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TMI Blog1977 (5) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... which has to be set out for a proper appreciation of the aforesaid questions. The assessee before the Income-tax Officer was the Delhi Beopar Mandal. The case relates to the assessment year 1952-53, corresponding to the previous year ending on 31st March, 1952. A partnership firm, styled as "Delhi Beopar Mandal", was constituted on 27th October, 1936, and a deed of partnership was executed between Lala Desh Bandhu, Lala Vidya Dhar, Lala Ram Kishan Dass, Lala Narain Datt, and Lala Harish Chandra. It was recited in the said deed that a land, measuring 189 bighas and 5 biswas (Kham) and situated at Muza Shampur adjacent to Pusa Agricultural Research Institute, Delhi, had been purchased, that the five parties to the deed were interested in the said purchase as mentioned in the deed, that besides the said purchase, the parties to the deed also intended to purchase further lands and either sell such lands after developing them or build houses or shops or any other buildings on such plots of land or do any other allied business, and that for those purposes the five parties wanted to enter into partnership and executed the aforesaid deed. It was also recited in the deed that the plo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in partnership by a deed, dated 27th October, 1936, that the said two new partners contributed their share of the cost price of the land proportionate to the share taken by them, viz., 1/9th share. Reference was then made to the terms of the deed which we have already set out earlier in this judgment. It was then stated in the order that the partnership sold about 28 bighas of land to various persons at a considerable profit, that the partnership also purchased more lands for which money was borrowed, that various sales were made from time to time by the assessee, that the balance of the land was acquired by the Delhi Improvement Trust in 1946 (seems to be a mistake for 1948) and compensation was paid some time later, and that in that appeal the Tribunal was concerned only with the excess (i.e., the profit) realised on the sale of 13 bighas and 7 biswas of land acquired by the Improvement Trust amounting to Rs. 14,669. The Tribunal held, inter alia, that the various transactions entered into were regular business transactions in landed property, that the deed dated 27th October, 1936, brought into existence a proper partnership, that the intention of the parties was to develop the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Tribunal in its order for the assessment year 1948-49. According to the statement of case in the present reference, all the five original parties had died, and their legal representatives were: (1) Shri Kishan Dev Dutt, son and legal heir of late Shri Narain Dutt. (2) Smt. Kala Wati, widow and legal heir of late Shri Vidya Dhar. (3) Shri Vishwas Bandhu Gupta, son and legal heir of Shri Desh Bandhu Gupta. (4) Shri Dwarka Dass, son and legal heir of late Shri Ramkishan Dass, and (5) Smt. Memo Devi, widow and legal heir of late Shri R. B. Harish Chandra. As stated earlier, in 1948, the whole of the land was acquired by the Delhi Improvement Trust, and compensation was awarded at a certain rate. It appears that the said compensation was received by the persons in whose names the land was recorded, and neither Lala Harish Chandra, nor his widow, Shrimati Memo Devi, received any amount from those who received the compensation. Shrimati Memo Devi, therefore, filed a suit, No. 383 of 1960, for dissolution of the partnership and for rendition of accounts, in the court of the Commercial Subordinate Judge, Delhi, who, by his judgment, dated 18th March, 1964, held that the pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n its order, dated 7th September, 1959, in I.T.A. No. 1621 of 1958-59, relating to the assessment year 1948-49, to the effect that the deed dated 27th October, 1936, brought into existence a proper partnership, was contrary to the view taken by the learned commercial sub-ordinate judge in Suit No. 383 of 1960. As already stated, according to the learned commercial subordinate judge, the deed could not be said to be a partnership deed and a partnership could not be said to have come into existence in law as there was no agreement in the deed to share the profits of the business which was intended to be carried on by them as required by section 4 of the Indian Partnership Act. He had also taken the view that the parties were co-owners, that the only dispute that remained was with respect to the compensation and the same could not be said to be an act of doing any business for the partnership, and that there could not, therefore, be any dissolution of partnership or rendition of accounts, but whatever compensation was awarded by the Government might be taken by the parties according to their own shares from the Government direct. As all the concerned persons were parties to the said s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of admitting her share and making payment of the same to her, even gone to the length of denying the said share and their liability to render accounts of the monies received by them, that income-tax could be charged only from a person to whom any income had accrued or by whom any income had been received, that admittedly, the compensation was paid to the three co-sharers of the Delhi Beopar Mandal in whose names the lands compulsorily acquired had stood recorded in the revenue records and not to the Delhi Beopar Mandal, and as such neither any income accrued to the Delhi Beopar Mandal nor was the said income received by the said Mandal, that in any case no income accrued to or was received by her either as a member of the Delhi Beopar Mandal or in her personal capacity, that she could be charged with income-tax only when her suit against the other co-sharers of the Delhi Beopar Mandal was decreed, or when the other partners or co-sharers accepted her claim and paid her share, because, then alone the said income could be said to have accrued to her, that only the three co-sharers who were recorded as owners of the land in revenue records had received money in their personal capaci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of the compensation and there was no joint effort by either of them in respect of the compensation, and also because neither of them received any amount of the compensation, either of them could not be held to be a member of the association, and no business income or profit could be said to have accrued or arisen to him or to her in the relevant assessment year; and (4) that in view of the decision of the Supreme Court in E. D. Sassoon and Co. Ltd. v. Commissioner of Income-tax [1954] 26 ITR 27, before quantification or computation of income, there must be accrual of income to the association of persons of which Harish Chandra or Shrimati Memo Devi was a member, and that the judgment of the civil court showed that Harish Chandra was not a member of the association of persons as Shrimathi Memo Devi could not compel rendition of accounts from the other parties. On the other hand, it was contended on behalf of the revenue, firstly, that Shrimathi Memo Devi was not competent to prefer an appeal when her own contention was that she was not a member of the association of persons ; secondly, that during the relevant assessment year, Harish Chandra was a partner or a member of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipt by the assessee ; that it was observed in the decision of the Supreme Court in the case of E.D. Sassoon [1954] 26 ITR 27, that the words "accruing and arising" are used in contradistinction to the words "receive" and indicate a right to receive the amount, and that taking into consideration the findings of the learned subordinate judge in the civil suit filed by Shrimati Memo Devi, it was of the opinion that in the year in question "there was no purpose or common action taken by R.B. Harish Chandra or by his legal heirs and thus there was no object to produce income or profits or gains during the accounting year by all the persons in the deed" ; that, on the facts of the case, it was satisfied that no income ever reached the assessee or late Harish Chandra as its member and as such the association of persons, including Harish Chandra, could not be called upon to bear the liability under the charging provisions of the Income-tax Act; and that for all the aforesaid reasons it would allow the assessee's appeal by holding that the compensation received by the registered holders of the land never belonged to the association of persons, the assessee, which included the husband of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ist until the land was not disposed of. So, even if it is assumed that that was a partnership initially, it has to be held to have ceased to subsist on the acquisition of the entire property in 1948. This conclusion derives support from the provision in section 42(b) of the Partnership Act also. So, in the financial year relevant to the assessment year 1952-53, no partnership was subsisting. The question then is as to whether there was an "association of persons" in the financial year relevant to the assessment year 1952-53. Mr. Shankar Vaidyalingam contended that even if it is held that the partnership had ceased to subsist in 1948, the five persons (including L. Harish Chandra) continued to act together for the purpose of realising or receiving the compensation, and there was, therefore, an "association of persons" in the financial year relevant to the assessment year 1952-53 for the common enterprise or purpose of realising or receiving the money. He urged that even though only three of them in whose names the land was registered in the revenue records had received the compensation money, it must be held that they received it on behalf of the "association of persons" as the mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osits there was no finding of any act of joint management. Indeed, the main item consists of the dividends and it is difficult to understand what act of management the widows performed in respect thereof which produced or helped to produce income." In G. Murugesan and Bros. v. Commissioner of Income-tax [1973] 88 ITR 432 (SC) the facts, as set out in the head-note, were as follows : " One S executed a settlement deed in March, 1955, conveying to his four grandsons, M, K, R and V, a life interest in a house property with remainder to their children. He also purchased certain shares in joint stock companies in the name of 'M and Brothers', the applications for transfer being signed by their mother as their guardian till 1959 and thereafter by M for himself and on behalf of his brothers. M became a major in March, 1955, and V, the youngest, in December, 1962. The income from the house property and the dividends from the shares were credited to an account headed ' M and Brothers' in the books of S's firm, and at the end of each year the balance in the account of 'M and Brothers' was transferred in equal proportions to the separate and individual accounts of M, K, R and V, in the bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioning as 'association of persons'. In the case of 'association of persons' it is always open to its members to withdraw from the same. No one can be compelled to continue as a member of an association. For withdrawing from an association no particular form need be observed. As seen earlier, herein we are concerned only with the realisation of dividends. If the individual members of the association choose to realise their dividends as individuals, there is an end of the association. The assessee's assertion that they have realised their dividends in their individual capacity remains unrebutted. There is nothing to disprove that claim. None of the facts proved can be said to be inconsistent with the claim made by them." In that view, the Supreme Court held that during the assessment years 1959-60 to 1962-63, the assessees could not be held as having functioned as an "association of persons", but that they were liable to be assessed as individuals. In Mohammed Noorullah v. Commissioner of Income-tax [1961] 42 ITR 115 (SC) the Supreme Court, referring to its earlier decision in Commissioner of Income-tax v. Indira Balkrishna [1960] 39 ITR 546 (SC), reiterated that "to constitute a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the association no particular form was required. With the disappearance of the land, the original purpose became incapable of achievement, with the result that the five persons could no longer be said to be together for the purpose of producing income, profits or gains. In other words, the "association of persons" automatically ceased to subsist on the acquisition of the entire land in 1948. Mr. Shankar Vaidyalingam urged that after the acquisition of the land, the work of realisation of the compensation amount remained, and that the five persons can be said to have joined together for the purpose of the said realisation of the compensation amount and thus formed an "association of persons". We are unable to accept the argument. On the acquisition, the compensation amount was payable by the Government to the three persons in whose names the land was entered in the revenue records. There is nothing on the record to show that the five persons wanted to act jointly to realise or receive the compensation amount. There was thus no question of any joint enterprise by the five persons to realise or receive the compensation amount. The five persons, who were members of the association, n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears first by the widow and one Dawood and then jointly by receivers appointed by court. The Supreme Court held (vide page 119) that "the business was in the first instance carried on by the widow and Dawood on behalf of the heirs of Oomer and subsequently when the suits were brought none of the parties wanted to break the unity of control of the business nor its continuity and it was of such a nature that it would not be carried on without such consensus and, therefore, the receivers carried on the business", and that on these findings the High Court had rightly come to the conclusion that the business was a business of an "association of persons". The facts of that case are thus clearly distinguishable. In Joti Prasad Agarwal v. Income-tax Officer [1959] 37 ITR 107, 110, the Allahabad High Court pointed out that there were indications in the affidavit of the petitioners that the association continued to exist even after 6th January, 1948, because the petitioners themselves, in their affidavit, had stated, that the president of the association continued, that it was alleged by the petitioners that they had deposited certain moneys with the president for discharging the income-ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties of that business had not been liquidated. " and on page 6, referring to an observation of Lord Sumner in Commissioners of Inland Revenue v. South Behar Railway Co. Ltd. [1925] 12 TC 657, 712 (HL) commented that "we are unable to hold that Lord Sumner intended to lay down that a business which is closed down is deemed to be carried on so long as its outstandings are being collected." However, in the view we have taken on the facts of the case that the firm or the association had ceased to subsist on the acquisition of the entire land, and that the assessee consisting of the five persons could not be regarded as an "association of persons" in the financial year relevant to the assessment year 1952-53, it is not necessary to make any comment on the effect of the aforesaid observations of Sarkar J. For the reasons given above, the first point has to be answered in the negative. The second point for consideration is as to whether the compensation amount received by the three persons could be said to be income that accrued or arose to the assessee consisting of the five persons. The test is whether a debt had been created in favour of the assessee. A debt is created when a r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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