IMPORTANT POINT
An association of persons or a body of individuals , whether incorporated or not, has been brought within the net of taxation u/s 4 of the Income Tax Act, 1961, but association of persons must be an association which is formed by volition of the parties for the purpose of generation of income.

Headnote:Taxation-Income Tax Act, 1961-Sections 4 and 2(31)-Tax on income earned by a person - Association of persons and body of individuals have been included with added words whether incorporated or not -An association of persons is not distinct and separate from body of individuals -When several individuals are found to have joined together for purpose of making profit-Group of individuals may be conveniently described as a body of individuals -A profit yielding joint venture has to be taxed as a single unit-A minor can be a member of such a body or association.
       Held that an "association of persons" in not something distinct and separate from "body of individuals". It has been added to obviate any controversy as to whether only combinations of human beings are to be treated as a unit of assessment. The intention clearly is to hit combinations of individuals and individuals, combinations of individuals and non-individuals and also combinations of non-individuals with other non-individuals who are engaged together in some joint enterprise when such joint enterprise does not fall within any of the other categories enumerated in sub-section (31) of Section 2 of the Act. (Para 14)
       Further held, when several individuals are found to have joined together for the purpose of making profit, the group of individuals may be conveniently described as "a body of individuals". We have seen how the controversy arose under the Indian Income Tax Act as to the meaning of "association of individuals". There was a conflict of opinion on whether "individuals include artificial or non-juridical persons. But there can be no scope of any controversy now. "An association of persons" of "a body of individuals", whether incorporated or not, has been brought within the net of taxation. The intention of the legislature in clearly to hit combination of individuals or other persons who were engaged together in some joint enterprise. The combinations may or may not be incorporated. A profit-yielding joint venture has to be taxed as a single unit. (Para 18)
       (ii) Income Tax Act, 1961-Section 4 r/ws 2(31)(v)-An individual carrying on business died intestate survived by his mother, widow and three minor children-Mother of deceased relinquished her interest-Business continued as a single unit in same name by widow of deceased with her minor children-Income of this business rightly assessed in status of a body of individuals -When minors along with their mother form a body to generate income-Levy of tax u/s 4 is on that body-Section 161 is an enabling provision.

       Held : In the case before us, we have a widow and her minor sons who are engaged in the business activity which generates income. It does not make any difference that the widow and the minor sons did not start the business. The business was inherited. But the fact that the business has been continued by the widow on her own behalf as well as on behalf of the minor sons after buying the interest of the mother goes to show that there is an organised activity jointly carried on to produce income. It is a clear case of a joint business venture of a few individuals. The income of this business has been rightly assessed in the status of a "body of individuals". (Para 19)
       Further held that association of persons must be an association which is formed by volition of the parties for the purpose of generation of income. This is the basic test. That a minor can be a member of such a body or association is also well settled by a number of decisions. (Para 20)
       Consequently held : Section 161 is an enabling provision. The charge that is imposed by Section 4 may be computed and recovered in the manner laid down in the Act including Sections 160, 161 and 166. When the minors along with their mother form a body to generate income, levy of tax under Section 4 is on that body. The mother cannot insist that the income of the joint venture must be assessed separately on the minors and her even when a joint business is carried on. (Para 23)

JUDGMENT

Sen, J.-This is an appeal against an order passed by the Division Bench of the Punjab & Haryana High Court disposing of an Income Tax Reference relating to assessments of the Assessment Years 1963-64 to 1967-68.

2. The following questions of law had been referred to the High Court by the Income Tax Appellate Tribunal:

"1. Whether on the facts and in the circumstances of the case, the Tribunal was right in law, in holding that Meera & Co. is a body of individuals and is assessable as such?

2. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessment of the body of individuals identified as Meera & Co. should be made under Section 4 read with Section 2(31)(v) and not under Section 160, 161 or 166?"

3. The High Court has given brief summary of the relevant facts as under :

Shri Prem Narain, an individual, carried on business under the name M/s. Meera & Co. at Ludhiana. He died intestate on August 25, 1962 survived by his mother, widow and three minor children. All the assets of the deceased including the business styled as Meera & Co. devolved on his five legal heirs. The mother of the deceased relinquished her interest in the assets of the deceased against a lump sum payment. For the purpose of these references, we are concerned with the widow and three minor children of the deceased. The business of M/s. Meera & Co. was continued as a single unit in the same name by Smt. Krishna Gupta, widow of the deceased, obviously on her behalf and on behalf of all the three minor children as their guardian. The accounts were maintained in the name of M/s. Meera & Co. The yearly profits were ascertained and divided. The Income Tax return for the assessment years 1963-64 to 1967-68 were filed by Smt. Krishna Gupta on behalf of M/s. Meera & Co. The status of the assessee was described as association of persons . These returns reflected the entire income from business previously carried on by Shri Prem Narain, deceased. On January 25, 1968, Smt. Krishna Gupta filed the return under protest and further revised the returns for the assessment years 1963-64 to 1966-67, declaring the same income that had been shown in the returns already filed but without specifying the status therein. It was contended that the income from the business should be assessed in equal shares in the hands of four legal heirs of the deceased. The minor children of the deceased also filed separate returns where the share of profit from M/s. Meera & Co. was included for rate purposes only. The Income-tax Officer did not agree with the altered position taken by the assessee that the income from the business was liable to be assessed in equal shares in the hands of the four heirs of the deceased. He held that the business was for one and common unit and the same was assessable in the status of body of individuals . The assessee, being dissatisfied with the order of the Income Tax Officer, filed an appeal and the Appellate Assistant Commissioner held that the entire income of the business was assessable in the hands of Smt. Krishna Gupta as a person carrying on business in individual capacity. The Revenue and the assessee both filed appeals before the Income Tax Appellate Tribunal. The Accountant Member of the Appellate Tribunal found that the business was carried on as an organic unit by Smt. Krishna Gupta on her own behalf and on behalf of her three minor children as their natural guardian. On the death of Shri Prem Narain, his estate fell to his legal heirs under Section 8 of the Hindu Succession Act as tenants-in-common. The special provisions regarding the minors and guardians contained in Sections 160, 161 or 166 of the Income Tax Act, (hereinafter referred to as the Act ) shall apply and will override the general provisions contained in Sections 4 and 2(31)(v) of the Act. The Judicial Member took a different view. According to him, the entity was liable to be assessed under Section 4 read with Section 2(31)

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1997 Supreme(SC) 448

Cases Referred (3)