Vildirect: IncomeTax-caselaws-1978-VIL-671-P&H-DT

1978-VIL-671-P&H-DT

Equivalent Citation: [1979] 120 ITR 564, 8 CTR 28

PUNJAB AND HARYANA HIGH COURT

Date: 06.09.1978

MEERA AND COMPANY

COMMISSIONER OF INCOME-TAX, PUNJAB

BENCH

Judge(s) : J. M. TANDON., PREM CHAND JAIN

JUDGMENT

The judgment of the court was delivered by

J. M. TANDON J.--This order will dispose of Income-tax References Nos. 22 to 26 of 1972, all relating to the same assessee (M/s. Meera & Co.), referred to us by the Income-tax Appellate Tribunal on the following questions :

" 1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that Meera & Co. is a body of individuals and is assessable as such ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessment of the body of individuals identified as Meera & Co. should be made under section 4 read with section 2(31)(v) and not under section 160, 161 or 166 ? "

The facts of the case, which are not disputed, are that Shri Prem Narain, an individual, carried on business under the name, M/s. Meera & Co., at Ludhiana. Assessments to income-tax were made on him in his trade name, M/s. Meera & Co. He died intestate on August 25, 1962, survived by his mother, widow and three minor children. All the assets of the deceased, including the business styled as Meera & Co., devolved on his five legal heirs. The mother of the deceased relinquished her interest in the assets of the deceased against a lump sum payment. For the purpose of these references, we are concerned with the widow and three minor children of the deceased. The business of M/s. Meera & Co. was continued as a single unit in the same name by Shrimati Krishna Gupta, widow of the deceased, obviously on her behalf and on behalf of all the three minor children as their guardian. The accounts were maintained in the name of M/s. Meera & Co. The yearly profits were ascertained and divided. The income-tax returns for the assessment years 1963-64 to 1967-68 were filed by Shrimathi Krishna Gupta on behalf of M/s. Meera & Co. The status of the assessee was described as " association of persons ". These returns reflected the entire income from business previously carried on by Shri Prem Narain, deceased. On January 25, 1968, Shrimati Krishna Gupta filed the return under protest and further revised the returns for the assessment years 1963-64 to 1966-67, declaring the same income that had been shown in the returns already filed but without specifying the status therein. It was contended that the income from the business should be assessed in equal shares in the hands of the four legal heirs of the deceased. The minor children of the deceased also filed separate returns where the share of profit from M/s. Meera & Co. was included for rate purposes only. The ITO did not agree with the altered position taken by the assessee that the income from the business was liable to be assessed in equal shares in the hands of the four heirs of the deceased. He held that the business was for one and common unit and the same was assessable in the status of " body of individuals ". The assessee, being dissatisfied with the order of the ITO, filed an appeal and the AAC held that the entire income of the business was assessable in the hands of Shrimati Krishna Gupta as a person carrying on business in an individual capacity. The revenue and the assessee both filed appeals before the Tribunal. The Accountant Member of the Tribunal found that the business was carried on as an organic unit by Shrimati Krishna Gupta on her own behalf and on behalf of her three minor children as their natural guardian. On the death of Shri Prem Narain, his estate fell to his legal heirs under s. 8 of the Hindu Succession Act as tenants-in-common. The special provisions regarding the minors and guardians contained in ss. 160, 161 or 166 of the I.T. Act (hereinafter referred to as " the Act "), shall apply which otherwise override the general provisions contained in ss. 4 and 2(31)(v) of the Act. The judicial Member took a different view. According to him, the entity was liable to be assessed under s. 4 read with s. 2(31)(v) of the Act. He repelled the contention of the assessee for an assessment under the special provisions meant for representative assessees, that is, ss. 160, 161, etc. He opined that before the assessee could be so treated, be must filter through the charging s. 4, read with s. 2(31)(v) of the Act and if he cannot do so, he must stay there. In the event of the assessee being a body of individuals, as defined in s. 2(31)(v), the question of the applicability of ss. 160, 161, etc., of the Act did not arise. As the two members of the Tribunal differed, the matter was referred to a third Member who agreed with the view taken by the judicial Member and the appeals of the assessee were consequently dismissed. The assessee having approached the Tribunal for making a reference to the High Court on questions of law, the two questions detailed above have been referred. It is under these circumstances that this matter has come up before us.

Section 4 of the Act is a charging section and sub-s. (1) thereof reads as under :

" 4. (1) Where any Central Act. enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, this Act in respect of the total income of the previous year or previous years, as the case may be, of every person :

Provided that where by virtue of any provision of this Act income-tax is to be charged in respect of the income of a period other than the previous year, income-tax shall be charged accordingly. "

The term " person " is defined in s. 2(31) of the Act and it reads as under :

2. (31) ' person ' includes--

(i) an individual .......

(v) an association of persons or a body of individuals, whether incorporated or not ....... ..

It is the common case of the parties that the assessee in the instant case is not an association of persons. The assessee would, therefore, be a body of individuals or an individual as defined in sub-cl. (v) or sub-cl. (i), respectively. The fate of the case will follow the finding on this point. Should the assessee be liable to be assessed as an individual, the provisions contained in ss, 160, 161, etc., of the Act shall stand attracted and in that case the income from the business may be liable to be assessed in equal shares in the hands of the heirs of Shri Prem Narain, deceased. In the event of the assessee being treated as a body of individuals, it shall have to be treated as an entity for the purpose of charging s. 4 of the Act and in that case, the question of the applicability of the provisions contained in ss. 160, 161, etc., should not arise.

The contention of the learned counsel for the assessee is that the term " body of individuals " which is liable to be treated as a person in terms of s 2(31)(v) of the Act postulates more than one individual. In the present case, Shrimati Krishna Gupta remains the sole individual in spite of having two capacities, namely, in her own right and as guardian of her minor children. The minors are in the position of beneficiaries and their guardian a trustee. For the purpose of status of the assessee, it is the trustee who is to be accounted for and not the beneficiaries. Shrimati Krishna Gupta in her two capacities, therefore, could not be treated as a body of individuals. She would, therefore, retain the status of an individual with the result that the provisions contained in ss, 160, 161, etc., shall stand attracted.

The second contention of the learned counsel for the assessee is that s. 4 of the Act, which is the charging section, is subject to the other provisions contained in the Act. It means that the other provisions contained in the Act shall govern the charging section. Chapter XV of the Act deals with liability in special cases and ss. 160, 161 and 166, dealing with the income of a minor, lunatic or idiot as also of the guardian in receipt of the income of such minor, lunatic or idiot, are included therein. In the instant case, Shrimati Krishna Gupta acted on behalf of her minor childern in running the business in the name, M/s. Meera & Co. The income from the business representing the share of the minors accrued to them or to their guardian representing them. It being the case, the mode of assessment as contained in Chap. XV of the Act shall get precedence and the assessee will be liable to be assessed thereunder.

The learned counsel for the department has argued that after the death of Shri Prem Narain, his widow and three minor children shall constitute a body of individuals in terms of s. 2(31)(v) of the Act, liable to be assessed as such. The minors shall be treated as constituents of the body of individuals along with their mother who in fact was controlling the business on their behalf as also her own. It has further been argued that as the assessee is liable to be assessed under s. 4 of the Act as a person, being a body of individuals in terms of s. 2(31)(v), the special provisions contained in Chap. XV of the Act will have no application.

In Deccan Wine & General Stores v. CIT [1977] 106 ITR 111 (AP), a similar situation arose. On the death of an individual, his widow and two minor children succeeded to the business as legal heirs. It was claimed that each of the three legal heirs should be assessed separately in their individual status on their respective one-third share of income from the business. The ITO did not agree and held that the three legal heirs constitute a body of individuals, liable to be assessed as such. This view was maintained right up to the Tribunal. On a reference made to the High Court at the instance of the assessee, it was held that the expression " body of individuals " must have a distinct meaning of its own irrespective of the fact that it may have some characteristics common with an " association of persons " but it could not be the same thing as, or a mere species of, an " association of persons ". An " association of persons " does not mean any and every combination of persons. It is only when they associate themselves in an income producing activity that they become an " association of persons. " 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 anything 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. The three individuals (Mother and her two minor children) had common interest in the business carried on for the benefit of all of them by one of them and, therefore, they would constitute a " body of individuals. "

In CIT v. Harivadan Tribhovandas [1977] 106 ITR 494 (Guj), the expression " body of individuals " was again examined. It was held that the words " body of individuals " means a conglomeration of individuals who are carrying on some activity with the object of earning income. The body of individuals must be carrying on an activity with a view to earning income because it is only with such a body of individuals that the Act is concerned.

Applying the ratio of these authorities to the facts of the present case, Shrimati Krishna Gupta and her three minor children would constitute a " body of individuals ". The learned counsel for the assessee has contended that the points now argued before us were not raised in Deccan Wine and General Stores' case [1977] 106 ITR 111 (AP) and further no minor was involved in CIT v. Harivadan Tribhovandas [1977] 106 ITR 494 (Guj). The learned counsel has conceded that if the children of Shri Prem Narain, deceased, had been major at the time of his death, then they would have constituted a body of individuals in spite of the fact that their mother had carried on business in the name of Meera & Co. in the same fashion. According to him, the fact that the children of the deceased were minors at the time of his death and continued to be so thereafter would make the difference. We are unable to agree. The business being run by Shri Prem Narain, deceased, in the name of Meera & Co. devolved on his legal heirs after his death. The business which during the lifetime of the deceased was owned by him alone came to be owned by his legal heirs as a group after his death. The business was continued after the death of Shri Prem Narain by his widow, Shrimati Krishna Gupta. The share of the minors in the assets including the goodwill was continued to be utilised for producing income. The control of the business was in the hands of Shrimati Krishna Gupta. Moreover, there can be no manner of doubt that the business was carried on for their common benefit by one of them representing all of them. The expression " body of individuals " need not necessarily be the result of an agreement, arrangement or design. It might arise out of a certain situation. In the instant case, the situation arose on the death of Shri Prem Narain. The business came to be owned by Shrimati Krishna Gupta and her three minor children on the death of their predecessor-in-interest, Shri Prem Narain. In this situation, Shrimati Krishna Gupta being the only adult member in the group of the legal heirs of the deceased continued the business for the benefit of all. The fact that the minors had no legal capacity to enter into an agreement and they could only act through their guardian, is irrelevant for determining their status as constituents in the body of individuals in terms of s. 2(31)(v) of the Act. The income from the business being run in the name of Meera & Co. has not accrued to Shrimati Krishna Gupta alone. The income has accrued or shall be deemed to have accrued to the body of individuals consisting of Shrimati Krishna Gupta and her three minor children. The minors are, therefore, constituents of the body which carried on the business through Shrimati Krishna Gupta for the benefit of all. Consequently, the assessee cannot be treated as an individual as defined in s. 2(31)(i) but shall have to be stamped as a body of individuals in terms of s. 2(31)(v).

The assessee being a body of individuals as defined in s. 2(31)(v) of the Act, shall be taken as a " person " for purposes of the charging s. 4 of the Act. The assessee being an entity liable to be charged under s. 4, the question of application of the provisions contained in Chap. XV of the Act relating to minors and guardians will not arise.

In view of the discussion above, the two points referred are replied in favour of the department as under :

1. The Tribunal was right in law in holding that Meera & Co. is a body of individuals and is assessable as such.

2. The Tribunal was again right in holding that the assessment of the body of individuals identified as M/s. Meera & Co. will be made under section 4 read with section 2(31)(v) and not under sections 160, 161 and 166 of the Act.

The parties are left to bear their own costs.

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