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Issues: (i) Whether the assessee could be regarded as an association of persons in the relevant previous year after the land had been acquired and the original venture had ceased. (ii) Whether the compensation received by only three recorded holders could be treated as income accruing or arising to the five persons collectively, so as to fasten tax liability on the legal heir of one of them.
Issue (i): Whether the assessee could be regarded as an association of persons in the relevant previous year after the land had been acquired and the original venture had ceased.
Analysis: An association of persons requires a combination of persons joining in a common purpose or common action for the production of income, profits or gains. The original arrangement, even if treated as a partnership or as an association of persons, was tied to the joint venture of developing and disposing of the land. Once the entire land was acquired, the original purpose became incapable of achievement and the common enterprise came to an end. Mere continued claim to compensation, without a fresh joint volition or joint enterprise to realise it, was insufficient to constitute a continuing association of persons.
Conclusion: The assessee was not an association of persons in the relevant assessment year.
Issue (ii): Whether the compensation received by only three recorded holders could be treated as income accruing or arising to the five persons collectively, so as to fasten tax liability on the legal heir of one of them.
Analysis: Income accrues when a right to receive it comes into existence. On the facts, the Government was liable to pay the compensation only to the three persons standing in the revenue records, and payment was in fact made only to them. The five persons as a group had no enforceable right to receive the compensation from the Government, and no debt was created in their favour as a collective body. In the absence of any subsisting association and in the absence of any collective right to receive, the compensation could not be treated as income accruing or arising to the five persons as an association.
Conclusion: The compensation did not accrue or arise to the assessee as an association, and no tax liability could be fastened on the legal heir on that basis.
Final Conclusion: The reference was answered by holding that the alleged association had ceased to exist for the relevant year and that the compensation was not income of that association, with the result that the assessee succeeded.
Ratio Decidendi: A body of persons ceases to be an association of persons when the common venture that united them comes to an end, and compensation payable only to recorded holders does not accrue to the erstwhile group unless they jointly retain an enforceable right to receive it.
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