Co-heirs carrying on business without break after the death of the owner constitute an association of persons, and the income from the business is assessable as the income of an association of persons.

Judgment

KAPUR, J. : These appeals are brought by special leave against the judgment and order of the High Court of Madras in an Income-tax reference under S. 66(1) of the Indian Income-tax Act, hereinafter termed the Act . The question referred was :-

"Whether the income-tax assessment of the business of Spade Clover Beedies belonging to the estate of the deceased and carried on during the previous years 1943 to 1946 as an association of persons for the assessment years 1944-45 to 1947-48 is valid ?" And this question was decided in the affirmative and therefore against the appellants.

2. The facts leading to the appeals are that one Khan Sahib Mahomed Oomer Sahib, who was carrying on the business of manufacture and sale of Spade Clover brand Beedies,, died on December 17, 1942, leaving a minor son Mohammed Noorullah (the appellant) by his pre-deceased wife, a widow Luthfunnissa Begum and four children by her who were all minors at the date of the death of Oomer Sahib. Noorullah through his next friend applied to sue in forma pauperis and during the pendency of those proceedings two Advocates of the Madras High Court were appointed joint receivers of the properties of the deceased on March 17, 1943. This appointment was by consent of parties. On May 10, 1943, the widow Luthfunnissa filed a suit for partition and also applied for the continuance of the joint receivers. Noorullah opposed this application but by an order dated May 25, 1943, the receivers were ordered to be continued and they carried on the business as before. In due course a preliminary decree for partition was passed. The High Court has observed that none of the parties wanted to break the continuity of the business after the death of the father. In the beginning Luthfunnissa and Dawood carried on the business and from the date of their appointment, i.e., May 17, 1943, the joint receivers continued the business till November 25, 1946, when during the course of the proceedings the business was put up for sale by auction between the co-heirs and was purchased by Noorullah.

3. The years of assessment are 1944-45 to 47-48, the relevant accounting years for which were the calendar years 1943 to 1946. The profits of the business were assessed to tax in the hands of the receivers as the income of an association of persons and the contention of the appellant that the share of the profits of each of the co-heirs should have been separately taxed, was rejected by the Income-tax authorities as well as by the Income Tax Appellate Tribunal. The only question which was raised both before the department as well as before the Tribunal was the assessment to tax of the income of the business. There was no dispute in regard to the income of the properties which was taxed under S. 9(3) of the Act.

4. The business was inherited by the heirs of Oomer Sahib and was carried on without break during the accounting years first by the widow and Dawood and then jointly by the receivers. The nature of the business was such that it could not be divided up and had to be carried on as one whole with a unity of control and all the parties desired to preserve and did preserve this unity. The opposition by the appellant to the application for receivership filed on behalf of Luthfunnissa, the widow, was only on the ground that the appellant wanted different persons to be appointed and not to the continuance of the business or to the unity of control. The Income-tax Appellate Tribunal in its order stated :-

"In fact, there was no change in the continuity of the business and from the date of death of Md. Oomer Sahib up to 24th March, 1943, the business was carried on by mutual agreement and consent by Luthfunnissa Begum acting on her own behalf and on behalf of her minor children and her minor step-son Md. Noorullah. There can, therefore, be no gainsaying the fact that immediately after the death of Md. Oomer his estate was inherited and run by combination of individuals who had pooled their resources