Association of persons taxation applies to joint Abkari venture income despite a void partnership under excise law.

A void or unregistered partnership under the Hyderabad Abkari Act did not prevent the joint venture income from being assessed as that of an association of persons. The High Court noted that the Abkari arrangement lacked the prior approval required by section 14 of the Hyderabad Abkari Act, so it could not claim the benefits of a registered firm under section 26A of the Income-tax Act, 1922. Because both participants knowingly carried on the business together for the common purpose of earning profits, the legal test for an association of persons was satisfied. The entire income from the Abkari contracts was therefore assessable under section 3 of the Income-tax Act, 1922, not merely half in the assessee's hands.

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Issues: Whether the assessee was liable to be assessed only on half the income from the Abkari contracts, or whether the entire income was assessable in the hands of the assessee and the other participant as an association of persons.

Analysis: The partnership in the Abkari business was formed without the prior approval required by section 14 of the Hyderabad Abkari Act and was therefore void. An illegal partnership could not claim the benefits available to a registered firm under section 26A of the Income-tax Act, 1922. On the facts found, both persons joined in carrying on the business for the common purpose of earning profits, and the arrangement satisfied the legal test of an association of persons. Income arising from such a joint venture was liable to be assessed under section 3 of the Income-tax Act, 1922.

Conclusion: The assessee was not liable to be assessed on only half the income. The entire income from the Abkari contracts was assessable as the income of an association of persons, and the answer to the reference was against the assessee.

Ratio Decidendi: Where two persons knowingly carry on a profit-making venture in association, the income is assessable as that of an association of persons under section 3 of the Income-tax Act, 1922, notwithstanding that the underlying partnership is void or unregistered under the governing excise law.

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