1. Even though in this appeal by the assessee there are several grounds raised which are unnecessarily full of arguments and narrative, the contention raised therein is only one and that is that the loss which had been suffered by the assessee between 1-4-1977 to 22-9-1977 during which an agreement dated 1-4-1977 between the assessee and his brother namely Shri Gurbachan Singh Bawa, was operative was a loss suffered in the sole proprietary business of the assessee which ought to have been determined as such and carried forward to be set off against the future income of the assessee. According to the appellant the agreement dated 1-4-1977 between him and his brother had brought about a relationship of an employer and an employee or principal and an agent and, therefore, the ITO and for that matter the Commissioner (Appeals) had no justification in holding that there was a joint venture or an AOP which had come into existence as a result of the agreement dated 1-4-1977.
2. Before we adjudicate upon the arguments for and against the contentions of the assessee, we might briefly state the facts and reproduce the agreement in question dated 1-4-1977.
3. Till the assessment year 1977-78 (accounting year ended on 31-3-1977) Balwant Singh Bawa was carrying on the business in the manufacture and sale of stainless steel articles and hospital equipments under the name and style of Junu Rubber & General Industries at New Rohtak Road Industrial Area, New Delhi. On 1-4-1977 he entered into an agreement with his brother, namely Gurbachan Singh Bawa. As per the preamble the necessity for entering into the agreement arose on account of indifferent health of Balwant Singh Bawa and on account of preoccupation with certain litigation which was going on in Madras. It was, accordingly, decided between the two parties, namely, the assessee and his brother that the affairs of Junu Rubber & General Industries would be managed and looked after by Gurbachan Singh Bawa for 'mutual common advantage' on the following terms and conditions: 1. That this deed of agreement shall be deemed to have come into effect from 1st April, 1977.
2. That party of the second part shall manage the business affairs of the firm Junu Rubber & General Industries from the date abovementioned to the best interest of the firm for mutual common advantages.
3. That in consideration of the second party having been entrusted to look after the affairs of the firm the profit and loss arising from the business to be carried out during the year ending 31st March, 1978 shall be divided and/or borne by the respective parties in equal proportions.
4. That for the purposes of carrying out the business of the firm the party of the second part shall not be entitled to any fixed remuneration, commission or payment in any other manner except his share of profit in accordance with the preceding clause.
5. That finances required for the business of the firm shall be managed and arranged by party of the first part, who shall continue to operate the bank account of the firm.
6. That this agreement shall be in force initially for a period of one year and will cease to have effect after 31st March, 1978 (the date of closing of accounts of the firm). It may, however, be revoked by either party in accordance with mutual agreement to this effect.
7. That the party of the second part shall not have any right or claim in respect of the assets, and other privileges belonging to the firm which shall exclusively belong to party of the first part.
Similarly in respect of all liabilities and other obligations of the firm it will be the liability of the party of the first part only.
This deed of the agreement is executed on this first day of April, 1977.
In accordance with the aforesaid agreement a trading-cum-profit and loss account had been prepared for the period beginning on 1-4-1977 and ending on 22-9-1977 when unfortunately Gurbachan Singh Bawa expired. As per the accounts prepared a loss of Rs. 3,58,683 had been suffered which had been equally distributed between the assessee Balwant Singh Bawa and his brother Gurbachan Singh Bawa and the accounts of the two had been, respectively, debited by Rs. 1,79,341.50 each. The ITO considered the agreement dated 1-4-1977 and the other relevant facts and came to the conclusion that there was an AOP which was in existence between 1-4-1977 and 22-9-1977. In so holding he had relied upon the decisions of the Hon'ble Supreme Court in the cases of C1T v. Indira Balkrishna  39 ITR 546 and CIT v. Panipat Woollen & General Mills Co. Ltd.  103 ITR 66. After so holding the ITO held that the loss suffered by the AOP was to be considered separately in its own assessment and could not be considered in the hands of the assessee.
This finding of the ITO had been upheld by the Commissioner (Appeals).
After analysing the terms of the agreement dated 1-4-1977 the Commissioner (Appeals) held that it was a case of joint venture between Balwant Singh Bawa and Gurbachan Singh Bawa and that the finding of the ITO was duly supported by the decision of the Hon'ble Supreme Court in the case of Panipat Woollen & General Mills Co. Ltd. (supra).
4. It is in the background of the aforementioned facts that the assessee is in appeal. Shri R. Ganeshan, the learned counsel of the assessee has taken us through the agreement and then contended that the relationship that was created between Balwant Singh Bawa and Gurbachan Singh Bawa as a result of the agreement was that of a principal and an agent. According to him, the present case was akin to the case of managing agent who agrees to share the losses in the event of managed company suffering them. The substance of the agreement, according to Shri Ganeshan, was that during its subsistence the business was to belong entirely to Balwant Singh Bawa who was to provide the finances and who was to bear the liabilities of the business. The terms of the agreemenc were, according to the learned counsel, clearly indicative of the fact that the business of Junu Rubber & General Industries which was the sole proprietary business of Balwant Singh Bawa had continued to be so during 1-4-1977 to 22-9-1977 also. Assailing the findings of the lower authorities that an AOP or a joint venture had come into existence as a result of the agreement, Shri Ganeshan contends that the essential traits of an AOP which is the joint ownership of the assets being absent in this case, there was no question of treating the arrangement as one which brought into existence any AOP or joint venture. Shri Ganeshan further assails the findings of the lower authorities from another angle and says that the party of the first part of the agreement, i.e., Balwant Singh Bawa having completely dissociated himself from the business on account of his indifferent health and preoccupation with a litigation outside Delhi, there was no joining of hands between the two parties and, therefore, once again the essential traits of an AOP were absent in the present case. In support of his contentions Shri Ganeshan has relied on authorities in Lakshminarayan Ram Gopal & Sons Ltd. v. Government of Hyderabad  25 ITR 449 (SC), CIT v. Buldana District Main Cloth Importers Group  42 ITR 172 (SC), Dharamvir Dhir v. CIT  42 ITR 7 (SC) and Mohamed Noorullah v. CIT  42 ITR 115 (SC). He has extensively read out of these decisions in the course of his valiant effort to persuade us that the findings of the lower two authorities were not tenable in law and that the agreement between Balwant Singh Bawa and Gurbachan Singh Bawa was only an agreement between a principal and an agent. Shri Ganeshan has also taken us through the decision of the Hon'ble Supreme Court in Panipat Woollen & General Mills Co. Ltd.'s case (supra) in order to contend that that decision did not support the case of the lower authorities.
5. On the other hand Shri J.R. Malhotra, the learned departmental representative has also taken us through the agreement dated 1-4-1977 and contended that it had been entered into for mutual common advantage of the two parties to the agreement and that as in a partnership the profit and loss arising from the business was to be divided and/or borne by the two parties in equal proportions. According to the learned departmental representative the mere fact that the second party to the agreement, i.e., Gurbachan Singh Bawa had not been given any rights in the assets of the firm or joint venture did not militate against the finding of the ITO and the Commissioner (Appeals) that the business had been carried on as a joint venture between 1-4-1977 and 22-9-1977. Shri Malhotra has submitted that all the traits of an AOP were present and the decision of the lower authorities was unassailable being based on the decision of the Hon'ble Supreme Court in the case of Panipat Woollen & General Mills Ltd. (supra).
6. We have very carefully considered the rival submissions ably made by Shri Ganeshan, the learned authorised counsel of the assessee and Shri Malhotra, the learned departmental representative. We have equally carefully gone through the authorities of the Hon'ble Supreme Court relied upon on the two sides. We have very minutely perused the agreement dated 1-4-1977 and we find therefrom that the business erstwhile carried on by the assessee Balwant Singh Bawa as a sole proprietary business in the name and style of Junu Rubber & General Industries was converted into an arrangement under which the affairs of the same were to be looked after by Gurbachan Singh Bawa, brother of the assessee, for 'mutual common advantage' of the two brothers. It was provided in Clauses 2 to 7 of the agreement dated 1-4-1977 that in consideration of Gurbachan Singh Bawa, i.e., the party of the second part of the agreement having been entrusted to look after the affairs of the 'firm', the profit and loss arising from the business to be carried out during the financial year 1-4-1977 to 31-3-1978 were to be divided between or borne by the parties of the first part and second part in equal proportion. After it had been so provided in Clause 3 of the agreement, it had been clarified in Clause 4 thereof that Gurbachan Singh Bawa, i.e., party of the second part shall not be entitled to any remuneration, commission or other payment excepting 'his share of profit in accordance with preceding clause'. In Clause 5 it was provided that the finances required for the business will be provided by the party of the first part and he shall continue 'to operate the bank account of the firm'. Clause 6 had fixed the duration of the agreement and in Clause 7 it had been made explicit that Gurbachan Singh Bawa, i.e., party of the second part shall not have any rights or claims in respect of the assets of the business which exclusively belonged to the party of the first part. It was further provided in Clause 7 that the 'liabilities and other obligations of the firm' will be the liability of the first part, i.e., the assessee Balwant Singh Bawa. We further find from a trading-cum-profit and loss account which had been prepared for the period 1-4-1977 to 22-9-1977, i.e., till the date up to which Gurbachan Singh Bawa was alive, that a loss of Rs. 3,58,683 had been suffered which had been equally divided between Balwant Singh Bawa, party of the first part of the agreement and Gurbachan Singh Bawa, party of the second part of the agreement. In these facts and circumstances, it appears to us that none of the decisions relied upon by Shri Ganeshan, the learned counsel for the appellant, is of any avail. In the decision of the Hon'ble Supreme Court in the case of Lakshminarayan Ram Gopal & Sons Ltd. (supra), the facts were wholly different. That was a case of a private limited company which had various objects including that of acting as agents for the Governments or authorities or for any joint stock companies. In April 1920 it had been appointed as an agent of D.B.R.M. Co. Ltd. under an agreement. The terms of the agreement provided that the general management of the business of the company was to be looked after by the agents subject to the control and supervision of the directors of D.B.R.M. Co. Ltd. The directors of the abovenamed mills were entitled to give such directions to the agents in regard to the management of the business as they considered necessary. The assessee agents were entitled by way of commission to a certain percentage on the sale profits effected by D.B.R.M. Co. Ltd. In these facts and circumstances, the question arose as to whether the agents of the abovenamed company were merely servants of the company or were carrying on any business.
It was held by their Lordships of the Supreme Court that the activities of the agents constituted a business and the remuneration which was received by them under the terms of the agency agreement was liable to excess profit tax. According to us this decision of the Hon'ble Supreme Court delivered on entirely different set of facts has no application to the facts which have been found by us and which have been stated by us in some detail as above. The reliance placed by Shri Ganeshan on the above decision of the Hon'ble Supreme Court appears to us to be wholly futile. Similarly, the decision of the Hon'ble Supreme Court in the case of Dharamvir Dhir (supra) also does not help the case which is sought to be made on behalf of the assessee. In that case the assessee had entered into an agreement with a trust named Mohini Thapar Charitable Trust in order to carry on a coal raising business. The business was to be carried on with the help of the funds of the trust which were to be advanced to the extent of Rs. 1,50,000. It was to be carried on in accordance with the policy settled between Dharamvir Dhir and the abovenamed trust. In consideration of the trust having agreed to finance the said business, Dharamvir Dhir had agreed to pay to the trust interest on the amount borrowed at the rate of 6 per cent per annum in addition to a sum equivalent to 11/16th of the net profits of the business. It had been held by the Tribunal in that case that the arrangement amounted to a joint venture and the view thus taken had upheld by the Patna High Court. Subsequently, on appeal before the Supreme Court, the decision of the Patna High Court was reversed and their Lordships held that it was not a case of joint venture. In so holding their Lordships took into account the very important fact that the loss, if any, which was to be suffered in business was not to be shared at all but was to be exclusively borne by the assessee in that case. In other words, the finding given by the Hon'ble Supreme Court in the case of Dharamvir Dhir (supra) will show that if over and above the profits to be shared between the assessee in that case and the trust, the losses were also to be shared between the two parties, the arrangement would have been a joint venture. This decision cited on the side of the assessee, therefore, will, if at all, operate against the proposition canvassed by the assessee. The other two decisions of the Hon'ble Supreme Court on which the reliance has been placed by the learned counsel stand in Mohamed Noorullah's case (supra) and Buldana District Main Cloth Importers Group's case (supra) we have gone through these decisions and it appears to us that the guidelines which had been laid down by their Lordships of the Supreme Court as to when an arrangement amounts to an 'association of persons' also go against the case of the assessee. We have in particular gone through those particular pages of the citation on which the learned counsel placed great emphasis but we have not been able to discern any support that can be provided to the case of the assessee from these two decisions.
There is a catena of decisions of the Hon'ble Supreme Court as to when a combination of persons can be said to be an AOP within the meaning of Section 2(31)(v) of the Income-tax Act, 1961 or similar provisions of the Indian Income-tax Act, 1922. The law has been uniformly reiterated and it is to the effect that an AOP comes into existence when two or more persons joined hands for a common purpose or for common action, the object of which is to produce income, profits or gains. If these guidelines laid down by the Hon'ble Supreme Court were to be applied to the facts of the present case, it would immediately appear that here also was a combination of two brothers who had joined hands in the given circumstances to form a combination for 'mutual common advantage'. The profits or losses resulting from the venture were to be equally shared between the two brothers. If an arrangement like the present one which is under consideration and which came into existence as a result of the agreement dated 1-4-1977 between the assessee and his brother cannot be described to be an 'association of persons or a joint venture', then perhaps there can be no other situation when such an entity would be said to exist. The assessee having joined hands with his brother for mutual common advantage of earning profits from the business named Junu Rubber & General Industries and the profits or losses therefrom having been stipulated to be shared equally and having in fact been shared so, it cannot be said that an AOP or a joint venture was not in existence between 1-4-1977 and 22-9-1977. In the background of these facts the decision of the Hon'ble Supreme Court in the case of Panipat Woollen & General Mills Co. Ltd. (supra) becomes wholly germane and was rightly relied upon by the lower authorities and by the learned departmental representative. In that case Panipat Woollen & General Mills Co. Ltd. (supra) had entered into an agreement with one Saligram Prem Nath appointing the latter as sole selling agents. The agents were to invest full amount for the working of the worsted plant of the company. The programme for running of the plant and the manufacture of the goods was to be made jointly or in consultation with each other by Panipat Woollen & General Mills Co.
Ltd. and its agents. The accounts of the worsted plant were to be separately maintained. The agreement further provided that the agents were to be entitled to an interest of 6 per cent on all advances, a commission of 1/4 per cent on net sale and 50 per cent of the profits.
In the event of loss, the agents were to bear it to the extent of 50 per cent. In the assessment years 1956-57 and 1957-58 Panipat Woollen & General Mills Co. Ltd. paid Rs. 37,157 and Rs. 73,787 to the agents as their 50 per cent share of the net profit of the worsted plant and the question arose as to whether above two amounts were admissible business deductions. Their Lordships of the Hon'ble Supreme Court held reversing the decision of the Hon'ble High Court that on account of the abovementioned terms of the agreement and on account of sharing of profits and losses to the extent of 50 per cent the agents became completely equated with Panipat Woollen & General Industries Co. Ltd. and that the contract of agency was nothing but a sort of partnership.
The facts in the above case have a striking resemblance to the facts in the case presently before us and, therefore, according to us the conclusion is inescapable that it was a case of a joint venture or an AOP between the assessee and his brother during the period 1-4-1977 to 22-9-1977. There is no substance in the argument of the learned counsel that there was in fact no joining of hands between Balwant Singh Bawa and Gurbachan Singh Bawa. We find from the agreement of the joint venture that while the day-to-day management of the business was to be looked after by Gurbachan Singh Bawa for mutual common advantage, the finances had to be arranged by Balwant Singh Bawa, i.e., the assessee, and he was also in charge of operating bank accounts of the joint venture. There was, therefore, joining of hands for exploiting the business to the 'mutual common advantage' of the two parties of the agreement and, therefore, the argument of the learned counsel that Balwant Singh Bawa had dissociated himself from business is not acceptable to us. In the above view of the matter, the treatment to the adjustment of losses suffered by the joint venture in the period 1-4-1977 to 22-9-1977 is held to have been correctly given by the income-tax authorities. Since we are in agreement with their decisions for reasons given above, we uphold them and dismiss the appeal of the assessee.