Appeals Nos
303 to 307 of 1960
Appeals by special leave from the judgment and order dated May 14 1957 of the Madras High Court in Case Referred No 1 1 1 of 1953
R Ganapathy Iyer and G Gopalakrishnan for the appellant
K N Rajagopal Sastri and D Gupta for the respondent
January 18
The Judgment of the Court was delivered by KAPUR J
These appeals are brought by special leave against the judgment and order of the High Court of Madras in an Income tax reference under section 661 of the Indian Income tax Act hereinafter termed the  Act
The question referred was   Whether the income tax assessment of the business of I Spade Clover Beedies  belonging to the estate of the deceased and carried on during the previous years 1943 to 1946 as an association of persons for the assessment years 1944 45 to 1947 48 is valid  And this question was decided in the affirmative and therefore against the appellants
The facts leading to the appeals are that one Khan Sahib Mohamed Oomer Sahib who was carrying on the business of manufacture and sale of Spade Clover brand Beedies died on December 17 1942 leaving a minor son Mohamed Noorullah the appellant by his pre deceased wife a widow Luthfunnissa Begum and four children by her who were all minors at the date of the death of Oomer Sahib
Noorullah through his next friend applied to sue in forma pauperis and during the pendency of those proceedings two Advocates of the Madras High Court were appointed joint receivers of the properties of the deceased on March 17 1943
This appointment was by consent of parties
On 517 May 10 1943 the widow Luthfunnissa filed a suit for partition and also applied for the continuance of the joint receivers
Noorullah opposed this application but by an order dated May 251943 the receivers were ordered to be continued and they carried on the business as before
In due course a preliminary decree for partition was passed
The High Court has observed that none of the parties wanted to break the continuity of the business after the death of the father
In the beginning Luthfunnissa and Dawood carried on the business and from the date of their appointment ie May 17 1943 the joint receivers continued the business till November 25 1946 when during the course of the proceedings the business was put tip for sale by auction between the co heirs and was purchased by Noorullah
The years of assessment are 1944 45 to 47 48 the relevant accounting years for which were the calendar years 1943 to 1946
The profits of the business were assessed to tax in the hands of the receivers as the income of an association of persons and the contention of the appellant that the share of the profits of each of the co heirs should have been separately taxed was rejected by the Income tax authorities as well as by the Income tax Appellate Tribunal
The only question which was raised both before the department as well as before the Tribunal was the assessment to tax of the income of the business
There was no dispute in regard to the income of the properties which was taxed under section 93 of the Act
The business was inherited by the heirs of Oomer Sahib and was carried on without break during the accounting years first by the widow and Dawood and then jointly by the receivers
The nature of the business was such that it could not be divided up and had to be carried on as one whole with a unity of control and all the parties desired to preserve and did preserve this unity
The opposition by the appellant to the application for receivership filed on behalf of Luthfunnissa the widow was only on the ground that the appellant wanted different persons to be appointed and not to the continuance of the business or to the unity 518 of control
The Income tax Appellate Tribunal in its order stated   In fact there was no change in the continuity of the business and from the date of death of Md Oomer Sahib up to 24th March 1943 the business was carried on by mutual agreement and consent by Luthfunnissa Begum acting on her own behalf and on behalf of her minor children and her minor step son Md Noorullah
There can therefore be no gain saying the fact that immediately after the death of Md Oomer his estate was inherited and run by combination of individuals who had pooled their resources for the common purpose of earning income
 And the High Court has observed The opposition was apparently to the persons to be appointed receivers and not to the continuance of the business or to the unity of control that was necessary
Noorullah himself had realised that when he applied earlier for the appointment of receivers to conduct the business among other things
Despite Noorullah s opposition when Luthfunnissa asked for the continuance of receivers in her application No 1162 of 1943 the existence of the desire of all the co sharers including Noorullah for the continuance of the business with proper persons to take charge of the business under the orders of court was clear
That intention was material on which the departmental authorities and the Tribunal which agreed with them could find that the co sharers did constitute an association of persons 
 From the finding of the Tribunal it is obvious that the business was such that it was not capable of division it being the manufacture and sale of  Beedies  of a particular brand and the finding of the Tribunal was that the business was carried on with the consent of the parties
On this finding it has to be decided whether the business was the business of an  association of persons
 and its profits are assessable as such  The contention of counsel for the appellant was 1 that on the death of Md Oomer his estate including the business devolved upon his heirs in specific 519 shares and 2 there was no consensus of opinion between the heirs which is shown by the fact that the appellant filed an application to sue in forma pauperis and before that application could be decided the widow sued for partition and even though receivers were appointed objection was taken by the appellant to the  appointment of receivers
But these facts do not assist the case of the appellant
As has been said above the business was in the first instance carried on by the widow and Dawood on behalf of the heirs of Oomer and subsequently when the suits were brought none of the parties wanted to break the unity of control of the business nor its continuity and it was of such a nature that it could not be carried on without such consensus and therefore the receivers carried on the business
On these findings the High Court has rightly come to the conclusion that the business was a business of an association of persons
This Court in Commissioner of Income tax Bombay vs Indira Balkrishna 1 considered the question as to what an association of persons means
The test laid down in three cases In re B N Elias  Others 2 Commissioner of Income tax vs Laxmidas Devidas and Another 3 and In re Dwarkanath Harischandra Pitale 4 was accepted by this Court as correctly laying down the crucial test for determining what is an association of persons and that in each case the conclusion has to be drawn from the circumstances
In the first case the test was laid down as applying to combinations of individuals who were engaged together in some joint enterprise but not constituting a partnership
Such a combination of persons formed for the promotion of a joint enterprise banded together as if they were  coadventurers  it was held would constitute an asssociation of individuals
In the second case that is Commissioner of Income tax vs Laxmidas Devidas and Another 3 Beaumont C J at p 589 laid down the test as follows  In my opinion the only limit to be imposed on the words other association of individuals  is 1  2 67 3 4  520 such as naturally follows from the fact that the words appear in an Act imposing a tax on income profits and gains so that the association must be one which produces income profits or gains
It seems to me that an association of two or more persons for acquisition of property which is to be managed for the purpose of producing income profits or gains falls within the words other association of individuals  in section 3 and under section 9 of the Act the Association of individuals is the owner of the property and as such is assessable In that case it was also held that the fact that one of the assessees was a minor during the year of the assessment did not affect the question
In In re Dwarkanath Harischandra Pitale 1 the assessees were two brothers who became entitled to certain house properties as tenants in common and held and managed the properties as such and derived profit therefrom
It was held that though the assessees in the first instance did not constitute an association of individuals they became so when they elected to retain the property and managae it as a joint venture producing income
The test there laid down was that as soon as there was election to retain the property and manage it as a joint venture the persons so electing became an association of individuals
The Rangoon High Court in The Commissioner of Income tax Burma vs M A Baporia and Others 2 also laid down the same interpretation of the words  association of individuals 
That was a case of Mohammedan co heirs and it was held that by merely inheriting a share of property no person can become a member of an association of individuals unless there is some forbearance or act upon his part to show that his intention and will accompanied the new status that is an association of individuals
One of the co heirs in that case was appointed an agent to realise the income from the properties left to the co heirs by their father and mother under Mohammedan Law and that was held to be sufficient to constitute them an association of individuals
1 2 521 It is unnecessary to refer to other cases
Taking the test as laid down by this Court in Indira Balkrishna s case 1 it appears to us that the appellant and other co heirs were rightly assessed as an association of persons
No doubt a suit for partition had been filed which was preceded by an application made by the appellant to sue in forma pauperis but the suit in reality was for ensuring the proper conduct of the business and not its discontinuance
During the period that the suit was pending and even before that ie after the death of the father the business was carried on by the consent of all parties as one unit as indeed it had to be because it had to be carried on as one unit with unity of control and therefore the co heirs did form an association of persons within the meaning of section 3 of the Act
Counsel for the appellant relied on section C MazumdarReceiver Trigunait Brothers  Estate vs Commissioner of Income tax 2
That was a case of persons who formed a joint family being governed by the Mitakshara School of Hindu Law
A suit for partition was filed and the court appointed a receiver and a preliminary decree was passed but the receiver was continued in regard to certain portion of the property and the income was assessed by the taxing authorities as the income of an association of persons
It was held that the income from property could not be taxed as such because the shares of the parties were definite and ascertainable
The amount paid by the lessees could not be taxed in a lump sum as being the profits of a business carried on by an association of persons and the assessment was therefore made in accordance with the provisions of section 93
It was also held that the assessees were not carrying on a trade or business themselves and there was no association of persons as contemplated by the Act
But that case can be of no assistance in the decision of the matter now before us
The income to be assessed there was not income of any business carried on by or on behalf of the assessees and it was held that letting out property was not a trade or business
With regard to the income received by the receiver 1  2 522 who employed contractors to carry on the business of coal cutting and raising it on the pit bead it was held that that was not the income of an association of persons on the ground 1 that the receiver was in possession and he employed contractors for coalcutting and raising of coal 2 that the assessees had no hand in the business which produced royalty and 3 that the assessees had disassociated themselves from each other because of this partition suit
In our opinion the case so far as it relates to the carrying on of the business and in so far as it is contrary to the opinion expressed by this Court in Indira Balkrishna s case 1 is not correctly decided
Another case relied upon by the counsel for the appellant was Buldana District Main Cloth Importers  Group Khamgaon vs Commissioner of Income tax Nagpur 2
In that case a certain group of persons were directed to import cloth in the district and had to work a scheme for the distribution and sale of cloth which had been evolved by the District authorities
That was held not to be an association of persons
It appears that although they were appointed as a group of importers all of them did not participate in that scheme during the entire period
There were changes in the personnel of the group from time to time and there was no compulsion to work the scheme
On these facts it was held that the group did not agree to carry on the business or share the profits
That case must be taken to have been decided on its own facts and does not in any way affect the meaning of the phrase  association of persons
 Counsel also relied on Khan Bahadur M Habibur Rahman vs Commissioner of Income tax Bihar  Orissa 3  in which a waqf deed was executed by which the assessee dedicated the income with ultimate benefit to the poor and constituted himself the sole mutwali of the trust
The deed provided that the beneficiaries should be benefited concurrently and in the same proportion
It was held that section 411 was inapplicable and the assessee should therefore be taxed on the basis of profits falling to the share of 1  2 3 523 each beneficiary and not on the footing that all the beneficiaries constituted an association of persons
Fazl Ali C J as he then was there observed at p 194  It seems to me therefore that the finding of the Tribunal that there were only 24 persons who were entitled to share the profits in the accounting year and that they were entitled to equal shares therein must be accepted
As it does not seem to have been contended that the assessee had any other relations than those enumerated by the Tribunal who would be entitled to share the profits it is academic to discuss whether the various categories of persons referred to by the Appellate Assistant Commissioner of Income tax were included in the term family  or not On this ground the income was not assessed as the income of an association of persons and that case  as also decided on its own facts
The question in the present case is as to what income was to be taxed
The income was the income of a business which was carried on as a single business by the consent of all the parties
The mere fact that a suit was pending at the time for the administration of the estate of the deceased or for the separation of the shares of the co heirs does not affect the incidence of taxation in this case because the business was carried on as said above as one business with unitary control and by the consent of the parties
The High Court was right in holding that the income was assessable as an income of an association of persons
The appeals must therefore be dismissed with costs
One hearing fee
Appeals dismissed


Summary:
In respect of a decree passed against T who was the owner of certain watan properties a building standing on watan land comprised in the said properties was sought to be attached and sold in execution of the decree
The appellant who was the legal representative of T claimed that the buildingwas not liable for attachment and sale because 1 the building being part of watan property within the meaning of section 4 of the Bombay Hereditary Offices Act 1874 was not saleable property under sub section
1 of section 60 of the Code of Civil Procedure 1908 and 2 in any case he was an agriculturist and the building belonging to and occupied by him was protected from attachment and sale by cl
c of the proviso to sub section
i of section 60 of the Code
The facts showed that the building was not in existence when the watan was first created but had been built subsequently by one of the watandars and there was no indication on the record that the building was constructed for the purpose of providing remuneration for the performance of the duty appertaining to a hereditary office
The evidence also showed that the appellant was not entirely dependent for his livelihood upon the income from the home farm that he had substantial income from other lands and that there was nothing to show that this income derived from his other lands was the result of cultivation by him
Held that the building in question was not an accession to the land so as to partake of the character of the land on which it was constructed and did not come within the definition of watan property in section 4 of  the Bombay Hereditary Offices Act 1874
Held further per jafer Imam and Raghubar Dayal jj
Sarkar J dissenting that the word  agriculturist  in cl
c of the proviso to sub section
1 of section 60 of the Code of Civil Procedure 1908 must carry the same meaning as the word in cl
b and that in order that a person might come within the meaning of the word in those clauses it must be shown that he was really dependent for his living on tilling the soil and was unable to 164 maintain himself otherwise though it was not necessary that he must till the land with his own hands
That on the facts the appellant was not an agriculturist within the meaning of the word in section 60 of the Code
Case law reviewed
Per Sarkar J 1 On the plain meaning of the word agriculturist  in cls
b and c of the proviso to sub section
1 of section 60 of the Code an agriculturist is any person who occupies himself with agriculture
There is nothing in cl
c to indicate that the agriculturist there mentioned must be one who depends for his living on agriculture
A person occupying himself with agriculture would be an agriculturist though he did not cultivate with his own hands and carried on agriculture in a very large scale
He would still be an agriculturist even if he had other means of livelihood besides agriculture
2 Under cl
c in order that houses and buildings belonging to an agriculturist might be protected from attachment and sale they must be occupied by him for the purpose of agriculture