1966 (6) TMI 4 - HC - Income Tax

Collection of the entire income from the estate by one of the sharers or even by a common employee could not make their income an income from a joint venture - each of the sharers got his income as an individual. They could not, therefore, be assessed as an association of individuals

Issues Involved:
1. Classification of income derived from the estate: whether it should be assessed as income derived by an association of individuals or by tenants-in-common.
2. Applicability of Section 3(3) and Section 10(1)(a) of the Mysore Agricultural Income-tax Act to the assessment.
3. Validity of the refusal of registration under Section 29 of the Act.
4. Interpretation of the term "association of individuals" under Section 2(1)(p) of the Act.

Detailed Analysis:

1. Classification of Income:
The primary issue was whether the income derived from the estate of the deceased testator should be assessed as income derived by an association of individuals or by tenants-in-common. The Agricultural Income-tax Officer assessed the income as derived by an association of individuals, while the legatees contended that it should be assessed as income derived by tenants-in-common.

2. Applicability of Section 3(3) and Section 10(1)(a):
- Section 3(3): The petitioner argued that the income should be assessed under Section 3(3) of the Mysore Agricultural Income-tax Act, which states: "In the case of persons holding property as tenants-in-common and deriving agricultural income, the tax shall be assessed at the rate applicable to the agricultural income of each tenant-in-common." The court agreed, stating that the widow, sons, and daughters of the testator became tenants-in-common in respect of the property bequeathed to them. The property was held in specific shares, and until partition by metes and bounds, they enjoyed the status of tenants-in-common. The court concluded that the Income-tax Officer should have assessed the individual income of each tenant-in-common.

- Section 10(1)(a): The court also considered Section 10(1)(a), which provides that where agricultural income is derived from a property managed by a manager appointed by written agreement, the tax shall be levied upon and recoverable from the person on whose behalf such agricultural income is receivable. The eldest son of the testator was appointed as the manager by agreement, and therefore, the income of each person entitled to receive such income should be assessed individually.

3. Refusal of Registration under Section 29:
The Income-tax Officer refused the certificate of registration under Section 29 on the grounds that there was no partnership. This refusal became final, and the limited contention before the Deputy Commissioner and the Commissioner was that the income should have been assessed as derived by tenants-in-common. The court did not delve further into this issue since the refusal of registration was not the primary focus of the writ petition.

4. Interpretation of "Association of Individuals":
The court examined whether the legatees, along with the sons-in-law, constituted an "association of individuals" under Section 2(1)(p) of the Act. The term "association of individuals" is defined as a combination of persons who unite for the accomplishment or promotion of a particular purpose or aim, especially for the production of income or gain. The court referred to the Supreme Court's elucidation in Commissioner of Agricultural Income-tax v. Raja Patan Gopal, which defined an association of persons as one where individuals join in a common purpose or action to produce income, profits, or gains.

The court concluded that there was no such union of persons in this case. The legatees were merely implementing the provisions of the will by appointing the eldest son as the manager. The arrangement was for the collection and distribution of income in accordance with the will, not for the acquisition of gain or production of income. Therefore, the legatees and sons-in-law did not form an association of individuals.

Conclusion:
The court set aside the assessments made by the Income-tax Officer and the orders of the Deputy Commissioner and the Commissioner of Income-tax, who had confirmed them. The court directed that fresh assessments be made in accordance with the law, specifically under Section 3(3) and Section 10(1)(a) of the Mysore Agricultural Income-tax Act. The petitioner was entitled to costs in the writ petition, with an advocate's fee of Rs. 250.

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