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Issues Involved:
1. Whether the income of the business in snuff could be assessed on the receivers as an "association of persons" under section 10 or under section 41 of the Income-tax Act, 1922. Issue-wise Detailed Analysis: 1. Assessment of Receivers as an "Association of Persons" under Section 10 or Section 41: The primary issue in this case was whether the income from the snuff business could be assessed on the receivers as an "association of persons" (AOP) under section 10 or under section 41 of the Income-tax Act, 1922. The determination of this issue depended on whether the receivers could be regarded as an AOP within the meaning of section 3, carrying on the business in snuff to attract section 10, and whether the facts were such as to attract section 41. The receivers were appointed by the City Civil Court to manage the business for winding up purposes. The Income-tax Officer viewed the receivers as an AOP, carrying on the business under the court's direction, and thus liable to be assessed under section 10. The Appellate Assistant Commissioner concurred with this view. However, the Tribunal opined that section 41 was applicable, reasoning that the receivers could not be considered as an AOP for the purpose of carrying on or enjoying the profits of the trade, as they were acting under a court order. Definition and Judicial Interpretation of "Association of Persons": The term "association of persons" is not defined in the Act. Judicial pronouncements have construed it to mean a combination of persons for the purpose of producing income by their joint act or venture. Key cases referenced include: - B.N. Elias, In re [1935] 3 ITR 408: The Calcutta High Court held that individuals who joined in a common purpose or action, such as purchasing property jointly, constituted an AOP. - Commissioner of Income-tax v. Laxmidas Devidas [1937] 5 ITR 584: The Bombay High Court held that individuals who jointly purchased and managed property, resulting in shared profits, constituted an AOP. - Commissioner of Income-tax v. Indira Balkrishna [1960] 39 ITR 546: The Supreme Court held that an AOP must involve persons joining in a common purpose or action to produce income, profits, or gains. Application to the Present Case: The Tribunal distinguished the present case from Mohamed Noorullah v. Commissioner of Income-tax [1961] 42 ITR 115, where the co-heirs continued the business without breaking the unity of control. The Tribunal concluded that the receivers did not voluntarily combine to carry on the business but acted under a court order, thus not forming an AOP. However, the court noted that even though the receivers were appointed by a court order, they entered upon their duties based on an understanding to combine and carry on the business. The joint endorsement appended to the receivers' order indicated that the receivers could carry on the business normally, and the profits earned were treated as an asset of the firm. Section 41 and Its Applicability: Section 41 is procedural, allowing the revenue to charge the income in the hands of the receivers and collect the tax from them. It does not alter the liability of the beneficiaries. The court opined that the receivers, carrying on the business in their own right, could be assessed as an AOP under section 10. The proper approach was to treat the assessment as made under section 10 read with section 41. Conclusion: The court concluded that the receivers were rightly assessed as an AOP under section 10 and that the jurisdiction to assess them was under section 41. The assessment should be treated as one made under section 10 read with section 41. The question referred was answered in favor of the revenue, with costs awarded to the counsel.
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