1981 (4) TMI 44 - HC - Income Tax

Summary

Issues Involved:
1. Whether the three ladies constituted an Association of Persons (AOP) and whether the transaction was an adventure in the nature of trade.
2. Validity of the notice u/s 148 served upon the appellants.
3. Legality of assessing the so-called AOP after individual assessments.
4. Assessability of the profit of Rs. 66,000 as 'business income' in the hands of the so-called AOP.

Summary:

Issue 1: Constitution of AOP and Nature of Transaction
The Tribunal held that "there is not an iota of documentary or oral evidence on record to prove that Smt. Saraswati Bai, Smt. Maina Bai, and Smt. Pushpa Bai jointly carried on business in the sale and purchase of land either before the transaction in question or thereafter." The Tribunal concluded that the transaction was an isolated one and not an adventure in the nature of trade, referencing various case laws including *Leeming's case* and *Saroj Kumar Mazumdar v. CIT*. The court agreed with the Tribunal's finding that the appellants did not constitute an AOP and the transaction was not an adventure in the nature of trade, thus question No. 1 was deemed a question of fact and did not require an answer.

Issue 2: Validity of Notice u/s 148
The Tribunal found the notice u/s 148 invalid as it was not addressed to the so-called AOP but to the three ladies individually. The Tribunal referenced *Ravinder Narain v. ITO* and *Y. Narayana Chetty v. ITO* to support the view that the notice was invalid and thus the proceedings were illegal. The court upheld this view, stating that the issuance of a valid notice is a condition precedent to the validity of any reassessment. Therefore, question No. 2 was answered in the affirmative, against the Revenue and in favor of the assessee.

Issue 3: Legality of Assessing the So-called AOP
Given the conclusion on Issue 1 that the appellants did not constitute an AOP, the court found that the question of assessing the so-called AOP did not arise. Thus, question No. 3 was left unanswered.

Issue 4: Assessability of Profit as 'Business Income'
Since the court concluded that the appellants did not constitute an AOP and the transaction was not an adventure in the nature of trade, the profit of Rs. 66,000 was not assessable as 'business income' in the hands of the so-called AOP. Consequently, question No. 4 did not need to be answered.

Conclusion:
The reference was declined, and no costs were awarded.