1988 (2) TMI 110 - AT - Income Tax

Summary

Issues:
1. Whether the assessment of lottery prize as income of an Association of Persons (AOP) was valid.
2. Whether minors can form an AOP for tax assessment purposes.

Analysis:

Issue 1: Validity of AOP Assessment
The case involved minors winning a lottery prize, which was assessed by the Income Tax Officer (ITO) as income of an AOP comprising the minors. The ITO based the assessment on the premise that there was a chain activity involved in claiming the lottery prize, thus constituting an AOP. The Assistant Commissioner of Income Tax (AAC) annulled the assessment, citing a precedent from the Madras Bench of the Tribunal. The Revenue appealed this decision before the ITAT. The Senior Departmental Representative argued in favor of the ITO's assessment, emphasizing the chain of activities involved in earning the lottery amount. However, the counsel for the assessee contended that the purchase of a lottery ticket did not involve an enterprise to produce income, relying on legal precedents such as the judgment of the Supreme Court in CIT vs. Indira Balkrishna. The ITAT, after considering the arguments, held that the mere purchase of a lottery ticket did not constitute an enterprise as defined in legal terms. The ITAT agreed with the view that the minors could not form an AOP for winning a lottery prize, as it did not involve a joint enterprise to produce income. Therefore, the ITAT dismissed the Revenue's appeal, upholding the AAC's decision to annul the assessment.

Issue 2: Minors' Capacity to Form AOP
The ITAT referenced legal precedents to establish that minors can indeed form an AOP. Citing the judgment of the Patna High Court in Mahendra Kumar Agrawalla vs. ITO & Ors., it was noted that even minors are capable of exercising volition to associate themselves to produce income and form an AOP. The ITAT further explained that in cases involving minors, their volition is exercised by their natural guardians or the Court of Wards in their best interest. However, in the context of the lottery prize case, the ITAT concluded that the joint purchase of lottery tickets by minors did not meet the criteria of forming an AOP as it did not involve a joint enterprise to produce income. The ITAT's decision was in line with the legal principles outlined in the judgment of the Supreme Court in CIT vs. Indira Balkrishna & Ors. and the dictionary definition of 'enterprise.' Thus, the ITAT affirmed that the minors in this case could not be considered to have formed an AOP for tax assessment purposes.

In conclusion, the ITAT dismissed the Revenue's appeal, upholding the annulment of the assessment by the AAC. The judgment clarified the legal principles regarding the formation of an AOP and the capacity of minors to engage in such associations for tax purposes.