Government-controlled distribution schemes do not create partnerships or associations of persons; participants are not assessable as firms or AOPs.

Persons supplying capital and receiving government-fixed profit shares under a government-controlled distribution scheme, implemented through a government nominee acting under official orders, do not form a partnership or an association of persons because there is no agreement among them to carry on a joint business or common management; accordingly such participants cannot be assessed as an unregistered firm or as an association of persons for income-tax or excess profits tax purposes, the operative effect being classification of their receipts as returns under the government scheme rather than as distributive profits of a self-managed collective.

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Issues: Whether the group of semi-wholesalers at Akola were liable to be assessed to income-tax and excess profits tax as (i) an unregistered firm or (ii) an association of persons in respect of the total profit distributed amongst them under the Government formula.

Analysis: The assessment years and statutory context require consideration of the nature of the arrangement among the semi-wholesalers and the role of the Government and its nominee in purchase and distribution. Partnership requires an agreement to carry on business and to share profits, with the business carried on by members acting for all. The facts show no agreement among semi-wholesalers to carry on a joint business or to manage jointly; capital contributions were required in proportion to government-fixed quotas and returns were fixed by Government orders rather than resulting from a scheme of joint enterprise. An "association of persons" requires some scheme of common management or arrangement among persons to earn income in common; here the nominee acted under Government orders, and the profit shares were conferred pursuant to the Government scheme, not pursuant to a management or profit-sharing arrangement framed by the semi-wholesalers themselves. The nominee did not act under a scheme of common management created by the semi-wholesalers but pursuant to Government direction; the returns to semi-wholesalers were in consideration of capital supplied and prior dealer status under the basic period rather than as partners or members of a self-managed association carrying on trade.

Conclusion: The eleven semi-wholesalers were neither partners carrying on a business nor an association of persons for the purposes of income-tax or excess profits tax; they could not be assessed as an unregistered firm or as an association of persons.

Ratio Decidendi: Where persons supply capital and receive government-fixed shares under a government-controlled distribution scheme implemented through a government nominee who acts under governmental orders, the arrangement does not constitute a partnership or an association of persons for tax assessment purposes because there is no agreement among those persons to carry on a joint business under their common management.

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