Case: M/S. Meera Company,Ludhiana Vs. The Commissioner Of Income Tax,Punjab, J&amp;K And Chandigarh,P

The following questions of law had been referred to the High Court by the Income Tax AppellateWhether on the facts and in the circumstances of the case, the Tribunal was circumstances of the case, the Tribunal was right in law, in holding that Meera &Co. is a body of individuals and is assessable as such? 2. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessment of the body of individuals identified as Meera &Co. should be made under Section 4 read with Section 2(31)(v) and not under Section 160, 161 orHigh Court has given brief summary of the relevant facts as under:Shri Prem Narain, an individual, carried on business under the name M/S. Meera &Co. at Ludhiana. He died intestate on August 25, 1962 survived by his mother, widow and three minor children. All the assets of the deceased including the business styled as Meera &Co. devolved on his five legal heirs. The mot her of the deceased relinquished her interest in the assets of the deceased against a lump sum payment. For the purpose of these references, we are concerned with the widow and three minor children of the deceased. The business of M/S. Meera &Co. was continued as a single unit in the same name by Smt. Krishna Gupta, widow of the deceased, obviously on her behalf and on behalf of all the three minor children as their guardian, The accounts were maintained in the name of m/s. Meera &Co. T he yearly profits were ascertained and divided. The Income Tax Return for the assessment years 1963-64 to 1967-68 were filed by Smt. Krishan Gupta on behalf of m/s. Meers &Co. The status of the assessee was described as `association of persons.These returns reflected the entire income from business previously carried on by shri Prem Narain, deceased. On January 25, 1968, Smt. Krishna Gupta filed the return under protest and further revised the returns for the assessment years 1963-64 to 1966-67, declaring the same income that had been shown in the returns already filed but without specifying the status therein. It was contended that the income from the business should be assessed in equal shares in the hands of four legal heirs of the deceased. The minor children of the deceased also filed separate returns where the share of profit from m/s. Meera &Co. was included for rate purposes only. The Income-tax Officer did not agree with the altered position taken by the assessee that the income from the business was liable to be assessed in equal shares in the hands of the four heirs of the deceased. He held that the business was for one and common unit and the same was assessable in the status of `body ofassessee, being dissatisfied with the order of the Income Tax Officer, filed an appeal and the Appellate Assistant Commissioner held that the entire income of the business was assessable in the hands of Smt. Krishna Gupta as a person carrying on business in individual capacity. The Revenue and the assessee both filed appeals before the Income Tax Appellate Tribunal. The Accountant member of the Appellate Tribunal found that the business was carried on as an organic unit by Smt. Krishna Gupta on her own behalf and on behalf of her three minor children as their natural guardian. On the death of Shri Prem Narain, his estate fell to his legal heirs under Section 8 of the Hindu Succession Act as tenants-in-common. The special provisions regarding the minors and guardians contained in Sections regarding the minors and guardians contained in Sections 160. 161 or 166 of the Income Tax Act, (hereinafter referred to as the `Act) shall apply and will override the general provisions contained in Sections 4 and 2(31)(v) of the Act. The Judicial member took a different view. According to him, the entity was liable to be assessed under Section 4 read with Section 2(31)(v) of the Act. He repelled the con tention of the assessee that the assessments of the minors should have been done under the special provisions meant for representative assessees, i.e. Sections 160 etc. He held that before the assessee could be so treated, he must filter through the charging Section 4 read with Section 2(31)(v) of the Act and if he cannot do so, he must stay there. In the event of the assessee being a body of individuals, as defined in Section 2(31)(v), the question of the applicability of Sections 160, 161 etc. of the Act did not arise. As the two members of the Appellate Tribunal differed, the matter was referred to a third member who agreed with the view taken by the Judicial member and the appeals of the assessee w ere consequently dismissed.Before the High Court, the contention made on behalf of the appellant was that Smt. Krishna Gupta had two capacities in this matter. She was managing the business of Meera &Co. in her own right as well as a guardian of the minor children. As a guardian-trustee of the minor children, she should have been assessed as a representative assessee in accordance with the provisions of Sections 160, 166 of the Act. Krishna Gupta acted on behalf of the minors in runn ing the business of Meera &Co, Income from the business representing the share of the minors accrued to them or to their guardian representing them. That being the case, the mode of assessment contained in Chapter XV of the Act shall get precedence being special provisions relating to the minors and assessment should be made accordingly. It was further contended that the assessments could not be made in the status of `body of individuals which postulates more than one individual . In this case, the business was being managed by Krishna Gupta on her own behalf and also on behalf of the minors. There is no question of assessing the income of the father in the status of `body ofHigh Court was, however, of the view that the expression `body of individuals should receive wide interpretation to include a combination of individuals who have unity of interest (mother and her three minor children) and were actively engaged in the business carried on for the benefit of all of them by one of them and therefore, they would constitute a `body of individuals. In the instant case, on the death of Prem Narain, business under the trade name Meera &Co. passed on to Krishna Gupta and her three minor children. The fact that the minors had no legal capacity to enter into an agreement was irrelevant for determining their status as a constituent in the `body of individuals in terms of Section 2(31)(v) of the Act. In that view of the matter, the High Court answered both the questions in the affirmative and in favour of the Revenue.In the appeal before us, it has been contended that in the facts of this case, it could not be said that the mother and three assessable as a unit. The business profit should have been apportioned and assessed in the hands of each of the heirs of Prem Narain separately and in the status of individual. Secondly, it was contended that the special provisions relating to the minor contained in Chapter XV of the Act will override the general provisions relating to assessment in other parts of the Act. When the income of the firm accrued to the minor, assessment should have been done in accordance with the provisions of Sections 160, 161 and 166 of theare unable to uphold any of these two contentions. The business of Meera &Co. was set up by Prem Narain who ran this business as a sole-proprietory concern till his death. After his death, the entire business devolved upon his mother, widow and minor children. The mothers share was bought by the widow and her children and they carried on the business in the name of Meera &Co. The business was carried on as before jointly by the widow on her own behalf as well as on behalf of the minor children. The profits that arose out of the business were a result of the business activities carried on jointly by the mother on her own behalf and also on behalf of minor children. In such a situation, the assessments had to be made in respect of the income generated in the business in the status of `body of individuals.

Reasoning:
In this definition, in clause (v), both `association of persons and `body of individuals have been included with the added words "whether incorporated or not". Another thing to note is that clause (v) speaks of "an association of persons or a body of individuals". This implies that an "association of persons " is not something distinct and separate from "body of individuals". It has been added to obviate any controversy as to whether only combinations of human beings are to be treated as a unit of assessment. The intention clearly is to hit combinations individuals and individuals, combinations of individuals and non-individuals and also combinations of non-individuals with other non- individuals who are engaged together in some joint enterprise when such joint enterprise does not fall within any of the other categories enumerated in sub-section (31) of Section 2 of theis of interest to note that the phrase "body of individuals" has been used by the Parliament in a revenue Act even before the Income Tax Act, 1961 was passed. Under the Gift Tax Act, tax was imposed on gifts made in course of every assessment year commencing on and from the first day of April, 1987 at the prescribed rate by athe Indian Income Tax, 1922 `person has been defined to include a Hindu undivided family and a local authority. The object of giving the expanded definition was to cover all entities taxable under the Indian Income Tax Act, 1922 as well as the entities falling within the definition of `person under the General Clauses Act. In other words, the intention of the Legislature was not to limit the charge to certain specified entitiesthe background of these definitions, when several individuals are found to have joined together for the purpose of making profit, the group of individuals may be conveniently described as "a body of individuals". We have seen how the controversy arose under the Indian Income Tax Act as to the meaning of "association of individuals". There was a conflict of opinion on whether `individuals include artificial or non-juridical persons. But there can be no scope of any controversy now. "An association of person" or "a body of individuals", whether incorporated or not, has been brought within the net of taxation. The intention of the legislature is clearly to hit combination of individuals or other persons who were engaged together in some joint enterprise. The combinations of or may not be incorporated. A profit-yielding joint venture has to be taxed as a singlethe case before us, we have a window and her minor sons who are engaged in the business activity which sons who are engaged in the business activity which generates income. It does not make any difference that the window and the minor sons did not start the business. The business was inherited. But the fact that the business has been continued by the widow on her own behalf as well as on behalf of the minor sons after buying the interest of the mother goes to show that there is an organised activity jointly carried on to produce income. It is a clear case of joint business venture of a few individuals. The income of this business has been rightly assessed in the status of a "body of individuals".We are of the view that the High Court has come to a correct decision. It is not necessary to refer to the large number of cases that have been cited before us but it is well settled by this Court under the Act of 1922, by a series of judgments that `association of persons must be an association is also well settled by a number of decision right from the case of Commissioner of Income Tax, Bombay Laxmidas and anotherare unable to uphold this argument. Section 161 is an enabling provision. The charge that is imposed by Section 4 may be computed and recovered in the manner laid do wn in the Act including Section 160, 161 and 166. When the minors along with their mother form a body to generate income, levy of tax under section 4 is on that body. The mother cannot insist that the income of the joint venture must be assessed separately on the minors and her even when a joint business is carried on.The underlying idea behind these sections was explained by Addison, J. in the case of Hotz Trust of Simla v. The Commissioner of Income Tax, Punjab and N 1 Frontier Provinces, 5 ITC 8 at 16. Dealing with the corresponding provisions of the 1922 Act, it was held that where trustees carried on a business under a testamentary trust, the assessment in respect of the business profits should be made not on the beneficiaries in respect of their individual not shares of the profits but on the trustees as an "association of persons". It was40 is merely a machinery section, making the trustee liable for beneficiaries are difficult or impossible to get at, and where the trustee acts as a conduit-pipe for the conveyance of the income to the beneficiaries. It does not affect the charging sections 3 and 10 of the Indian Act under which the trustees as an association of individuals, carrying on a business, are liable to be assessed in respect of the gains of the business carried on by them. In fact it is clear that this is the only way t hat the profits and gains of the business, carried on by the trustees, can be taxed. For it is obvious that, if what goes to each beneficiary every year only can be taxed, much of the income acquired by the business w ill altogether escape taxation, and that the income received by the beneficiaries is not the true assessable income as many of the expenses incurred by the trustees, which would be paid out before the distribution takes place, would not be admissible under the Act. The profits and gains of this business carried on by the trustees, can only be calculated in the hands of the trustees as such and the assessment in the hands of the beneficiaries would be in reality inconsistent with the intention of the Income-tax Act. The trustees both carry on the business and are in receipt of the profits and it is they who must be taxed under the charging sections."full Bench of Madras High Court in the case of J.V. Saldhana v. The Commissioner of Income-tax, Madras 6 ITC 114, reiterated the same principle in a case where a widow with her six minor children succeeded to the estate of her deceased husband consisting of coffee plantations, house properties and a third share in a firm of coffee curers and settlers. The widow continued to carry on the business in the same manner as was done by the deceased. It was held by the Full Bench that when properties of a number of individuals were put together and one business was carried on with the combined resources, it was open to the Income Tax Officer to regard it as one business carried on by an "association of individuals" within the meaning of section 3 of the Act. A single assessment should be made under Section 10(1) of the Income Tax Act on the entire income from the business. It was also held that Section 40 and the following sections were machinery and enabling sections and not chargingour view, these two decisions correctly stated the law under the Act of 1922. These principles will also apply to the corresponding provisions of the Income Tax Act, 1961.