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TMI Blog1987 (10) TMI 76X X X X Extracts X X X X X X X X Extracts X X X X ..... Before we proceed to solve the controversy, presently before us in this appeal, we would like to make a brief reference to the facts and circumstances which led this appeal along with 79 other similar appeals to be heard by us on Sept. 1, 1987. 3. During the last few months it was being experienced that similar appeals, directed against the same or similar order(s) of the AAC, involving the same or similar facts, same or similarly worded documents of constitution of AOPs and same or similarly worded order of the ITO and raising common grounds were coming up for hearing on different dates before different Benches of the Tribunal. At one of such dates of hearing Mr. V.S. Banthia, Sr. DR for revenue, and Mr. Divatia, a senior advocate appearing for the assessees suggested that all such appeals be fixed for hearing on one day to be heard by one Bench. With a view to facilitate the parties and not only to save avoidable loss of labour, time and expenses but also to avoid the possibility of difference of opinion by different Benches of the Tribunal over the same point or points on same or similar facts leading to confusion and then necessitating clarification by further multiplicity o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... velop and/or construct thereon shops, godowns, flats, bungalows, etc. with a view to deal in and/or to cam income by letting them out or giving on lease and licence. (iii) To carry on any other venture or activity yielding income, profits or gains. (6) Any person, real or artificial, was made eligible to become its member (Cl. 5). Such membership could be acquired by an application or by transfer of membership, or by any other mode decided by the AOP. A minor could also become its member, but through his guardian only. Every member was to contribute such amount of capital as might be mutually agreed upon amongst the members, but such contribution thereof was not to carry any interest. Every member was given right to cast one vote, to receive such assets during the continuation or on dissolution of the AOP as were available at the relevant time, and to have such rights, benefits and privileges as may be agreed upon to be given or conferred. Such membership Gould be lost by retirement, death, insolvency, in competency, expulsion, dismissal or removal by majority and by resignation, if accepted without adversely affecting the continuance of the AOP itself. Proper books of accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xistence on April 6, 1981 by its deed of constitution of the even date the respondent entrusted the job of administering and executing its object to its duly appointed manager, Shri Chaganlal Bhogilal Patel. During the accounting period under consideration the said manager, it appears, brought a loss of Rs. 100 only. The copy from the account books filed along with the return shows that the said amount of Rs. 100 was debited to profit and loss account (drawn up to 27-10-1981) on account of expenditure incurred on stamp (Rs. 10), stationery (Rs. 18.85), Vahan Vewhar (Rs. 21.65) and ' pagar ' (Rs. 50). The total capital contributed by all the four members amounted to Rs. 200 only. In the ' Notes ' appended below the statement showing computation of net taxable income, also filed along with the return, it was, inter alia, mentioned that all the above mentioned expenses were incurred wholly, exclusively and necessarily for commercial expediency and were therefore allowable. The offer to be assessed at maximum marginal rates u/s. 167A of the Act was also made. 9. Not satisfied with the particulars submitted in support of its claim to be assessed in the status of AOP and suspecting th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y stamped paper, the same was inadmissible in evidence and that the conferment of absolute powers to run all the show on the so-called majority, which could be made by even two members at a particular meeting, made the entire transaction a bogus and sham arrangement made with the object and purpose of diverting the income of main AOP or Trust through the mode of chain of AOPs. Even holding thus he thought it fit and proper to accept the return submitted as a measure of protective assessment. Aggrieved by this protective assessment the respondent appealed to the AAC. 11. Relying on the decision in the case of Punjab Province v. Federation of Pakistan [1957] 32 ITR 198 (FC) the AAC held that it is not necessary for an Association of Persons to be constituted and evidenced by a written deed and therefore there is no necessity for an AOP to be formed through a stamped deed only and not otherwise. He thus overruled the first objection of the ITO. Regarding the second ground of the ITO the AAC, referring to the Supreme Court decisions in the cases of CIT v. Indira Balkrishna [1960] 39 ITR 546, G. Murugesan Bros. v. CIT [1973] 88 ITR 432 (SC) and Raja Mohammad Azam Khan v. State of U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and may be called Second Line of Trusts. These 150 beneficiary trusts were again to have two beneficiary AOP each. Thus 300 more AOPs, as beneficiaries of Second Line of Trusts were brought into existence again by permutation and combination of the members of the same Bholidas Patel Family and/or their relatives. The final position is stated to have come to this :--- 1. First Line of Concerns 30 construction companies (called Trusts) 2. Second Line of Concerns (Beneficiaries of First Line of Trusts) 150 Trusts 3. Third Line of Concerns (Beneficiary of second 300 AOPs line of trusts) -------------- Total 480 concerns. -------------- N.B. The relevant list of the three lines of concerns are placed on pp. 14 - 15 of the paper book. 14. All the above 480 concerns, whether called under the name of ' Family Settlement ' or ' AOP ' are stated to be belonging to one group called by the name of ' Popular Group ', a group formed by the members of one family only i.e., Shri Bholidas Patel Family. Thus was ' Samrat Nagar ' built by this ' Popular Group '. 15. Through the written submissions we have been informed that in the very initial year of their formation/co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ason of their association. (vide N.S. Choodamani v. CIT [1959] 35 ITR 676 (Ker.). That is also the ratio of the decisions cited by the AAC in his order as is gathered from the following extract from the decision in the leading case on the subject i.e., Indira Balkrishna : " It is enough on our purpose to refer to three decisions : In re B.N. Elias, CIT v. Laxmidas Devidas, and In re Dwarkanath Harischandra Pitale. In re B.N. Elias Derbyshire, C.J., rightly pointed out that the word 'associate' means, according to the Oxford Dictionary, ' to join in common purpose, or to join in an action. Therefore, an association of persons must be one in which two or more persons join in a common purpose or common action, and as the words occur in a section which impose a tax on income, the association must be one the object of which is to produce income, profits or gains. This was the view expressed by Beaumont, C.J. in CIT v. Lakshmidas Devidas, at page 589 and also in In re Dwarkanath Harischandra Pitale. In re B.N. Elias Costello, J., put the test in more forceful language. He said : ' It may well be that the intention of the Legislature was to hit combination of individuals who were engag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly constituted AOP irrespective of any other purpose to be served by it. Taken on its own facts and merits we reject the respondant as being a validly and legally constituted AOP so as to be an assessable entity under the Act. 21. Now coming to the issue relating to the respondent's being a device and simply a tool for tax evasion we are in no doubt that it is so. Apart from the facts submitted by Mr. Banthia in his written submission which we, in the facts and circumstances of the case, are led to believe, it is an admitted position that in response to the notices/summons issued by the ITO Shri Chaganlal Bholidas Patel, Manager submitted a list of as many as 18 AOPs whose returns of income were signed and verified by him. This list is available at page 28 of the paper book. This list shows that all the 18 AOPs, were having their source of income as beneficiaries of certain settlements of the same group and all had returned a loss of Rs. 100 each. By another list at page 29 Shri Chagan Lal Bholidas Patel had declared that he was the manager of as many as 35 AOPs. On a study of several relevant deeds of constitution of the AOPs we find that they were prepared under same or simila ..... X X X X Extracts X X X X X X X X Extracts X X X X
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