STATE OF MADRAS Vs. S SUBRAMANIA IYER

JUDGEMENT

(1.) IN these three revision cases a common question arises as to how the term "association of individuals" used in the definition of "person" in section 2(q) of the Madras Agricultural INcome-tax Act, 1955, has to be interpreted for the purpose of assessment under the said Act, and they were heard together. For the sake of convenience each case will be considered separately Tax Case No. 49 of 1963The facts as found by the authorities below are succinctly the following. The assessee, S. Subramania Iyer, filed for the accounting year April 14, 1957, to April 13, 1958, a return in Form II showing a net income of Rs. 1, 798.87 nP. He owned 20 shares of lands in INam Kottur Thottam Village and certain other lands, but with these latter items we are not now concerned. Out of the 20 shares of lands, 5 1/2 shares belonged to the Thanjavur Palace Devasthanam, which Subramania Iyer took on lease. 5 1/2 shares came to be owned by one Muthusubramaniam and his brothers, the daughter's sons ofS. Subramania Iyerunder a settlement deed in their favour executed on August 4, 1948, by Subramania Iyer himself. Out of the balance of 9 shares of lands, 8 shares had devolved on Swaminathan and Balasubramaniam in moieties, they being the son and grandson of Subramania Iyer while the remaining 1 share was held by Subramania Iyer himself in pursuance of a partition arrangement following a division in status several years ago. This partition arrangement was confirmed in a partition deed dated April 3, 1960. All the lands however were managed by Subramania Iyer himself. For the purpose, Subramania Iyer maintained a single pannai or farm establishment and it is said that he met the expenses, realised the proceeds from the entire lands together and then divided the net income in the ratio of the shares of the different individuals mentioned above to whom the lands belonged.

(2.) THERE is however one significant feature in regard to these properties. The Assistant Commissioner of Agricultural Income-tax, Thanjavur, in the course of his order, observed "The sixth contention is that this is a case where there was a settlement in favour of the daughter's sons of the appellant even in 1948 and that there has been division in status shortly afterwards and the appellant, his son and son's son having been allotted definite and particular items of properties corresponding to specific shares, that the appellant has executed a registered will even in 1958 on August 28, 1958, even before the Agricultural Income-tax Act had come into force, stating that there has been a division in status and by metes and bounds and describing the various items of properties in terms of shares as belonging to his son and son's son and his daughter's sons and as belonging to the appellant himself and that later there has been a regular registered partition deed as between the appellant, his son and grandson giving effect to the previous division in status and separate holdings and that the Agricultural Income-tax Officer has not at all referred to the registered will of 1958 in spite of the fact the same has been shown to him. The Agricultural Income-tax Officer does not dispute these facts." *This statement of fact would show, (i) that the properties allotted to the grandson by the daughter of Subramania Iyer, (ii) the properties belonging to Subramania Iyer, and (iii) those belonging to his son and son's son were all specific items defined and localised by metes and bounds. Before the Agricultural Income-tax Officer (as the order of the Agricultural Income-tax Officer shows), Subramania Iyer furnished a list of lands owned by the different sets of persons defined by metes and bounds. The grandsons by the daughter of Subramania Iyer also filed a return for the lands settled on them, which, according to one of them, Muthusubramaniam, was enjoyed by him along with his brothers as tenants-in-common, but which, for facility of cultivation, was looked after by Subramania Iyer. However, Subramania Iyer's son, Swaminathan, did not file a return in respect of the shares alleged to be owned by him and his son. Subramania Iyer furnished a return only for the lands which fell to his share on the partition.

(3.) THEN he handed over the properties to the assessees under a deed of release. From that time, the assessees held the properties jointly and managed them jointly. They divided the net income after paying all expenses and municipal tax between themselves. Beaumont C. J., who delivered the judgment, observed"... They did not purchase the property for the purpose of managing it they received it under a will, and it may be said, that in the first instance they did not constitute an association of individuals. But as soon as they elected to retain the property and manage it as a joint venture producing income, it seems to me that they became an association of individuals...." *In Commissioner of Income-tax v. Baporia, it was pointed out that when an individual inherits a share in property he has no opportunity of deciding whether he will, by reason of having inherited that share, form an association of individuals or renounce such relationship. By merely inheriting a share of property, no person can be said to have become a member of an association, unless there is some forbearance or act on his part to show that his intention and will accompanied the new status which he had been asked to receive. In that case it was found that the appointment by the co-heirs of a single person as their agent to realise the income from shares and the property inherited by them from their father and mother under the Mohammadan law and the continuance of this arrangement for a long number of years was sufficient to constitute an association of individualsAll the above cases arose before the amendment by Act 7 of 1939 which introduced section 9(3) of the Indian Income-tax Act. They enunciate certain general principles for finding out who constitutes an association of persons in regard to property jointly owned by them. Section 9(3) must be deemed to be granting an exemption to co-owners who happen to own specified, but undivided, shares in the common property (tenants-in-common) from being assessed as an association of individuals.