MANU/SC/0181/1960

Equivalent Citation: [1960]39ITR546(SC ), 1961NLJ193, [1960]3SC R513

IN THE SUPREME COURT OF INDIA

Civil Appeals Nos. 249 & 250 of 1958
Assessment Year: 1950-1951;1951-1952
Decided On: 14.04.1960
Appellants:Commissioner of Income Tax, Bombay
Vs.
Respondent:Indira Balkrishna
Hon'ble Judges/Coram:
J.L. Kapur, M. Hidayatullah and S.K. Das, JJ.
JUDGMENT
S.K. Das, J.
1 . These two appeals with special leave have been heard together. They arise out of
similar facts and the question of law arising therefrom is the same.
2. The short facts are these. One Balkrishna Purushottam Purani died on November 11,
1947. He left behind him three widows and two daughters. The three widows were
named Indira, Ramluxmi and Prabhulumxi. These widows as legal heirs inherited the
estate of the deceased, which consisted of immovable properties situate in Ahmedabad,
shares in Joint Stock Companies, money lying in deposit, and share in a registered firm.
For the two assessment years 1950-51 and 1951-52 (the corresponding account years
being the Sambat years 2005 and 2006) the Income-tax Officer issued notices to the
legal heirs of Balkrishna Purushottam Purani. Pursuant to those notices, returns were
filed under the heading, "Legal heirs of Balkrishna Purushottam Purani", in one case and
in the name of the estate of Balkrishna in the other; the status was shown as
"individual" in one case and "association of persons" in the other. They were signed by
Indira, one of the three widows. For the assessment year 1950-51 the total income was
shown as under -

3. For the assessment year 1951-52, the total income was shown as -

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 4 . For both years the Income-tax Officer took the status of the assessee as an
"association of persons" and on that footing made two assessment orders. There was an
appeal to the Appellate Assistant Commissioner, and two of the points taken before him
were - (a) that the three widows ought to have been assessed separately and not as an
"association of persons", and (b) that in any event, the income from property ought to
have been assessed separately in the hands of the three widows by reason of the
provisions in s. 9(3) of the Income-tax Act, 1922. The Appellate Assistant
Commissioner rejected point (a) but accepted point (b). Then, there was a further
appeal to the Income-tax Appellate Tribunal, Bombay. The Tribunal held that the entire
estate of deceased Balkrishna Purushottam Purani was inherited and possessed by the
three widows as joint tenants and its income was liable to be assessed in their hands in
the status of an association of persons. The Tribunal further held that the Appellate
Assistant Commissioner was wrong in holding that the shares of the three widows were
definite and determinable and s. 9(3) was applicable. The assessee then moved the
Tribunal to refer certain questions of law which arose out of its orders to the High Court
of Bombay. The Tribunal referred four such questions, but we are now concerned with
only one of them, viz., question No. 3 which was in the following terms :
"(3) Whether on the facts and in the circumstances of the case the Tribunal was
right in holding that the assessment made on the three widows of Balkrishna
Purushottam Purani in the status of an association of persons is legal and valid
in law ?"
5. Two references were made to the High Court in respect of the orders passed for two
assessment years and they gave rise to Income-tax References Nos. 52 and 53 of 1955.
The leading judgment was given in I.T.R. 52 of 1955. The High Court held that the
Tribunal was in error in coming to the conclusion that the three widows could be
assessed in the status of an association of persons with regard to the income which
they earned as heirs of their deceased husband. Therefore, it answered question No. 3
in the negative. The department represented by the Commissioner of Income-tax,
Bombay, then applied to this Court and obtained special leave to appeal from the
judgment and orders of the High Court of Bombay in the two References. These two
appeals have been filed in pursuance of the special leave granted by this Court. The
appellant is the Commissioner of Income-tax, Bombay, and the assessee is the
respondent.
6. The argument on behalf of the appellant is that the High Court was in error when it
said that "what is required before an association of persons can be liable to tax is not
that they should receive income but that they should earn or help to earn income by
reason of their association, and if the case of the Department stops short at mere
receipt of income, then the Department must fail in bringing home the liability to tax of
individuals as an association of persons." It is submitted that the High Court did not, in
the statement quoted above, lay down the correct test for determining what is an
"association of persons" for the purposes of the Income-tax Act.
7. Before we go on to discuss the argument presented on behalf of the appellant, it is

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 necessary to clear the ground by stating what is the position of co-widows in Mitakshara
succession and what are the findings arrived at by the Tribunal. The position of co-
widows is well-settled. They succeed as co-heirs to the estate of their deceased
husband and take as joint tenants with rights of survivorship and equal beneficial
enjoyment; they are entitled as between themselves to an equal share of the income.
Though they take as joint tenants, no one of them has a right to enforce an absolute
partition of the estate against the others so as to destroy their right of survivorship. But
they are entitled to obtain a partition of separate portions of the property so that each
may enjoy her equal share of the income accruing therefrom. The Tribunal found that
the widows in this case did not exercise their right to separate possession and
enjoyment and "they chose to manage the property jointly, each acting for herself and
the others and receiving the income of the property which they were entitled to enjoy in
equal shares." Learned counsel for the appellant has emphasised before us the aforesaid
finding of the Tribunal and has contended that on the finding of joint management, the
widows fulfilled even the test laid down by the High Court and constituted an
"association of persons" for taxing purposes. The High Court, however, rightly pointed
out that the only property which the widows could have managed jointly was the
immovable property which fetched an income of about Rs. 11,000, and as to that
property, the Appellate Assistant Commissioner had held that s. 9(3) applied. There was
no appeal by the Department against that finding and it was not open to the Tribunal to
go behind it. Even on merits the Tribunal was wrong in thinking that the respective
shares of the widows were not definite and ascertainable. They had an equal share in
the income, viz., one-third each, and the provisions of s. 9(3) clearly applied in respect
of the immovable property.
8. With regard to the shares, dividends and interest on deposits 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. On the contrary, the statement of the
case shows that the assessee filed lists of shares, copies whereof are marked annexure
C and form part of the case, which showed that the shares stood separately in the name
of each one of the three widows and this was not denied by the Department.
9. We now come to the main question in this appeal. What constitutes an "association
of persons" within the meaning of the Income-tax Act ? It has been repeatedly pointed
out that the Act does not define what constitutes an association of persons, which under
s. 3 of the Act is an entity or unit of assessment. Previous to the year 1924, the words
of s. 3 were "individual, company, firm and Hindu undivided family." By the Indian
Income-tax Amendment Act of 1924 (Act XI of 1924) the words "individual, Hindu
undivided family, company, firm and other association of individuals" were substituted
for the former words. By the Income-tax Amendment Act of 1939 (Act VII of 1939) the
section was again amended and it then said :
"Where any Act of the Central Legislature enacts that income-tax shall be
charged for any year at any rate or rates, tax at that rate or those rates shall be
charged for that year in accordance with, and subject to the provisions of, this
Act in respect of the total income of the previous year of every individual,
Hindu undivided family, company and local authority, and of every firm and
other association of persons or the partners of the firm or members of the
association individually."
10. By the same Amending Act (Act VII of 1939) sub-s. (3) of s. 9 was also added.

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 11. Now, s. 3 imposes a tax "in respect of the total income......of every individual,
Hindu undivided family, company and local authority, and of every firm and other
association of persons or the partners of the firm or members of the association
individually." In the absence of any definition as to what constitutes an association of
persons, we must construe the words in their plain ordinary meaning and we must also
bear in mind that the words occur in a section which imposes a tax on the total income
of each one of the units of assessment mentioned therein including an association of
persons. The meaning to be assigned to the words must take colour from the context in
which they occur. A number of decisions have been cited at the bar bearing on the
question, and our attention has been drawn to the controversy as to whether the words
"association of individuals" which occurred previously in the section should be read
ejusdem generis with the word immediately preceding, viz., firm or with all the other
groups of persons mentioned in the section. Into that controversy it is unnecessary to
enter in the present case. Nor do we pause to consider the widely differing
characteristics of the three other associations mentioned in the section, viz., Hindu
undivided family, a company and a firm, and whether in view of the amendments made
in 1939 the words in question can be read ejusdem generis with Hindu undivided family
or company.
12. It is enough for our purpose to refer to three decisions : In re : B.N. Elias and
Others MANU/WB/0247/1935 : [1935]3ITR408(Cal) Commissioner of Income-tax,
Bombay v. Laxmidas Devidas and Another (1937) 5 I.T.R. 484 and In re : Dwarakanath
Harishchandra Pitale and Another MANU/MH/0222/1937 : [1937]5ITR716(Bom) In In re
: B.N. Elias and Others MANU/WB/0247/1935 : [1935]3ITR408(Cal) 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 imposes 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 Commissioner of Income-tax,
Bombay v. Laxmidas Devidas and Another (1937) 5 I.T.R. 484 at page 589 and also in
Re : Dwarakanath Harishchandra Pitale and Another MANU/MH/0222/1937 :
[1937]5ITR716(Bom) In re : B.N. Elias MANU/WB/0247/1935 : [1935]3ITR408(Cal)
Costello, J., put the test in more forceful language. He said : "It may well be that the
intention of the legislature was to hit combinations of individuals who were engaged
together in some joint enterprise but did not in law constitute partnership....... When
we find......that there is a combination of persons formed for the promotion of a joint
enterprise......then I think no difficulty arises in the way of saying that these persons
did constitute an association.......".
1 3 . We think that the aforesaid decisions correctly lay down the crucial test for
determining what is an association of persons within the meaning of s. 3 of the Income-
tax Act, and they have been accepted and followed in a number of later decisions of
different High Courts to all of which it is unnecessary to call attention. It is, however,
necessary to add some words of caution here. There is no formula of universal
application as to what facts, how many of them and of what nature, are necessary to
come to a conclusion that there is an association of persons within the meaning of s. 3;
it must depend on the particular facts and circumstances of each case as to whether the
conclusion can be drawn or not.
14. Learned counsel for the appellant has suggested that having regard to Sections 3
and 4 of the Indian Income-tax Act, the real test is the existence of a common source of
income in which two or more persons are interested as owner or otherwise and it is

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 immaterial whether their shares are specific and definite or whether there is any scheme
of management or not. He has submitted that if the persons so interested come to an
arrangement, express or tacit, by which they divide the income at a point of time before
it emanates from the source, then the association ceases; otherwise it continues to be
an association. We have indicated above what is the crucial test in determining an
association of persons within the meaning of s. 3, and we are of the view that the test
suggested by learned counsel for the appellant are neither conclusive nor determinative
of the question before us.
15. Coming back to the facts found by the Tribunal, there is no finding that the three
widows have combined in a joint enterprise to produce income. The only finding is that
they have not exercised their right to separate enjoyment, and except for receiving the
dividends and interest jointly, it has been found that they have done no act which has
helped to produce income in respect of the shares and deposits. On these findings it
cannot be held that the three widows had the status of an association of persons within
the meaning of s. 3 of the Indian Income-tax Act.
16. The High Court correctly answered question No. 3 in the negative. Accordingly, the
appeals fail and are dismissed with costs. There will be one set of hearing fee in the
two appeals.
17. Appeals dismissed.

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