TaxTMI 
TaxTMI 
1993 (4) TMI 36
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.... the communion of interest of husband and wife married under the Portuguese Civil Code is liable for assessments in equal shares in the hands of each of the consorts without taxing it in the hands of the body of individuals ? (3) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in holding that the entire managing director's remuneration and perquisites have to be assessed in the hands of Mr. Modu Timblo, individual, and not one-half of the same ?" This reference relates to the assessment years 1973-74 and 1974-75. For these two years, the assessments were made by the Income-tax Officer on the "Body of individuals" consisting of Mr. Modu Timblo and his wife, Mrs. Sushilabai M. Timblo, and also on Mr. Modu Timblo as "individual". There were six appeals before the Tribunal for these two years-two by the Income-tax Officer against the Appellate Assistant Commissioner's orders in the case of Mr. Modu Timblo, individual, and out of the other four appeals, two were by Mr. Modu Timblo, individual, in respect of his individual assessments, and two in respect of the assessments made on the body of individuals consisting of Mr. Modu Timblo and his ....
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....ng sources was included : (i) Income from business in the name of Messrs. Margao Maritime, (ii) Share of profit from Messrs. Auto Universal and Messrs. Nav Gomant Prakashan ; (iii) Interest from banks; (iv) Dividends on shares; (v) Rent from Gurudas Timblo ; and (vi) Perquisites from a private limited company. Two assessments were also made on Mr. Modu Timblo as an individual for the above two years and in these assessments, in addition to remuneration from the private limited company, the Income-tax Officer included, as a protective measure, income which was computed in the assessment of the body of individuals as its income. The assessee preferred appeals to the Appellate Assistant Commissioner against both these sets of assessments. It was contended by the assessee that as the husband and wife forming the communion have equal vested interest both in the communion property as well as income arising therefrom, no assessment ought to have been made on the communion in the status of body of individuals and 50 per cent. of the income of the communion ought to have been assessed in the hands of Mr. Modu Timblo and the remaining 50 per cent. in the hands of his wife, Mrs. Sushi....
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....union with regard to its "income from property" and in that context on a detailed examination of the various articles of the Portuguese Civil Code, it was held that section 26 of the Income-tax Act, 1961, applied to the communion in regard to its income from house property. The Tribunal also noticed that the High Court did not examine the legal position whether in regard to communion's income falling under heads other than "income from house property", the status of the communion should be body of individuals or not. According to the Tribunal, the High Court in the above case had clearly opined that the communion of the husband and wife was not akin to a Hindu undivided family under the Mitakshara system of Hindu law nor to a "firm" as defined in the Indian Partnership Act and that it was akin to a tenancy-in-common or to the English coparcenary having a unity of title, interest and possession. The Tribunal also considered the decision of the Supreme Court in CIT v. Indira Balkrishna [1960] 39 ITR 546, as well as the decision of the Andhra Pradesh High Court in Deccan Wine and General Stores v. CIT [1977] 106 ITR Ill and of the Gujarat High Court in CIT v. Harivadan Tribhovandas [1....
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....ional income as in the case of salary. It noted, however, that there might be exceptions when there is a combined effort in the nature of business or profession. (E) Capital gains : The assessability of capital gains in the hands of the body of individuals or the individuals constituting the communion will depend upon the facts of each case; (F) Income from other sources : Different types of income under this head may have to be assessed differently on the facts of each case." In the light of the above conclusions, the Tribunal held that in the case of communion of the husband and wife under the Portuguese Civil Code, by and large income from business and some of the sources such as hiring of machinery, plant, etc., falling under the head "Income from other sources" would be that of the body of individuals, income falling under the other heads, "Interest on securities", "Profits and gains of profession", "Capital gains" and from other sources such as "Dividends", "Interest on deposits", etc., will be joint income of the two spouses and will have to be assessed in their hands in equal shares. The Tribunal did not agree with the contention raised on behalf of the assessee that eve....
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....anagement of the property or the business, after the marriage, is in the hands of one of the parties, i.e., the husband or the wife does not in any way affect the above position. (ii) This court having held in Purushotam Gangadhar Bhende's case [1977] 106 ITR 932 and in Aleixo P. Velho's case [1983] 143 ITR 372 that the ownership of all property existing and future vested in both the husband and wife in half shares and having directed the assessment of the income from house property in equal shares in the individual assessments of husband and wife, there can be no body of individuals of husband and wife. (iii) Though the decision of this court in CIT v. Purushotam Gangadhar Bhende [1977] 106 ITR 932, was rendered in a case where the dispute related to assessment of income from "house property" which was decided with reference to section 26 of the Act, the ratio thereof will apply to income falling under all heads (even though section 26 did not apply thereto). Reliance was placed in support of this contention on a decision of this court in Addl. CIT V. Valentino F. Pinto, Mapuca [1984] 150 ITR 408. (iv)That on a correct reading of the rights of the husband and wife under the Portug....
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.... of the Act. The further submission of counsel for the Revenue is that to decide whether a group of persons can be termed as an "association of persons" or "body of individuals" within the meaning of section 2(31) of the Act, it is necessary to know the nature of the activity undertaken by them. It will vary from case to case. Counsel for the Revenue also pointed out that it is not proper to equate a body of individuals with an association of persons because doing so will amount to defeating the very purpose of specifically incorporating the expression "body of individuals" in the list of persons who are taxable entities in addition to "association of persons" which was already in the Indian Income-tax Act, 1922 ("the 1922 Act"). Learned counsel referred to the decision of the Supreme Court in CIT v. Indira Balkrishna [1960] 39 ITR 546 and submitted that in the said judgment the court had interpreted the word "association" and had set out some conditions which should be fulfilled in order to bring a group of persons within the meaning of "association of persons". To meet this situation, in the definition of "person" in section 2(31) of the 1961 Act, the word "body of individuals" w....
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....as well as the income of communion property, immovable as well as movable, the husband and the wife each have, during the subsistence of a marriage celebrated as per the custom of Goa, a fixed and certain half share which can be ascertained on the termination of the communion by divorce, separation or death (articles 1121 to 1124, 1203, 1204, 1210, 1216, 1220 and 1226). What is most important in this connection is that it is an admitted position that on the death of one of the spouses, communion property does not devolve by survivorship, but the half share of the deceased spouse goes by succession to his or her own heirs or legatees by virtue of articles 1122 and 1123. There is a consistent reference to the half share of each of the consorts throughout the different articles dealing with various situations (vide articles 1112 to 1114 of the Portuguese Civil Code, and article 10 of the Commercial Code dealing with the incidence of debts, and Portuguese Civil Code article 11, 18, dealing with the disposal of the movable property as well as articles 1120, 1123, 1220, 1463 and 1471)." The above legal propositions have been reiterated by this court in Aleixo P. Velho's case [1983] 143 ....
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.... this body of individuals in the corpus and the income of the communion property are definite and ascertainable ; and (iii) that being so, section 26 of the Income-tax Act, 1961, will apply to the income of such association of persons or body of individuals from house property which provides that in respect of income from house property, such persons should not be assessed as an association of persons but the share of each such person in the income from the property should be included in his total income. The same is the ratio of the decision of this court in CGT v. Aleixo P. Velho [1983] 143 ITR 372. In this case also, a gift of movable and immovable properties was made by an individual and his wife married under the Portuguese Civil Code. It was held that when the husband and wife, who had been assessed as a body of individuals, made the gifts, each of them gifted only his and her respective half share in the properties and hence no assessment could be made on them on the footing of their having made the gift as a body of individuals. This decision given in the context of the Gift-tax Act does not in any way affect the foundation of the judgment that the communion is a body of i....
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....ved by Chinnappa Reddy J. (as his Lordship then was) in Deccan Wine and General Stores v. CIT [1977] 106 ITR 111 (AP), the expression "body of individuals" should receive a wide interpretation, perhaps not wide enough to include combination of individuals who merely receive income jointly without any thing further as in the case of co-heirs inheriting shares or securities, but certainly wide enough to include a combination of individuals who have a unity of interest but who are not actuated by a common design and one or more of whose members produce or help to produce income for the benefit of all. If we apply these tests to the communion of husband and wife married under the Portuguese law in respect of income derived from business or such other activities which is managed by one of the members, it is difficult to say that such communion will not be a body of individuals, because the essential requirements of unity of interest and one or more members producing or helping to produce income for the benefit of both are present. What is submitted by counsel for the assessee in this case is that the marriage was not with the intention of carrying on business or earning income. In other....
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....sociation of persons" in Indira Balkrishna's case [1960] 39 ITR 546 (SC). We have considered this submission. We do not find that the above judgment is an authority for such an extreme proposition. This court, in the above case, had made it clear that it is not possible by its very nature to lay down any exhaustive definition of "a body of individuals". It is in that context that it was observed that the "body of individuals" contemplated by the definition of "person" in section 2(31) must be a body which has the object of undertaking an income-producing activity. Unless that element is present, however wide the meaning and scope of "a body of individuals" may be, as compared with the limited concept of "an association of persons", it will be difficult to treat a given number of persons as "a body of individuals" as contemplated by the definition of "person" in section 2(31) of the Act. The above observations thus make it clear that "a body of individuals" is different from "an association of persons" which is limited in its ambit and scope. If we read the above observations of this court with the observations of Chinnappa Reddy J. in Deccan Wine and General Stores' case [1977] 106....
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.... all types of income and cannot be restricted to house property". In the light of this observation, the answer to the question before the court in that case was given in favour of the assessee. We have carefully gone through the above decision. We have already held that this decision, so far as it pertains to assessability of business income accruing to a communion of husband and wife governed by the Portuguese law, is per incuriam because the court, while applying the ratio of the earlier decision in Purushotam Gangadhar Bhende's case [1977] 106 ITR 932 (Bom), did not take note of the fact that the decision in that case in regard to the house property income had been arrived at in view of the specific provision in regard to computation of income from house property owned by co-owners contained in section 26 of the Act which clearly provides that where any house property is owned by two or more persons and their respective shares are definite and ascertainable such persons shall not in respect of such property be assessed as an association of persons, but the share of each such person in the income from the property as computed in accordance with sections 22 to 25 shall be included....
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....lf. When that reference was called out for hearing, it was noticed by the court that no service had been effected on the assessee by the Revenue at whose instance the reference had been made. The court expressed its displeasure over the way the reference had been handled by the Revenue and did not feel inclined to postpone the hearing any further to enable a specific notice being given to the respondent because the matter seemed to be covered, though not specifically, but in principle by the decisions of this court. This is clear from the following observations of the court (at page 409 of 150 ITR) : "We find it unnecessary to dispose of the reference on the ground that no proper service has been effected. We also find it unnecessary to postpone the hearing any further to enable a specific notice being, given to the assessees. The matter has been kept back on a number of occasions but nothing has been done by the Central Government advocate. This is also because the questions referred to us seem to be covered, though not specifically, but in principle, by the decisions of our High Court in CIT v. Purushotam Gangadhar Bhende [1977] 106 ITR 932, which decision was subsequently appli....
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....thus (at page 961): "A person or group of persons may work in more than one capacity. The Income-tax Act clearly recognises dual capacity of a person or a group of persons. In respect of the property in question, these persons were co-owners, in the company they were shareholders, in the partnership firm they were partners. They might also have formed an association of persons to carry on any other activity. All these can go on simultaneously. The very same persons may receive income as co-owners, as shareholders, as partners or as members of an association of persons and their status in respect of a particular income will not affect their status in respect of other incomes." We reiterate and reaffirm the above observations. We may next deal with the submission of learned counsel for the assessee in regard to diversion of income by overriding title in view of the equal share of both the husband and wife in the property and income of the communion by virtue of the provision of the Portuguese Civil Code. On a careful consideration, we find it difficult to accept the submission that it is a case of diversion of income by overriding title. As observed by this court in CIT v. Bombay ....
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....f an association of persons or body of individuals consisting, in either case, only of husband and wife governed by the system of community of property in force in the State of Goa. We have perused the above provision and considered the submission of learned counsel for the assessee. We fail to understand how this provision supports the contention of the assessee that the communion of husband and wife governed by the Portuguese law cannot be treated as an association of persons or a body of individuals. On the other hand, in our opinion, this provision clearly visualises an assessee which is an association of persons or a body of individuals consisting in either case, only of husband and wife governed by the system of community of property (referred to in this judgment as " communion ") in force in the State of Goa. Section 80C, so far as is relevant, as it stood at the material time, reads : " 80C. Deduction in respect of life insurance premia, contributions to provident fund, etc. - (1) In computing the total income of an assessee, there shall be deducted, in accordance with and subject to the provisions of this section, an amount calculated, with reference to the aggregate of t....
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..... This provision, in our opinion, instead of supporting the contention of the assessee, lends full support to the conclusion arrived at by us that the communion of husband and wife has to be treated as an association of persons or a body of individuals for the purpose of assessment of income from the communion property. In the background of the above discussion, we may refer to some of the provisions of the Act. Section 4 is the charging section. It provides, inter alia, that income tax shall be charged in respect of the total income of the previous year of every person. "Person" has been defined in section 2(31) to include, inter alia, an individual, a Hindu undivided family, a firm, "an association of persons or a body of individuals, whether incorporated or not". Section 5 of the Act defines the scope of total income with reference to residence in India. In respect of residents who are ordinary residents, it provides that the total income of such persons shall include all income from whatever source derived which is received or deemed to be received in India or accrues or arises or is deemed to accrue or arise to him in India or accrues or arises to him outside India. By secti....
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....ve. This income, therefore, has to be assessed in equal shares separately in the hands of both the husband and wife in the status of individuals. This conclusion of ours gets full support from the decision of the Supreme Court in. G. Murugesan and Bros. v. CIT [1973] 88 ITR 432. In this case, the Supreme Court had to decide about the assessability of income from dividend from shares which stood in the joint names of a number of persons. The question was whether the dividend income in such a case could be assessed in the hands of the joint owners in the status of an association of persons. The Supreme Court held that in the case of receiving dividends from shares, where there is no question of any management, it is difficult to draw an inference that two or more shareholders functioned as an "association of persons" from the mere fact that they jointly owned one or more shares, and jointly received the dividend declared. So far as the "profits and gains of business or profession" are concerned, having held that the communion constituted a body of individuals which is a separate taxable entity under section 4 of the Act read with section 2(31) thereof, in the absence of any special ....
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....It was he who was employed. The salary accrued to him and it was payable to him by the employer. The employer, while doing so, was not concerned with the customary laws of his employee. It is impossible to comprehend that the income from salary can be said to arise to a person who is not in employment. The customary law or specific law of Goa determines the rights of the husband and wife in the property and income. It cannot make the wife also an employee where the husband is employed nor, by reference to such law, can it be said that half of the salary due to the husband for the services rendered by him will accrue to the wife. In matters-like this, the I customary law has no relevance. Situated thus, we are of the clear opinion, that the income from salary is the income of the person who is the employee which in the instant case was the husband and that being so, it was assessable in the manner laid down in sections 15 to 17 of the Act, in his hands alone and no part of it can be assessed in the hands of the wife. The interest of the wife in the said income by virtue of the customary law may, at the most, amount to application of income after it has accrued or arisen to the husba....