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TMI Blog1979 (3) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... apital gains, after giving a deduction of Rs. 5,000 being the statutory exemption in respect of the above transactions. The assessment was made in the status of " association of persons ". There was an appeal to the AAC, who held that the capital gains could not be assessed in the hands of an " association of persons ", but had to be assessed only in the hands of the two individuals, Sidhpurwala and Badruddin Mohammed Ali. The department filed an appeal before the Tribunal, and by its order dated,16th July, 1969, it held that the sales were not effected by the association of persons and that, therefore, there was no capital gains assessable in the hands of the " association." Against that decision there was a reference to this court in T.C. No. 320 of 1970. The decision of this court on the reference is CIT v. Deghamwala Estates [1977] 109 ITR 416. It was held that the two persons were only tenants-in-common in respect of the shares inherited from their father, and that they did not constitute an "association of persons". With reference to one of the properties, which was in Gujarat State, the father himself had only one-half share and the two heirs succeeded only to that share, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) a Hindu undivided family, (iii) a company, (iv) a firm, (v) an association of persons or a body of individuals whether incorporated or not, (vi) a local authority, and (vii) every artificial juridical person, not falling within any of the preceding sub-clauses. " Under the Indian I.T. Act, 1922, before its amendment in 1939, the expression that found a place in the Act was " association of individuals ". Under the amendment made in 1939 the expression " association of persons came to be substituted for " association of individuals ". When the I.T. Act, 1961, came to be enacted, one more category was included in s. 2(31) and that is the " body of individuals " apart from the " artificial juridical person " covered by cl. (vii). The Law Commission of India in its twelfth report drew up a Bill to give effect to the proposals it had made in the report. Clause 2(27) defined the word " person ". In the Bill as drafted by the Law Commission, in relation to the categories with which we are now concerned, the provision was as follows : " ' Person ' includes--... (iv) a firm or other association of persons, whether incorporated or not, or the partners of the firm or the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indu governed by the Mitakshara law inherited the estate which consisted of immovable properties, shares, money lying in deposit and a share in a registered firm. It was held that the 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 and that they were entitled to an equal share of the income. As there was no finding that the three widows had combined in a joint enterprise to produce income, and as they had done no act which had helped to produce the income, it was held that they did not constitute an association of persons. In Mohamed Noorullah v. CIT [1961] 42 ITR 115 (SC) a Mohamedan carrying on the business of manufacture and sale of beedies died intestate leaving several heirs. His widow and his four children by her carried on the business. A son by a predeceased wife applied for leave to sue for partition in forma Pauperis and pending those proceedings two advocates were appointed as joint receivers. The widow also filed another suit for partition but applied for the continuance of the joint receivers. The Supreme Court held that the business in beedies was carried on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew to earn capital gains. Thus, in order to constitute an association of persons, there must be joining together in a common purpose or in a common action, the object of which is to produce income, profits and gains. The question is whether the expression " body of individuals " requires any different test. The only difference between the present reference and the earlier reference is that the status adopted is. " body of individuals " as against an " association of persons " adopted in the earlier case. It the same test is applicable to both categories then the case, CIT v. Deghamwala Estates [1977] 109 ITR 416 (Mad), would apply. The point to be examined is whether any different test is to be adopted in relation to the body of individuals. Before the 1939 amendment as seen already, the expression used was " association of individuals ". In the case of CIT v. Ahmedabad Mill Owners' Association [1939] 7 ITR 369 (Bom), the association consisted of 61 members of whom 60 were limited companies and one a human being. The question was whether such an association was chargeable as association of individuals. It was held that " individuals " in s. 3 meant human beings and did not inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... category of body of person when association of persons could have fulfilled the purpose. The two entities cannot be identical in conception. But it is not possible to state precisely what combination would constitute an association of persons and what a body of individuals. There may be some overlapping and the incorporation of this category into the definition can be attributed to an anxiety not to leave out any category from assessment. One aspect to be borne in mind, and that is as contrasted with the Bill as drawn up by the Law Commission, the parliamentary draftsman has thrown the association of persons and by of individuals in one category thereby showing that the rule of construction of noscitur a sociis would have to be applied in respect of the two categories, viz., association of body of indviduals. Further, the words " whether incorporated or not " would show that the category is such as can be incorporated or is susceptible of incorporation, if the members so chose. For instance, an unincorporated members' club would been a position to incorporate itself and hence it would be a body of individuals even while remaining unincorporated. It is only on the facts of each cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sets on dissolution of a body of individuals would be exempt from the levy of capital gains tax. The assessee in that case wanted to take advantage of this exemption. The High Court could not answer the question, as the Tribunal had failed to decide two points, viz., whether the assessee and his brothers constituted a body of individuals, and whether the lands were agricultural lands as claimed by the assessee. The reference was returned unanswered. But in the course of the judgment, the concept of body of individuals was discussed and the aforesaid passage from the decision of the Andhra Pradesh High Court was extracted with approval. Section 47(2) itself appears to us to give a clue to the interpretation of the expression " body of individuals ". It contemplates " distribution of capital assets on the dissolution of the body of individuals ", as in the case of a firm or other association of persons. This itself shows that the body of individuals whether incorporated or not must be capable of holding properties as an entity and of distributing them at the time when it dissolves. Thus, a common purpose or a common tie, actual or potential capacity to hold properties or disposable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that in law each one of them had a half share in the properties, and that they made the gift as tenants-in-common, and that each one of them must be held to have made a gift of his or her share of the property, though the gift was made through one single document. They could not, it was held, be assessed as an association or as a body of individuals. This decision was distinguished by the Andhra Pradesh High Court in Deccan Wine and General Stores v. CIT [1977] 106 ITR 111 on the ground that that case arose under the G.T. Act and that the meaning of the same expression under the two different Acts may vary. This manner of distinction of the Supreme Court's decision has been dissented from in the judgment of the Gujarat High Court in CIT v. Harivadan Tribhovandas [1977] 106 ITR 494. We would agree, with respect, with the Gujarat High Court in the view that it has taken regarding the applicability of the decision. Whatever may be the position regarding the applicability of the Supreme Court's decision to the facts in the case before the Andhra Pradesh High Court still as far as the case before as is concerned, we find that it has great relevance. As against the gift in the Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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