1972 (4) TMI 10 - HC - Income Tax

Summary

Issues Involved:
1. Whether the assessment of the income of the entire property in the hands of the assessee as the income of an association of individuals is correct.
2. Whether the petitioner should be assessed as an individual in respect of the income arising only out of his share of the property.

Detailed Analysis:

Issue 1: Assessment as an Association of Individuals
The primary question was whether the assessee, his wife, and sons, after partitioning their properties, constituted an "association of individuals" for tax purposes. The relevant legal framework includes Section 3 of the Orissa Agricultural Income-tax Act, 1947, which imposes tax on the total agricultural income of every person, and Section 2(i) which defines "person" to include an association of individuals.

The court examined precedents to determine the meaning of "association of individuals." In Commissioner of Income-tax v. Indira Balkrishna, the Supreme Court held that an association of persons must involve individuals joining in a common purpose or action to produce income. Similarly, in Mohamed Noorullah v. Commissioner of Income-tax, the court found that the continuation of a business by heirs with unitary control constituted an association of persons.

However, in State of Madras v. Subramania Iyer, the Madras High Court ruled that merely managing and cultivating lands together without an inter se agreement among the owners for common exploitation does not form an association of individuals. This principle was applied to the current case, where the court found no evidence that the assessee's wife and sons had agreed to jointly exploit their lands for common benefit.

The court also referenced Commissioner of Agricultural Income-tax v. Raja Ratan Gopal, where the Supreme Court held that heirs receiving income from an estate without forming a unit for joint enterprise did not constitute an association of individuals.

In Commissioner of Agricultural Income-tax v. M. L. Bagla, the Supreme Court assumed an association of individuals but held that they did not hold the property in a manner that would subject them to tax as an association.

Based on these precedents, the court concluded that the assessee, his wife, and sons did not form an association of individuals because there was no agreement among them for common exploitation of their lands.

Issue 2: Assessment as an Individual
The second issue was whether the petitioner should be assessed individually for the income arising from his share of the property. Given the finding that the assessee and his family did not constitute an association of individuals, the court held that the income arising from the assessee's share of the property should be assessed individually.

Conclusion:
1. The assessee, his wife, and sons do not constitute an "association of individuals" as there was no inter se agreement for common exploitation of their lands.
2. The petitioner should be assessed as an individual for the income arising from his share of the property.

The reference applications were allowed with costs, and the reframed questions were answered accordingly: Question (i) in the negative and Question (ii) in the positive.