G N SUNANDA Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) One Murugappa who held partnership interest in three firms died on 17-11-1972 leaving his widow, minor son and a minor daughter. During his life time, the income from each of these three firms was assessed in his hands in the status of Hindu Undivided Family (H.U.F.). After his death, his wife- the applicant herein became the partner in the firms in which he was a partner in his individual capacity. The Income-tax officer initiated proceedings under Section 148 of the Income Tax Act (hereinafter referred to as the 'Act') to assess such share income in the hands of the applicant and her children as an Association of Persons (A.O.P.). The applicant filed her return declaring that she had no income in that status. Her case was that her income should have been assessed as H.U.F. But, the I.T.O. rejected this plea and brought to tax the income in question in the hands of A.O.P. The applicant took up the matter in appeal and the Appellate Assistant Commissioner held that the applicant and her children inherited the business interest of the deceased - Murugappa as co-heirs and succeeded to them in their individual capacity and such property did not constitute H.U.F. property and therefore he confirmed the assessment made by the I.T.O. On further appeal to the Appellate Tribunal, it held that though the applicant succeeded to the interest of late Murugappa in the said firms, she was a partner and income derived by her would belong not only to her but to her minor children under the Hindu Succession Act, 1956 and since the source of income is business, the income derived by the applicant was not only on her behalf but on behalf of the minor children and therefore the orders of the Income-tax authorities must be upheld and thus the appeal was dismissed. Aggrieved by the said order of the Tribunal, the applicant sought for reference under Section 256(1) of the Act for the opinion of this Court and the following question has been referred to us :

(2.) The expressions 'Association of Persons' (A.O.P) or 'Body of Individuals' (B.O.I.) have been considered in several decisions of the Supreme Court and the High Courts and a survey of the same is to the following effect : In order to constitute an A.O.P. there must be joining together in a common venture, the object of which is to produce income, profits or gains. Though a B.O.I, is not identical with A.O.P. they have similarities; A.O.P. may consist of non-individuals, but B.O.I, consists of only human beings. 'Body' in B.O.I, would mean association for some common purpose or object and there must be unity under some common tie or occupation. A mere collection of individuals without a common tie or aim will not constitute B.O.I, under Section 2(31) of the Act and under Section 47(ii) of the Act. A B.O.I, must be capable of holding income producing assets or assets that produce income. A Group of persons may come together in the following situations :

(3.) In the case of Commissioner of Gift-tax, Kerala v R.Valsala Amma (82 I.T.R. 828) the Supreme Court had to consider a case where the assessee and her sister received as legatees under the will of their mother certain immovable property, each of them having half share in the same. The property not having been partitioned, they in turn jointly gifted the said immovable property to their brother by a single gift deed and the question which was considered for the purpose of Gift Tax Act was whether the assessee and her sister could be assessed in respect of the gift as separate individuals or as A.O.P. or B.O.I. The Supreme Court answered this question in the following manner :