1992 (1) TMI 168 - AT - Income Tax

Summary

Issues:
1. Whether the co-owners of a rice mill, who leased out the property jointly, should be considered an association of persons for tax assessment purposes.
2. Whether the lease income derived from the joint property should be taxed collectively or separately in the hands of each co-owner.

Analysis:
1. The appeal involved the assessment year 1983-84 of a rice mill jointly owned by six co-owners. The Income Tax Officer (ITO) treated the co-owners as an association of persons and taxed the lease amount in their collective hands. The Appellate Tribunal disagreed, citing a similar case where the Madras High Court ruled that joint ownership and leasing of property do not automatically establish an association of persons. The Tribunal emphasized that common ownership alone does not imply a common purpose or action. The Tribunal concluded that the co-owners did not engage in a joint venture or common activity, and thus, should not be taxed as an association of persons.

2. The Tribunal further analyzed the lease agreement and distribution of lease income among the co-owners. The lease amount was to be paid in instalments and distributed among the co-owners based on their respective shares. The Tribunal noted that the lease deed was executed for convenience, and each co-owner could have individually leased out their share. The Tribunal highlighted that the co-owners' agent was responsible for distributing the lease amount according to their shares, indicating separate interests. Drawing from the Madras High Court decision, the Tribunal ruled that the lease income should be taxed in the individual hands of each co-owner based on their distinct shares. Therefore, the entire lease amount should not be collectively taxed, and the appeal by the assessee was allowed.