G. MURUGESAN & BROS. vs. C.I.T. , MADRAS

CIVIL APPEAL No. 685/1970Supreme Court[1973] 3 S.C.R. 51508 February 1973Bench: 3 JudgesAuthor: K.S. HEGDE, P. JAGANMOHAN REDDY, HANS RAJ KHANNA7 pages
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What were the facts?

The assessee, G. Murugesan & Brothers, was assessed by the Income-Tax Officer as an Association of Persons for assessment years 1957-58 to 1962-63. For the initial two years (1957-58 and 1958-59), the assessee filed returns as an Association of Persons. However, from assessment year 1959-60 onwards, they claimed to be assessed as individuals, stating they had divided their interests in shares. The Appellate Assistant Commissioner upheld the Income-Tax Officer's order. The Tribunal ruled in favour of the assessee, holding they should be assessed as individuals. The High Court, on reference, answered in favour of the Revenue. The appeals concern the dividend income from shares.

What did the Supreme Court hold?

The Tribunal held that for an 'Association of Persons' to be formed, members must voluntarily combine for a specific purpose, making volition an essential ingredient. In cases of dividend realization from shares, where there is no management involved, jointly owning shares and receiving dividends does not, by itself, establish an Association of Persons. For assessment years 1957-58 and 1958-59, the assessee's admission in their returns to be assessed as an Association of Persons was considered significant evidence, and they were rightly assessed as such. However, for assessment years 1959-60 to 1962-63, the assessee had explicitly stated they were no longer functioning as an Association of Persons and were realizing dividends individually. This assertion remained unrebutted, and no facts proved were inconsistent with this claim. Therefore, for these later years, the assessee should be assessed as individuals. The Tribunal distinguished the cited cases, finding them not applicable to the present facts. The appeals for 1957-58 and 1958-59 were dismissed, while those for 1959-60 to 1962-63 were allowed.

What were the issues?

1. Whether, for assessment years 1957-58 and 1958-59, the assessee was rightly assessed as an Association of Persons, given their admission in the returns filed. 2. Whether, for assessment years 1959-60 to 1962-63, the assessee should be assessed as individuals rather than an Association of Persons, considering their claim of divided interests and individual realization of dividends. Assessee's arguments: For the later years (1959-60 to 1962-63), the fact that shares were jointly gifted or registered jointly, or that dividends were realized together, does not automatically constitute an Association of Persons. Volition and a joint purpose of producing income are essential. The assessee asserted they had divided their interests and were realizing dividends individually. Revenue's arguments: The Revenue contended that the assessee should be assessed as an Association of Persons for all years. They relied on the initial admission for 1957-58 and 1958-59 and argued that the circumstances of joint ownership and dividend realization implied an Association of Persons for the subsequent years as well. The Revenue cited D. S. C. Gambatta v. Commissioner of Income-tax, Bombay and N. V. Shanmugham & Co. v. Commissioner of Income-Tax, Madras.

Which sections of the Income-tax Act were involved?

Section 3,Section 66(1)

AI-generated summary — verify with the full judgment below

~ .. [ ' 515. . .. G. MURUGESAN & BROS . v. I . . ' C.I.T., MADRAS February 8, 1973 [KS· JlEGDE, P: J~G~NMOHAN REDDY AND H. R. KHANNA, JJ.] Jncome-ta.~-·Assocwtton. 1 of. Pcrds~ns'- 1 What constitutes-Volition on I , f members an essentm mgre tent- n case of realisation of divl- par~ 0 there is · no' act of management-The statement of members that ~I ~ad s/arted tfrawing dividends Separately must be accepted in abse11ce ~~~acts. to the conrrt~'-Tircy must be asses.red as 'Individuals.' F~r the years 1957-58, to 19.62~63 the assessee,s were assescd by the.

Jocome·tax Officer as an Association of Persons. They bad filed their returns for the first two of these years as 'Association of persons' but jn !959-60 they claimed that they had di~·idcd their interest in the shares ( held by ~hem and therefore· in respect of them they should be thereafter assessed as 'Individuals' •. The Appellate Assistant Commissioner upheld the order of the Income-tax Officer. The Tribunal however held that the assessecss should be assessed as 'Individuals' and not as Association of Persons'. The Hjgh Court in reference answered in favour of the Revenue. D ln appeal by c'ertificat

The order continues below.

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