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TMI Blog1967 (7) TMI 57X X X X Extracts X X X X X X X X Extracts X X X X ..... ons. Originally there was a Hindu undivided family consisting of a father and six sons. A partition of the family took place on December 10, 1955, and one of the assets included in the partition was Sri Mahalakshmi Boiled Rice and Oil Mill at Ullamparru. The said mill consisted of lands, buildings, machinery, etc. Though it could not be, and was not, divided by metes and bounds between the seven members of the family, each one of them was allotted and became entitled to 1/7th share in it. One of the sons was a Government servant. The father and the remaining 5 sons constituted themselves into a firm, took the mill, that is, the buildings, machinery, etc., on lease from the seven members and ran the business of the rice and oil mill. There was no written lease agreement. It is also stated before us, and it is not denied by the department, that the rent was paid by the firm to the 7 co-owners, i.e., the father and the 6 sons, by 1/7th share of the rent being separately credited to the individual accounts of the 7 co-owners. The Income tax Officer, however, assessed the rent in the hands of the 7 members in the status of an association of persons and determined the net income of tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not define "association of persons". Section 9 of the Act is the section which provides for levying of tax on income from property. Section 9(1) of the Act provides that the tax shall be payable by an assessee under the head " income from property " in respect of the bona fide annual value of property consisting of any buildings or lands appurtenant thereto of which he is the owner, other than such portions of such property as he may occupy for the purposes of any business, profession or vocation carried on by him, the profits of which are assessable to tax and makes the levy of tax subject to certain allowances enumerated therein. Sub-section (3) of section 9 of the Act specifically lays down that : " Where property is owned by two or more persons and their respective shares are definite and ascertainable, such persons shall not in respect of such property be assessed as an association of persons, but the share of each such person in the income from the property as computed in accordance with this section shall be included in his total income." In view of these provisions, it is clear that where a property is owned by two or more persons and their respective shares are def ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the 7 owners. Thus, the lessee-firm consisting of six partners became a different and distinct entity from the 7 co-owners of the mill, though the 6 partners of the lessee-firm were also six of the co-owners of the mill. It was also asserted on behalf of the assessee and admitted on behalf of the department, before us, that a regular order under section 25A of the Act was passed by the department recognising the partition. Section 25A of the Act says that, if the Income-tax Officer is satisfied that the joint family property has been partitioned among the members or groups of members, in definite portions; he shall record an order to that effect. When that was done, the factum of partition of the 7 erstwhile coparceners holding the property as co-owners cannot be questioned. The factum of partition has become final and cannot any further be questioned. It was also asserted before us by the learned counsel for the assessee that the rent paid by the lessee-firm was being credited in the accounts to the 7 co-owners separately with the amounts representing their respective 1/7th shares of the total rent. In view of these findings and undisputed facts we cannot but hold that the respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f persons within the meaning of section 3 of the Income-tax Act. " It is to be noted that in this case before the Supreme Court, the widows took the properties as joint tenants and no one of them had a right to enforce an absolute partition of the estate against the other co-widows, so as to destroy their right of survivorship, though they were entitled to obtain partition of separate portions of property, so that each might enjoy her share of the income therefrom. Even in those circumstances the Supreme Court held that section 9(3) of the Act applied in regard to the income from the immovable property since the co-widows had an equal share in the income. The present case before us is a much stronger case. The father and six sons actually divided their properties including the assets of the mill. That partition was recognised by the department under section 25A of the Act. They now hold the property as only co-owners or tenants-in-common. Each co-owner's 1/7th share in the property is definite and ascertainable and each one of the 7 sharers was receiving his 1/7th share of the rental income separately. Under the circumstances, we have no doubt whatever, that the principle laid do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties, it is obvious, is that they did not want to create a new association of lessors. The leasing out of the mill was only an act of ownership. Receipt of the rent separately is another clear indication of their intention to act separately in the exercise of their ownership of the mill. As has been graphically stated by Rowlatt J. in Graham v. Green at page 312: " But then there is no doubt that if you set on foot an organised seeking after emoluments which are not in themselves profits, you may create, by way of a trade or an adventure or a vocation, a subject matter which does bear fruit in the shape of profits or gains. Really a different conception arises, a conception of a trade or vocation which differs in its nature, in my judgment, from the individual acts which go to build it up, just as a bundle differs from odd sticks. You may say, I think, without perhaps an abuse of language, there is something organic about the whole which does not exist in its separate parts. As stated above, on the facts found by the Tribunal, we have no doubt whatever that there is no association of persons in this case, which does not exist in its separate parts and whose object it is to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on " business". "Business" can only mean a systematic or organised course of activity with the purpose of making a profit or gain. As has been observed by the Supreme Court in Narain Swadeshi Weaving Mills v. Commissioner of Excess Profits Tax, the word "business" connotes some real, substantial and systematic or organised course of activity or conduct with a set purpose. The Supreme Court in that case was considering whether the letting out of the plant, machinery, etc., would fall within the definition of business and held as follows : " Applying also the common sense principle to the facts so found, it is impossible to hold that the letting out of the plant, machinery, etc., was at all a business operation when its normal business activity had come to a close. It is interesting to note that sub-sections (3) and (4) of section 12 of the Indian Income-tax Act recognise that letting out of plant, machinery, etc., may be a source of income falling under the head 'other sources' within that section and not necessarily under the head 'business' dealt with in section 10 of the Act. In the facts and circumstances of this case, therefore, the letting out of the plant, machinery, etc., ..... X X X X Extracts X X X X X X X X Extracts X X X X
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