Association of persons arises from a joint income-producing venture, but co-owned house property remains taxable individually.

A combination of persons is treated as an association of persons for income-tax purposes when they join in a common venture to earn income; on that basis, dividend income from shares jointly acquired out of common funds was assessable in that status. By contrast, income from house property owned by co-owners fell within the special rule for co-owned house property under section 9(3) and had to be assessed in the hands of the brothers individually, even if there was some joint management of rent collection. The reference was therefore answered partly for the revenue and partly for the assessee.

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Issues: (i) Whether the four brothers constituted an association of persons in respect of the income from the shares acquired out of joint funds; (ii) Whether the income from the house property, though derived by co-owners, could be assessed in the status of an association of persons or had to be assessed individually under section 9(3).

Issue (i): Whether the four brothers constituted an association of persons in respect of the income from the shares acquired out of joint funds.

Analysis: The expression "association of persons" in the income-tax context connotes a combination of persons joining together for the purpose of producing income, profit or gain by joint act or venture. A mere co-ownership is not enough, but where persons join in a common enterprise with the object of earning income, the combination may assume that status. Here, the brothers jointly acquired shares out of funds standing to their common credit, and the dividends arose from that joint enterprise.

Conclusion: The brothers constituted an association of persons in respect of the income from the shares, and the assessee was rightly assessed in that status for that income.

Issue (ii): Whether the income from the house property, though derived by co-owners, could be assessed in the status of an association of persons or had to be assessed individually under section 9(3).

Analysis: Although the house property was acquired involuntarily and the brothers were co-owners, the arrangement for management and realisation of rent showed an element of joint conduct. Even so, section 9(3) governs co-owners deriving income from house property and requires assessment as individuals, notwithstanding any association-like feature. The requisites of that provision were satisfied.

Conclusion: The income from the house property was assessable only in the hands of the brothers as individuals under section 9(3), and not as an association of persons.

Final Conclusion: The reference was answered partly for the revenue and partly for the assessee: the dividend income from the shares fell to be assessed in the status of an association of persons, while the house-property income was assessable only individually.

Ratio Decidendi: A combination of persons becomes an association of persons when they unite for a joint venture to produce income, but co-owners of house property remain assessable as individuals where the special rule governing co-owned house property applies.

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