TMI Blog1992 (10) TMI 107X X X X Extracts X X X X X X X X Extracts X X X X ..... rom 6.7% share as a beneficiary in Manilal Trust as also certain interest income. The ITO taxed both at the maximum marginal rate holding the assessee as an AOP as stated above. He has made observations regarding the time gap of five months between the date of gift and the execution of the declaration thereof and stated that there must be some pressing reason for that. He has also observed the scoring out of the old date on that document and substitution of the latter date. He has made observations regarding the validity of the gift. He has then considered the Supreme Court decision in the case of CIT v. Indira Balkrishna [1960] 39 ITR 546 and ultimately observed that (i) the making of the gift alone could not result in an income, (ii) the assessees by agreeing to the terms of the gift had given their consent to the common design of generating income by the use of the gift and (iii) the individual shares of the donees in the corpus or income were not specified and was left to be determined by the donees which could be done only by joint action and common understanding. According to him, the gift was not to a BOI but to the individuals who were identified as members of BOI. He has m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Group [1961] 42 ITR 172 (SC). 3. N.V. Shanmugham Co.'s case. He submitted that if the Gujarat High Court decision in the case of Harivadan Tribhovandas was so interpreted that if individuals happen to come together and do business then it is a BOI the Supreme Court decision in the case of N.V. Shanmugham Co. would be contradicted. Therefore, according to him, this was not the ratio of the Gujarat High Court decision. This was shown by its agreement with the observation of the Andhra Pradesh High Court quoted at page 504. Lastly, he submitted that this was a fit case for applying the Supreme Court decision in the case of Mc Dowell Co. Ltd. v. CTO [1985] 154 ITR 148 and for that purpose relied on the following decisions of the Tribunal :--- 1. B. D. Fibre Enterprises v. IAC [1986] 19 ITD 427 (Bom.) 2. 78 CTR (Trib.) Ahd. (sic) 3. ITO v. Samir Builders [1987] 23 ITD 570 (Ahd.) 4. Atman Trust v. LAC [1989] 31 ITD 315 (Ahd.) 5. Neo Trust. 5. The learned counsel for the assessee, on the other hand, first of all submitted that the Tribunal decision in the case of S.C. Shah fully covered the present controversy and that it should be followed since according to hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he question whether there was an attempt to divide the income and reduce that liability was very much before the Tribunal because in the revisional order of the Commissioner over which the Tribunal was hearing the appeal it was stated as follows : " It is also unbelievable that the petty sum of Rs. 1000 will earn the first year itself an income of Rs. 24,60,000 (for a part of the year) in as much as it is a part of the design to fragment the income. This is to avoid payment of tax." [Emphasis supplied]. He also submitted that in the miscellaneous application the grievance was that the citation of N.V. Shanmugham's case had not been included in para 9 of the Tribunal's decision and not that it had not been considered. According to him, since the Tribunal had incorporated the citation of the decision in G. Murugesan's case which had considered the decision in N.V. Shanugham's case the error was corrected. He relied upon the decision of the Tribunal in 38 ITD 138 to submit that the earlier Tilbunal decision should not be departed from and also pointed out that if a departure was made then in one case the assessee would be a BOI and in another it would be an AOP although the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the gifted property and the accumulation of any accretion thereto. The Tribunal has applied the second test laid down by the Gujarat High Court in the case of Harivadan Tribhovandas i.e., " a conglomeration of individuals who happened to have come together but carry on some activity with a view to earn income or profits or gains". According to the Tribunal, since the donees had not come together on their own volition but happened to have come together by reason of the gift, they were a Body of Individuals. Looked at in isolation the facts of each appeal here are similar to those in the above case of H.C.Shah. However, when an the appeals were heard together, we have found certain important facts which make a material difference. In order to bring out that difference the following facts are mentioned. 9. Some of the assessees here are beneficiaries in Manilal Trust and some in Chinubhai Trust. So far as Manilal Trust is concerned, the following chart shows the name of the settlor, the trustees and the beneficiaries :--- Manilal Trust - Settlor Hasmukh Chinubhai (HUF) Trustees: Vijay Natwarlal Shah, Hasmukh Chinubhai Shah and Bipin Mafatlal Shah. Beneficiaries Members of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e passed on the 8th January, 1981 by the above groups claimed to be BOIs stating inter alia that the amount received as gift " is being deposited with M/s. Hasmukh Shah Enterprise at the interest rate of 12% per annum ". The assessees have shown the interest thus earned in their return of income. The construction business of the trusts is being carried on in the name of Hasmukh Shah Enterprise. The donors have withdrawn money from Hasmukh Shah Enterprise and made the said gifts. The addresses of all the said groups where beneficiaries under the Manilal Trust are care of that trust and addresses of the assessees of those groups who are beneficiaries in Chinubhai Trust are care of that trust. Both the trusts have the same address, i.e., Chinubhai Centre, Ashram, Road, Ahmedabad. The above facts show that there is an agreement between the real persons who some times appear as donors, sometimes as trustees and some times as members of the said group claimed to be BOIs and some times as trustees of the five beneficiary trusts to divide the income from the construction business in such a manner as to pay less income-tax than is really due. These facts distinguish these appeals from the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpression body of individuals should receive a wide interpretation, perhaps not wide enough to include a combination of individuals who merely receive income jointly without anything further as in the case of co-heirs inheriting shares or securities, but certainly wide enough to include a combination of individuals who have a unity of interest but who are not actuated by a common design, and one or more of whose members produce or help to produce income for the benefit of all, We are content to leave it at that." This means that a group will not cease to be a body of individuals because it earns an income. If some of the members produce or help to produce " income " for the benefit of all it will still be a body of individuals but if the members are actuated by common design then it will not be a body of individuals. In this connection, the decision of the Supreme Court in the case of N.V. Shanmugham is relevant. In that case three receivers were appointed in a suit for dissolution of a firm and taking accounts. The court had directed them to conduct the firm's business for winding up. The Supreme Court held that the business was carried on by the receivers on behalf of the erstw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... If the legal position is considered in its correct perspective what is necessary is that the common intention should be to obtain some financial benefit. The expression ' income ' used in the above decided cases has to be understood in that sense. For this purpose, it would be useful to hark back on the observations in the case of B.N. Elias, In re [1935] 3 ITR 408 (Cal.) which have been quoted in the Gujarat High Court's judgment in the case of Harivadan Tribhovandas's case. Their Lordships have first pointed out the meaning of the word ' association ' i.e., " " to associate means according to the Oxford Dictionary, to join in a common purpose or to join in an action ". Thereafter, these words have been interpreted in the context of the Income-tax Act and that is how the requirement that the common purpose must be to " earn an income " has been brought in. The Hon'ble Gujarat High Court has also considered this common purpose in the light of the Income-tax Act, and that is how it has said that the common purpose must be to earn an income. The basic idea, therefore, is that the common purpose has to be understood in the light of the context viz., the Income-tax Act and not that it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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