1992 (12) TMI 38 - HC - Income Tax

Summary

Issues Involved:
1. Whether the lease rent from the property Shiv Sagar Estates accrued to the individual co-owners or to an association of persons.

Summary:

1. Facts and Background:
The case involved 65 co-owners of the property "Shiv Sagar Estate," who were to be assessed for rental income from the property. The assessment years in question were 1967-68, 1968-69, and 1969-70. The property was purchased by 65 persons from three families, and they were shown as tenants-in-common in the deed of conveyance. These co-owners entered into various agreements, including a lease with a company they formed, Shiv Sagar Estate Limited, and later with other entities, maintaining their status as co-owners throughout.

2. Assessment by Income-tax Officer:
The Income-tax Officer assessed the lease rent as income accruing to an "association of persons" (AOP) rather than to individual co-owners. The income from house property was divided among the co-owners u/s 26 of the Income-tax Act, but the lease rent was assessed as income from other sources under the status of an AOP.

3. Appeals and Tribunal's Decision:
The co-owners appealed, arguing that they did not form an AOP and that the income should be assessed individually. The Appellate Assistant Commissioner upheld the Income-tax Officer's decision. However, the Income-tax Appellate Tribunal, by majority, concluded that the income should be assessed in the hands of the 65 co-owners in proportion to their respective shares, not as an AOP. The Revenue sought a reference to the High Court.

4. High Court's Analysis:
The High Court examined whether the 65 persons could be termed as an AOP. It noted that the property was purchased by the 65 persons as co-owners, and this status was maintained in all subsequent agreements. The court emphasized that for an AOP to exist, there must be a common purpose or action to produce income, which was not evident in this case. The court referred to Supreme Court decisions, including CIT v. Indira Balkrishna and G. Murugesan and Brothers v. CIT, which held that an AOP requires a joint enterprise to produce income.

5. Conclusion:
The High Court concluded that the 65 co-owners did not form an AOP and that the lease rent should be assessed individually in the hands of the co-owners. The Tribunal's decision was upheld, and the question was answered in the affirmative, in favor of the assessee and against the Revenue. No order as to costs was made.