1986 (5) TMI 23 - HC - Income Tax

Summary

Issues Involved:
1. Whether the business income earned by a proprietary concern owned by a Muslim widow and her minor children could be assessed in the status of an association of persons.
2. Whether evidence of consent between the mother and minor children was necessary for the business to be held as carried on by an association of persons.
3. Whether the mother acted on her own behalf and as the guardian of the minor children in carrying on the business, thereby constituting an association of persons.
4. Whether the widow was managing the estate, including the business, as a constructive trustee for the benefit of all heirs.

Issue-wise Detailed Analysis:

1. Status of Business Income Assessment:
The Tribunal initially reversed the Income-tax Officer's assessment of the business income in the status of an association of persons (AOP). It held that the assessment should be made on the widow as a representative assessee under section 161 of the Income-tax Act, 1961. The Supreme Court in Syed Shah Gulam Ghouse Mohiuddin v. Syed Shah Ahmad Mohiuddin Kamisul Qadri ruled that on the death of a Mohammedan, his estate devolves on his heirs as tenants-in-common with defined shares. Thus, the widow and her minor children owned the business as tenants-in-common, not as an AOP.

2. Evidence of Consent:
The Tribunal's decision emphasized that there should be evidence of consent between the mother and minor children to form an AOP. The Supreme Court in CIT v. Indira Balkrishna noted that an AOP requires a common purpose or action to produce income, profits, or gains. The Tribunal found no evidence that the mother, as a de facto guardian, consented to carry on the business on behalf of her minor children. The mother, under Muslim law, has no legal authority to act on behalf of her minor children's property, making her actions void.

3. Mother's Role in Business:
The Tribunal found that the mother carried on the business on her own and as a custodian of her minor children's property. Under Muslim law, a mother is not a legal guardian of her minor children's property. Therefore, her actions did not create a consensus to form an AOP. The Tribunal held that the widow was a representative assessee in relation to her minor children, as defined under section 160(1) of the Income-tax Act, 1961.

4. Constructive Trustee:
The Tribunal concluded that the widow managed the estate, including the business, as a constructive trustee for the benefit of all heirs. However, as a constructive trustee, she would not be a representative assessee under section 160 of the Income-tax Act, 1961, which requires a trustee appointed under a duly executed instrument in writing.

Conclusion:
First Question: The Tribunal was correct in holding that no association of persons carried on the business, making the assessment in the status of an AOP invalid.

Second Question: The Tribunal did not misdirect itself in law by requiring evidence of consent between the mother and minor children to constitute an AOP.

Third Question: The Tribunal was justified in ignoring the fact that there was common purpose or action by the mother acting on her own behalf and as the guardian of the minor children, thus holding that the business was not carried on by an AOP.

Fourth Question: The Tribunal was correct in holding that the widow managed the estate, including the business, as a constructive trustee for the benefit of all heirs, with determinate shares.

The court answered all the questions in favor of the assessee and against the Department, with no order as to costs.