2008 (2) TMI 422 - HC - Income Tax

Interpretation of will meaning of person u/s 2(31) AOP - unexplained assets held that - Thus it is apparent that an association of persons is a voluntary association of two or more persons who joined together for a particular purpose which may not necessarily be with the object of deriving of income profits or gains. It is also obvious that although the initial object may not have been deriving of income etc. but subsequently income must have arisen because otherwise the association of persons will not be concerned with the Act. Whatever the object of associating the association has to be voluntary on the part of the persons forming association. Forced association of persons because of inheriting joint property by a will or such other circumstances not being voluntary would not constitute such joint legatees as association of persons - that the assessee cannot be said to be an association of persons because of the terms of the will under which the two legatees have inherited the assets of the testator jointly shares of each legatees not being specified

Summary

Issues:
1. Interpretation of a will to determine if an association of persons was created.
2. Whether the assets found during a search belonged to the alleged association of persons.
3. Legal definition and criteria for constituting an association of persons under the Income Tax Act, 1961.

Issue 1: Interpretation of the will
The High Court analyzed a will to ascertain if an association of persons was formed. The will stated that after the testator's death, two individuals would inherit his properties, with certain obligations attached to the ownership. The court noted that the obligations, though vague, were annexed to the ownership passed on by the will. The court deliberated on whether the individuals were constituted into an association of persons based on the terms of the will.

Issue 2: Ownership of assets found during search
The court considered whether the assets discovered during a search belonged to the alleged association of persons. The court emphasized that the association of persons must be voluntary, formed by two or more individuals for a specific purpose. It was highlighted that forced association due to inheriting joint property would not qualify as an association of persons. The court concluded that the individuals inheriting assets jointly, without specified shares, did not constitute an association of persons.

Issue 3: Criteria for constituting an association of persons
The judgment discussed the legal definition of an association of persons under the Income Tax Act, 1961. It was noted that the Act defines an "assessee" as a "person," with the term "person" encompassing an association of persons. The court highlighted that an association of persons is a voluntary group formed for a particular purpose, which may or may not involve deriving income. The court emphasized that even if the initial object was not income-related, subsequent income must have arisen for the association to fall under the Act's purview.

The court answered the first and second questions by determining that the individuals were not constituted into an association of persons based on the terms of the will. As a result, the assets found during the search were not considered to belong to the alleged association of persons. The court concluded that since no association of persons was formed as per the will, no further answer was required for the third question. The reference was disposed of accordingly.