A group of persons appointed by the Deputy Commissioner to import and distribute cloth in the district, who carried on the business as one unit and by the consent of all the parties, constituted an 'association of persons' within the meaning of the Income-tax Act.

Judgment

KAPUR, J. : These are four appeals by the Commissioner of Income-tax in Income-tax Reference made under S. 66-A(2) of the Income-tax Act (hereinafter termed the Act ). The question for decision is whether the respondent is "an association of persons" within the meaning of S. 3 of the Act.

2. The appeals relate to two Income-tax assessments and two Excess Profits Tax assessments; the former for the years 1946-47 and 1947-48 respectively, corresponding to the accounting years February 1, 1945 to September 30, 1945 and October 1, 1945 to August 21, 1946, the latter are in regard to chargeable accounting periods February 1, 1945 to September 30, 1945 and October 22, 1945 to March 31, 1946. The decision of the Excess Profits tax appeals is consequent upon the decision of the Income-tax appeals.

3. The facts may now be stated : In 1945 the Deputy Commissioner of Buldana evolved a scheme for the distribution of cloth in his district and with the sanction of the Government of C. P. appointed four persons viz., Haji Ahmed Haji Ali & Co., Bhanji Kuwarji, Trimbaklal Tribhovan Das and Deolal Rangulal as sole agents for the import of cloth from mills in various places in India and for distribution of the same to retailers. Two of them Haji Ahmed Haji Ali & Co., and Bhanji Kunwarji carried on the business as from February 1, 1945, to the end of September 1945. The profits of the business in proportion of the capital contributed by these persons were distributed between these two persons. After September, 1945, there was a change in the group of importers and some others also joined the group and the profits of the subsequent period were similarly distributed between the members of the group as it was then constituted in proportion to the capital contributed by each of them.

4. On March 12, 1947, the Income-tax Officer issued a notice under S. 22(2) of the Act to the respondent calling upon it to submit a return of the income of the group for the assessment year 1946-47. This was served on Haji Ahmed Haji Ali & Co., but that firm did not furnish any return contending that there was no privity of contract among members of the group. A notice was then issued under S. 22(4) of the Act and on the production of the books, the Income-tax Officer ascertained the income for the year ending September, 1945, and assessed liability for payment of income-tax under S. 23(4) of the Act. He assessed the respondent as "an association of person" both for purposes of Income-tax and Excess Profits Tax. An application under S. 27 of the Income-tax Act was dismissed by the Income-tax Officer. Similarly for the year 1947-48 a notice was again issued and served on Haji Ahmed Haji Ali & Co. and similarly the group was assessed as an association of persons to Income-tax and it was also assessed to Excess Profits Tax for the period October 22, 1945 to March 31, 1946, and an application under S. 27 of the Income-tax Act was dismissed in regard to this period also.

5. Appeals were taken against the orders of assessments of Income-tax and Excess Profits tax but they were dismissed by the Appellate Assistant Commissioner. Appeals were then taken to the Income-tax Appellate Tribunal but they also were dismissed by an order dated April 18, 1950. An application for making a reference to the High Court was dismissed by the Tribunal but an order was obtained from the High Court under S. 66(2) of the Act and four questions were ordered to be referred to the High Court. The question relevant for the appeals is the following :

"Whether under the facts and circumstances of the case the Buldana District Main Cloth Importers Group constituted an Association of persons within the meaning of S. 4 to be Income-tax Act, 1922, and was liable to be assessed to income-tax and excess profits tax in that status ?"

The order of the Tribunal dated April 18, 1950, shows that for different periods the group which imported the cloth was differently constituted but Haji Ahmed Haji Ali & Co