TaxTMI 
TaxTMI 
1961 (4) TMI 120
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....as their guardian of the four business owned by the family, the two referred to as the Karaikudi and Rangoon business were exclusively allotted to the father, Meyyappa. In addition, the father took for himself three rubber estates and three house properties. The other business were divided equally among the sharers, the father and the two minor sons. Notwithstanding the partition, the father continued to be in management of all the businesses and the properties. 3. In respect of the three rubber estates and the house properties allotted to the father, Meyyappa, separate books of account were opened under the vilasam."M.M." In 1941, another son, Chettiappa, was born to Meyyappa. Thereafter, the father and this minor son constituted the Hindu undivided family in respect of the properties allotted to Meyyappa at the partition. 4. The management of all the properties by the father, Meyyappa, continued till about 1949, when one of the sons, Chockalingam, attained majority. On December 30, 1949, a partnership arrangement was entered into between the father, Meyyappa, and Chockalingam, to the benefits of which partnership the other minor son, Meyyappa, was admitted. This was in resp....
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....re was any association of persons, but the Income Tax Officer overruling the objection held that for the first of the assessment years, that is, 1951-52, Meyyappa and his minor son, Chettiappa, were members of an association of persons and that for the remaining assessment years these two persons and the firm of M.S.M.M. were the members of such an association. Assessment were accordingly made on that basis. In the appeals to the Assistant Commissioner, objections to the assessment on the basis of an association of persons were rejected, but the Appellate Assistant Commissioner, however, directed that the rental income from properties should be assessed in the hands of the several owners thereof. In the appeals to it, the Appellate Tribunal also upheld the assessment on the association of persons. 7. It is under these circumstances that the question of law set out above stands referred to this court. 8. Broadly stated, the argument of the learned counsel for the assessee are that for the assessment year 1951-52, the assessment has been improperly made on the assessee as representing an association of persons. It is claimed that not only is there no evidence to establish the e....
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....gard to the management of the properties does not appear from the partition deed. But this statement nevertheless appears to find support from the fact that a share of the profits of the M.M. properties was credited, as commission due, to the accounts of the M.S.M.M. firm on April 13, 1951, in the books of the M.M. Ipoh. This appears to offer clear enough indication that a ten per cent. commission of the profits was being given to the M.S.M.M. firm in respect of its management of these properties. It seems to be fairly well established, therefore, that subsequent to this seems to be fairly well established, therefore, that subsequent to this partition, the properties in question were managed by the M.S.M.M firm, and that firm while taking to itself ten per cent. of the profits as commission was crediting the balance in the M.M. Ipoh account to Meyyappa and his son, Chettiappa. In so far as the assessment year 1951-52 is concerned, these are the only facts on the basis of which any conclusion as to the existence of an association of persons composed of the father, Meyyappa, and the minor, Chettiappa, treated as the assessable entity, can be drawn. 11. An association of persons ha....
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....rty and deriving profit from it. This case is of some importance, as one of the members of the association was minor who was represented by his father and natural guardian in matters pertaining to the association. Whether and to what extend the principles of this decision would apply in the present case where the minor, Chettiappa, does not appear to have been represented by any one - if at all he was represented, he was so represented by his father, Meyyappa, who was himself the other member of the association - would call for some examination. 13. The two cases that we have referred to deal with cases where certain persons banded themselves together for the joint acquisition and joint management of certain properties. In Dwarkanath Harischandra Pitale, In re, a case was considered where two brothers became entitled to certain properties under the will of their grandfather. The properties were at first managed by the executor but were ultimately handed over to the two brothers. From that time onwards, they held the properties jointly and managed them jointly. They divided the net income equally between themselves. The question arose whether the two persons could be assessed as ....
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....erits a share in property he has an opportunity of deciding whether he will by reason of having inherited that share form an association of individuals or renounce such relationship. By merely inheriting a share of property, however, no person can become a member of an association, unless there is some forbearance or act on his part to show that his intention and will accompanied the new status which he had been asked to receive. In that case it was found that the appointment by the co-heirs of a single person as their agent to realise the income from shares and property left to them by their father and mother under the Mohammedan law and the continuance of this arrangement for a long number of years was sufficient to constitute an association of individuals. 16. In the case of Estate of Khan Sahib Mohd. Oomar Sahib v. Commissioner of Income Tax, a bench of this court, to which one of us was a party, laid down certain criteria which would serve to determine the existence of an association of persons as an entity : (1) the exercise of volition by, or in the case of minors on behalf of, those who form the association; (2) unity of purpose and objectivity; and (3) the ulti....
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.... thereto or not. It is a right inherent in the father under the Hindu law. Whether or not there is an actual division of the property among the dividing members is immaterial. In the present case, then, Meyyappa and Chettiappa become divided in status; and so long as a division of the property was not effected, their right and interest in the property was that of tenants-in-common. 20. The learned counsel for the department purports to claim that on and after the division in status, it was open to the divided members of the family to separate their interests in the family properties, and their failure to exercise their right for such separate division and enjoyment amounts to election on their part to become members of an association of persons. We are not satisfied that solely from the feature that the share of the minor son was not separated by metes and bounds, we can reach the conclusion that the two persons thereafter continued as members of an association of persons. If any volition of the part of the member is called for, obviously the minor had no volition of his own to express, and the fact that at the partition the minor was represented for purposes of form and nothing....
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....follows accordingly that in so far as the assessment year 1951-52 is concerned, there was no evidence to show that Meyyappa and the minor, Chettiappa, did form an association of persons liable to be assessed as such. 21. The association of persons which has been assessed in the subsequent years in composed of Meyyappa, the father, Chettiappa, his divided minor son, and the M.S.M.M. firm. It has been earlier stated that in 1951, at the request of the other two sons, Chockalingam and Meyyappa, a half share in the rubber estate and the house properties forming the M.M. properties was given to the M.S.M.M. firm. It would be recalled that at the partition of the year 1940, these items of properties had been exclusively allotted to the share of Meyyappa, the father, and in those properties the minor, Chettiappa, who was born subsequent to the partition, acquired an interest as member of the joint family consisting of himself and the father, Meyyappa. It is not necessary for us to consider whether it was competent for the father to give away a half share in what were formerly joint family properties and which had been divided as between himself and the minor, Chettiappa, to the other s....
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....ther firms or individuals. When the matter came to the Supreme Court, the main question that was considered was whether a firm as such could be a partner in another firm. Their Lordship went extensively into the law relating to partnerships, drawing largely upon the principles of English law, which have been adopted in our partnership law, and came to the conclusion which they expressed in these words (page 541) : According to the principles of English jurisprudence, which we have adopted, for the purposes of determining legal rights there is no such thing as a firm known to the law as was said by James L.J. in Ex parte Corbett : In re Shand. In these circumstances to import the definition of the word person occurring in section 3(42) of the General Clauses Act, 1897, into section 4 of the Indian Partnership Act will, according to lawyers, English or Indian, be totally repugnant to the subject of partnership law as they know and understand it to be. It is in this view of the matter that it has been consistently held in this country that a firm as such is not entitled to enter into partnership with another firm or individuals.... We need only refer to the case of Bhagwanji ....
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.... learned judges held that a question of law did arise and directed a reference whether such an association would be an assessable entity under section 3 of the Income Tax Act. Though this decision is not conclusive upon the point raised, the learned judges did not take the view that a firm as such could never be a member of an association. 25. An identical question came up for consideration in Mian Channu Factories Union v. Commissioner of Income Tax. That was a case where two firms and a Hindu undivided family each of which owned a ginning factory entered into a partnership. This partnership set out the shares owned by each of the entities in the partnership and provided for the management of the factories and the division of profits. Though the judgment in the case was that a firm as such could not be a member of another firm, it was held, that the Union was liable to be assessed as an association of individuals. 26. A different view was taken in Commissioner of Income Tax v. Ahmedabad Millowners Association. There the question which arose was whether an association consisting of sixty limited companies and one human being could be chargeable to tax as an association of ind....
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.... acquisition of income therefrom. The defect that was pointed out in relation to the assessment year 1951-52 where in respect of association of persons composed of only the father, Meyyappa, and the divided minor son, Chettiappa, the latter could not be deemed to have expressed any volition to form the association, does not to our mind exist in relation to the association of persons consisting of these two persons and the M.S.M.M. firm. In this association of persons, it was open to the father to act as the guardian of his divided minor son, Chettiappa, and express his consent on behalf of the minor in all matters relating to the management of the properties. We have pointed out that in so far as the smaller association in the assessment year 1951-52 was concerned, there was nothing at all to indicate the existence of those indicia which would establish the existence of an association and we declined to draw the inference of the existence of an association from the mere fact that the father was looking after the share of the properties of his minor son along with his own share in the properties. In the present case, however, that is, in respect of the subsequent years, by the intro....
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.... had not been raised before the Appellate Assistant Commissioner. That the Tribunal failed to decide the question cannot be construed to mean that this question does not arise out of the Tribunals order. If, in fact, a question was indeed posed and argued before the Tribunal as arising out of the facts of the case and out of the decisions of the lower authorities, the Tribunal was bound in law to consider that question and its failure to do so cannot justifiably lead to the conclusion that such a question does not arise out of the Tribunals order. At the hearing of this reference before us, the learned counsel for the assessee pointed out these features and sought for permission to file a petition under section 66(2) of the Act raising this question. Under the circumstances above stated, we allowed this petition (T.C.P. 33 of 1961). It was conceded by the learned counsel for the assessee that it was not necessary to call upon the Tribunal to submit a further statement of the case in relation to the question now sought to be raised and that the materials already on record would suffice. We accordingly allow the following question : Whether, on the facts and in the circumsta....
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....ed agent of the association - in fact many associations of this kind may have no officer of the above designations - power is given to the department to reach the association through any person connected with the association. We do not, therefore, agree with the learned counsel for the assessee that before Meyyappa could be treated as the principal officer, a specific notice should have been given to him and his objections heard on that head. 31. We have found that there was an association of persons composed of Meyyappa, the minor Chettiappa and the M.S.M.M. firm in which firm itself Meyyappa was a partner. Moreover, Meyyappa was the father of the other parties who were members of the association. Whether or not Meyyappa had the controlling hand in the management of the association is immaterial because section 2(12) enables the Income Tax Officer to deal with any person connected with the association as its principal officer. Though in the first three assessment years section 34 was resorted to and the connected notice does not appear to have described Meyyappa as the principal officer of the association, for the subsequent three years, in the notices issued under section 22(2....