1989 (5) TMI 144 - AT - Income Tax

Association Of Persons, Body Of Individuals, Capital Gains, Immovable Property, Lease Rent, Let Out, Movable Property, Rental Income

Summary

Issues:
Assessment in the status of "Association of Persons" or "Body of Individuals"

Detailed Analysis:
1. The appeal before the Appellate Tribunal ITAT MADRAS-B related to the assessment year 1981-82. The initial notice under sec. 148 was issued in the status of an "Association of persons," but the return was filed in the status of HUF. The contention was that the capital gains were not assessable in the hands of either the AOP or the HUF but were the separate share of each vendor. The AAC did not agree with the assessee's contentions.

2. The case involved a partition in 1937 among family members, resulting in a plot of land being shared among the sons of Kumaravelu Pillai. A sale deed was executed in 1981 involving the widows, sons, and other family members. The main issue was whether the capital gains from this transaction should be assessed in the status of an "AOP" or not.

3. The counsel for the assessee relied on legal precedents to argue that the vendors could not be assessed as an "AOP" as the property came to them by devolution. The argument was supported by the decision in CIT v. Indira Balkrishna and N.P. Saraswathi Ammal v. CIT. It was contended that the assessment in the status of an "AOP" should be quashed.

4. The Departmental Representative argued that since all vendors joined in executing the sale deed, there was an Association of Persons. The Departmental Representative cited the decision in Sevantilal Maneklal Sheth v. CIT to support the position that profits from the sale of an asset should be assessed in the hands of a single entity, regardless of the nature of the income.

5. The Tribunal analyzed the background of the case and observed that the vendors who inherited the property could not be considered an "AOP" with other family members. The concept of "Association of Persons" excluded those brought together by birth or death. Therefore, the assessment in the status of an "AOP" was not upheld.

6. The Tribunal then considered whether the vendors could be classified as a "Body of Individuals." Referring to the distinction between an AOP and a BOI, the Tribunal analyzed the nature of the income and activities of the family members. It was concluded that the vendors did not form a BOI as they merely continued to receive rental income from a leased property without engaging in active profit-making activities.

7. Consequently, the assessment in the status of an "AOP" was deemed unsustainable, and the status of "Body of Individuals" was also rejected. The assessment was canceled based on the findings.

8. The Tribunal did not address the contention regarding the change in status from AOP to BOI due to the cancellation of the assessment. The issue of the cost of acquisition was not discussed as the assessment was canceled.

9. Ultimately, the appeal was allowed in favor of the assessee based on the Tribunal's findings regarding the incorrect assessment status and the nature of income derived from the property transaction.