COMMISSIONER OF INCOME-TAX, BOMBAY versus SMT. INDIRA BALKRISHNA

S. K. DAS, J-These two appeals with special leave have been heard tog·ether. They arise out of similar facts and the question of law arising therefrom is the sa1ne.

p. 514

The short facts are these. One Balkrishna Puru· shottam .Purani died on November ll, 1947. He left behincl him three widows and two daughters. The three widows were named Indira, Ramluxmi and Prabhuluxmi. These widows as legal heirs inherited the estate of the deceased, which consisted of immov· able properties situate in Ahmedabad, shares in Joint. Stock Companies, money lying in deposit, and share in a registered firm. For ·the two assessment years 1900-51 and l!J51-:'i2 (the corresponding account years being the Sam bat years 200:> and 2006) the I ncomctax Oniccr . issued notices to the legal heirs of Balkrishna Purusl1011am Purani. Pursuant to those notices, rcnti'ns were !lied under heading, "Lcg·al heirs ol' Balkrishna Purushottam Purani", in one case and in the name of t:J1e estate of Balakrishna in the other; the status was shown as "individual"' in one case and ''association of persons" in the other. They were signed by Indira. one of the three widows. For ' the assessment vear 19.'lO-:) l the total income was shown as under- , ·

pp. 514–515

Rs. Property 11,011 Share from registered

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firm 4,071 Dividends 51,796 Interest 22,343 Ground rent ... 125

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--- Total 69,346

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----

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For the assessment year 1951-52, the total -income was shown as--

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Rs. Property 10,879 Share from registered

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firm 460 Dividends 80,426 Interest on deposits 536 Ground rent 125

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Total 92,426 For both years the I ncorne-tax Officer took the status of the assessee as an "association of. ·persons" and on that footing ·made two assessment orders. There was an appeal to the Appellate Assistant Commissioner, and two of the points taken before him were- (a) that the three widows ought to have been assessed separately and not as an "association of .persons", and (b) that ~n any event, the income from property ought to have been assessed separately in the haiids. of the three widows by reason of the provisions in s. 9(3) of the Income-tax Act, 1922. The Appellate Assistant Commissioner rejected point ·(a) but accepted , point (b). Then, there was a further appeal to' the I nco111c-1ax Appellate Tribun:d, Bombay. The Tribunal held that the entire estate of deceased Balkrishna Purushoitam Purani was inherited and possessed by the three widows as joint tenants and its income was liable be assessed in their hands in the status of an associatio'n of persons. The Tribun:il further held that the Appellate Assistanr Commissioner was wrong in holding that the shar<>s of the' three widows were definite and determinable and s. 9(3) was applicable. The assessec then moved the Tribunal to refer certain questions of law which arose out of its orders to the High Court of Bombay. The Tribunal referred four su.ch questions, but: we arc now concerned with only one of them, viz .. question No. 3 which was in the following terms :

pp. 515–516

"(.~) "Whether on the facts and in the circum- stances of the case the Tr,ibunal was right in holding that the assessment made on the three widows of Balakrishna Purushottam Purani in the status of an association of persons is legal and valid

p. 516

Ia1,·?" Two references were made 'to the Hig·h Court respect of the orders passed for two assessment years and they gave rise to Income-tax References Nos. !\2 ... and r,g of I The leading jmlgrnent was given in I. T. R. r,2 of I D!i5. The igh Comt held that the Tribunal 10s in en'or in coming to the conclusion that the three widows could be assessed in the status of an association of persons with regard to the income which thcv earned as-heirs of their deceased husband. Therefore: it answered question No. H in the negative. The department represented by the Commissioner of: T ncorlie-tax, Bombay, then applied to this Court and obtained special leave to appeal from the judgment and orders of the High Court of Bombay in the two References. These two appeals have been filed in pursuance of the special leave granted bv this Court. The appellant is the Commissioner of Income-tax, B01nbay, and the assessee is the respondent.

p. 516

The argument on behalf of the appellant is that the High Court was in error when it said that "what: is required before an association of persons can he liable to tax is"not that they should receive income hut that they should earn or help to earn income by· reason of their association, and if the case of the Department stops short at mere receipt of income, then the Department rriust fail in bringing home the liability to tax of individuals as an asoci'ation o( persons." It is submitted that the High Court did not, in the statement quoted above, lay down the correct test for determining what is an "association of persons" for the purposes of the Income-tax Act.

pp. 516–517

Before we go on to discuss the argument presented on behalf of the appellant, it is necessary to clear the ground by stating what is the position of co-widows in Mitakshara, succession and what are the findings arrived at by the Tribunal. The position of co-widows is well-settled. Thev succeed as co-heirs to the estate · of their deceased h{1sband and take as joint tenants with rights of survivorship and equal beneficial enjoyment; they arc entitled as between themselves to. an equal share of the income. Though they take as joint tenants, no one of them has a right to enforce an absolute partition of the estate against the others so as to destroy their right of survivorship. But they are entitled to obtain a partition of separate portions of the property so that each may enjoy her equal share of the income accruing therefrom. The Tribunal found that the widows in this case did not exercise their right to separate possession and enjoyment and "they chose to manage the property jointly, each acting for herself and the others and receiving the income of the property which they were entitled to enjoy in equal shares." Learned counsel for the appellant has emphasised before us the aforesaid finding of the Tribunal and has contended that on the finding of joint management, the widows fulfilled even the test laid down by the High Court and constituted an "association of persons" for taxing ·purposes. The Hig·h Court, however, rightly pointed out that lhe 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 'f-6 open to !he Tribunal to go behind it. Even on the Tribunal was 1nong in thinking that the respective shares of the widows "·ere not definite and ascertainable. They had an equal share in the income, viz., one-third each, and the provisions of s. 9(8) clearly applied in respect of the immovable property.

pp. 517–518

v\'ith regard to the shares, dividends and on deposits there was no finding of any act management. l ndeed, the main item consists of dividends ancl it is difficult to understand what management the widows performed in respect "·hich produced or helped to produce income. ·Contrary, the statement of the case shows assessce filed lists of shares, copies. whereof arc annexed C and form part of the case. which that the shares stood separately in the name one of the three widows and his was not denied by the Department.

p. 518

"Ve now come to the main question in this appeal. \\That constitutes an "association of persons" the meaning of the Income-tax Act' It has repeatedly pointed out that the Act does not what constitutes an association of persons, which under s. ~ of the Act is an entity or unit of assessment. Previous to the year 1924, the words of s. 3 were dividual, company, firm and Hindu undivided By the Indian Income-tax Amendment Act (Act XI of 1924) the words "individual; Hindu divided family, company, firm and other association of individuals" were substituted for the former By the Income-tax Amendment Act of 1939 of 1939) the section was again amended and said:

p. 518

'"Where any Act of the Central Legislature that income-tax shall be charged for any year rate or rates. tax at that rate or those rates shall charged for that year in accordance with, and to the provisions of, this Act in respect of the come of the previous year of every individual. undivided family, company and local authority, of every firm and other associations of persons partners of the firms or members of the association in- (\ividnally."

p. 518

By the same Amending Act (Act VII of 1939) subs. (3) of s. 9· was also added.

p. 519

Now, s. 3 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 'vords 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 d0 we pause to consider the widely differing characteristics of the three other associations mentioned in the section, viz., Hindu undiv}cled 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.

p. 519

It is enough for our purpose to refer to three decisions: In re: B. N. Elias and Others ('); Commissioner of income-tax, Bombay v. Laxmidas Devidas and Another ( and In re: Dwarakanath Harishchandra Pitale and Another ('); In re: B. N. Elias and Others(') Perbyshire, C. ]., rightly pointed out that the word ·"associate" means, according to the Oxford dictionary, "to join in common purpose, or to join 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 one the object of which is to produce income, profits or gains. This was the view expressed by Beaumont, C.J., in Commissioner of Income-tax, Born bay v. Laxrnidas Devidas and A not her (') at page 589 and also in Re: Dwarakanatlt 1-iarishchandra Pi:tale and Another ('). In re: B. N. Elias (') Costello, .J., put the test in more forceful languag·e. 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........................... \Vhen we find ........................ that there is a combination of persons formed for the promotion of a joint enterprise ...... then I think no diflio.dty arises in the way of saying that these persons did constitute an association .................. ".

pp. 519–520

\Ve 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, arc necessary to come to a conclusion that there is an association of persons within the meaning of s. '3; it mu'st depend on Lhe particular facts and circumstances of each case as to whether the conclusion can be drawn or not.

p. 520

Learned counsel for the appellant has suggested that having regard to ss. and 4 of the Indian Income-Lax Act, the real test is the existence of a co1nrnon of incon1e in v.'hich t'vo 01· n1ore per~ sons arc interested as owner or otherwise and it is immatericli whether their shares are specific and de!inite 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 Lhc association ceases; otherwise it continues to be :m associ:ition, vVe 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 lea1•ned counsel for the appellant are neither conclusive nor determinative of the question before us.

pp. 520–521

Corning back to the facts found by the Tribunal, there is no finding that the three widows have corn_bined in a joint enterprise to produce income. The only finding is that they have not exercised their right to separate en joyrnent, and except for receiving the dividends and interest jointly, it has been found that they have clone no act which has helped to produce income respect of the shares and deposits. On these fmdings 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.

p. 521

The High Court correctly answered question No. 3 in the negative. Accordingly, the appeals fail and are dismissed with costs. There will be one set of hearing fee in the two_ appeals.

p. 521

Appeals dismissed . DARBAR SHRI VIRA VALA SU RAG 'y ALA, VADIA

p. 521

v. THE STATE OF SAURASHTRA (NO-W BOMBAY)

p. 521

]. L.

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A. and M. JJ.)

p. 521

Grant by Ruler to younger son Bhayat-Son becoming Ruler -Whether grant resumable-"Bhayat", Meaning of.

p. 521

In the Indian State of Vadia succession was governed by primogeniture. The Ruler in 1943 granted to his younger son, the petitioner, a village in the State in perpetuity and in heredity for enjoyment as 'Kapal-Giras' as 'Bhayat'. ln -1947 the State of Vadia acceded to the Dominion of India and by subsequent constitutional deve!opments it became merged in the State of Saurashtra. After the coming into force of the Constitution the elder son of the Ruler and then the Ruler died, and the petitioner was recogni~ed as the Ruler. Thereupon· the State of Saurashtra issued a notification resuming the grant as it was deemed to have lapsed and revened the former Vadia State. The petitioner contended that the grant was absolute and unconditional for

p. 521