Case: Mohamed Noorulla, Representing The Estate of Late Khan Sahib Mohd. Oomer Sahib Vs. Commissioner of Income Tax, Madras

2. The facts leading to the appeals are that one Khan Sahib Mahomed 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 Mohammed 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 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 25, 1943, 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, i.e., May 17, 1943, the joint receivers continued the business till November 25, 1946, when during the course of the proceedings the business was put up for sale by auction between the co-heirs and was purchased by Noorullah.3. 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 S. 9(3) of the Act.4. 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 of control. The Income-tax Appellate Tribunal in its order statedfact, 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 gainsaying 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 earningthe High Court has observedopposition 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 Noorullahs 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 Department authorities and the Tribunal which agreed with them could find that the co-sharers did constitute an "association ofthe 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.

Reasoning: 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.It is unnecessary to refer to other cases. Taking the test as laid down by this Court in Indira Balkrishnas case, 1960-39 ITR 546   : (AIR 1960 SC 1172  ) 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, i.e., 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 S. 3 of theour 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 Balkrishnas case, 1960-39 ITR 546   : (AIR 1960 SC 1172  ) is not correctlythis ground the income was not assessed as the income of an association of persons and that case was also decided on its ownincome 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.