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TMI Blog1965 (11) TMI 155X X X X Extracts X X X X X X X X Extracts X X X X ..... rge of the assets and liabilities of the partnership and for conducting the business for the beneficial winding up thereof. The plaint proceeded on the basis that after August 31, 1955, it was not found possible to come to any arrangement with reference to further continuance of the partnership firm. It appears that the first defendant was the managing partner of the firm between August 1, 1948, and August 31, 1952, and that thereafter Ramiah Nadar himself became the managing partner up to August 31, 1955. It is not necessary for purposes of this reference to refer to the averments and counter averments in the pleadings in that suit. It will suffice to say that between September 1 and September 21, 1956, the firm's business came to a standstill. By an order of the City Civil Court dated September 21, 1956, S.P. Ramiah Nadar, S.P. Shanmugam, another partner of the firm, who figured as the second defendant in that suit, and an advocate were appointed as joint receivers to reopen and conduct the snuff business for the purpose of winding up with powers to realise the outstandings and discharge the debts of the firm. The order also directed that the receivers should function as pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... City Civil Court, Madras. But the Appellate Assistant Commissioner in his order described the appellant as N.V. Shanmugam Co., by joint court receivers. But nothing turns on this discrepancy, and no point seems to have been made at any of the lower stages that the assessment should have been made on the erstwhile partners themselves as an association of persons , and it does not arise, therefore, for consideration in this reference. On a further appeal by the receivers, the Tribunal was of opinion that section 41 of the Act was applicable. The Tribunal considered that the receivers could not be considered to be an association of persons for the purpose of either carrying on or enjoying the profits of the trade, because they were held together, not because they themselves wanted to carry on the business jointly, but in obedience to a court's order that the receivers should carry on the business for the purpose of its winding up. On this ground the Tribunal distinguished Mohamed Noorullah v. Commissioner of Income-tax [1961] 42 ITR 115 ; [1961] 3 SCR 515, where, according to the Tribunal, none of the co-heirs wanted to break the unity of control of the business or its con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, observed: Those words 'association of individuals' have to be construed in their plain, ordinary meaning. There is no difficulty about the word 'individuals'. 'Associate' means, according to the Oxford Dictionary, 'to join in common purpose, or to join in an action'. Did these individuals join in a common purpose, or common action, thereby becoming an association of individuals? In my view, they did. In the first place, they joined together in the purchase of this property on the 9th January, 1920. In the second place, they have remained joint s owners of this property from the date of the purchase down to the present time. Thirdly, they have joined together, as the power of attorney shows, for the purpose of holding this property and of using it for the purpose of earning income to the best advantage of them all. These observations of Derbyshire C.J. were concurred in by Costello J. with his own observations: 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, as co-adventurers to use an archaic expression, then I think ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the time; and I think that all we have to decide is whether, as a matter of fact, these two persons were associated together as individuals for acquiring the property. The other case concerned two brothers who became entitled to a certain house as tenants-in-common in equal shares under the will of their grandfather. They managed the properties as joint owners and derived profit there from, the net income of which trey shared equally. It was held by Beaumont C.J. and Blackwell J. that, though the assessees in the first instance did not constitute an association of individuals , they became an association of individuals within the meaning of section 3 of the Income-tax Act when they elected to retain property and manage it as a joint venture producing income. The assessment on the brothers as an association of individuals was held to be valid. Punjab Province v. Federation of Pakistan [1957] 32 ITR 198 (FC), which was decided by the Federal Court of Pakistan, shared that view of the Calcutta and Bombay High Court and said that the word association had no technical meaning and was wide enough to include all groups or aggregation of persons formed for the promotion of a jo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure, are necessary to come to a conclusion that there is an association of persons within the meaning of section 3; it must depend on the particular facts and circumstances of each case as to whether the conclusion can be drawn or not. The decision itself was based on the consideration, as we already indicated, that there was no finding that the widows had combined in a joint enterprise to produce income and did an act which had helped to produce income in respect of the shares and deposits. One other decision which we may notice is Mohamed Noorullah v. Commissioner of Income-tax [1961] 42 ITR 115; [1961] 3 SCR 515. There, a Mussalman died intestate leaving his son by a pre-deceased wife, his widow and four children by her. The widow along with another carried on the business after the husband's death. The son by the predeceased wife sued for partition and pending the action, at his instance two advocates were appointed as joint receivers of all the properties by consent of parties. The widow filed another suit for partition and applied for the continuance of the joint receivers. The son opposed the application on the ground that different persons should be appointed as re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as , as constituting an association of persons. It is clear from these decided cases in the context of section 3 that an association of persons is a combination of persons for the purpose of producing income by their joint act or venture in that direction. It is unlike a contract of partnership. An association of persons need not necessarily be on the basis of a contract. But when persons combined for such a purpose, it should be assumed that it is a consensual act on their part and is the result of some understanding between them. The Tribunal took the view that the receivers in this case having been appointed by an order of court could not be regarded as an association of persons , more especially because the erstwhile partners of the firm were disagreed on the question of continuing the business of partnership. On behalf of the revenue, it is urged that for the formation of an association of persons , it is not necessary that it should be as a result of a mutual understanding and that if persons are thrown together by external factors like an order of court they may well be considered as an association of persons. We do not think that the proposition can be accepted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... course of such business debts are properly incurred by the receiver, the person to whom the debts become due may proceed not only against the receiver personally but also against the partnership property in his hands for the recovery of their debts in priority to other creditors of the business. There is force in this view, and we are inclined to accept it in regard to the character of a receiver in a partnership action. On the facts in this case also, there appears to be no room for doubt that the parties by the joint endorsement appended to the receivers' order consented to the receivers carrying on the business themselves, though the profits produced by them should be treated as an asset of the firm. We are of opinion, therefore that the joint receivers could well be said to have in their own right carried on the business during the accounting periods. The question then remains whether section 41 is inapplicable. It should be observed that section 41 is not a charging or liability section. It is merely procedural, and is an enabling machinery section. By an application of section 41, the liability of the beneficiaries under the charging provisions under the relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X
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