Case: Commissioner Of Income- Tax, Bombay Vs. Smt. Indira Balkrishna

By the Income-tax Amendment Act of 1939 (Act VII of 1939) the section was again amended and it then said :"Where any Act of the Central Legislature enacts that income-tax shall be charged for any year at any rate or rates, tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of this Act in respect of the total income of the previous year of every individual, Hindu undivided family, company and local authority, and of every firm and other association of persons or the partners of the firm or members of the association individually."7. By the same Amending Act (Act VII of 1939) sub-s. (3) of S. 9 was also added.8. Now, S. 8 imposes a tax "in respect of the total income .....of every individual, Hindu undivided family, company and local authority, and of every firm and other association of persons or the partners of the firm or members of the association individually." In the absence of any definition as to what constitutes an association of persons, we must construe the words in their plain ordinary meaning and we must also bear in mind that the words occur in a section which imposes a tax on the total income of each one of the units of assessment mentioned therein including an association of persons. The meaning to be assigned to the words must take colour from the context in which they occur. A number of decisions have been cited at the bar bearing on the question, and our attention has been drawn to the controversy as to whether the words "association of individuals" which occurred previously in the section should be read ejusdem generis with the word immediately preceding, viz., firm or with all the other groups of persons mentioned in the section. Into that controversy it is unnecessary to enter in the present case. Nor do we pause to consider the widely differing characteristics of the three other associations mentioned in the section viz., Hindu undivided family, a company and a firm, and whether in view of the amendments made in 1939 the words in question can be read ejusdem generis with Hindu undivided family or company.9. It is enough for our purpose to refer to three decisions : In re, B. N. Elias, 1935-3 ITR 408 (Cal); Commissioner of Income-tax, Bombay v. Laxmidas Devidas, 1937-5 ITR 584 (Bom) : and in re. Dwarkanath Harishchandra, 1937-5 ITR 716 : (AIR 1938 Bom 353 ). In 1935-3 ITR 408 (Cal ) Derbyshire, C. J. rightly pointed out that the word "associate" means, according to the Oxford dictionary, "to join in common purpose, or to joint in an action." Therefore, an association of persons must be one in which two or more persons join in a common purpose or common action, and as the words occur in a section which imposes a tax on income, the association must be on the object of which is to produce income, profits or gains. This was the view expressed by Beaumout, C. J. in 1937-5 ITR 584 (Bom) at p. 589 and also in 1937-5 ITR 76 : (AIR 1938 Bom 353 ). In 1935-3 ITR 408 (Cal ) Costella, J. put the test in more forceful language. He said :"It may well be that the intention of the legislature was to hit combinations of individuals who were engaged together in some joint enterprise but did not in law constitute partnership.....When we find....that there is a combination of persons formed for the promotion of a joint enterprise....then I think no difficulty arises in the way of saying that these persons did constitute an association......."10. We think that the aforesaid decisions correctly lay down the crucial test for determining what is an association of persons within the meaning of S. 3 of the Income-tax Act, and they have been accepted and followed in a number of later decisions of different High Courts to all of which it is unnecessary to call attention. It is, however, necessary to add some words of caution here.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 S. 3; it must depend on the particular facts and circumstances of each case as to whether the conclusion can be drawn or not.11. Learned counsel for the appellant has suggested that having regard to Ss. 3 and 4 of the Indian Income-tax Act, the real test is the existence of a common source of income in which two or more persons are interested as owner or otherwise and it is immaterial whether their shares are specific and definite or whether there is any scheme of management or not. He has submitted that if the persons so interested come to an arrangement, express or tacit, by which they divide the income at a point of time before it emanates from the source, then the association ceases; otherwise it continues to be an association. We have indicated above what is the crucial test in determining an association of persons within the meaning of S. 3, and we are of the view that the test suggested by learned counsel for the appellant are neither conclusive nor determinative of the question before us.12. Coming back to the facts found by the Tribunal, there is no finding that the three widows have combined in a joint enterprise to produce income. The only finding is that they have no exercised their right to separate enjoyment, and except for receiving the dividends and interest jointly, it has been found that they have done no act which has helped to produce income in respect of the shares and deposits. On these findings it cannot be held that the three widows had the status of an association of persons within the meaning of S. 3 of the Indian Income Tax Act.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]The High Court, however, rightly pointed out that the only property which the widows could have managed jointly was the immovable property which fetched an income of about Rs. 11,000/-, and as to that property, the Appellate Assistant Commissioner had held that S. 9 (3) applied. There was no appeal by the Department against that finding and it was not open to the Tribunal to go behind it. Even on merits the Tribunal was wrong in thinking that the respective shares of the widows were not definite and ascertainable. They had an equal share in the income, viz., one-third each, and the provisions of S. 9(3) clearly applied in respect of the immovable property.5. With regard to the shares, dividends, and interest on deposits there was no finding of any act of joint management. Indeed, the main item consists of the dividends and it is difficult to understand what act of management the widows performed in respect thereof which produced or helped to produce income. On the contrary, the statement of the case shows that the assessee filed lists of shares copies whereof are marked annexure C and form part of the case, which showed that the shares stood separately in the name of each one of the three widows and this was not denied by the Department.We think that the aforesaid decisions correctly lay down the crucial test for determining what is an association of persons within the meaning of S. 3 of the Income-tax Act, and they have been accepted and followed in a number of later decisions of different High Courts to all of which it is unnecessary to call attention. It is, however, necessary to add some words of caution here.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 S. 3; it must depend on the particular facts and circumstances of each case as to whether the conclusion can be drawn orhave indicated above what is the crucial test in determining an association of persons within the meaning of S. 3, and we are of the view that the test suggested by learned counsel for the appellant are neither conclusive nor determinative of the question before us.12. Coming back to the facts found by the Tribunal, there is no finding that the three widows have combined in a joint enterprise to produce income. The only finding is that they have no exercised their right to separate enjoyment, and except for receiving the dividends and interest jointly, it has been found that they have done no act which has helped to produce income in respect of the shares and deposits. On these findings it cannot be held that the three widows had the status of an association of persons within the meaning of S. 3 of the Indian Income Tax Act.