(O&M) SUDHIR NAGPAL AND ORS. vs. INCOME TAX OFFICER, WARD II((3) ABOHAR

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ITA/559/2009HC Punjab & HaryanaPHHC01084679200926 July 2012Bench: MR. JUSTICE AJAY KUMAR MITTAL,MR. JUSTICE GURMEET SINGH SANDHAWALIA21 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that the Tribunal erred in concluding that the status of the assessee would be an Association of Persons (AOP). The core question was whether the appellants were to be assessed as AOP or as individuals. The Court noted that the co-owners inherited the property and had defined individual shares. They did not form a unit for the promotion of any joint enterprise to earn income. The collection of income by one sharer does not make it income from a joint venture; each sharer gets income as an individual. The Court relied on the Supreme Court's decision in G Murugesan and Bros v. CIT and the Bombay High Court's decision in CIT v. Shiv Nagar Estates, which was upheld by the Supreme Court. The Court observed that for individuals to be assessed as an AOP, they should have joined their resources, acquired property in the name of the AOP, and managed it commonly. Merely accruing income jointly to more than one person does not constitute an AOP. Unless associates have performed acts together to produce the income, they cannot be termed an AOP. Since the co-owners inherited the property and there was no evidence of them acting as an AOP, the income was to be assessed in the status of individuals. Consequently, Section 167B of the Act was not attracted. The appeals were allowed.

What were the facts?

The assessee, Sudhir Nagpal and others, are co-owners of agricultural land inherited from their forefathers. They executed a General Power of Attorney in favour of Sudhir Nagpal to construct plinths and lease them out. The plinths were leased to Punjab State Civil Supplies Corporation Limited for the assessment year 2004-05. Sudhir Nagpal filed his return, declaring the rental income, and paid tax. Similar returns were filed by other co-owners where taxable. The Assessing Officer (AO) initiated proceedings under Section 147, treating the co-owners as an Association of Persons (AOP) and income as escaped assessment. The AO assessed the income as AOP, applying Section 167B. The CIT(A) and the Income Tax Appellate Tribunal (ITAT) upheld the AO's order. The assessee appealed to the High Court.

What were the issues?

1. Whether on the facts and circumstances of the case, the Ld. ITAT is justified in upholding the action of the Ld. AO initiating proceedings under Section 147 of the Act on mere change of opinion or on any other ground? 2. Whether on the facts and circumstances of the case, the plinth rental income is not assessable as income of AO and is assessable as individual income of the co-owners? Assessee's arguments: For issue 1: The assessee did not press this issue. For issue 2: The lease deed was entered into by the co-owners as individuals. The AO, CIT(A), and ITAT erred in treating the income as belonging to an AOP. Income can only be taxed as AOP if individuals have joined hands for a venture to carry on a business. Reliance was placed on CIT v. Indira Balkrishna, Mohamed Noorullah v. CIT, CIT v. Raja Ratan Gopal, G Murugesan and Bros v. CIT, R Valsala Amma v. CIT, CIT v. Shiv Nagar Estates, and CIT v. Keralav AP Parukutty Mooppilamma. Revenue's arguments: The revenue supported the ITAT's order. It was submitted that since one joint account was opened by the assessees, they were rightly assessed as an AOP, and Form 10FB was issued in one name only.

Which sections of the Income-tax Act were involved?

Section 147,Section 167B

AI-generated summary — verify with the full judgment below

418 IN THE HIGH COURT OF PUNJAB AND HARYANAAT CHANDIGARH ITANo59 of 2009 Date of Decision1612012 SudhirNagpaland others ppellant 1 Versus r The IncomeTax Officer Ward 1131Abohar 0 0 espondent I C5 CORAM HONBLE MRIUSTICE AJAY KUMAR MITTAL HONBLE MRJUSTICE G SANDHAWALIA Z PRESENT Ms Radhika Suri Advocatefor the appellant Mr KuldeepSinghAdvocatefor Mr G Hooda Advocatefor the respondent I r AJAY KUMAR MITTAL J Z For orders see ITA No 463 of 2009 Sudhir Nagpaland QO others v The Income Tax Officer Ward Aboharl 7 Z n JUDGE e July14 2012 gbs Parkash Om 2012.11.17 12:27 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 I attest to the accuracy and integrity of this document

419 1 1 01 1 4 ITA No63 of 2009 1 m INTHE HIGH COURT OF PUNJAB AND HARYANAAT CHANDIGARH ITANo 463 of 2009 Date of Decision26 2012 SudhirNagpaland others Appeilant Versus The IncomeTax Officer Ward 1131Abohar Respondent 1 r CORAM HONBLE MRJUSTICE AJAY KUMAR MITTAL HONBLE MRJUSTICE GS SANDHAWALIA 0 C0 PRESENT Ms Radhika Suri Advocatefor the appellant I C5 Mr KuldeepSinghAdvocatefor Mr G Hooda Advocate forthe respondent I Z AJAY KUMAR MITTAL J 1 This order shall disposeof a bunch of eightappeals 9 r bearingITA Nos63 464 559 of 2009 49 51 and 217 to 219 of 2010 I as accordingto the Iearnedcounsel for the paniesthe primaryissue Z involvedtherein is identical For brevitythe facts are beingextracted from ITA No63 of 2009 00 2 This appealhas been filed bythe assessee under Section VA7 Z 260A of the IncomeTax Act 1961 n short the ActI againstthe order dated 221 2009 passedbythe IncomeTaxAppeliateTribunai Amritsar Bench Amritsar hereinafterreferred to as the Tribunall in ITA No 3521ASR12008for the assessment year 2004 On May24 2010 all the appealswere admittedfor determinationof the followingsubstantial questionsof Iawl Parkash Om 2012.11.17 12:27 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 I attest to the accuracy and integrity of this document

420 ITA No63 of 2009 e2 1 INhetheron the facts and circumstances of the case the Ld ITATis justifiedin upholding the actionof the Ld AO initiating the proceedingsuls 147 of the Act on merechangeof opinionon any otherground7 2 VVhetheron the facts and circumstancesof the case the plinthrental income is not assessable as income of AO and is assessable as individual income of 1 the coowners2 lr 3 Brieflystated the facts necessary for adjudication of the 0 0 presentappeaiare that five persons namelySlSh SuniI Nagpal Sudhir Nagpal Raj Kumar NagpalAdarsh Kumar NagpaIand Smt C5 Saraswati Nagpalwere c0vowners of the agriculturalIand known as NagpaiFarms inheritedfrom their forefathers situated at OId Fazilka Z Road Abohar and executed a General Power ofAttorney on 2631996 in favour of Sudhir Nagpalappointinghim to construct plinthson their I jointagricultural Iandin the names of all the owners and to funherIease out such open plinthsto any partyon their behalf The Iand was not Z purchasedfor the purpose and it was inheritedbythem and theywere CO the owners not in theirjointcapacitybut in their individualcapacitywith 7 Z a definiteldefined proportionof share Agreementdated 15l l 2002 was executed by the covners Ieasingout the plinthsto the Punjab State CiviI SuppIiesCorporationLimited Chandigarhfor the period which includedthe periodassessable forthe assessment year 200405 Sudhir NagpaIfiled his returnof income for the assessment year 2004 05 showingthis central income and also paidtax accordinglyVide assessment order dated 201 22005 the rental income was duly Parkash Om 2012.11.17 12:27 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 I attest to the accuracy and integrity of this document

421 ITA No63 of 2009 a3m included in the said assessment Similar returns were Oled by the assesseein the cases of other coowners wherevertheywere taxable and necessary tax was depositedin thetreasuryin accordance withIaw Thereafter theAssessingOmcerissued noticeunder Section 148of the Act to all the coeowners of the propertyin the name of Sudhir Nagpal and others on the groundthat there is Association of Persons OPl made bythe covners and that income had escapedassessment in 1 the hands ofAOP The assessee was asked to Olethe returnwho Oled L return of incomedeclaringnil income Itwas pleadedthatsince no Iand 0 was purchasedtherefore the status of the coeowners cannot be treated 0 I as AOP and that the income of the plinthswas assessed by the 0 department in the hands of individualas per theirshares in the propeny I The AssessingOfficer vide order dated 10102007 assessed it as AOP Z treating the entire income from plinthsas income fromother sources in m r the hands of AOP tax payablebyapplyingSection 167B 21of theAct Againstthe order of theAssessing Officer an appealwas t3 filed before the Commissioner of Income Tax Appealsl Bathinda tin Z short the ClTrl who vide order dated 19 32008 dismissed the 0 appeal Stili feeiingdissatisfied the assessee Oledan appealbeforethe 7 Z TribunaI The Tribunal vide order dated 212009 rejectedthe appeal holdingthat the proceedingsunder Section 147 of the Act have been rightlyinitiated and the tncome has ghUybeen assessed as AOP Hence the presentappealbythe assessee 4 We have heard Iearned counsel for the partiesand have perusedthe record 5 Learned counsel for the submittedthat Parkash Om 2012.11.17 12:27 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 I attest to the accuracy and integrity of this document

422 ITA N 463 of 2009 a4e she does not press questionNol Accordinglythe same is disposedof as not pressed Addressing on questionNo2 Iearnedcounsel for the appellantsubmitted that with regardto Iease deed the same was entered by the coowners for Iettingout plinthson rent to the Punjab CiviI SuppliesCorporationLtrl and was Iet out as co owners whereas theAssessingOfficer theCITV41 and the Tbunal had erred in treatingthe income as that belongingto the association of 1 persons Itwas contendedthatunless the persons hadjoinedhands as an associationof persons for carrying on any venture income therefrom 0 0 couid not have been taxed as belonging to association of persons It I was also arguedthat while treatingthe cowners as association of C5 persons the AssessingOfficer had treated the income from other I sources which was contraryto the basic principlethat if jointventure Z was there then income could be assessed as income fromthe business 2 r only Reference was madeto thefollowing judgmentsl I 1 Commissionerof Income Tax v Indira Balkrishna t 1960139 ITR 546 SCl Z Il Mohamed Noorullah v Commissionerof IncomeTax m 1961142 ITR 115 SCI 7 Z Ill Commissioner of AgricultureIncome Tax V Raja Ll Ratan Gopal 1966159 ITR 728SCl IV G Murugesanand Bros v Commissioner of Income Tax 1973188 ITR 432 SCl V R ValsalaAmma v Commissionerof Gift Tax 3691 72 ITR 579 Kerl Vl Commissioner of IncomeTax v Shiv NagarEstates Parkash Om 2012.11.17 12:27 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 I attest to the accuracy and integrity of this document

423 ITA No 463 of 2009 5e AOPI 19931201ITR 953 Boml Vll CommissionerofIncomeTax KeraIav AP Parukutty Mooppilamma and others o19841 149 ITR 131 6 On the strengthof the aforesaid judgmentsit was urged that unless there was joint management in a joint enterprisefor producingthe income profitsor gains the status of association of personscould not have been fastened on the assesseet was pleaded thatthe test for constituting an association of individualsas association of persons was that theyshould have joinedin a promotionof joint 0 enterprisewith the objectof producingincome protltsor gainswhich 0 I was missingin the presentcase Heavyreliance was placedon the t5 decision of the BombayHighCoun Itl Shiv Nagar Estatess case I Isupralin supportof her submissions Z 7 On the other hand Iearned counsel for the revenue L opposing the prayer made by the Iearned counsel for the appellant I supponedthe order passedbythe Tribunal He submittedthat Since t3 there was one jointaccount openedbythe assessee theywere rightly Z assessed as an association of persons and even Formel6A was issued m in one name only 7 Z 8 After givingour thoughtfulconsideration to the respective submissions we find considerableforce in thesubmissions made bythe Iearnedcounsel for the appellantsThe Tribunalhad erred in comingto the conclusion that the status of the assessee would be an association of persons 9 The core questionthat anses for adjudicationin these appealsis whetherthe appellants are to be assessed as Association of Parkash Om 2012.11.17 12:27 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 I attest to the accuracy and integrity of this document

424 ITANo163 of 2009 6 Persons or as Individuals 10 In ITA NosA9 51 and 217 to 219 of 2010 besides the aforementionedissue appellantshave raised substantialquestionNo2 therein that the income arisingfrom rentingof plinthswas assessable under Section 26 of the Act At the outset it may be noticed that in so far as the head under which the income from rental of plinthsisto be assessed the same stands settled bythe Division Bench judgmentof this Coutl in Gowardhan Das S Sons v Commissioner of Incomem Tax Jalandhar 120071 288 ITR 481 wherein it has been held that it 0 would fall under Income from other sources and not Income from 0 House propertyRelevantobservationsthereinread thusl C A plainreadingthereof providesthat it is the income I from propeilyconsistingof any building or Iand Z appurtenant thereto which is assessed undersection 22 of the Act and not the income from rentingout of open I Iandor some kutchaplinthonlyl the presentcasenO t buildinghavingbeen Iet out there is no questionof Z treatingthe rentreceived m What is covered bythe expressionappurtenantIS 3 Z the Iand which is necessary for enjoymentof the ll buildingand not the Iandonly Similarissue came up for consideration before Madras High Court In M Ramalakshmi Reddyv ClT 3981232 ITR 281 where the issue was decided againstthe assessee and in favouroftherevenue 12 Accordinglyit is heid thatthe rent receivedfromIettingout the plinthsis Parkash Om 2012.11.17 12:27 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 I attest to the accuracy and integrity of this document

425 ITA No63 of 2009 7 assessable under Section 56 of the Act and therefore provisionsof Section26 of theAct have no e Takingup the primaryissue as to whether the assessee could be assessed in the status of Association of Persons or not it would be appropriate to refer to person as deOnedin Section 2l l of theAct The definitionof person as givenin this clause is inclusiveand not exhaustiveection 21 1oftheAct reads thusle m 231 1 person includesee r il an individual 0 oil a Hindu undividedfamily 0 I iiil a company 0 ovl a firm I VI an association of persons or a body of Z individuals whether or not Lr vil a Iocalauthorityand I viil eveiy artificialjuridicalperson not fallingwithin t3 anyof theprecedingsubwclauses rl Z 12 Under clause 01of Section 2 personincludes an ClO individual whereas under clause Il thereof it speciOesAssociation of vmo Z persons ora bodyof individuals whetherincorporated or not For the justdecision of these appealsit would be essential to examine the meaningof the expressionan associationof persons 13 The Act no where deOnes Association of Persons Reference shall have to be made to judicialprecedentsto discern the meaningof the said expressionThe Honble ApexCourt in Indira Bal Krishnas case supral delvinginto the meaningof Association of Parkash Om 2012.11.17 12:27 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 I attest to the accuracy and integrity of this document

426 ITA No63 of 2009 m8e Persons noticedin para 9 as underl e NOw 3 imposesa tax in respect of the total income of every individual HUF companyand Iocalauthorityand of every firmand other association of persons or the partnersof the firm or membersof the association individuail In the absence of any definition as to what constitutes m an association of persons we must construe the words in their plain ordinarymeaningand we must 0 also bear in mind thatthe words occur in a section 0 I which imposesa tax on thetotal income of each 0 one of the units of assessment mentioned therein I including an associationof persons The meaningto Z be assignedto the words must take colour from the context in which they occur4 number of I decisions have been cited at the bar bearingon the L2 quesUon and our attention has been drawn to the Z controversy as to whether the words association 00 of individuals which occurred previouslyin the 7 Z section should be read ejusdemgeneriswith the word immediatelyprecedingviz Orm or with ail the othergroups of persons mentionedin the section Intothat controversy it is unnecessary to enter in the presentcase Nor do we pause to consider the widely differingcharacteristics of the three other associations mentioned in the section viz Hindu Parkash Om 2012.11.17 12:27 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 I attest to the accuracy and integrity of this document

427 ITA No63 of 2009 e9n undividedfamilya companyand a firm and whether in view of the amendments made in 1939 the words in question can be readejusdemgeneriswith Hindu undividedfamilyor company It is enoughfor our purpose to refer to three decisions In rel B N Elias 193513 ITR 408 Call TC44R 913 CIT VS Laxmidas Devidas 193715 ITR 584 Bomll TC44R14 and In re Dwarakanath 0 Harishchandra Pitale 193715 ITR 716 Bomll 0 TC44915 In rel B N Elias lpral Derbyshir C I C J rightlypointedout thatthe word associate ll C5 means accordingto the Oxford dictionary Il to join I in common purpose or to join in an action Il Z Therefore AOP must be one in which two or more persons Join in a common purpose or common I action and as the words occur in a section which imposesa tax on income the association must be Z one the objectof which IS to produce income rlo profitsor gains This was the view expressedby 7 Z Beaumont C J in ClT v Laxmidas Devidas and Another 11 at page 589 and also in In rel DwarakanathHarishchandraPitale Jpral In re B N Elias supral Costello J put the test in more forceful Ianguage4e said It may well be that the intentionof the Iegislature was to hit combinationsof individualswho were engagedtogetherin some joint Parkash Om 2012.11.17 12:27 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 I attest to the accuracy and integrity of this document

428 ITA No163 of 2009 4 0 enterprise but did not in Iawconstitute partnership lNhen we find that there is a combination of persons formed for the promotionof a joint enterprise then I think no difficultyarises in the way of sayingthat these persons did constitute an association Il We think that the aforesaid decisions correctlyIay 1 down the crucial test for determiningwhat is an r association of persons withinthe meaningof s 30f 0 the Incometax Actand they have been accepted 0 I and followedin a number of Iater decisions of C5 different HighCourts to all of which it is unnecessanj to call attention It is however necessary to add Z some words of caution here There is no formulaof universal application as to what facts how many of them and of whatnature are necessary to come to a L conclusion that there is an association of persons Z within the meaningof s 3 it must dependon the m particularfacts and circumstances of each case as 7 Z to whethertheconclusion can be drawn or not 14 The Honble SupremeCourt in Mohamed Noorullahs case supral followingits earlier decision in Indira Bal Krishnas case Isupralobserved as underl e This Court in Commissioner of Income4ax BombayV Indira Balkrishna 1960139 ITR 546 SCll TC44RJl 6 considered the question as to Parkash Om 2012.11.17 12:27 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 I attest to the accuracy and integrity of this document

429 ITA No63 of 2009 41e what an AOP means The test Iaid down in three casesl In re B N Elias 8 Others In re 193513 ITR 408 Calll TC44R1 3 ClT vs Laxmidas Devidas 193715 ITR 584 Bomll TC44R14 and In re DwarkanathHarischandra Pitale 93715 ITR 716 Bomll TC44R15 was acceptedbythis Court as Iaying down the crucial test for whatis an AOP and that in each case e the conclusion has to be drawn from the 0 circumstancesIn the first case the test was Iaid 0 I down as applyingto combinations of individuais 0 who were engagedtogether in some joint I enterprise but not constituting a partnershipSuch Z a combinationof persons formedfor the promotion m C of a jointenterprisebandedtogetheras if theywere Il coadventurersit was held wouid constitute an I C3 association of individuals In the second case that Z is Commissioner of Income4axl Laxmidas Devidas 0 and Another 193715 ITR 584 3on TC44R014 3 1 44e BeaumontC at page 5891aid down the test as Z 1 followsl Om Il In my opinionthe onlyIimitto be imposedon the words other association of individuals is such as naturally followsfromthefact thatthe words appear in an Act imposing a tax on income profits and gains so that the association must be one which Parkash Om 2012.11.17 12:27 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 I attest to the accuracy and integrity of this document

430 ITANo63 of 2009 12 producesincome profitsor gains Itseems to me that an association of two or more persons for acquisition of propertywhich is to be managedfor the purpose of producingincome proOtsor gains falls within the words other association of individuals in s 3 and under s 9 of theAct the Association of individualsis the owner of the property 1 and as such is assessable Il In that case it was also held that the fact that one of 0 the assessees was a minor duringthe year of the 0 I assessment did not affect the question In In re 0 Dwarkanath Harischandra Pitale lpral the I assessees were two brothers who became entitled Z to cettain house propeitiesas tenants in common tr and held and managedthe properties as such and I derived proflttherefrom Itwas held thatthoughthe assessees in the first instance did not constitutean Z association of individuals they became so when OO they elected to retainthe propertyand manageit as a m Z jointventure producingincome The test there Iaid Om down was that as soon as there was election to retainthe propertyand manage it as a jointventure the persons SO electingbecame an association of individuals The RangoonHighCourt in The ClT VS Baporia193917 ITR 225 Ranglalso Iaiddown the same of the words association of Parkash Om 2012.11.17 12:27 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 I attest to the accuracy and integrity of this document

431 ITA No163 of 2009 43e individuals That was a case of Mohammedan co heirs and it was held that by merelyinheriting a share of property no personcan become a member of an association of individualsunless there is some forbearance or act upon his part to show that his intentionand will accompanied the new status that is an associationof individualsne of the coleirs 1 in that case was appointed an agentto realise the income fromthe properties Ieftto the coeheirsbytheir 0 fatherand motherunder Mohammedan Law and 0 I that was held to be sufficientto constitutethem an C5 association of individuals 11 I 15 Relyingupon itsearlierdecision in Indira Bal Krishna and Z Mohamed Noorullahs cases Isupral the Honble SupremeCoun Ill RajaRatan Gopals case supralin para 2 notedas underl I The tlrst questionis whether the High Court was right in holdingthat the respondentshould be Z assessed on his share of the income and not on the 00 income of the four brothers as association of a7 Z individuals Under s 30f the Act for the Onancial QU yearcommencing on Ist April 1950 and for every subsequentfinanciai year agriculturalincomeax shall be chargedin accordance with and subjectto the provisionsof the Act on the total agricultural income of the previousyear of every person Person has been defined in scl of the Act to Parkash Om 2012.11.17 12:27 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 I attest to the accuracy and integrity of this document

432 ITA No63 of 2009 14m mean any individual or association of individuals owning or holdingpropenyfor himself or for any other or partlyfor his own benefit and partlyfor another either as owner trustee receiver common manager administrator or executor or in any capacityrecognizedby Iaw and includes an undivided Hindu Family Orm or company A 1 combined readingof these two provisionsindicates Q that assessment can be made on an individualor an 0 associationof individuals The questionis whether C I the should be assessed as an individual C5 or alongwith his cosharers as an association of I individuals The expression association of Z individuals was found in the Indian ITAct before the 0 words AOP were substitutedbythe amendmentAct I of 1939The word person is more comprehensive than the word individua But the meaninggivento Z that expressionas a unit of assessment under the OO Indian IT Act by the Court will equallyapplyto the 7 Z 31 expressionassociation of individuals under the 1 Il Hyderabad Agrl ITAct This Court in CIT vs Indira Balkrishna 1960139 ITR 546 SCll TC44R16 construedthe said expressionused in the Indian IT Act and held that it did not applyto covwidowsof a Hindu in the circumstance of that case The three coewidows succeeded as co41eirs to the estate of Parkash Om 2012.11.17 12:27 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 I attest to the accuracy and integrity of this document

433 ITANo63 of 2009 45m theirdeceased husband and took a jointtenancywith the right of survivorshipand equal beneOcial enjoyment They were entitled as between themselvesto an equalshare of the income Either of them could not enforce an absolute partition thoughfor the purposeof convenience of enjoyment they could divide the propertyand enjoy their 1 respectiveshares of the income therefrom The questionarose whethertheyshould be assessed as 0 0 individuals or as an AOP Das J speakingfor the I Court acceptedthe followingtest to ascertain 0 whether two or more persons constituted an association of individuals withinthe meaningof the Z ITActl An AOP must be one in which two or more persons I joinin a common purpose or common action and as L the words occur in a section which imposesa tax on Z income the association must be one the objectof m which is to produceincome profitsor gains l3 7 Z The Iearnedjudgethengivesthe cautionthatthere is no formula of universai applicationand that the questionmust dependon the particularfacts and circumstances of each case On the facts found in that case the Court held that the widows were oniy coleirs of the estate of the deceased husband and thattheycould not be assessed as an AOP withinthe Parkash Om 2012.11.17 12:27 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 I attest to the accuracy and integrity of this document

434 ITA No63 of 2009 1 6m meaningof s 3 of the Indian IT Act This Cou againin Mohamed Noorullah vs CIT 361142 ITR 115 SCl TC44R5 considered the questionin the context of an income realized byreceivers appointed by consent of the heirs to run the business of the deceased Khan Saheb Mohmed Oomer Sahib KapurJ speakingfor the Couit Iaid down the same 1 test acceptedby this Court in the earlier judgment r and held that on the facts of that case the co4leirs 0 who carried on the business byconsent as one unit C3 I formed an AOP within the meaningof 3 of the t5 Indian IT Act for the purpose of producingincome I profitsor gains The said decisions Iaid down the Z test that to constitute an association of individuals 1 two or more individuals should have been joinedIll I the promotion of a jointenterprisewith the objectof producingincome profitsor gainsn the present Z case the said test is not satisfied The four nephews C10 of RajaKhajaPershad succeeded to the estate as 7 Z cosharers and each one of them was entitled to Llm share of the income from the estate Theydid not forma unitfor the promotion of anyjointenterprise to earn income profitsor gains The collection of the entire income from the estate by one of the sharers or even bya common employeewill not make that Income an income from a jointventure Each of the Parkash Om 2012.11.17 12:27 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 I attest to the accuracy and integrity of this document

435 ITA No163 of 2009 47m sharers getshis income as an individualand not as an association of individuals1 this view the High Court was rightin answeringthe first questionin favourof the respondent Similarview was taken bythe Honble ApexCourt in GMurugesanand Bross case supral 16 The Kerala HighCourt in R Valsala Ammas case Isupral 1 held that a jointgiftmade bytwo sisters to their brothersbya common giftdeed the sisters havingseparateinterestin the propertywould not 0 0 makethem taxable as an associationof persons The KeraIaHighCourt I held that the two sisters who have conveyedthe title to their brothers C5 through a common giftdeed could not be held to form an associationof I personsas the title did not belongto the association of personst was Z observed as underl In otherwords the individualswho make the giftmust I be associated in respectof the title or ownershipof the L2 property which is transferretl To putit diHerently a gift Z must be one made bytwo or more individualswho own CQ the propertyas an association of individuals In our 7 Z view if two or more persons execute one deed of giftin Qm favourof the same person in respectof properties which belong to them individuallyor in which they have separateand distinct rights it cannot make them an associationof individuals It would be a jointgiftby different individuals between whom there is no association of interest in respect of the gifted Parkash Om 2012.11.17 12:27 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 I attest to the accuracy and integrity of this document

436 ITANo63 of 2009 e18e propenies Il 17 Dealing with identical issue BombayHighCoun in Shiv SagarEstates case Isupralwhere 65 persons purchasedproperty not as an AOP but as coowners and there was no changein their statusas coowners qua the propenyit was held that the 65 persons whohad purchasedthe propertyhavingdefiniteand determinateshares could not be heid as an AOP onlyon the groundthat the Iease was m executedbya singledocument While adjudicating the issue in favourof the assessee itwas observed 0 We have carefullyconsidered the rival submissions C I We have alreadyset out thefacts of the case and also 0 given our observations in regardthereto at diHerent I placesSo far as the Iaw is concernedit is well settled Z bythe decision of the SupremeCoun in ClT v Indira m Balknhna 1960139 ITR 546l this case the SupremeCourt considered what constitutes an L3 association of personst was held that an association Z of persons must be one in which two or more persons C join in a common purpose or common action and as 3 Z the words occur in a section which imposesa tax on income the association must be one the objectof which is to produceincome profitsor gains The SupremeCourt however made it clear that there IS no formula of universal applicationas to what facts how many of them and of what nature are necessanj to come to a conciusion thatthere is an association of Parkash Om 2012.11.17 12:27 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 I attest to the accuracy and integrity of this document

437 ITANo63 of 2009 e19n persons It must dependon the particularfacts and circumstances of each case as to whether the conciusion can be drawn or not The Court made it further clear that no test is conciusive or determinative 18 Civil appealagainstthe aforesaid decision was dismissed by the Honble SupremeCourt as reportedin Commissioner of 1 Income Tax v Shiv SagarEstate I20021257 ITR 59 1SCl r 19 From the above it emerges that in order to assess 0 individualsto be formingassociation of persons the individual cov 0 I owners should have joinedtheir resources and thereafter acquired C5 in the name of association of persons and the propenyshould I have been commonlymanagedonlythen it could be assessed in the Z hands ofassociations ofpersonsl Converselythemere accruingof m r incomejointlyto more persons than one would not constitutethereon an I association of persons Ill respectof such incon In other words t0 unless the associates have done some acts or performedsome Z operationstogetherwhich have helpedto producethe income in C0 question and have resulted in that income theycannot be termed as Z association of persons UnIess the members combine or Join in a tl common purpose it cannot be held thattheyhave formed themselves into an association of person In the presentcase the coeowners had inheritedpropertyfrom their ancestors and there was nothingto show thattheyhad acted as associationof persons The income was thus to be assessed in the status of individual and theAssessingOmcer CIT Al and the Tribunal were not rightin treatingthe income arisingto Parkash Om 2012.11.17 12:27 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 I attest to the accuracy and integrity of this document

438 ITA No63 of 2009 e20m Associationof Persons Once it is held that the income was to be assessed as individual and not an association of persons therefore Section 167B oftheAct is not attracted 20 In view of the above the conclusion of the Tribunal cannot be Iegallysustained The income in the hands of the appellantscould not be assessed in status ofassociation of persons Accordinglythe appealsare allowed in the manner indicatedabove C JUDGE 0 ev C rpi I July26 2012 C5 gbs J Z I L2 Z CQ 7 Z Parkash Om 2012.11.17 12:27 True Scanned Copy Of Original PHHC,Chandigarh JOYTI RANI 2016.03.28 15:57 I attest to the accuracy and integrity of this document

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