SANKAR PRASAD MITRA, J. - (1.) THIS is a reference under s. 66(1) of the Indian IT Act, 1922. The assessment year is 1959-60, the corresponding previous year being 1365 B. S. Two persons named Anil Krishna Paul and Jogendralal Nandy had acquired a right of receiving commission of 1 per cent. on sales by M/s Annapurna Cotton Mills Ltd. by an agreement dt. the 26th Jan., 1950. Jogendralal Nandy died on 7th June, 1950. Thereafter, the benefits of the agreement with the said cotton mills were transferred to the present applicants, Sunil Krishna Paul and Amar Krishna Poddar, by a deed of assignment dt. the 10th Dec., 1951. The deed of assignment was executed by Anil Krishna Paul and the legal heirs of Jogendralal Nandy. As consideration for the assignment the applicants had to pay a sum of Rs. 50,000. Thereafter, on 9th Aug., 1954, the two assignees, Sunil Krishna Paul and Amar Krishna Poddar, entered into an agreement of partnership to share the aforesaid commission.
(2.) FOR the asst. yr. 1959-60 the assessee-applicants, viz., Sunil Krishna Paul and Amar Krishna Poddar, claimed before the ITO that their status should be taken as that of a firm. The ITO rejected the claim and determined that these two persons constituted an "AOP". Before the AAC the assessee-applicants raised two contentions, viz : (1) That the ITO should have taken their status as that of a firm and should have granted registration under s. 26A of the Act; and (2) That, in the alternative, the assessee-applicants should have been held to be joint owners of their respective shares of incomes taxed separately in their individual assessments. The AAC rejected the first contention aforesaid on the ground that the question had already been decided by the Tribunal in assessments relating to the asst. yr. 1956-57; and the decision of the Tribunal had also been upheld by this Court in Sunil Krishna Paul vs. CIT (1966) 59 ITR 457 (Cal) : TC33R.960. So far as the second contention was concerned the AAC held that the applicants, by virtue of their agreement dt. the 10th Dec., 1951, had joined in a common purpose or common action, the object of which was to derive income. According to the AAC, the ITO had come to the correct conclusion in determining the status of the applicants as that of an AOP. The Tribunal also rejected the first contention aforesaid on the same ground, viz., that the position had already been decided by this Court in Sunil Krishna Paul's case (supra). So far as the second contention is concerned, the Tribunal has upheld the conclusion of the AAC.
(3.) IN these premises, the following question has been referred to us : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessment made on the two appellants in the status of an AOP is legal and valid in law ?" Mr. Somnath Chatterjee, learned counsel for the assessee, has argued that a mere association for the purpose of acquisition of a property, which produces income, is not sufficient to make the persons concerned an "AOP" within the meaning of the IT Act, 1922. To be an "AOP", says Mr. Chatterjee, the property which is acquired and which produces income must be managed by such persons for the purpose of producing income. Mr. Chatterjee contends that in each case it has to be seen whether the persons who have combined in acquiring property are actually managing the property or performing some act which results in producing income. In other words, according to learned counsel, unless there is an element of joint management or joint activity resulting in income, a combination of two persons does not make it an "AOP". Reliance was first placed on the case of the CIT vs. Laxmidas Devidas (1937) 5 ITR 584 (Bom) : TC44R.914. In this case two individuals joined together in purchasing certain immovable properties, contributing the purchase monies in equal shares, and the properties were jointly held and managed by or on behalf of them. The management resulted in certain profits or gains which the assessee shared equally. The assessee claimed that each of them should be assessed individually as a co-owner of his share in the income of the properties. The Bombay High Court held, inter alia, (i) that, in the circumstances of the case, the assessees constituted an association of individuals within the meaning of s. 3 of the IT Act; (ii) that the said association was the owner of the properties within the meaning of s. 9 of the IT Act and was rightly assessed as such; (iii) that, in any event, the assessees were rightly assessed as owners of the said properties under s. 9(1) of the Act. Beaumont C.J., in this case, expressed the view that the words "association of individuals" in s. 3 of the Indian IT Act must be construed in their plain and ordinary meaning. They are not ejusdem generis with the word immediately preceding, viz., "firm". The only limit imposed on the words is such as necessarily follows from the fact that the words appear in an Act imposing a tax on income, profits and gains, so that the association must be one which produces income, profits or gains. The next case on which Mr. Chatterjee relied was In re, Dwarkanath Harischandra Pitale (1937) 5 ITR 716 (Bom) : TC44R.915. This is also a decision of the Bombay High Court. The assessees were two brothers, they became entitled to a certain house as tenants-in- common in equal shares under the will of their grandfather. From 1929 they held and managed the properties as joint owners and derived profits therefrom. The net income after defraying expenses was equally divided between them. The assessees were, however, jointly assessed on the aggregate rental value as an association of individuals. The Bombay High Court held that, though the assessees, in the first instance, did not constitute an association of individuals, they became an association of individuals within the meaning of s. 3 of the IT Act when they elected to retain the property and manage it as a joint venture producing income; that the said association was the owner of the properties within the meaning of s. 9 of the Indian IT Act and was rightly assessed as such; that, in any event, the assessees were rightly assessed as owners of the properties under s. 9(1) of the Act. Mr. Chatterjee points out that these two cases of the Bombay High Court placed side by side conclusively establish his proposition that the element of joint management is an essential ingredient to be taken into consideration for determining whether two persons have constituted an "AOP". Learned counsel for the assessees then referred to Indira Balakrishna, Manager of Estate of Balakrishna Purshottam Purani vs. CIT (1956) 30 ITR 320 (Bom) : TC44R.920. We shall discuss this case a little later as the matter went to the Supreme Court and the Supreme Court's decision is CIT vs. Indira Balkrishna (1960) 39 ITR 546 (SC) : TC44R.916. Reference was then made to an observation of the Patna High Court in Kumar Taranand Sinha vs. State of Bihar (1960) 40 ITR 460 (Pat) : TC44R.1020. The Patna High Court has observed that, to constitute an association of individuals, there must be present not merely co-ownership but also other indicia of joint enterprise--there must be a combination of persons for promotion of a joint enterprise banded together as co- adventurers. Mr. Chatterjee submits that the evidence of this joint enterprise is lacking in the instance case. Our attention was then drawn to CIT vs. N.V. Shanmugan and Co. (1966) 62 ITR 601 (Mad) : TC44R.495. The Madras High Court at page 708 observes : "It is clear from these decided cases in the context of s. 3 that an 'AOP' is a combination of persons for the purpose of producing income by their joint act or venture in that direction. It is unlike a contract of partnership. An 'AOP' need not necessarily be on the basis of a contract. But when persons combined for such a purpose, it should be assumed that it is a consensual act on their part and is the result of some understanding between them." Counsel for the assessees, in relying on this judgment, reminds us that there is no evidence in the instant reference of any joint act or venture.;