Partnership and association of persons require voluntary common business purpose; Government-fixed profit sharing did not create taxable association.

Semi-wholesalers engaged in Government-controlled cloth distribution were not assessable as an unregistered firm or as an association of persons. Partnership was absent because there was no agreement among the participants to carry on business and share profits in a mutual partnership arrangement; the profit share was fixed by Government, and each participant's return was in substance consideration for supplying working capital. Association of persons was also absent because there was no voluntary combination or common management devised by the semi-wholesalers for a shared business purpose. The reference was answered in the negative, and their status as neither a partnership firm nor an association of persons was upheld.

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Issues: Whether the semi-wholesalers were liable to be assessed to income-tax and excess profits tax as an unregistered firm or as an association of persons.

Analysis: Partnership requires an agreement to carry on a business and to share its profits, with the business being carried on by all or any acting for all. On the facts found, the buying and selling of cloth was controlled by the Government under a distribution scheme, the share of profit was fixed by the Government, and there was no evidence of an agreement among the semi-wholesalers to conduct a business in partnership. The return received by each participant was in substance consideration for the supply of working capital and not a partnership profit share. As to association of persons, the expression denotes persons joined together in a common purpose or scheme of common management for earning income or profits. Here, the nominee acted under Government directions, not under any common management devised by the semi-wholesalers, and the necessary element of voluntary association for a common business purpose was absent.

Conclusion: The semi-wholesalers were not assessable as an unregistered firm or as an association of persons.

Final Conclusion: The reference was answered in the negative and the assessee's status as neither a partnership firm nor an association of persons was upheld.

Ratio Decidendi: For a group to be taxed as a partnership or association of persons, there must be a voluntary agreement or scheme of common management to carry on business and earn profits in common; where the business is conducted under Government control and profit shares are fixed by Government, the group is not so assessable.

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