R.R. Rastogi, J.
1. One Sri Gulraj Gupta had purchased a property bearing No. 20, Barakhamba Road, New Delhi, in the name of his wife, Smt. Lilawati Gupta; He died some time in 1940 leaving behind his widow, Smt. Lilawati Gupta, two sons, Sarvasri Hans Raj Gupta and Devraj Gupta, and one daughter, Smt. Vimla Lal, who is the respondent-assessee before us. After the death of Sri Gulraj Gupta his sons resisted the exclusive claim made to this property by Smt. Lilawati Gupta and one of them, that is, Sri Devraj Gupta, filed a suit for separate possession by partition in respect of this property, being Suit No. 70 of 1966. The defendants in the suit were Smt. Lilawati and Sri Hans Raj Gupta After contest a preliminary decree for partition was passed on 11thApril, 1967. The property was held to be the joint property of the parties to the suit and each of them was declared to be the owner of one-third share therein. Smt. Lilawati Gupta lived separately in one-third portion of the house. Thereafter, in final decree proceedings an advocate was appointed as Commissioner for effecting partition of the property. The Commissioner made an interim report and his final report was awaited. During the pendency of the proceedings, Smt. Lilawati died on 22nd November, 1969.
2. Smt. Lilawati Gupta had executed a registered will on January 31, 1968, by which she bequeathed two-thirds of her share in the disputed property to her daughter, Smt. Vimla Lal, and the balance one-third to her daughter-in-law, Smt. Subhadra Devi, wife of Devraj Gupta. Steps were taken to bring her legal representatives on record in the aforesaid proceedings. The genuineness of the will was challenged by Hans Raj Gupta. Pending those proceedings, Smt. Subhadra Devi also died and her two sons, Premraj Gupta and Pradeep Kumar Gupta, were brought on record as her legal heirs. Ultimately a compromise was arrived at in these proceedings on December 15, 1970, and a decree was passed in the suit in accordance with that compromise. A copy of the compromise is annex. C and a copy of the decree is annex. D to the statement of the case.
3. In pursuance of the said compromise, ' with a view to facilitate the partition by metes and bounds in two equal shares herein L. Hans Raj Gupta on the one hand and L. Devraj Gupta and his sons ', Smt. Vimla Lal relinquished and/or surrendered all her rights, title, interest, claim or share in No. 20, Barakhamba Road, New Delhi, ' in a manner that one-sixth share out of the aforesaid two-ninths share in the whole of the property is relinquished and/or surrendered wholly and absolutely in favour of Shri Hans Raj Gupta as the first party herein while the remaining 1/18th share in the whole of the property is relinquished and/or surrendered in favour of Shri Premraj Gupta and Pradeep Kumar Gupta jointly called the third party herein.'
4. On the said relinquishment or surrender of her rights, title or interest in the disputed property, Sri Hans Raj Gupta became the sole owner of half share in the property and Sri Devraj Gupta and his sons and daughters jointly became the absolute owners of the other half share in the said property. Hans Raj Gupta paid a sum of Rs. 1,57,500 to Smt. Vimla Lal ' by way of compensation for loss of residence which Smt. Vimla Lal had suffered (Lilawati, the mother of Smt. Vimla Lal, was using the premises in question for her own residence throughout her life time)', and Sri Premraj Gupta and Sri Pradeep Kumar Gupta similarly paid a sum of Rs. 52,500. Further, Sri Hans Raj Gupta agreed to hand over possession of 1,380 sq. feet of completed built up area out of themulti-storeyed building that was to be built, upon the said property and this was by way of consideration for the relinquishment of her two-ninths share in the said property which had been bequeathed to her by her mother. This transfer was to be subject to the usual terms and conditions of transfer. Similarly Premraj Gupta and Pradeep Kumar Gupta agreed to hand over possession of built in area of 460 sq. feet. Further, they agreed to pay her Rs. 1,87,500 and Rs. 62,500, respectively, by way of liquidated damages in case they failed to construct the proposed multi-storeyed building after demolition of the existing building within a period of three years from the date of execution of this compromise or the construction is not completed within that period. The payment of this amount was made a first charge on the respective shares of these two parties on the disputed property. It was, however, provided that in case these parties paid liquidated damages amounting to Rs. 1,38,000 and Rs. 46,000, respectively, within a period of six months from the date of the compromise, Smt. Vimla Lal will not be entitled to have the transfer and/or the possession of the said respective built up areas. Admittedly, the proposed multi-storeyed building did not come up and the payments of these two amounts were made as stipulated
5. It would thus be seen that the assessee, Smt. Vimla Lal, received a sum of Rs. 2,10,000 (Rs. 1,57,500 from Sri Hans Raj Gupta and Rs. 52,500 from Sri Premraj Gupta and Sri Pradeep Kumar Gupta) by way of compensation for loss of residence and Rs. 1,84,000 (Rs. 1,38,000 from Sri Hans Raj Gupta and Rs. 46,000 from Premraj Gupta and Pradeep Kumar Gupta) by way of liquidated damages in full satisfaction of her claim. The total amount thus received by her during the previous year relevant to the assessment year 1971-72 came to Rs. 3,94,000. The 1TO was of the view that the relinquishment by the assessee of her share in the disputed property which had been bequeathed to her under the will by her mother amounted to a transfer of a capital asset within the meaning of Section 45(1) read with Section 2(47) of the I.T. Act, 1961 (hereinafter ' the Act'). He computed the cost of acquisition in the hands of the assessee at Rs. 1,34,840 and the capital gains arising from its transfer at Rs. 2,59,160. Since the assessee had constructed another property for her residence at a cost of Rs. 1,99,000, after deducting that amount under Section 54(i) of the Act the balance of Rs. 60,160 was treated as capital gains liable for assessment.
6. The assessee filed an appeal before the AAC and urged that there was no sale of the property involved inasmuch as she had not acquired any right in the disputed property on the death of her mother for the reason that the will had been contested by the other co-owners of theproperty. Whatever rights she acquired in the property was in terms of the compromise dated 15th December, 1970, and simultaneously with the acquisition of such right she relinquished the same and thus at no point of time did she hold this property. Further, that the compensation received was only for the loss of residence which had been allowed to her by her mother herself during her lifetime. According to the assessee there was no transfer of the property nor any relinquishment of any right, title or interest therein and the consideration received for loss of residence was not liable for assessment as capital gain. An alternative contention urged was that the compromise deed merely evidenced a distribution of assets in consequence of Smt. Lilawati's will and the capital gain, if any, arising out of such distribution were exempt from tax under the provisions of Section 47(i) and (ii) of the Act.
7. The AAC did' not accept these contentions and, agreeing with the ITO, held that the relinquishment by the assessee of her rights, title and interest in the disputed property amounted to a transfer within the meaning of Section 2(47) of the Act and the capital gain arising as a result thereof were liable to be taxed.
8. Still aggrieved, the assessee took up the matter in further appeal before the Income-tax Appellate Tribunal, Delhi Bench, at New Delhi. On her behalf the same contentions were urged which were placed before the AAC. The Appellate Tribunal, agreeing with the AAC, held that the assessee did acquire a right, in the disputed property under the will of Smt. Lilawati Gupta. However, in the opinion of the Appellate Tribunal: ' After the death of Smt. Lilawati Gupta and Smt. Subhadra Devi the property was held by the assessee, her two brothers and nephews as co-owners' and ' as it was considered impracticable and inexpedient to divide the property by metes and bounds owing to practical difficulties, it was decided by this body of individuals owning the property to hand over the property in equal shares to Hans Raj Gupta on the one hand and Devraj Gupta and his sons on the other and pay the value of her share in the property to Smt. Vimla Lal. In other words, what was given to the assessee was only the monetary value of her share in the property instead of partition of the property which, in the circumstances of the case, it was riot practicable to carry out'. Another finding recorded by the Appellate Tribunal is that these co-owners did not constitute ' an association of persons ' but constituted a body of individuals owning the property, and ' the expression contained in Section 47(ii) of the Act would apply to the above distribution '. Accordingly, the Appellate Tribunal excluded the aforesaid amount of Rs. 60,180 from out of the total income of the assesses for the year under consideration.
9. Now, at the instance of the Commissioner of Income-tax, Lucknow, the Appellate Tribunal has drawn up a statement of the case and has referred the following two questions for our opinion:
'1. Whether, on the facts and in the circumstances of the case, parting with the share of property by the assessee in favour of her brothers amounted to a transfer of property within the meaning of Section 2(47) of the Income-tax Act ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was in law justified in holding that the amount received by the assessee would not form the subject-matter of the assessment to capital gains in view of the provisions of Section 47(ii) of the Income-tax Act '
10. We shall take up the second question first. Section 45(1) of the Act makes any profits or gains arising from the transfer of a capital asset effected in the previous year chargeable to income-tax under the head 'Capital gains'. Such profits or gains shall be deemed to be the income of the previous year in which the transfer takes place. Sections 53, 54 54B and 54D, contain exceptions to this rule. The expression ' transfer ' has been defined in Section 2(47). This definition reads :
''Transfer', in relation to the capital asset, includes the sale, exchange or relinquishment of the asset or the extinguishment of any rights therein or the compulsory acquisition thereof under any law.'
11. This definition is only in relation to a capital asset. The expression 'capital asset' is used in the provisions dealing with capital gains and, therefore, this definition is relevant for the purposes of the head 'Capital gains' only. The definition is quite wide and includes the sale, exchange or relinquishment of the asset or the extinguishment of any rights therein or the compulsory acquisition thereof under any law. Capital asset is defined in Section 2(14) of the Act to mean:
' Property of any kind held by an assessee, whether or not connected with his business or profession, ' but does not include stock-in-trade, personal effects, some agricultural land in India and gold bonds.
Section 47 provides for transactions not regarded as transfer. Clauses (i) and (ii) of this section read as under :
' 47. Nothing contained in Section 45 shall apply to the following transfers:--
(i) any distribution of capital assets on the total or partial partition of a Hindu undivided family ;
(ii) any distribution of capital assets on the dissolution of a firm, body of individuals or other association of persons. '
12. Though, on behalf of the assessee, Clause (i) aforesaid was also referred to before the AAC, it does not appear to have been pressed before the Appellate Tribunal and the case was confined to the application of Clause (ii)only. Under this clause what is required to be shown is that there was a distribution of capital assets and such distribution was occasioned by the dissolution of a firm, body of individuals or other association of persons. In other words, the two essential conditions for the application of this provision are the distribution of the capital assets of the firm, body of individuals or other association of persons and this should have been occasioned by the dissolution of such firm, body of individuals or other association of persons. We have to see whether these conditions were fulfilled in the present case.
13. As noted above, in the suit for partition the disputed property had been held to be joint property of the mother and her two sons. A preliminary decree had been passed and final decree proceedings were pending. In those proceedings the Commissioner had submitted an interim report and his final report was awaited. Pending those proceedings the mother died. It has been found as a fact that the mother had been actually residing in a portion of the disputed property. She executed . a will of her one-third share in this property on January 31, 1968. By means of that will she bequeathed two-thirds of her share to her daughter, Smt. Vimla Lal, and the remaining one-third to her daughter-in-law, Smt. Subhadra Devi, and during her lifetime she had permitted the assessee to stay in the portion of the property belonging to her with a stipulation that she paid Rs. 100 per month to Smt. Subhadra Devi for the use and occupation of the portion bequeathed to her. 'After her death when the assessee set up this will, one of her brothers questioned it. The matter was ultimately settled by compromise. The assessee relinquished her right, title and interest in the disputed property which she had received under her mother's will in favour of her brother, Sri Hans Raj Gupta, and the nephews, Prem Raj Gupta and Pradeep Kumar Gupta, and by way of consideration received Rs. 2,10,000 and Rs. 1,84,000. The former amount was by way of compensation for loss of residence and the latter by way of liquidated damages. According to the Appellate Tribunal the occasion for this transaction was that it was considered ' impracticable and inexpedient to divide the property by metes and bounds owing to practical difficulties'. The compromise deed does not contain any such reason. Anyhow this observation does not mean that the property was incapable of partition, as was urged before us on behalf of the assessee by her counsel, Sri G. C. Sharma. It was thus not a case of division of assets for the reason that the property was incapable of partition. The occasion was ' to facilitate the partition by metes and bounds in two equal shares '. Even that partition was not effected by this document. All it evidenced was that the assessee relinquished and/or surrendered all her right, title and interest in thisproperty and for the same she received cash consideration. Therefore, it is not possible to hold that there was any 'distribution of capital assets'. We would come to the other aspect a little later. All that this transaction indicates is that the assessee relinquished and/or surrendered all her right, title of interest in the disputed property in favour of her brother and nephews. It is not known how this property was ultimately partitioned between those persons. Anyhow it cannot be said to be a case of distribution of capital assets. It is clearly a case of relinquishment or extinguishment of the rights of the assessee in the disputed property.
14. Now, we come to the other condition and it is to be seen whether these co-owners constituted a body of individuals. The question arises as to what is meant by ' a body of individuals ' Section 2(31) of the Act defines the expression 'person '. Sections 4 and 5, which are charging sections, levy tax on every person and ' person ' as denned in Sub-section (31) of Section 2 includes :
1. an individual;
2. a Hindu undivided family ;
3. a company ;
4. a firm ;
5. an association of persons or a body of individuals whether incorporated or not;
6. a local authority, and
7. every artificial juridical person, not falling within any of the preceding sub-clauses.
15. Thus there are seven units of assessment under this Act. It would be seen that the words ' body of individuals ' are placed in the same sub-clause in juxtaposition with ' association of persons '. Such was not the position in the 1922 Act. Evidently the words ' body of individuals ' would take their colour from the words which precede them. The essence of the concept of an association of persons is, persons joining in common action with the object of producing income. The phrase is of a comprehensive import. Under Section 3(42) of the General Clauses Act ' person ' includes any company or association or body of individuals, whether incorporated or not. Hence, an association of persons may have as its members, companies, firms, joint families and associations. This phrase is not used in any technical sense and has to be construed in its plain ordinary meaning. Where there is a combination of persons formed for the promotion of a joint enterprise, in other words, when co-adventurers are banded together in common action, they are assessable as an 'association of persons' when they do not in law constitute a partnership. Joining together of the members of the group, out of their volitionor free will, for Carrying on the business is the sine qua non for the existence of an association of persons. The fact that an association emerges as a result of an order of the court appointing a receiver, or does a business under a scheme evolved and controlled by a Government authority, or is necessitated by quota regulations, is immaterial. The Supreme Court had an occasion to consider the meaning of this expression in the case of CIT v. Indira Balkrishna : 39ITR546(SC) . After reviewing the case-law on the point it was held that in order to constitute an association, persons must join in common purpose or common action and the object of the association must be to produce income. It is not enough that the persons receive the income jointly. It was also observed that 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. It must depend on the particular facts and circumstances of each case as to whether that conclusion can be drawn or not. This case was followed in Mohamed Noorullah v. CIT : 42ITR115(SC) . Also see CIT v. Buldana District Main Cloth Importers Group : 42ITR172(SC) and G. Munigesan & Brothers v. CIT : 88ITR432(SC) .
16. It would thus be seen that in order to constitute an association, persons must join in a common purpose or common action with an object to produce income. Such combination should be voluntary and even minors can become members of an association through their guardian if the guardian gives his consent for the said purpose. In the case of co-owners of property if their shares are not definite or ascertainable they may be assessable as an association of persons, but if the shares are definite and ascertainable, mere co-ownership is not sufficient to constitute an association of persons. The question is whether the expression ' body of individuals ' requires any different test. In Ramanatha Aiyer's Law Lexicon, at p. 144, the meaning of the word ' body ' has been given as follows :
' A number of individuals spoken of collectively, usually associated for a common purpose, joined in a certain cause, or united by some common tie or occupation ; as, a legislative body, the body of the clergy; a body corporate.'
17. The Madras High Court in CIT v. Deghamwala Estates : 121ITR684(Mad) , after noting this definition of ' body ', while interpreting the phrase ' body of individuals ' observed (p. 691) :
' Thus, the above meaning of the word, ' body ' would require an association for some common purpose or for a common cause or there must be unity under some common tie or occupation. A mere collection of individuals without a common tie or a common aim cannot be taken to be a body of individuals falling within Section 2(31). '
18. The fact that in the same sub-clause these two expressions have been used would show that the two entities cannot be identical in conception. But it is not possible to state precisely what combination would constitute an association of persons and what a body of individuals. Some overlapping is bound to occur. However, because of the fact that the two expressions have been used in juxtaposition- to each other, the expression ' body of individuals ' has to take its colour from the context in which it has been used. It is only on the facts of each case that it has to be seen as to whether a given group is a body of individuals or not. In our opinion, in order to constitute a body of individuals apart from the element of volition, it is required that the association should be for some common purpose or for some common cause and since the expression has been used in a taxing statute, it is necessary that the object of the association has to be to produce income.
19. If we apply these tests to the present case it would appear that these co-owners did not constitute a body of individuals for the reason that their shares were definite and ascertainable in the property in dispute. They were holding the property not with the object to produce income there from. We do not agree with Shri Sharma that since the property was capable of yielding capital gains on sale it should be taken that the co-owners held that property with the object of producing income. The contention is based on a hypothetical assumption. The common purpose of the co-owners was certainly not to hold the property to produce income, but by means of this transaction what they did was that one of the co-owners walked out of this property for cash consideration and relinquished her right, title and interest therein in favour of the other co-owners. Much less can it be said that there was a dissolution of the body of individuals. It cannot be said, therefore, that there was any distribution of the capital assets on account of the dissolution of the body of individuals. We are, therefore, of the view that the assessee along with other co-owners did not constitute a body of individuals within the meaning of Section 2(31)(v) qua this property and further it was not a case of distribution of capital assets belonging to any body of individuals occasioned by the dissolution of that body of individuals. None of the two conditions required by the provision, therefore, was satisfied in this case and the view taken by the Appellate Tribunal to the contrary is erroneous in law.
20. The matter may be viewed from another view-point, and it is, that Section 26 of the Act, which provides for property owned by co-owners, specifically lays down that where property consisting of building or building and lands appurtenant thereto is owned by two or more persons and their respective shares are definite and ascertainable, such persons shallnot in respect of such property be assessed as an association of persons but each co-owner must be assessed individually in respect of his share of the income. A fortiori such co-owners cannot be assessed in respect of their income from house property as a body of individuals also and Section 47(ii) of the Act will not be attracted.
21. Our answer to this question, therefore, is that the Appellate Tribunal erred in holding that the disputed transaction is exempted from levy of capital gain under Section 47(ii) of the Act.
22. Coming to question No. 1 it would be seen that while considering question No. 2 we have already held that the assessee did not constitute a body of individuals owning the disputed property and further that the impugned transaction did not amount to a distribution of a capital asset on the dissolution of such body of individuals. We have also held that by means of this transaction the assessee relinquished all her right, title and interest in the disputed property in favour of her brothers and nephews. Now, the expression 'transfer' is defined in Section 2(47) in relation to a capital asset to include sale, exchange or relinquishment of the asset or the extinguishment of any rights therein or the compulsory acquisition thereof under any law. Inasmuch as the impugned transaction amounted to a relinquishment of all her right, title and interest in the disputed property by the assessee, it would be covered within this definition and the view taken by the Tribunal to the contrary is erroneous. There were three co-owners of this property, viz., Smt. Lilawati, Sri Hans Raj Gupta and Sri Devraj Gupta, each having 1/3 share therein. Smt. Lilawati bequeathed her 1/3 share to her daughter, the present assessee and to her daughter-in-law, Smt. Subhadra Devi, in the proportion of 2/3 and 1/3. In other words, after the death of Smt. Lilawati, the assessee became the co-owner of a specific share in this property and that was to the extent of 2/3 of 1/3. It would not be correct to say, as contended on behalf of the assessee by Sri Sharma, that the assessee did not acquire any right in the property in dispute on the death of Smt. Lilawati and that whatever right she had in this property was created in her favour by means of the compromise dated 15th December, 1970, and that simultaneously with the acquisition of the right she relinquished it and thus at no point of time did she hold the property before its transfer. The correct position is that immediately on the death of Smt. Lilawati the assessee acquired a right, title and interest in the disputed property as legatee of the deceased and that was to the extent of 2/3 share in her mother's 1/3 share. This creation of right would not be defeated merely because Sri Hans Raj Gupta challenged the genuineness of the will. She, however, relinquished her right, title or interest in this property by means of the compromise dated 15th December, 1970. Thus, she was a co-owner ofthe property along with her brothers and nephews and her share was ascertained and definite and when she relinquished that share the transaction would be a transfer within the meaning of Section 2(47) of the Act. Our answer to this question, therefore, is in the affirmative.
23. We, therefore, answer question No. 1 in the affirmative, in favour of the Department and against the assessee and question No. 2 in the negative, in favour of the Department and against the assessee. The Department is entitled to costs which we assess at Rs. 250.