Appeals Nos
41 44 of 1960
182 Appeals by special leave from the judgment and order dated April 13 1956 of the former Nagpur High Court in Misc
Civil Case No 27 of 1954
K N Rajagopal Sastri and D Gupta for the appel
J M Thakar section N Andley Rameshwar Nath P L Vohra and J B Dadachanji for the respondent
March 6
The Judgment of the Court was delivered by KAPUR J
These are four appeals by the Commissioner of Income tax in Income tax Reference made under section 66 A2 of the Income tax Act hereinafter termed the Act 
The question for decision is whether the respondent is an association of persons within the meaning of section 3 of the Act
The appeals relate to two Income tax assessments and two Excess Profits Tax assessments the former for the year 1946 47 and 1947 48 respectively corresponding to the accounting years February 1 1945 to September 301945 and October 1 1945 to August 21 1946 the latter are in regard to chargeable account
ing periods February 1 1945 to September 30 1945 and October 22 1945 to March 31 1946
The decision of the Excess Profits Tax appeals is consequent upon the decision of the Income tax appeals
The facts may now be stated In 1945 the Deputy Commissioner of Buldana evolved a scheme for the distribution of cloth in his district and with the sanction of the Government of C P appointed four persons viz Haji Ahmed Haji Ali  Co Bhanji Kuwarji Trimbaklal Tribhovan Das and Deolal Rangulal as sole agents for the import of cloth from mils in various places in India and for distribution of the same to retailers
Two of them Haji Ahmed Haji Ali  Co and Bhanji Kuwarji carried on the business as from February 1 1945 to the end of September 1945
The profits of the business in proportion of the capital contributed by these persons were distributed between these two persons
After September 1945 there was a change in the group of importers and some others also joined the group and the profits of 183 the subsequent period were similarly distributed between the members of the group as it was then constituted in proportion to the capital contributed by each of them
On March 12 1947 the Income tax Officer issued a notice under section 222 of the Act to the respondent callinga upon it to submit a return of the income of the group for the assessment year 1946 47
This was served on Haji Ahmed Haji Ali  Co but that firm did not furnish any return contending that there was no privity of contract among members of the group
A notice was then issued under section 224 of the Act and on the production of the books the Income tax Officer ascertained the income for the year ending September 1945 and assessed liability for payment of income tax under section 234 of the Act
He assessed the respondent as an association of persons both for purposes of Income tax and Excess Profits tax
An application under section 27 of the Income tax Act was dismissed by the Income tax Officer
Similarly for the year 1947 48 a notice was again issued and served on Haji Ahmed Haji Ali  Co and similarly the group was assessed as an association of persons to Income tax and it was also assessed to Excess Profits tax for the period October 22 1945 to March 31 1946 and an application under section 27 of the Income tax Act was dismissed in regard to this period also
Appeals were taken against the orders of assessments of Income tax and Excess Profits tax but they were dismissed by the Appellate Assistant Commissioner
Appeals were then taken to the Income tax Appellate Tribunal but they also were dismissed by an order dated April 18 1950
An application for making a reference to the High Court was dismissed by the Tribunal but an order was obtained from the High Court under section 662 of the Act and four questions were
ordered to be referred to the High Court
The question relevant for the appeals is the following Whether under the facts and circumstances of the case the Buldana District Main Cloth Importers  Group constituted an Association of persons  within the meaning of section 4 of the Income tax Act 184 1922 and was liable to be assessed to income tax and excess profits tax in that status The order of the Tribunal dated April 18 1950 shows that for different periods the group which imported the cloth was differently constituted but Haji Ahmed Haji Ali  Co was a common member
The books relating to the business were maintained by Haji Ahmed Haji Ali  Co and every time there was a change in the constituents of the group separate set of books was maintained by them and the profits from those enterprises were divided between the various persons who formed the group at the material times
It was contended before the Tribunal that there was no Association of persons and that the cloth imported was issued to the importers who sold the cloth on their own account
The Tribunal however found The accounts themselves show that the import and distribution of cloth was done on joint basis
The purchases were onjoint account the sales were on joint account the profit was first ascertained on the joint account and then distributed according to their agreed share of profits
In our opinion the assessment has been rightly made on the status of an association of persons
 The High Court when the matter went to it after the statement of the case by the Tribunal held that before a group of persons could be called an association of persons it had to be established that they were in the nature of partners ie the members of the group of their own volition or free will had joined in a venture with a view to earn profits
As the members of the group were appointed by the Deputy Commissioner a importers their participation could not be held to be of free will but it was under compulsion and therefore they were not an association of persons within the meaning of the Act
The High Court referred to and relied upon various cases to which it is not necessary to make any reference
As to what constitutes an association of persons was laid down by this Court in the Commissioner of Income tax Bombay North vs Indira Balkrishna 1 and in 185 MohammadNoorulla vs Commissioner of Income tax decided on January 18 1961 where the business was carried on as one unit and by the consent of all the parties who were heirs of deceased Mohammad Omer Sahib and during the period when an administration B suit between them was being fought in courts of law
In the present case the Tribunal has found that the It import and distribution of cloth which was the business carried on by the respondent was dune on a joint basis
The purchases were joint so were the sales and the profits were ascertained on a joint basis and then distributed according to the capital contributed by each member of the group
This finding which is one of fact makes the respondent an association of persons and it makes no difference that the business was carried on because the Deputy Commissioner of the district had appointed the members constituting the group to import and distribute the cloth in the district
The respondent it
is not disputed worked the scheme which was framed by the Deputy Commissioner and the working of the scheme produced profits and it made no difference that the scheme was at the instance of or under the control of the Deputy Commissioner
Dealing with the argument of similar control Sarkar J in Commissioner of Income tax Madhya Pradesh  Bhopal vs Vyas and Dhotiwala 2 observed as follows The Tribunal thought that since the scheme was completely under the control of the Deputy Commissioner the assessees could not be said to have carried on business by working the scheme
We are unable to see that the fact of the control of the Deputy Commissioner can prevent the working of the scheme by the assessees from being a business carried on by them
In our view it only comes to this that the asaessees had agreed to do business in a certain manner
 We are in respectful agreement with this observation
In our view the respondent was an association of 1 1961 3 SCR513
2 1959 Supp 1 SCR 3943 196 persons and was rightly so assessed to Income tax and Excess Profits Tax
The appeals are therefore allowed with costs
One hearing fee
Appeals allowed


Summary:
One Bbanu Bala had joined the appellant s service as a workman in 1929 and resigned in 1957
During this period of his service he had remained absent from duty without permis sion or leave for nearly 8 months between February 1945 to 718 October 1945
Under an Award made between the company and its workmen a scheme was framed wherein the concerned clause was that on voluntary retirement or resignation of an employee after 15 years continuous service gratuity at the same rate as above
 Dispute arose with regard to the question of granting gratuity to Bhanu Bala who claimed the benefit of the said clause and the company denied the claim on the ground that the said employee had not been in continuous service for the requisite period because there was a break in his service and that affected the continuity of his employment which made his claim incompetent
The question was as to the interpretation of the term continuous service contained in the Award of 1951
Held that in different context the same word can often have different meanings and the expression continuous service would always be a question of fact to be decided on the circumstances of each case whether or not a particular employee can claim continuity of service for the requisite period
Where the expression continuous service was statutorily defined then the definition would prevail and where an award itself gave a definition of the expression that would bind the parties in dealing with claims arising from the award but where the award did not explain the expression continuous service and statutory definitions contained in other Acts were of no material assistance it would be necessary to examine the question on principle and decide what the expression should mean in any given award
Continuous service in the context of the scheme of gratuity postulates the continuation of relationship of master and servant between the employer and employees which could come to an end either by act of parties ie by resignation or termination of service or by the operation of law but the continuity of service would not come to an end merely because an employee was absent without obtaining leave though
there would be cases where long unauthorised absence may reasonably give rise to an inference that such service was intended to be abandoned by the employee
For the purpose of gratuity mere participation in an illegal strike could not be said to cause breach in the continuity of service though it may he a good cause for its termination provided the relevant provisions in the Standing Orders in that behalf were complied with
Buckingham and Carnatic Co Ltd vs Workers of the Bucking ham and Carnatic Co Ltd   distinguished
Budge Budge Municipality vs P R Mukherjee 1953 1 LLJ 195 referred to 719