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TMI Blog2017 (2) TMI 927X X X X Extracts X X X X X X X X Extracts X X X X ..... wn free will and volition. Secondly, it is also necessary that such combination of individuals must be with a common purpose. There may be a common purpose to be carried forward by an H.U.F., but an individual becomes a member of the H.U.F., not on his own free will and volition, but by status and birth. The principles laid down by the Supreme Court in the case of Aneeta Hada (2012 (5) TMI 83 - SUPREME COURT OF INDIA ) will not apply in the case of a H.U.F. - Decided against the petitioner. - SPECIAL CRIMINAL APPLICATION (QUASHING) NO. 1970 of 2015 - - - Dated:- 31-1-2017 - MR. J.B.PARDIWALA FOR THE APPLICANT : MR.AMIT R JOSHI, ADVOCATE for FOR THE RESPONDENT : MR B S SOPARKAR, ADVOCATE ORAL JUDGMENT 1 By this writ application under Article 226 of the Constitution of India, the writ applicant has prayed for the following reliefs: 8(A) Your Lordships be please to quash and set aside the criminal case no.22 of 2014 pending before the learned Chief Judicial Magistrate Court, Patan in the interest of justice. (B) Pending hearing and final disposal of this application, Your Lordships be pleased to stay the further proceedings of the criminal case no. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that a H.U.F. is a legal entity and will constitute an association of individuals within the meaning of Section 141 of the N.I. Act. In such circumstances, according to the learned counsel, without impleading the H.U.F., as a legal entity or a juridical person as one of the accused in the complaint, the member / 'Karta' of the H.U.F. alone cannot be prosecuted for the offence punishable under Section 138 of the N.I. Act. 5 The learned counsel submitted that the 'Karta' of the H.U.F. is not the owner of the firm, and therefore, the H.U.F., a legal entity i.e. as an association of individuals, has got to be arraigned as an accused so as to make the prosecution of the members of the H.U.F. maintainable for the offence punishable under Section 138 of the N.I. Act. He submitted that the H.U.F., being a legal entity, is a juristic person and a separate entity from the coparcener. The 'Karta' of the H.U.F. exists because of the H.U.F. Otherwise, the 'Karta' has no legal existence, and the prosecution of the 'Karta' is not maintainable under Section 138 of the N.I. Act in the absence of the H.U.F. 6 The learned counsel submits that a H.U.F. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... constitute it. It may be that a member of a Hindu Undivided Family may continue to have certain personal rights and may be able to own property in his own right and enter into a contract in his own right but a Hindu Undivided Family is not like a company, partnership firm, Corporation or a limited concern and it cannot, therefore, be said that it has a legal entity distinct and separate from that of those who constitute it. 10 Mr. Davawala submits that a joint Hindu Family is a unit to which no outsider can be admitted by agreement; it is a status which can only be acquired by birth or by adoption and the head or 'Karta' of that family has certain rights and, while acting within those rights, he can bind every member of the family by his actions or deal with the join family property which, though it does not belong to him and belongs to all, he has been given the power to manager or dispose of, in the interest of the family. 11 Mr. Davawala submits that the principles laid down by the Supreme Court in the case of Aneeta Hada (supra) will have no application to the case at hand. He submits that Section 141 of the Act is concerned with the offences by the company. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e entity. Therefore, an H.U.F. enjoys all the deduction and exemptions as a separate assessee. The overall objective behind the formation of the H.U.F. is to save tax by having an extra benefit of slab rate, deductions and exemptions. Under Section 4 of the Income Tax Act, 1961, the income tax is payable by every person . Person includes a Hindu Undivided Family as defined in Section 2(31). The definition of Hindu Undivided Family is not found in the Income Tax Act. Therefore, the expression Hindu Undivided Family must be construed in the sense in which it is understood under the Hindu Law . [See: Surjit Lal Chhabda vs. CIT 101 ITR 776(SC)] The H.U.F. can be governed either by the Mitakshara Laws or by Dayabhaga Laws. All the H.U.F. to the exception of the State of West Bengal are governed by the Mitakshara Law. West Bengal follows the Dayabhaga system. 16 The Supreme Court in the case of Sathyaprema (supra) observed in paras 8, 9 and 10 as under: 8...The Hindu joint family consists of male members descending lineally from a common male ancestor, together with their mother, wives or windows and unmarried daughters bound together by the fundamental princi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... du undivided families but in the eye of the law it is a partnership between the two Kartas and the other members of the families do not 'ipso facto' become partners. There is, however, nothing to prevent the individual members of one Hindu undivided family from entering into a partnership with the individual members of another Hindu undivided family and in such a case it is a partnership between the individual members and it is wholly inappropriate to describe such a partnership as one between two Hindu undivided families. 18 A Division Bench of the Allahabad High Court in the case of Ram Kumar Ram Niwas Nanpara vs. Commissioner of Income Tax, U.P. and Ajmer Merwara, Lucknow [AIR 1953 Allahabad 150] considered the question whether a Hindu Undivided Family is a legal entity distinct and separate from that of the members who constitute it. The Court observed in para 11 as under: The next point for consideration is whether a Hindu undivided family as such has a legal entity distinct and separate from that of the members who constitute it. It may be that member of a Hindu undivided family may continue to have certain personal rights and may be able to own prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l property, such interest belongs to three successive generations in the male line (son, grandson, and great grandson) who inherit the ancestral property immediately on their birth in the family. Thus, the property inherited by a Hindu from his father, grandfather and great grandfather is regarded as his ancestral property. The Hindu Law Succession Act, 1956 has extended the line of coparcenary interest to female relatives of the deceased coparceners and male relative claiming through such female relatives. As the head of the joint family, the Karta has full control over business affairs of the family. He also acts as the custodian of the firm s assets. His liability is unlimited, whereas, the liability of coparceners is limited to the value of their individual interests in the joint ancestral property. The death or insolvency of a coparcener or even that of the Karta does not affect the life of the business of the family. However, an HUF firm can be dissolved through mutual agreement among all the coparceners. The main points of differences between a partnership and H.U.F. business are as follows. 1. Basis of formation A partnership arises out of a contract between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a partner. But the death, lunacy or insolvency of a coparcener does not affect an HUF. It continues to operate even after the death of a coparcener. ● CONCEPT OF AN ARTIFICIAL PERSON : 20 Every human being is a person in the eye of law. When a person is ordinarily understood to be a natural person, it only means a human being. But a person is also artificially created and recognised in law as such. Such persons are called in different names, such as juristic person , juridical person , legal entity etc., In some countries, even human beings were not treated as persons in law, for example, in Roman Law, a slave was not a person and he had no right to a family. In other words, he was treated like an animal. In French colonies also, before the slavery was abolished, the slaves were not treated as the legal persons. They were given legal status of person only through a statute during the later period. With the development of Society, cooperation among various sections of people became absolutely necessary for the well being of the humanity. Therefore, it became a natural necessity for the formation of institutions like the corporations and companies, etc. These ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rson receiving such entrustment to use it only for the purpose of such a juristic person. The endowment may be given for various purposes, may be for a church, idol, gurdwara or such other things that the human faculty may conceive of, out of faith and conscience but it gains the status of juristic person when it is recognised by the society as such. (Emphasis added) 22 Let me now look into Sections 138 and 141 of the Negotiable Instruments Act which proceed as follows: 138. Dishonour of cheque for insufficiency, etc., of funds in the account, Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Act and Section 11 of IPC is not exhaustive. It is hardly a definition. It is undoubtedly inclusive. The indication of the intention of the Legislature is to give wider sense so as to mean not only natural persons but to include artificial or juridical persons also, provided, such artificial or juridical person is a legal entity. For instance, an idol is a juridical person capable of owning property and is, therefore, a person . But, a proprietary concern is not a legal entity and so, it is not a person in terms of Section 11 of IPC. Similarly, a Hindu Undivided Family is a legal entity capable of owning property and, therefore, undoubtedly, such a HUF is a person as defined in Section 3(42) of the General Clauses Act and Section 11 of IPC. Therefore, for an offence committed by a HUF punishable under Section 138 of The Negotiable Instruments Act, the HUF can be prosecuted and punished. But, at the same time, since, the HUF is an artificial person, sentence of imprisonment can not be imposed on the HUF. [vide the judgment of a Constitution Bench of the Hon'ble Supreme Court in Standard Chartered Bank vs. Directorate of Enforcement (2005) 4 SCC 530=20052LW. (Crl) 658 ]. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ceiling area . If the ten coowners are considered as an 'association of persons' or 'body of individuals', and consequently as a 'person', then the ten coowners together as a person, will be entitled to only one unit of land which is the ceiling area per person. But if 'association of persons' or body of individuals is not a 'person', or if a coownership is not an association of person/body of individuals, then each coowner or the family of each coowner, as the case may be will be a separate 'person' having regard to the definition of person in section 2(21) of Ceiling Act, in which event, each family will be entitled to hold one unit of land. 23 The word 'person' is defined in the Act, but it is an inclusivedefinition, that is a person includes a joint family. Where the definition is an inclusive definition, the use of the word 'includes' indicates an intention to enlarge the meaning of the word used in the Statute. Consequently, the word must be construed as comprehending not only such things which they signify according to their natural import, but also those things which the interpretation clause declar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplies to all Gujarat Act unless there is anything repugnant in the subject or the context. The inclusive definition of 'person' in section 2(21) of the Ceiling Act, does not indicate anything repugnant to the definition of 'person' in General Clauses Act, but merely adds 'joint family' to the existing definition. Therefore the definition of person in the Ceiling Act, would include the definition of person in section 3(35) of General Clauses Act. The resultant position can be stated thus : The definition of person in General Clauses Act, being an inclusive definition, would include the ordinary, popular and general meaning and those specifically included in the definition. The inclusive definition of 'person' in the Ceiling Act, in the absence of any exclusion, would have the same meaning assigned to the word in the General Clauses Act, and in addition, a joint family' as defined. Thus, the word 'person' in the Ceiling Act will, unless the context otherwise requires, refer to : (i) a natural human being, (ii) any legal entity which is capable of possessing rights and duties, including any company or association of person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y one person only for the purpose of determining the ceiling limit for each member of a family. It may indirectly have the effect of disabling a member of a family from holding land upto the prescribed ceiling limit for a person holding as an individual. In other words, the result is that such a member of a family will have to be content with a holding less than that of an unmarried individual. It has the effect of making it clear that what have to be grouped together are the separate properties of individuals belonging to families other than what are joint families , in law. It takes in and applies to members of families other than undivided Hindu families. It means that married persons and their minor children will have to be viewed as though they hold one lot together even though they retain their separate legal personalities and remain competent owners of their separate holdings. It does not affect either their legal status or competence. It does reduce their individual holdings. 29 In South Gujarat Roofing Tiles Manufactures Association and another vs. the State of Gujarat and another, (1976) 4 SCC 601, the Supreme Court has held that though the word include is ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not desirable from any point of view whatever. Each case must be decided upon its own peculiar facts and circumstances. When we find, as we do find in this case, that there is a combination of persons formed for the promotion of a joint enterprise banded together if I may so put it, coadventures, to use an archaic expression, then I think no difficulty whatever arises in the way of saying that in this particular case these four persons did constitute an 'association of individuals' within the meaning of both S. 3 and S. 55, Incometax Act, 1922. 32 The views taken in decisions reported in Mufti Mohammad Aslam vs. Commissioner of Incometax, U. P., 19364 ITR 412 : (AIR 1936 All 817) (C); In the matter of Keshardas Chamria, 19375 ITR 246 : (AIR 1937 Cal 583) (D) and Mohamad Abdul Kareem and Co. vs. Commissioner of Incometax, Madras, 194816 ITR 412 : (AIR 1949 Mad 509) (E) have gone still further and held that the expression association of persons should be read ejusdem generis with the word firm immediately preceding it; and before there can be an association of individuals within the meaning of the Act it must be shown that the association has at leas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 37 The Supreme Court in the case of Ramanlal Bhailal Patel (supra) in context with the provisions of the Gujarat Agricultural Lands Ceiling Act, 1960 (27 of 1961) considered an important question whether the coowners are together a person . The Supreme Court explained the terms association of persons and body of individuals . I may quote the relevant paras as under: 27 When several persons acquire undivided shares (as contrasted from defined portions) in a property, either equal or unequal, they become coowners of the property; or where an owner of a property transfers a share in the property to another, the transferee becomes a coowner along with the original owner. To be termed as coowners, the right of each owner should be coordinate with the other 'owners'. If the right of one is higher in degree than that of the other, there is no coownership. For example, a mortgagor and mortgagee are not coowners. A lessor and lessee are not coowners. Whether the shares are equal or not, each coowner is entitled to be in possession of every part of the property, jointly with the other coowners. In Sri Ram Pasricha v. Jagannath [AIR 1976 SC 2335] , this Court observed : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ine whether a group or set of persons is an association of persons or body of individuals with reference to a particular statute. For example, when the said terms 'association of persons' or 'body of individuals' occur in a section which imposes a tax on income, the association must be one the object of which is to produce income, profit or gain, [vide : Commissioner of Income Tax vs. Indira Balkrishna (AIR 1960 SC 1172), Mohammed Noorulla vs. Commissioner of Income Tax, Madras (AIR 1961 SC 1043), M.V. Shanmugam vs. Commissioner of Income Tax, Madras (AIR 1970 SC 1707) and Meera and Company vs. Commissioner of Income Tax, 1997 (4) SCC 677). But the object need not always be to carry on commercial or business activity. For example, when the word 'person' occurs in a statute relating to agriculture or ceiling on land holding, the term 'association of persons/body of individuals' may refer to a combination of individuals who join together to acquire and own land as coowners and carry on agricultural operations as a joint enterprise. 29 Normally, where a group of persons have not become coowners by their volition with a common purpose, they can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Section which imposes a tax on income, the association must be one the object of which is to produce income, profits or gains . 14 There is no specification in the Explanation (a) to Section 141 of the Act as to whether the words other association of individuals should be in relation to a business enterprise or a business deal. The intendment of these words can be gathered by examining in which context those words were employed. In order to have clear picture of this aspect, it is also necessary to examine in what context the words company and firm are employed in the Section. These words associate with business enterprises. Thereby when the words association of individuals are employed in the Explanation as per the legislative intendment those words should be taken to have same connotation with the other words subject to their ambit. This emphasizes that the very same words cannot be taken as meant just an association of individuals formed for any other purpose also in the present context. 15 The MoU was executed between all the accused on one hand and the complainant on the other with reference to the payment of rents for the buildings. Can that be termed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : and in re. Dwarkanath Harishchandra, 19375 ITR 716 : (AIR 1938 Bom 353) . In 19353 ITR 408 (Cal ) Derbyshire, C. J. rightly pointed out that the word associate means, according to the Oxford dictionary, to join in common purpose, or to joint in an action. Therefore, an association of persons must be one in which two or more persons join in a common purpose or common action, and as the words occur in a section which imposes a tax on income, the association must be on the object of which is to produce income, profits or gains. This was the view expressed by Beaumout, C. J. in 19375 ITR 584 (Bom) at p. 589 and also in 19375 ITR 76 : (AIR 1938 Bom 353) . In 19353 ITR 408 (Cal ) Costella, J. put the test in more forceful language. He said : It may well be that the intention of the legislature was to hit combinations of individuals who were engaged together in some joint enterprise but did not in law constitute partnership.....When we find....that there is a combination of persons formed for the promotion of a joint enterprise....then I think no difficulty arises in the way of saying that these persons did constitute an association....... 10. We think that the afore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Pradesh observed in paras 10 and 11 as under: 10 A reading of Explanation (1) indicates that the express company shall mean a body corporate and includes a firm or other association of individuals. The term other association of individuals cannot be understood to refer even to informal understandings between individuals. It has to be understood in the context of body corporate and partnership firms. The principles of ejusdem generis gets attracted in such case. The association of individuals should be of similar nature as companies and partnership firms. 11 Apart from companies and partnership firms, the law provides for registration of association of individuals such as those under the Societies Registration Act. The reference can be only to such association of individuals and not any other loosely knitted, uncertain and amoebic gatherings. In fact, to hold an individual responsible in the absence of such a process of registration or incorporation would just be next to impossibility, Conversely, if such a procedure is permitted, even third parties can be held liable though they do not have any legal or other relationships with such unincorporated and unregist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quote at the cost of repetition the observations of the Supreme Court in the case of Commissioner of Income Tax, Bombay North, Kutch and Saurashtra (supra) as under: There is no formula of universal application as to what facts, how many of them and of what nature, are necessary to come to a conclusion that there is an association of persons within the meaning of S. 3; it must depend on the particular facts and circumstances of each case as to whether the conclusion can be drawn or not. 46 The view taken by the Madras High Court in the case of Arpit Jhanwar (supra) is quite commendable and I am in agreement with the reasonings assigned in the said judgment. 47 Let me now look into the decision of the Bombay High Court in the case of Dadasaheb Rawal (supra) on which strong reliance is placed by the learned counsel appearing for the applicant. The learned Single Judge of the Bombay High Court in the case of Dadasaheb Rawal (supra) observed in paras 7, 8, 9, 10 and 11 as under: 7. It is well settled that in a joint family business, no member of the family can say that he or she is the owner to the extent of any particular share in the profits and assets. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the allegations read as a whole, should fulfill its requirements. 11. Section 141 is comprehensive. It would cover all types of business organisations which are shown therein. The definition is inclusive and is used to convey something more than what is defined Consequently, the term association of individuals will include Hindu Undivided Family of which the business is said to be a joint concern. Section 138 of the Negotiable Instruments Act, 1881 is enacted in order to safeguard the credibility of commercial transactions and to prevent bouncing of cheques by providing personal liability against the drawer of the cheque. In case of a cheque issued by the firm, the drawer of the cheque is the firm. In case of cheque issued by the business firm of Joint Hindu Family, all the members can be roped into as the drawers of the cheques though signatory is one of them. Under these circumstances, the impugned order is unsustainable. The learned Sessions Judge failed to see that quashing of the process at the premature stage was not called for in view of the Explanation appended to Section 141 of the Negotiable Instruments Act. In any case, at such a premature stage, the process ..... X X X X Extracts X X X X X X X X Extracts X X X X
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