MOHAMED NOORULLAH, REPRESENTING THE ESTATE OF LATE KHAN SAHIB MOHD. OOMER SAHIB vs. THE COMMISSIONER OF INCOME-TAX, MADRAS.

CIVIL APPEAL No. 303/1960Supreme Court[1961] 3 S.C.R. 51518 January 1961Bench: 3 JudgesAuthor: J.L. KAPUR, M. HIDAYATULLAH, J.C. SHAH S.C.R. SUPREME COURT REPORTS9 pages
AI SummaryDismissed

What did the Supreme Court hold?

The Supreme Court held that the income-tax assessment of the business as the income of an association of persons was valid. The Court found that the business was carried on by the consent of all parties as one unit with unity of control, which satisfied the definition of an association of persons under Section 3 of the Indian Income-tax Act, 1922. The mere pendency of a suit for administration of the estate or for separation of co-heirs' shares did not affect the incidence of taxation. The Court distinguished the cases relied upon by the appellant, finding them inapplicable to the facts of the present case where a business was actively carried on with a unity of control by all parties. The ratio is that when co-heirs, by consent and for a common purpose, continue to run an inherited business as a single unit with unity of control, they constitute an 'association of persons' for income-tax purposes, irrespective of pending partition suits. The appeals were dismissed.

What were the facts?

The assessee, Mohamed Noorullah, representing the estate of late Mohd. Oomer Sahib, appealed against the assessment of business profits as income of an association of persons. The deceased, a Mohamadan, carried on a beedi business and died in 1942, leaving a minor son (the appellant), a widow, and four other minor children. During partition proceedings of the estate, receivers were appointed by consent of parties on May 13, 1943, and continued the business until November 25, 1946, when the appellant purchased it. For assessment years 1944-45 to 1947-48 (accounting years 1943 to 1946), the profits were assessed in the hands of the receivers as income of an association of persons, rejecting the appellant's claim for separate taxation of co-heirs' shares. The business was inherited and carried on without a break by heirs and then receivers, with all parties desiring its continuation as a single unit with unity of control.

What were the issues?

1. Whether the income-tax assessment of the business of 'Spade Clover Beedies' belonging to the estate of the deceased, carried on during the previous years 1943 to 1946 as an association of persons for the assessment years 1944-45 to 1947-48, is valid? Assessee's contention: The appellant argued that the shares of profits of each co-heir should have been separately taxed, implying the business income should not be taxed as an association of persons. The appellant relied on cases like S. C. Mazumdar, Receiver, Trigunait Brothers' Estate v. Commissioner of Income-tax, Buldana District Main Cloth Importers' Group, Khamgaon v. Commissioner of Income-tax, Nagpur, and Khan Bahadur M. Habibur Rahman v. Commissioner of Income-tax, Bihar & Orissa, to support the argument that the circumstances did not constitute an association of persons for tax purposes. Revenue's contention: The revenue contended that the business was carried on by the consent of all parties as one unit with unity of control, thus forming an association of persons under Section 3 of the Indian Income-tax Act, 1922. The High Court and Tribunal had upheld this view.

Which sections of the Income-tax Act were involved?

Section 3,Section 9(3)

AI-generated summary — verify with the full judgment below

3 S.C.R. SUPREME COURT REPORTS 515 MOHAMED NOORULLAH, REPRESENTING THE ESTATE OF LATE KHAN SAHIB 1961 MOHD. OOMER SAHIB January ;8. v. THE COMMISSIONER OF INCOME-TAX, MADRAS. (J. L. KAPUR, M. HIDAYATULLAH and J.C. SHAH, JJ.) lnconte.tax-Assess111ent of an association of persons-Business ca,rried on by M ohaniedan-Continuance by hei1's-Receivers appoint- ed by consent of parties-Asscss111ent on the receivers as income of an association of persons-· Validity-Indian Income-tax Act, r922 (II of I922). S. 3· The business of manufacture and sale ol a particular brand of beedies was carried on by 0, a Mohamedan, who died in 1942 leaving a minor son, the appellant, by his pre-deceased wife, his widow L, and four children by her.

Proceedings were taken first by the appellant and later on by L in connection with the parti- tion of the properties left by 0, including the business, and during the pendency of the proceedings the business was carried on by receivers who had been appointed by the court by consent of parties on May lJ, 1943· The receivers continued the business till November 25, 1946, when during the course of the proceed- ings the business was put up for s

The order continues below.

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