1970 (4) TMI 27 - SC - Income Tax

AOP - dissolution of firm - erstwhile partners carried on the business through their representatives and the profits were earned from a business carried on by an association of person - profits realised by the receivers on behalf of the erstwhile partners are profits of an association of persons - Assessee s appeal dismissed

Issues Involved:
1. Whether the income of the business in snuff could be assessed on the receivers as an "association of persons" under section 10 or section 41 of the Indian Income-tax Act, 1922.

Issue-wise Detailed Analysis:

1. Nature of the Receivers' Role and Assessment:
The primary issue was whether the profits earned from the snuff business should be considered as profits earned by an "association of persons" or by individuals. The court clarified that the receivers appointed by the court were merely representatives of the real owners of the business, i.e., the erstwhile partners of the firm. The primary liability to pay the tax was that of the real owners, and the tax could be levied and recovered from the receivers under section 41(1) of the Act. The receivers were only representative assessees, and the fact that there were three receivers did not make them an association of receivers. The receivers jointly represented the real owners, and there was no question of assessing the receivers as an "association of persons."

2. Application of Section 41 of the Act:
Section 41 of the Act does not impose any separate charge but empowers the revenue to levy and collect a tax due from a person or persons from their representatives. The liability of the receivers arose under section 41 read with section 10. The Tribunal sought the High Court's opinion on whether the profits should be considered as earned by an "association of persons" or by individuals.

3. Contentions of the Assessee's Counsel:
The counsel for the assessee argued that the liability of receivers is co-extensive with that of the beneficiaries and cannot be larger or wider. The assessment of the receivers should have been on the same basis as the erstwhile partners of the firm. The business could not have been conducted by the erstwhile partners as an "association of persons" due to their conflicting interests. The term "association of persons" implies an association where two or more persons voluntarily join in a "common purpose" or "common action."

4. Court's Analysis and Decision:
The court rejected the contentions of the assessee's counsel, stating that the business was carried on by the receivers on behalf of the erstwhile partners, and the control and management of the business were unified. The receivers acted jointly and represented the owners of the business. The profits were earned on behalf of an "association of persons," created by the court's order. The existence of specific or defined interests in the profits did not negate the fact that the earnings were by an "association of persons."

5. Precedents and Legal Interpretations:
The court referred to previous decisions to clarify the meaning of "association of persons." In Commissioner of Income-tax v. Indira Balkrishna, the term was interpreted to mean an association where two or more persons join in a common purpose or action to produce income, profits, or gains. The court noted that the business was continued with the consent of all owners, and the profits were earned on behalf of all of them, thus constituting an "association of persons."

6. Final Judgment:
The court concluded that the profits in question were earned from a business carried on by an "association of persons." The appeals were dismissed with costs, and the judgment of the High Court was upheld.

Conclusion:
The Supreme Court held that the profits earned from the snuff business were to be assessed as income of an "association of persons" under section 10 of the Indian Income-tax Act, 1922, and not as individual income. The receivers were representative assessees, and their role did not change the nature of the business's income. The appeals were dismissed, affirming the High Court's decision.

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