- (1.) THE following question is referred by the Income-tax Appellate Tribunal for the opinion of this court under Section 256(1) of the Income-tax Act, 1961 (briefly "the Act") : "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in holding that no assessment could be made in the status of association of persons in the case of the assessee ?"
(2.) THE facts, as stated in the statement of the case, are that in the business, known as Johns Mills, there were four groups with the share ratio as follows : JUDGEMENT_12_ITR234_1998Html1.htm The Income-tax Officer in the course of reassessment proceedings made assessment for the assessment years 1971-72 and 1972-73 in the status of association of persons. He did so on the ground that the returns were filed by the receiver in the status of an association of persons. On appeal, the Appellate Assistant Commissioner held that there was no association of persons, which could be assessed with regard to the share from Johns Mills. He found that the income of Johns Mills consisted of rents from letting out of godowns only and in fact, no business was carried on. It was brought to the notice of the Appellate Assistant Commissioner that the receiver was directed by the court to file the returns on behalf of six legal heirs of the late Heera Lal. The receiver filed only one return instead in the status of an association of persons. The Appellate Assistant Commissioner, therefore, cancelled the assessment made in the status of an association of persons and remitted the matter back to the Assessing Officer to assess the income in the individual hands of the legal heirs of the deceased.
(3.) ON further appeal, the Appellate Tribunal agreed with the Appellate Assistant Commissioner. The question for consideration is whether, on the facts and in the circumstances of the case, rental income could be assessed in the status of an association of persons. In CIT v. Indira Balkrishna, 1960 39 ITR 546, the Supreme Court held that the word "associate" means "to join in common purpose, or to join in an action". Therefore, "association of persons", as used in Section 3 of the Income-tax Act, means an association in which two or more persons join in a common purpose or common action, and the association must be one the object of which is to produce income, profits or gains. In the said case, the facts were that co-widows succeeded as co-heirs to the estate of their deceased husband and took as joint tenants with rights of survivorship and equal beneficial enjoyment; they were entitled as between themselves to an equal share of the income. Though they took as joint tenants, no one of them had a right to enforce an absolute partition of the estate against the others so as to destroy their right of survivorship. But they were entitled to obtain a partition of separate portions of the property, so that each might enjoy her equal share of the income accruing therefrom. As there was no finding of the Appellate Tribunal that the three widows had combined in a joint enterprise to produce income, and as they had done no act which had helped to produce the income, the Supreme Court held that it could not be held that they had the status of an association of persons.;