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TMI Blog1983 (12) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... r adopted the status of the assessee as an "association of persons " in the assessment orders 1970-71 to 1973-74. According to him " association of persons " consisted of (1) P.P. Kannaiah Chetty, (2) P. Guruvittal, (3) P. P. Mohanvittal, (4) P. Lokanathan Vittal and (5) P. Muralivittal. Aggrieved by the assessment orders passed by the Income-tax Officer treating the status of the dissolved firm during the receivership period as an " association of persons ", the assessee went in appeal to the Appellate Assistant Commissioner but without success. Thereafter, the matter was further taken in appeal by the assessee to the Tribunal, contending that the status of the assessee should be that of an " individual " and not of an " association of persons ", that there has been dissolution of the partnership business by order of court, that the receiver had taken possession of the theatre on July 13, 1969, and had been hiring it for exhibition of pictures therein, that the receiver not having been appointed to carry on the partnership business, but only to collect the rents in order to safeguard the interests of the plaintiffs, there was no question of the receiver carrying on the business of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case, the finding that the receiver was not appointed to carry on the cinema business of Shree Padmanabha Theatre is sustainable in law ? 2. Whether, on the facts and in the circumstances of the case, and in the light of the returns filed by the receiver himself for the assessment years 1970-71 to 1972-73 admitting certain income as arising from business, the Appellate Tribunal was right in holding that there is no material to show that the receiver, in fact, has carried on the business in question ? 3. Whether, on the facts and in the circumstances of the case, the receiver could be said to have represented the individual interest of the various co-owners of the business and the assessment made on the receiver as a single unit is not sustainable ? The Tribunal has accordingly referred the above said three questions in T.C. Nos. 506 to 509 of 1981. In all these above references, the main question to be considered is whether the receiver, who is in charge of the theatre and who realises the income therefrom, is to be assessed in the status of an " association of persons " or whether individual assessments are to be made on the quondam partners through the receiver. The sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of which he is a representative assessee, shall be subject to the same duties, responsibilities and liabilities as if the income were income received by or accruing to or in favour of him beneficially, and shall be liable to assessment in his own name in respect of that total income... and the tax shall, subject to the other provisions contained in the Chapter, be levied upon and recovered from him in like manner and to the same extent as it would be leviable upon and recoverable from the person represented by him. 'Representative assessee ' is defined in section 160 of the Act as the 'agent of a non-resident' in respect of the income of such non-resident, the guardian or manager of a minor, lunatic or idiot, in respect of latter's income or a trustee appointed under a trust declared by a duly executed instrument in writing in respect of the income of a trust and in the case of a receiver, the income relating thereto to the said receiver. 3. That the said receiver do take possession of the said Padmanabha Theatre, movable and immovable, and collect the rents, issues and profits of the said theatre and that the tenants and occupiers thereof do attorn and pay their rents in arr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rely enacts that when a representative assessee is assessed to tax in exercise of the option of the Revenue, he shall be assessed under Chapter XV and shall not in respect of that income be assessed under any other provision of the Act..." According to the Supreme Court, the necessity for such a provision arose because of the conflicting judgments of the Bombay High Court in the cases of Saifudin Alimohamed v. CIT [1954] 25 ITR 237 and CIT v. Balwantrai Jethalal Vaidya [1958] 34 ITR 187, as is clear from the following passage (at page 631 of 73 ITR): " Sub-section (2) of section 161 was presumably intended to remove the conflict of judicial opinion which arose in the interpretation of the analogous provisions of sections 40 and 41 of the Indian Income-tax Act of 1922. In Safudin Alimohamed v. CIT[1954]25 ITR 237, the Bombay High Court expressed the opinion (which was not necessary for the ultimate decision of the reference) that section 41 conferred an option upon the Income-tax Officer either to assess the income as the income of the beneficiary or as the income of the trustee. The court observed at page 247 in dealing with the case in which the trustees appointed by the civil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business normally, that the profits, if any, earned will be treated as an asset of the firm subject to be divided between the parties in the manner set out in the partnership deed, and that the receivers will pay every month certain specified amounts to the partners. Some time later, the court appointed a Commissioner for taking accounts and for arranging the sale of the business as a going concern. The business yielded for the assessment years 1958-59 and 1959-60 certain profits and the question was whether the profits could be assessed in the hands of the receivers in the status of an " association of persons ". The Supreme Court held (i) that the fact that there were three receivers did not make them an "association of persons " ; (ii) that, however, the business was carried on by the receivers on behalf of the erstwhile partners, with their consent, and the control and management was in the hands of the receivers and that control and management was a unified one; and (iii) that the receivers had joined in a common purpose and they acted jointly on behalf of the persons who were the owners of the business and that, therefore, they cannot be taken to have represented the indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te set of books was maintained and the profits from those enterprises were divided between the various persons, who formed the group at the material time. Since the import and distribution of cloth was done on a joint basis and the profits were ascertained on a joint basis and then distributed according to the capital contributed by each member of the group, it was held that the group was an " association of persons " and could be assessed on its profits as such to income-tax and that it made no difference that the business was carried on because the Deputy Commissioner of the district had appointed the members constituting the group to import and distribute the cloth and they did not join as a group voluntarily, and they were put together by the Deputy Commissioner and asked to act together, which they did. Learned counsel for the assessee contends that those decisions cannot be applied to the facts of this case. In those cases, business was carried on by the receivers while the partnership continued whereas in this case, the receiver was appointed to manage the theatre and not the business after a decree for dissolution of the partnership has been passed in that suit. Learned c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... co-widows succeeded as co-heirs to the estate of their deceased husband and took as joint tenants with rights of survivorship and equal beneficial enjoyment, that they were entitled as between themselves to an equal share of the income, that though they took as joint tenants and none of them sought for partition of the estate, that so long as the three widows had not combined in a joint enterprise to produce income and had done no act which had helped to produce the income, it could not be held that they had the status of an association of persons within the meaning of section 3. The Supreme "'Court pointed out that the expression " association of persons " used in section 3 means an association 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 one the object of which is to produce income, profits or gains. Raja Ratan Gopal's case [1966] 59 ITR 728 (SC) was also a case where four nephews of the Nizam of Hyderabad became entitled to a one-fourth share in the estate. The estate was under the superintendence of the Nizam. Later, it was handed over to one of the nephews w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while partners. The Appellate Assistant Commissioner proceeded on the basis that the receiver is running the cinema theatre in the name and style of Sree Padmanabha Talkies which was formerly owned by the partnership. The Tribunal, however, found that the receiver was appointed not to conduct any business, but to take over the theatre and collect rents therefrom and, therefore, the case will not fall strictly within the principle laid down by the Supreme Court in N. V. Shanmugham and Co.'s case [1971] 81 ITR 310, where the court had directed the receivers to reopen and conduct the snuff business and empowered the receivers to carry on the business of the partnership. Thus, the Tribunal has made a distinction between " carrying on a business " by the receiver as per the orders of the court and mere collection of rents and profits from an immovable property by orders of the court and has treated the case on hand as one falling under the category of receipt of income from immovable property by the receiver which would fall within the decision of the Supreme Court rendered in Indira Balkrishna's case [1960] 39 ITR 546 and the decision in Raja Ratan Gopal's case [1966] 59 ITR 728. In su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Department of the partition that took place and also in view of the fact that the rent was being credited to the seven persons separately, the shares of the seven persons were definite and ascertainable, and under section 9(3) of the Act, they were entitled to be assessed separately on their shares. Merely because the parties entered into single lease instead of seven separate agreements of lease, the status of the assessee cannot be determined as an " association of persons " as long as the intention of the parties, which is evidenced by the crediting of rental receipts separately, is otherwise. The court also has observed that an isolated transaction of leasing out the mill which is only an exercise of one of the rights of ownership cannot be brought under the description of " business within the meaning of section 10 of the Indian Income-tax Act, 1922 the 1922 Act "), and, as such, the income has to be taxed only under section 9 and not under section 10. In the case before us, after the decree for the dissolution of the partnership has been passed, the theatre, which is one of the assets of the partnership is being leased out and the rental income realised by the receiver i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the receiver. If the income, profits or gains received by the receiver are not specifically receivable on behalf of any one person, or where the individual shares of the persons, on whose behalf they are receivable, are indeterminate or unknown, then according to the proviso to section 41, the tax shall be levied and recoverable at the maximum rate, and if the case does not fall under the proviso, then the receiver is liable to pay the tax in respect of the share which comes to him on behalf of the various persons of whose property he is the receiver. In A. Razzak v. CIT [1963] 48 ITR 276, the Calcutta High Court has also taken the view that where a settlor transfers business to a trustee for the benefit of his sons and the beneficiaries and their shares have been specified in the trust deed and the income is divided according to the shares of the beneficiaries, assessment must be made separately on the trustee with reference to the shares of income of each one of the assessees and the assessment of entire income on the trustee as " individual " is illegal. In that case, the assessee's father, who carried on a business, created trust for carrying on the business for the benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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