1960 (4) TMI 7 - SC - Income Tax

Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the assessment made on the three widows of Balkrishna Purushottam Purani in the status of an association of persons is legal and valid in law ? Held that - There is no finding that the three widows have combined in a joint enterprise to produce income. The only finding is that they have not exercised their right to separate enjoyment, and except for receiving the dividends and interest jointly, it has been found that they have done no act which has helped to produce income in respect of the shares and deposits. On these findings it cannot be held that the three widows had the status of an association of persons within the meaning of section 3 of the Indian Income-tax Act. The High Court correctly answered question No. 3 in the negative. Appeal dismissed.

Issues Involved:

1. Whether the assessment of the three widows as an "association of persons" is legal and valid under the Income-tax Act.
2. The applicability of Section 9(3) of the Income-tax Act, 1922, regarding the assessment of income from property.
3. The criteria for determining an "association of persons" under the Income-tax Act.

Issue-wise Detailed Analysis:

1. Assessment as an "Association of Persons":

The primary issue in this case was whether the three widows of the deceased Balkrishna Purushottam Purani could be assessed as an "association of persons" for tax purposes. The Income-tax Officer had assessed the widows in this status, which was challenged by the widows. The Tribunal upheld the assessment, stating that the widows inherited and possessed the estate as joint tenants, thus constituting an "association of persons." However, the High Court disagreed, concluding that the widows could not be assessed as an "association of persons" merely because they inherited the estate as co-heirs. The High Court emphasized that for an association of persons to be liable to tax, there must be a joint effort to earn income, which was not evident in this case. The Supreme Court upheld the High Court's view, noting that the widows did not engage in any joint enterprise to earn income, thus failing to meet the criteria for an "association of persons."

2. Applicability of Section 9(3) of the Income-tax Act, 1922:

The second issue was whether the income from the property should be assessed separately in the hands of the three widows according to Section 9(3) of the Income-tax Act, 1922. The Appellate Assistant Commissioner had accepted this argument, but the Tribunal disagreed, asserting that the widows' shares were not definite and determinable. The Supreme Court found that the Tribunal erred in this regard, as the widows had an equal share in the income, making their shares definite and ascertainable. Therefore, Section 9(3) applied to the immovable property, and the income should be assessed separately for each widow.

3. Criteria for Determining an "Association of Persons":

The case also explored the criteria for determining what constitutes an "association of persons" under the Income-tax Act. The Supreme Court noted that the Act does not define this term, requiring interpretation based on context. The Court referred to previous judgments, emphasizing that an "association of persons" involves individuals joining in a common purpose or action to produce income. The Court rejected the appellant's argument that a common source of income suffices to establish an association, instead focusing on the need for a joint enterprise or action. The Court highlighted that the widows did not engage in any joint management or effort to produce income, particularly regarding dividends and interest, which were received individually. Thus, the widows did not meet the criteria for an "association of persons."

Conclusion:

The Supreme Court concluded that the High Court correctly answered the question regarding the status of the widows as an "association of persons" in the negative. The appeals by the Commissioner of Income-tax were dismissed, affirming that the widows should not be assessed as an "association of persons," and that the income from the property should be assessed separately under Section 9(3) of the Income-tax Act, 1922.

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