1979 (3) TMI 30 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Income-tax Officer was justified in assessing the assessee in the status of "body of individuals".
2. Whether the sales of properties by the two brothers constituted an "association of persons" or a "body of individuals".

Summary:

Issue 1: Justification of Assessing as "Body of Individuals"
The primary issue was whether the Income-tax Officer (ITO) was justified in assessing the assessee in the status of "body of individuals" for the assessment years 1965-66 to 1968-69. The ITO initially assessed the capital gains from the sale of properties by two brothers as an "association of persons". This assessment was overturned by the Appellate Assistant Commissioner (AAC) and the Tribunal, which held that the capital gains should be assessed in the hands of the individuals. The Tribunal's decision was upheld by the High Court in CIT v. Deghamwala Estates [1977] 109 ITR 416, which concluded that the two brothers were tenants-in-common and did not constitute an "association of persons". Subsequently, the ITO reassessed the income as a "body of individuals" u/s 147(a) of the Act. The Tribunal again held that the two brothers did not constitute a "body of individuals" and the assessment could not be sustained.

Issue 2: Sales of Properties and Status of Assessee
For the assessment year 1965-66, the two brothers sold properties in Madras and Gujarat. The ITO assessed the capital gains as an "association of persons", which was overturned by the AAC and the Tribunal. For the assessment year 1967-68, the two brothers sold another property in Gujarat, and the ITO assessed the capital gains as a "body of individuals". The Tribunal held that the two brothers did not constitute a "body of individuals" and the assessment could not be sustained. The High Court examined the definitions and principles related to "association of persons" and "body of individuals". It was held that an "association of persons" requires a common purpose or action to produce income, while a "body of individuals" requires a common tie or purpose but is distinct from an "association of persons". The court concluded that the mere execution of sale deeds by the two brothers did not constitute a "body of individuals" as there was no concerted action to earn capital gains.

Conclusion:
The High Court held that the assessee could not be assessed as a "body of individuals" and answered the question in the affirmative, in favor of the assessee. The assessee was entitled to costs, with counsel's fee set at Rs. 500.