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TMI Blog1984 (12) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... ence as a result of the agreement dated 1-4-1977. 2. Before we adjudicate upon the arguments for and against the contentions of the assessee, we might briefly state the facts and reproduce the agreement in question dated1-4-1977. 3. Till the assessment year 1977-78 (accounting year ended on31-3-1977) Balwant Singh Bawa was carrying on the business in the manufacture and sale of stainless steel articles and hospital equipments under the name and style of Junu Rubber General Industries at New Rohtak Road Industrial Area,New Delhi. On1-4-1977he entered into an agreement with his brother, namely Gurbachan Singh Bawa. As per the preamble the necessity for entering into the agreement arose on account of indifferent health of Balwant Singh Bawa and on account of preoccupation with certain litigation which was going on inMadras. It was, accordingly, decided between the two parties, namely, the assessee and his brother that the affairs of Junu Rubber General Industries would be managed and looked after by Gurbachan Singh Bawa for 'mutual common advantage' on the following terms and conditions : "1. That this deed of agreement shall be deemed to have come into effect from1st April, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd CIT v. Panipat Woollen General Mills Co. Ltd. [1976] 103 ITR 66. After so holding the ITO held that the loss suffered by the AOP was to be considered separately in its own assessment and could not be considered in the hands of the assessee. This finding of the ITO had been upheld by the Commissioner (Appeals). After analysing the terms of the agreement dated1-4-1977the Commissioner (Appeals) held that it was a case of joint venture between Balwant Singh Bawa and Gurbachan Singh Bawa and that the finding of the ITO was duly supported by the decision of the Hon'ble Supreme Court in the case of Panipat Woollen General Mills Co. Ltd. 4. It is in the background of the aforementioned facts that the assessee is in appeal. Shri R. Ganeshan, the learned counsel of the assessee has taken us through the agreement and then contended that the relationship that was created between Balwant Singh Bawa and Gurbachan Singh Bawa as a result of the agreement was that of a principal and an agent. According to him, the present case was akin to the case of managing agent who agrees to share the losses in the event of managed company suffering them. The substance of the agreement, according to Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as in a partnership the profit and loss arising from the business was to be divided and/or borne by the two parties in equal proportions. According to the learned departmental representative the mere fact that the second party to the agreement, i.e., Gurbachan Singh Bawa had not been given any rights in the assets of the firm or joint venture did not militate against the finding of the ITO and the Commissioner (Appeals) that the business had been carried on as a joint venture between 1-4-1977 and 22-9-1977. Shri Malhotra has submitted that all the traits of an AOP were present and the decision of the lower authorities was unassailable being based on the decision of the Hon'ble Supreme Court in the case of Panipat Woollen General Mills Ltd. 6. We have very carefully considered the rival submissions ably made by Shri Ganeshan, the learned authorised counsel of the assessee and Shri Malhotra, the learned departmental representative. We have equally carefully gone through the authorities of the Hon'ble Supreme Court relied upon on the two sides. We have very minutely perused the agreement dated 1-4-1977 and we find therefrom that the business erstwhile carried on by the assessee B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of a private limited company which had various objects including that of acting as agents for the Governments or authorities or for any joint stock companies. In April 1920 it had been appointed as an agent of D.B.R.M. Co. Ltd. under an agreement. The terms of the agreement provided that the general management of the business of the company was to be looked after by the agents subject to the control and supervision of the directors of D.B.R.M.Co.Ltd. The directors of the abovenamed mills were entitled to give such directions to the agents in regard to the management of the business as they considered necessary. The assessee agents were entitled by way of commission to a certain percentage on the sale profits effected by D.B.R.M. Co. Ltd. In these facts and circumstances, the question arose as to whether the agents of the abovenamed company were merely servants of the company or were carrying on any business. It was held by their Lordships of the Supreme Court that the activities of the agents constituted a business and the remuneration which was received by them under the terms of the agency agreement was liable to excess profit tax. According to us this decision of the Hon'ble S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad been laid down by their Lordships of the Supreme Court as to when an arrangement amounts to an 'association of persons' also go against the case of the assessee. We have in particular gone through those particular pages of the citation on which the learned counsel placed great emphasis but we have not been able to discern any support that can be provided to the case of the assessee from these two decisions. There is a catena of decisions of the Hon'ble Supreme Court as to when a combination of persons can be said to be an AOP within the meaning of section 2(31)(v) of the Income-tax Act, 1961 or similar provisions of the Indian Income-tax Act, 1922. The law has been uniformly reiterated and it is to the effect that an AOP comes into existence when two or more persons joined hands for a common purpose or for common action, the object of which is to produce income, profits or gains. If these guidelines laid down by the Hon'ble Supreme Court were to be applied to the facts of the present case, it would immediately appear that here also was a combination of two brothers who had joined hands in the given circumstances to form a combination for 'mutual common advantage'. The profits or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Woollen General Industries Co. Ltd. and that the contract of agency was nothing but a sort of partnership. The facts in the above case have a striking resemblance to the facts in the case presently before us and, therefore, according to us the conclusion is inescapable that it was a case of a joint venture or an AOP between the assessee and his brother during the period1-4-1977to22-9-1977. There is no substance in the argument of the learned counsel that there was in fact no joining of hands between Balwant Singh Bawa and Gurbachan Singh Bawa. We find from the agreement of the joint venture that while the day-to-day management of the business was to be looked after by Gurbachan Singh Bawa for mutual common advantage, the finances had to be arranged by Balwant Singh Bawa, i.e., the assessee, and he was also in charge of operating bank accounts of the joint venture. There was, therefore, joining of hands for exploiting the business to the 'mutual common advantage' of the two parties of the agreement and, therefore, the argument of the learned counsel that Balwant Singh Bawa had dissociated himself from business is not acceptable to us. In the above view of the matter, the treatme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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