Skip to content


B.T. Manjappa Gowda and ors. Vs. State of Karnataka (Through Commissioner of Agricultural Income-tax) - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKarnataka High Court
Decided On
Case NumberCivil Revision Petition Nos. 2080 and 2132 of 1979
Judge
Reported in[1984]150ITR303(KAR); [1984]150ITR303(Karn)
ActsIncome Tax Act, 1957 - Sections 2
AppellantB.T. Manjappa Gowda and ors.
RespondentState of Karnataka (Through Commissioner of Agricultural Income-tax)
Appellant AdvocateG. Sarangan, Adv.
Respondent AdvocateS. Rajendra Babu, Adv.
Excerpt:
.....for preventing this vital need of the city from being provided. - nor were some of the joint family properties excluded from the partition to be enjoyed by the members as tenants-in-common. it has been included in the definition of 'person'.merely because the term 'association of individuals' has not been defined, the authorities under the taxing statutes cannot give any meaning as they like. cit [1968]67itr106(sc) ,on which strong reliance was placed by sri babu, in our opinion, stands on a different footing......this is not a case in which there was a division in status. nor were some of the joint family properties excluded from the partition to be enjoyed by the members as tenants-in-common. in this family, there was partition by metes and bounds. all the joint family properties were divided and distributed under the deed of partition. each member was given a specific share in the family properties. they were made the exclusive owners of the separate parcels. if each individual has a specified share, then there is no question of their forming into tenants-in-common. to constitute tenants-in-common there must be equal right to the possession of every part and parcel of the subject-matter of the tenancy. the joint possession may not be essential, but unity of right of possession is a.....
Judgment:

Jagannatha Shetty, J.

1. These revision petitions under s. 55 of the Karnataka Agrl. I.T. Act, 1957 (the 'Act'), arise out of the order of the Commissioner of Agrl. I.T., Karnataka, dated March 31, 1979, made under s. 35 of the Act.

2. For the assessment years 1976-77 and 1977-78, the Agrl. ITO made assessments treating the assessee as tenants-in-common. But the Commissioner in exercise of his revisional jurisdiction has held that the assessee should be treated as an association of persons.

3. Challenging the validity of the view taken by the Commissioner, the assessee has approached this court.

4. There was a HUF consisting of Manjappa Gowda, his wife and five children out of whom four were minors. Manjappa Gowda was the manager. The HUF had coffee estate, an areca garden and some paddy lands. Under a deed of partition, these properties were divided by metes and bounds. Manjappa Gowda, however, continued the management of the estate but divided the net income equally among the shares.

5. The reason for this type of arrangement has been disclosed in the letter written by the chartered accountant of Manjappa Gowda. He wrote a letter dated November 12, 1966, to the assessing authority stating that there was a partition in the joint family of Manjappa Gowda as on May 31, 1972, but as the properties apportioned were small in area, they were cultivating together and at the year end, the income was apportioned equally as tenants-in-common. The letter also discloses that the individuals have filed separate returns.

6. The assessing authority accepted the partition and the statement of the chartered accountant that the members continued as tenants-in-common. He has, accordingly, made the assessment orders. He has not given any reasons why even after the partition by metes and bounds the sharers should be treated as tenants-in-common.

7. It appears that there is a lot of misconception in regard to the status of the tenants-in-common. This is not a case in which there was a division in status. Nor were some of the joint family properties excluded from the partition to be enjoyed by the members as tenants-in-common. In this family, there was partition by metes and bounds. All the joint family properties were divided and distributed under the deed of partition. Each member was given a specific share in the family properties. They were made the exclusive owners of the separate parcels. If each individual has a specified share, then there is no question of their forming into tenants-in-common. To constitute tenants-in-common there must be equal right to the possession of every part and parcel of the subject-matter of the tenancy. The joint possession may not be essential, but unity of right of possession is a must.

8. Having regard to these principles and the factum of partition in the family of the assessee, Mr. Sarangan, learned counsel for the assessee, very rightly contended that he could not subscribe to the stand taken by the chartered accountant in his letter dated November 12, 1966. But he submitted that the assessee also cannot be treated as an association of individuals.

9. The only question that arises for consideration, therefore, is whether the assessee should be considered as an association of individuals. Section 2(p) of the Act defines 'person' to mean any individual or association of individuals, owning or holding property for himself or for any trustee, receiver, common manager, administrator or executor or in any capacity recognised by law, and includes an undivided Hindu Mitakshara family, an Aliyasanthana family or branch, a Marumakkattayam tarwad or a tavazhi or other family to which the rule of impartibility applies, a firm or a company, an association of individuals, whether incorporated or not, and any institution capable of holding property.

'Association of individuals' has not been defined in the Act. It has been included in the definition of 'person'. Merely because the term 'association of individuals' has not been defined, the authorities under the taxing statutes cannot give any meaning as they like. The legislature perhaps found it unnecessary to define the term since it has acquired a definite connotation under the law relating to taxation.

In CIT v. Indira Balkrishna [1960] 39 ITR 4546, the Supreme Court, after referring to the various aspects of association of persons, summarised the principle at page 551 thus :

'.... an association of persons must be one in which two or more persons join in a common purpose of 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....'

10. The view was reiterated in CIT v. Raja Ratan Gopal : [1966]59ITR728(SC) .

11. In Indira Balkrishna's case : [1960]39ITR546(SC) , the Supreme Court has added the following words of caution for those who want to interpret the term 'association of individuals' (p. 552) :

'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 section 3 : it must depend on the particular facts and circumstances of each case as to whether the conclusion can be drawn or not.'

12. Against this background, let us now examine the facts found in the case. The HUF of which Manjappa Gowda was the manager consisted of his wife and children. The father was cultivating the estate and managing the family. The properties of the family came to be divided by metes and bounds. On the date of partition, there were as many as four minor children, whose welfare was the paramount consideration of the father. The minors left to themselves could not cultivate the parcels of lands allotted to them. So too was the position of elder members. The share that each one of them got was evidently not self-supporting. So the father continued to cultivate and manage the properties of all the members. He divided the income therefrom equally amongst the members. The question is whether on these facts, one could come to the conclusion that all the members have joined together and entrusted their share of properties to Manjappa Gowda with the object to produce income, profits or gains. There is no evidence that all the members including the four minors formed a unit to earn income, profits or gains. There is also no evidence that those minors represented by their guardian have given their assent to put their share of properties in the joint enterprise. The collection of the entire income from the estate by one of the sharers or even by a common employee, as observer by the Supreme Court in Raja Ratan Gopal's case : [1966]59ITR728(SC) , will not make that income an income from a joint venture.

13. In a somewhat similar case, the Supreme Court in Commr. of Agrl. I.T. v. M. L. Bagla : [1971]80ITR173(SC) , has observed that the appointment of a common manager, maintaining of common accounts and distribution of net profits after deducting expenditure for management of the lands, are by themselves not sufficient to hold that the lessees have formed an association of individuals within the scope of the U.P. Agrl. I.T. Act, 1948. Likewise in the present case, the distribution of the income equally to the members of Manjappa Gowda by itself may not be sufficient to reach the conclusion that all the members had formed themselves into an association of individuals. They might have shared the income as individuals and certainly not as an association of individuals. There is absolutely no indication to hold that they had formed themselves into an association of individuals for promotion of a joint enterprise to earn income, profits or gains.

14. Mr. S. Rajendra Babu, learned High Court Government Advocate, however, submitted that there is every justification in the case to infer that all the member have joined as association of individuals since they realised that they were not in a position to cultivate separately were individuals share and that must be the reason why Manjappa Gowda was made the manager of the entire estate.

15. We do not think that the liability to cultivate a bit of land by an individual and the necessity to appoint a common manager to cultivate different parcels of land owned by different individuals, could be an evidence sufficient to constitute the individuals into an association of individuals. In this context it would be useful to quote the observations of the Madras High Court in the decision in State of Madras v. S. Subramania Iyer : [1966]61ITR613(Mad) , which reads thus (p. 623) :

'If the factum of common cultivation by a single agent or manager of different parcels of land owned by different persons could by itself be held to be sufficient to constitute the owners into an association of persons, it would lead to undesirable results. It is a common experience in this part of the country, where the system of absentee landlords prevails, that different owners of agricultural lands give them for cultivation to one lessee or manager or agent. The lessee or manager or agent thereafter, for the purpose of his convenience, uses the same set of ploughs and bulls and common pannai servants for cultivation, and after collecting the produce, he apportions it among the different owners in proportion to yields from their lands. There is no scope for construing such owners as having formed an association solely by reason of their having engaged one and the same lessee, or manager or agent for the purpose of cultivation. The fact that in the present case, the different owners of the land formed members of one family or acquired their properties by settlement of partition from one person could not by itself lead to any alteration to this principle. Even in such a case it is necessary to prove the essential requirement, upon the common exploitation of their lands for common benefit and that it was only in pursuance of that agreement a single person was selected to carry out the common purpose of joint cultivation. The essential requirement is absent in this case.'

16. We entirely agree with these observations. They are generally applicable to every peasant's family in our rural areas. The decision of the Madras High Court in Subramania Iyer's case : [1966]61ITR613(Mad) , has been followed by the Orissa High Court in Ladukishore Das v. State of Orissa [1973] 87 ITR 555. The facts in that case were almost similar to the facts herein. There, the assessee, Ladukishore Das, before the relevant assessment year, partitioned his properties amongst himself, his wife and fours sons of whom one was a major. The partition was by metes and bounds. Even after the partition, all of them continued to be joint and the assessee was looking after the cultivation of the entire property. The assessing authority and the Tribunal treated the assessee, his wife and some as an association of individuals and, accordingly, assessed the income. But the High Court held that the wife and sons of the assessee did not associate together and decide upon the common exploitation of their lands for common benefit and the manager was not selected by them to carry out the common purpose of joint cultivation in pursuance of an agreement amongst them and the assessee, his wife and some do not constitute an association of individuals.

17. What we want to emphasise here is that mere management of the properties of the divided members by Manjappa Gowda and the distribution of the income equally amongst the individuals are neither conclusive nor determinative of the question that they had formed an association of individuals for the purpose of earning income. Four of the sons of Manjappa Gowda were minors. Manjappa Gowda could not do anything but manage the properties belonging to the minor children. it was indeed his duty as a father. In the absence of a joint venture agreed upon by all the members, the cultivation of the properties by Manjappa Gowda and distribution of the net income amongst all the individuals ipso facto cannot lead to the conclusion that the cultivation by the manager was pursuant to a joint venture agreed upon by all the individuals.

18. The decision of the Supreme Court in M.M. Ipoh v. CIT : [1968]67ITR106(SC) , on which strong reliance was placed by Sri Babu, in our opinion, stands on a different footing. In that case, the family owned extensive properties scattered over many countries. there was partition in the larger family and alter on a division in the smaller family, In the smaller division, the minor was represented by the mother and the facts, in brief, were these (pp. 116, 117) :

'M.M. Ipoh properties', which were allotted to Meyyappa (I) at the partition in 1940 became, on the birth of Chettiappa, properties of a coparcenary, and it is common ground that Chettiappa acquired a share in the income which Meyyappa (I) received from the M.S.M.M. firm; the M.M. Ipoh properties' were used in a trading venture and were managed by the M.S.M.M. Firm; the selling agency was common between M.S.M.M. firm and M.M. Ipoh'; the stocks and expenditure of the M.M. Ipoh firm were not separately determined; and common books of accounts were maintained for the management of the M.M. Ipoh properties and M.S.M.M. firm dealings.

Alagammal - mother of Chettiappa had executed a deed of partition dated April 13, 1950, as the guardian of Chettiappa. By the deed she acknowledged having received the share of Chettiappa in the property.'

19. On these facts the Tribunal found that the integrity and management of the estates have continued undisturbed throughout the period. The volition of various members necessary was only all too apparent with the entrustment of the management to M.S.M.M. firm for a proper management. It implied a prior agreement to which the guardian of the minor must have given her consent too.

20. It was on these findings of fact the Supreme Court came to the conclusion that the parties formed an association of individuals to earn income from the trading venture. In the present case, there cannot be any such finding.

21. In the result, we allow these revision petitions and while reversing the order of the Commissioner, we direct the assessing authority to recompute the income in the light of the observations made.

22. In the circumstances, we make no order as to costs.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //