 170-1 and the assessee was given a sum of Rs. 36,630 in lieu of land from that survey number. It ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers and hence the case of the assessee fell squarely within the exemption set out in section 47(ii). The Tribunal did not deal with the other contentions urged on behalf of the assessee in the view that the Tribunal took regarding the applicability of section 47(ii) to the case of the assessee. The Tribunal, in view of this conclusion, upheld the order of the Appellate Assistant Commissioner though the reasons which appealed to the Tribunal were different from the reasons which appealed to the Appellate Assistant Commissioner. Thereafter, at the instance of the revenue, the question which we have set out at the commencement of this judgment has been referred to us for our opinion. In order to appreciate the rival contentions in this case, it is necessary to refer to some of the provisions of the 1961 Act. Section 2, clause (14), defines " capital asset " to mean property of any kind held by an assessee, whether or not connected with his business or profession, but does not include agricultural land in India. Section 2, clause (47), defines " transfer ", in relation to a capital asset, as including the sale, exchange or relinquishment of the asset or the extinguishment of any righ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or members of the association individually. The phrase " body of individuals " was not to be found in any of the provisions of the 1922 Act. It may, however, be pointed out that under the General Clauses Act, 1897, which applied to all Central Acts, under section 3, clause (42), the word " person " was to include any company or association, or body of individuals, whether incorporated or not. Thus, the 1922 Act adopted a narrower definition of the word " person " though both under the General Clauses Act and under the 1922 Act, the definition of the word " person " was a inclusive definition only ; but under the 1922 Act, a body of individuals was not included within the definition of the word " person " nor was a body of individuals to be treated as an assessee under the charging section, namely, section 3. When the legislature came to enact the Income-tax Act, 1961, it made a departure so far as the inclusive definition of the word " person " is concerned by including a body of individuals also within the word " person " and under the charging section of the Act of 1961, namely, section 4, the total income of every person of the previous year or previous years, as the case may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner of Income-tax v. Indira Balkrishna [1960] 39 ITR 546 (SC), these decisions correctly laid down the crucial test for determining what is an " association of persons " within the meaning of section 3 of the Indian Income-tax Act, 1922, and these decisions have been accepted and followed in a number of later decisions of different High Courts. There is no formula of universal application as to what facts, how many of them and of what nature, are necessary to come to a conclusion that there is an association of persons within the meaning of section 3 ; it must depend on the particular facts and circumstances of each case as to whether the conclusion can be drawn or not. Thus, according to the Supreme Court, for forming an association of persons the members of the association must join together for the purpose of producing income and an association of persons can be formed only when two or more individuals voluntarily combine together for a certain purpose. Hence, volition on the part of the members of the association is an essential ingredient. It is true that even a minor can join an " association of persons " if his lawful guardian gives his consent. We may point out t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ween the provisions of these two taxation statutes and there is no reason why the connotation of the words " association of persons " and " body of individuals " should differ between the Gift-tax Act and the Income-tax Act. In Sri Ladukishore Das v. State of Orissa [1973] 87 ITR 555 (Orissa) the Orissa High Court held that after the partition of a Hindu undivided family by metes and bounds the erstwhile coparceners who became exclusive owners of separate parcels of land would not constitute an association of individuals merely because they live together in joint mess and one of the coparceners looks after the cultivation of the entire property. The decisions of the Supreme Court in Indira Balkrishna's case [1960] 39 ITR 546 (SC) and other subsequent cases were considered by the Orissa High Court and applying the tests laid down in the earlier decisions of the Supreme Court, the Orissa High Court held that there was no " association of persons " within the meaning of the decided cases after the partition of the Hindu undivided family. It is clear, from the test laid down by the Supreme Court in Indira Balkrishna's case [1960] 39 ITR 546 (SC) and reiterated In G. Murugesan and B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s cannot be applied to the definition of the word " person " occurring in section 2(31), since there is no specific genus to which an individual, a Hindu undivided family, a company, a firm or an association of persons can be said to belong, the principle of noscitur a sociis can certainly apply in the facts of this case. The body of individuals with which the Income-tax Act is concerned must be carrying on an activity with a view to earn income because it is only with such a body of individuals that the Income-tax Act is concerned and again the words " body of individuals " derive colour from the context in which they occur, namely, an " association of persons " and, therefore, in our opinion, the only course open to us as a matter of interpretation is to attribute the second meaning out of the three meanings set out hereinabove to the words " body of individuals ". We, therefore, hold that the words " body of individuals " occurring in the Income-tax Act in the definition of the word " person " in section 2(31) means a conglomeration of individuals who carry on some activity with the object of earning income. It was contended by Mr. Shah on behalf of the assessee, that even if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, none who could agree on their behalf with the third person. But though the businesses were not carried on pursuant to a common design, they were carried on for their common benefit by one of them representing all of them. The Andhra Pradesh High Court in [1977] 106 ITR 111, 118 (AP) considered different relevant decisions on the point and it observed in connection with Commissioner of Gift-tax v. R. Valsala Amma [1971] 82 ITR 828 (SC) : " That was a case under the Gift-tax Act .......... We are not concerned with a body of individuals in the abstract. We are concerned with 'a body of individuals' in the context of the Income-tax Act which is different from 'a body of individuals' in the context of the Gift-tax Act. The considerations which determine whether a gift is made by a body of individuals are obviously different from the considerations which determine whether income has accrued or is deemed to accrue to a body of individuals. Further, in the case before the Supreme Court the subject-matter of the gift was property, i.e., buildings and not businesses. If the subject-matter of the gift was a running business carried on by the two ladies perhaps the position might ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in liquidation and whether such distribution could give rise to capital gains chargeable under section 12B of the Indian Income-tax Act, 1922, which provided for capital gains under the Act of 1922. The observation on which Mr. Shah relies is at page 51 of the report. The judgment of the Supreme Court was delivered by Khanna J., who observed at page 51 as follows? " It appears to us that the cases of the distribution of capital assets on dissolution of a firm or other association of persons or liquidation of a company were mentioned in the third proviso under the earlier Act, as a matter of clarification to allay fears even though the language of sub-section (1) of section 12B was not intended to apply to such cases. Provisos, as mentioned on page 221 of Craies on Statute law, sixth edition, are often inserted to allay fears. A proviso is inserted to guard against the particular case of which a particular person is apprehensive, although the enactment was never intended to apply to his case or to any other similar case at all. We have already stated earlier that the distribution of assets by a liquidator on the voluntary winding-up of a company cannot constitute sale, transfer or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of the 1961 Act, inasmuch as extinguishment of any rights in a capital asset was not within the definition of the word " transfer " for the purposes of section 12B. Section 12B(1) of the 1922 Act provided : " The tax shall be payable by an assessee under the head 'Capital gains' in respect of any profits or gains arising from the sale, exchange, relinquishment or transfer of a capital asset effected......" There was no definition of the word " transfer " in the 1922 Act, and thus the scheme of the 1961 Act regarding capital gains and exemption from capital gains is different from the scheme of the 1922 Act, and hence, the observations of the Supreme Court in Commissioner of Income-tax v. Madurai Mills Co. Ltd. [1973] 89 ITR 45 (SC) cannot apply to the facts of this case. We may point out that in paragraph 6 of its order at the time of disposing of the appeal before it, the Income-tax Appellate Tribunal observed : " The assessee also raised a contention that capital gains was not chargeable inasmuch as the property sold was an agricultural land but in view of our conclusions arrived at above, we are not deciding this aspect of the matter. " Thus, the Tribunal has no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3] 48 ITR 92 (SC) and Keshav Mills Co. Ltd. v. Commissioner of Income-tax [1965] 56 ITR 365 (SC), be restricted to the evidence on the record and may not be entitled to take additional evidence. That may result in injustice. In the circumstances, we think it appropriate to decline to answer the question on the ground that the Tribunal has failed to consider and decide the question whether the expenditure was laid out or expended wholly and exclusively for the purpose of the business of the company and has not considered all appropriate provisions of the statute applicable thereto. It will be open to the Tribunal to dispose of the appeal under section 66(5) of the Indian Income-tax Act, 1922, in the light of the observations made by this court after determining the questions which ought to have been decided. " In our opinion, in the interest of justice, it is but proper that we also, in the instant case, should follow the procedure which the Supreme Court followed in Commissioner of Income-tax v. Indian Molasses Co. P. Ltd. [1970] 78 ITR 474 (SC). It is obvious on the facts of the case before us that the Income-tax Appellate Tribunal has not applied the proper test for determinin ..... 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