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Bhopal Stud and Agricultural Farm Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Indore
Decided On
Judge
Reported in(1985)14ITD93Indore
AppellantBhopal Stud and Agricultural Farm
Respondentincome-tax Officer
Excerpt:
1. the appeal filed by the assessee and the cross-objection filed by the department are taken and heard together and disposed of by a common order for the sake of convenience. the appeal of the assessee relates to the assessment year 1979-80 and arise out of the order of the commissioner (appeals), bhopal, dated 2-11-1982. the only point for consideration in this appeal is regarding the status of an aop adopted by the ito and confirmed by the commissioner (appeals). the assessee is carrying on business of horse breeding. earlier it was being carried out by nawab rashid-ur-zafar khan. after his death in 1961, the business was looked after by his widow begum suraiya rasheed and his two sons nadir rasheed and yawar rasheed and his two daughters mrs. mahabano ali and mrs. nilofar khan. after.....
Judgment:
1. The appeal filed by the assessee and the cross-objection filed by the department are taken and heard together and disposed of by a common order for the sake of convenience. The appeal of the assessee relates to the assessment year 1979-80 and arise out of the order of the Commissioner (Appeals), Bhopal, dated 2-11-1982. The only point for consideration in this appeal is regarding the status of an AOP adopted by the ITO and confirmed by the Commissioner (Appeals).

The assessee is carrying on business of horse breeding. Earlier it was being carried out by Nawab Rashid-ur-Zafar Khan. After his death in 1961, the business was looked after by his widow Begum Suraiya Rasheed and his two sons Nadir Rasheed and Yawar Rasheed and his two daughters Mrs. Mahabano Ali and Mrs. Nilofar Khan. After the death of Nawab Saheb the entire property including the business was inherited by the widow and her four children as her co-heirs. The shares were specified according to Muslim law, according to which Begum Suraiya Rasheed got 6/48 share. Both the sons got 14/48 share each and the two daughters got 7/48 share each. After the death of Nawab Saheb, the Bhopal Stud & Agricultural Farm (P.) Ltd. was incorporated on 11-12-1962. The aforesaid company has gone into liquidation with effect from 28-9-1968. Again, for the first time the income from livestock breeding was taxed from the assessment year 1976-77. The said income is shown according to their individual shares in the income-tax returns of all the five co-heirs for the assessment years 1976-77 to 1978-79, along with their other incomes like property income, foreign income, etc. This has been accepted in assessments for all these three years completed by the ITO. The income of Bhopal Stud & Agricultural Farm (P.) Ltd., which carried on the business of horse breeding was included in the individual returns of all the five co-sharers during all the aforesaid three years. No separate assessment of Bhopal Stud & Agricultural Farm (P.) Ltd. was made for the assessment years 1977-78 and 1978-79. For the assessment year 1976-77, a notice under Section 148 of the Income-tax Act, 1961 ('the Act') was given and the assessment of Bhopal Stud & Agricultural Farm (P.) Ltd. was reopened and the assessment order was passed in the status of an AOP. The last determined income in that year was divided in the same ratio between all the five co-heirs. In that order it has been specifically written that the department has made the assessment of members individually. It cannot be assessed in the name of an AOP. The aforesaid assessment order for the assessment year 1976-77 was passed under Section 143(3), read with Section 147(a), of the Act on 26-2-1980. During the assessment year in question, the ITO has assessed the assessee in the status of an AOP under Section 143(3), read with Section 144B, of the Act. Since, the same has been confirmed by the Commissioner (Appeals), the assessee is in appeal before us.

3. The arguments of the learned counsel for the assessee are two-fold.Relying on the decision of the Orissa High Court in the case of CIT v.Belpahar Refractories Ltd. [1981] 128 ITR 610. It is submitted by the learned counsel for the assessee that when the income/loss of the assessee is assessed in the hands of the individual members during the assessment years 1976-77 to 1978-79, there is no reason for change of decision on the part of the ITO, when the facts of the case are the same and no fresh facts have come to the light of the ITO by which he can change his earlier decision. As laid down by their Lordships of the Orissa High Court in the aforesaid case though rule of res judicata is not applicable in income-tax proceedings and each year's assessment is separate, there are two exceptions to the rule, namely, an earlier decision on the same question cannot be reopened unless that decision is arbitrary or perverse or arrived at without due enquiry. The second limitation is that the effect of revising the earlier decision should not lead to injustice and the Court may prevent an assessing authority from doing something which would be unjust and inequitable. He further relied on the decision of the Patna High Court in the case of Kaniram Ganpat Rai v. CIT [1941] 9 ITR 332, where their Lordships of the Patna High Court have held that though the ITO was not bound by the rule of res judicata or estoppel by record, yet he could reopen the matter of assessment only if fresh facts came to light, which, on investigation, would entitle the officer to come to a conclusion different from that of his predecessor. In support of his aforesaid contention, he further relied on the decision of the Madhya Pradesh High Court in the case of CIT v. Bhilai Engg. Corpn. (P.) Ltd. [1982] 133 ITR 687 where their Lordships of the Madhya Pradesh High Court have held that though the principle of rets judicata has no application to proceedings under the Act and the findings reached for one particular assessment year cannot be held to be binding in the assessment proceedings for the subsequent years, yet this general rule is subject to the qualification that a finding reached in the assessment proceedings for an earlier year, after due enquiry, would not be reopened in a subsequent year if it is not arbitrary or perverse, and if no fresh facts are found in the subsequent assessment year. This is on the principle that there should be a finality and certainty in all litigations including litigations arising out of the Act. Relying on the aforesaid decisions of the various High Courts, the learned counsel submitted that the principle of res judicata would be applicable to the facts of this case as no fresh facts have come to the light of the ITO after passing the assessment orders for the assessment years 1976-77 to 1978-79 and that the order passed by the ITO resulted in injustice to the assessee.

Alternatively, he argued that the assessments of the individuals for the assessment year in question have been finalised on 30-3-1982 and the assessment of the AOP has been made on 27-4-1982. The assessments of individual members have been made after including the income from business of Bhopal & Stud Agricultural Farm (P.) Ltd. subject to rectification. Income from horse breeding, which is also a business income, has been divided between the members in the same ratio. This has not been treated as the business of the AOP. The assessment of members when done earlier, in which the income of stud has been taxed, the same according to him cannot be taxed again in the case of an AOP.For the aforesaid proposition, he relied on the decision of the Calcutta High Court in the case of CIT v. C. Ratan & Co. & S.N.Agarwalla [1981] 128 ITR 39. The brief facts of the aforesaid case decided by the Calcutta High Court are as under : R and Co., a firm, entered into a contract with A, an individual, to carry on a business each having half share. This was claimed to be a joint venture which was accepted by the ITO and the respective shares were assessed in the hands of the firm as well as A. For the assessment years 1963-64 and 1964-65, the ITO sought to assess the firm as an association of persons. The AAC cancelled the assessments and this was upheld by the Tribunal on the ground that the income earned by the firm and A had already been assessed much earlier than the date when it was assessed in the hands of the association of persons and that the inclusion of the share in the assessment of the firm was under Section 143(3) and so a 'regular assessment'. On a reference, it was contended by the revenue that in the assessment of the firm the share from the association of persons was taken only for the purpose of rate pending the assessment of the association of persons which meant that it was not actually assessed : (p. 39) On the aforesaid facts, it was held by their Lordships of the Calcutta High Court that in view of the finding arrived at by the Tribunal, the assessment of the assessee in the status of an AOP was invalid. In support of the aforesaid contention, the learned counsel for the asses-see relied on several other decisions, namely, the case of Ramanlal Madanlal v. CIT [1979] 116 ITR 657 (Cal.) and Ch. Atchaiah v.ITO [1979] 116 ITR 675 (AP). He further argued that the assessment made in the status of an AOP is not correct. It cannot be assessed as an AOP as per the ratio laid down by the Supreme Court in the case of CIT v.Indira Balkrishna [1960] 39 ITR 546. In the aforesaid case, their Lordships of the Supreme Court have held that the word 'associate' means 'to join in common purpose, or to join in an action'. Therefore, 'association of persons', as used in Section 3 of the Act, means an association 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. Their Lordships further held that co-widows succeeded as co-heirs to the estate of their deceased husband and took as joint tenants with rights of survivorship and equal beneficial enjoyment ; they were entitled as between themselves to an equal share of the income. Though they took as joint tenants, no one of them had a right to enforce an absolute partition of the estate against the others so as to destroy their right of survivorship. But they were entitled to obtain a partition of separate portions of the property so that each might enjoy her equal share of the income accruing therefrom.

As there was no finding that the three widows had combined in a joint enterprise 19 produce income, and as they had done no act which had helped to produce the income, it could not be held that they had the status of an AOP within the meaning of Section 3. If the aforesaid proposition of law is applied to the facts of the case, the learned counsel for the assessee contended that there is no such agreement or any willingness to join together by the heirs of the deceased to earn profits and, therefore, the assessee cannot be assessed in the status of an AOP.4. The learned departmental representative, on the other hand, relied on the orders of the lower authorities.

5. We have carefully considered the facts and circumstances of the case and the submissions on either side. We will first take up the first argument of the learned counsel for the assessee whether the principle of res judicata applies to the facts of this case. As seen from the records, that the stud business was carried out by Bhopal Stud Agricultural Farm (P.) Ltd., which was incorporated in the year 1962, the aforesaid company has admittedly gone into liquidation with effect from 30-9-1968. Therefore, the facts as they stood earlier to the year 1968, are not very relevant to decide the dispute under consideration before us. In fact, records do not reveal as to how the income of the stud business has been assessed from the year 1968 till the assessment year 1976-77. For the first time from the assessment years 1976-77 to 1978-79, the income from the aforesaid business was assessed in the hands of members individually according to their shares as per Muslim law. In the year under consideration before us, the main point to be considered by us is whether any fresh facts have come to the light of the ITO, after completing the assessments for the earlier years, namely, for the assessment years 1976-77 to 1978-79. On a perusal of the entire records, it can be safely concluded that no fresh facts have come to the knowledge of the ITO at the time of making the assessment for the assessment year in question In the case decided by their Lordships of the Orissa High Court in Belpahar Refractories Ltd.'s case (supra), their lordships held that the rule of res judicata does not apply to assessment proceedings, but there are two exceptions to the rule, namely, an earlier decision on the same question cannot be reopened unless that decision is arbitrary or perverse or arrived at without due enquiry. The second limitation is that the earlier decision should not cause injustice to the assessee. Their Lordships of the Madhya Pradesh High Court in Bhilai Engg. Corpn. (P.) Ltd.'s case (supra) have further held that a finding reached in the assessment proceedings for an earlier year, after due enquiry, would not be reopened in the subsequent year if it is not arbitrary or perverse, and if no fresh facts are found in the subsequent assessment year. As already pointed out by us that from the facts on record, it is clear that no fresh facts have come to the knowledge of the ITO and the decision of the ITO is neither arbitrary nor perverse and has been arrived at after due enquiry. We are, therefore, of the opinion that the ratio laid down by their Lordships of the Madhya Pradesh and Orissa High Courts is applied to the facts of this case, the rule of res judicata clearly applies and the ITO is not justified in deviating from the earlier decision taken by him and assess the assessee in the status of an AOP The ratio laid down by their Lordships of the Madhya Pradesh High Court is based purely on the principle that there should be finality and certainty in all litigations including litigations arising out of the Act.

6. We do not accept the second argument of the learned counsel for the assessee that when the assessment of members when done earlier, in which the income of stud ha* been taxed then the same income cannot be taxed again in the case of an AOP, as it is seen from the records that though the assessments of the individuals have been finalised on 30-3-1982 after including the income from business of Bhopal Stud & Agricultural Farm (P.) Ltd., the aforesaid assessments were made subject to the rectification. The aforesaid assessments not being final, we are of the opinion that the ratio laid down by the Calcutta High Court in C. Ratan & Co. & S.N. Agarwalla's case (supra) can be easily distinguishable from the facts of this case.

7. The third argument of the learned counsel for the assessee is his reliance on the case of the Supreme Court in the case of Indira Balkrishna (supra). On a perusal of the order of the ITO, it is seen that the ratio laid down by their Lordships of the Supreme Court has been made use of by the ITO in favour of the revenue. But on close reading of the dictum laid down by their Lordships of the Supreme Court, we are of the opinion that the aforesaid ratio is more in favour of the assessee than of the revenue. Their Lordships of the Supreme Court, in the aforesaid case, have held that an AOP must be one in which two or more persons join in a common purpose or common action and the object of which is to produce income, profits or gains. From the aforesaid ratio, it is clear that there should be either an agreement or willingness between two or more persons by which they join together to earn income. In the case under consideration before us, Begum Suraiya Rasheed, the wife of Nawab Saheb and his two sons and two daughters inherited the property of the deceased as co-heirs and by operation of law they became entitled to the business of the stud farm.

It is, therefore, clear that the abovesaid persons have come together as a result of legal provision and not according to their willingness or agreement. We are, therefore, of the opinion that the ratio laid down by the Supreme Court in the aforesaid case is more in favour of the assessee, and the ITO is not justified in assessing the assessee in the status of an AOP. We, therefore, do not agree with the order passed by the Commissioner (Appeals) in confirming the order passed by the ITO.The cross-objection filed by the revenue is against the order of the Commissioner (Appeals) dated 2-11-1982. In the cross-objection, the revenue has taken the ground that the learned Commissioner (Appeals) erred in considering the issue whether in the hands of members the share should be before or after deduction of income-tax, as this point does not arise in the case of an AOP nor any prejudice is caused to the AOP. Further, the Commissioner (Appeals) erred in directing that the share to be assessed in the hands of the members, would be out of the total income as reduced by income-tax of an AOP.10. Since the same ground has been taken by the revenue in IT Appeal No. 255 (Indore) of 1983, the cross-objection is treated as infructuous and is, therefore, dismissed.

1. I have studied the order of my learned senior brother. On facts which have been found in paragraph No. 5 there can be no dispute. I accept the facts as stated by my learned senior brother. However, it is with most sincere regrets that I am unable to agree with my learned senior brother with the conclusion particularly in law, on the first and the third submissions made by the assessee.

2. Even though it is not necessary to restate the facts, I will recapitulate them briefly. In his lifetime, the Nawab Saheb among his other activities, carried on the activities under the name and style of Bhopal Stud & Agricultural Farm (P.) Ltd. Nawab Sahab died sometime in 1961. On his death, his heirs were his widow Begum Suraiya Rasheed, his two sons and two daughters. The five heirs received the property left by Nawab Saheb. Sometime in 1962, a private limited company was incorporated. This company Bhopal Stud & Agricultural Farm (P.) Ltd., as its name suggests, took over the agricultural farm and stud that was started in his lifetime by Nawab Saheb. This private limited company carried on business activities for some five years and with effect from 30-9-1968 the limited company was liquidated. On the limited company closing down the business, Begum Suraiya Rasheed and her four children continued the activities that were earlier carried on under the name and style of Bhopal Stud & Agricultural Farm (P.) Ltd. The facts as brought to our notice disclose that for the first time in the accounting year ended 31-3-1976 relevant for the assessment year 1976-77 all the five heirs returned their shares in such activities as per the Muslim law. For the assessment years 1976-77 to 1978-79, each of the five heirs was assessed on the individual share of the activity of Bhopal Stud & Agricultural Farm (P.) Ltd. so returned. For the assessment year 1979-80 on 30-8-1979, the ITO received return disclosing income of nil, the return being filed by an AOP name indicated being Bhopal Stud & Agricultural Farm (P.) Ltd., Bhopal.

3. Now, on these facts, as noted by my senior brother, the assessee's three objections against the assessment as made in terms of the order dated 27-4-1982 and as confirmed by the Commissioner (Appeals) in terms of his order dated 2-11-1982 were three-the first objection is based on the principles of res judicata, the second is based on the assessee's submission that, 'the assessments of the individuals have been finalised on 30-3-1982 after including the income from business of Bhopal Stud & Agricultural Farm (P.) Ltd. and as such, the ITO had exercised an option of assessing the individuals separately. The third argument was based on the Supreme Court's decision in the case of Indira Balkishna (supra).

4. Since I have stated earlier that my senior brother has held that the second argument is against the assessee, one need not examine the assessee's submissions thereon. Inasmuch as after great deliberation, I am not in a position to agree with my senior brother's conclusion on the first and third submissions made by the assessee, I will proceed to examine the two in some details. As one understands it, the more important of the two objections is the third objection, viz., the assessee's objection based on the decision of the Supreme Court in the case of Indira Balkrishna (supra).

5. Shri Chhajed, as observed by my senior brother, has argued that, "the assessment made in the status of an AOP is not correct. It cannot be assessed as an AOP as per the ratio laid down by the Supreme Court in the case of Indira Balkrishna (supra). In the aforesaid case, their Lordships of the Supreme Court have held that the word 'associate' means 'to join in common purpose, or to join in an action'. Therefore 'association of persons', as used in Section 3, means an association 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. Their Lordships further held that co-widows succeeded as co-heirs to the estate of their deceased husband and took as joint tenants with rights of survivorship and equal beneficial enjoyment ; they were entitled as between themselves to an equal share of the income. Though they took as joint tenants, no one of them had a right to enforce an absolute partition of the estate against the others so as to destroy their right of survivorship. But they were entitled to obtain a partition of separate portions of the property so that each might enjoy her equal share of the income accruing therefrom. As there was no finding that the three widows had combined in a joint enterprise to produce income, and as they had done no act which had helped to produce the income, it could not be held that they had the status of an AOP within the meaning of Section 3. If the aforesaid proposition of law is applied to the facts of the case, the learned counsel for the assessee contended that there is no such agreement or any willingness to join together by the heirs of the deceased to earn profits and, therefore, the assessee cannot be assessed in the status of an AOP.[Latter part of para 3]. Now, on these submissions, nay senior brother has observed in paragraph No. 7 of the order "But on close reading of the dictum laid down by their Lordships of the Supreme Court, we are of the opinion that the aforesaid ratio is more in favour of the assessee than of the revenue. Their Lordships of the Supreme Court, in the aforesaid case, have held that an AOP must be one in which two or more persons join in a common purpose or common action and the object of which is to produce income, profits or gains. From the aforesaid ratio it is clear that there should be either an agreement or willingness between two or more persons by which they join together to earn income.

In the case under consideration before us, Begum Suraiya Rasheed, the wife of Nawab Rashid-ur-Zafar Khan, and his two sons and two daughters inherited the property of the deceased as co-heirs and by operation of law they became entitled to the business of the stud farm. It is, therefore, clear that the aforesaid persons have come together as a result of legal provision and not according to their willingness or agreement. We are, therefore, of the opinion that the ratio laid down by the Supreme Court in the aforesaid case is more in favour of the assessee, and the ITO is not justified in assessing the assessee in the status of an AOP." 6. In Indira Balkrishna's case (supra) towards the end the Supreme Court has observed : In In re. B.N. Elias [1935] 3 ITR 408, Derbyshire, CJ., 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 Beaumount, CJ. in CIT v. Lakshmidas Devidas [1937] 5 ITR 548, at page 589 and also in In re. Dwarkanath Harischandra Pitale [1937] 5 ITR 716. In In re.

B.N. Elias's case (supra), 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 partnerships... When we find... that there is a combination of persons formed for the promotion of a joint enterprise. .. then I think no difficulty arises whatever in the way of saying that... these persons did constitute an association...' We think that the aforesaid decisions correctly lay down the crucial test for determining what is an association of persons within the meaning of Section 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 Section 3 ; it must depend on the particular facts and circumstances of each case as to whether the conclusion can be drawn or not.

7. Now, in the case of Indira Balkrishna (supra), it would be proper to recollect that the Court was concerned with the department's action in making an effort to assess the co-widows as an AOP. The Court has observed : ... it is 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..'.

...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 Section 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 Section 9(3) clearly applied in respect of the immovable property.

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.(p. 550) It was on these facts that the test which the Supreme Court approved later and referred to by me earlier, the Court concluded by observing : 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 Section 3 of the Indian Income-tax Act.

8. There is a clear distinction in the rights of the co-widows under the Hindu law as it stood in the accounting year relevant for the assessment years 1950-51 and 1951-52 and the position of the heirs in Muslim law. It is unnecessary to state that the Supreme Court, did not notice any finding of the Tribunal that the three widows had combined in the joint enterprise to produce income.

9. In the facts of the present case, on the death of Nawab Saheb in 1961, had the five heirs continued the activities as they were being earlier carried on, without more, certainly it could be said that the five heirs could not be termed as an AOP under the Act. However, some of these five heirs took steps to incorporate a private limited company which was so incorporated on 11-12-1962. To this private limited company, all the five heirs transferred the assets and liabilities of the activities the five heirs were carrying on after the death of Nawab Saheb till such time of the transfer of the assets and the liabilities to the limited company. From 12-12-1962 till 27-9-1968 (the private limited company went into liquidation with effect from 28-9-1968) the private limited company was carrying on the business. After the company was liquidated, one finds that it could not be that Muslim law brought these five persons together. They came together by their own act (sic) be operation of any law which could give to the erstwhile shareholders the profits which the limited company owned, that transfer by the limited company to the five heirs of the assets and liabilities of the erstwhile business carried on by the private limited company, was not an act over which they had no control. To receive such assets and liabilities, if any, of the undertaking of the limited company (sic) activities jointly was the conscious act of the five heirs. It is this conscious act of the five heirs which takes the assessee's case out of the principles laid down by the Supreme Court in Indira Balkrishna's case (supra). As I understand it, to these facts aptly apply the observations in B.N. Elias, In re. [1935] 3 ITR 408 (Cal.) by the Supreme Court and italicised in paragraph No. 6 above and reproduced once again for emphasis : ... when we find, ... that there is a combination of persons formed for the promotion of a joint enterprise. .. then I think no difficulty arises whatever in the way of saying that... these persons did constitute an association. ... (p. 552) 10. One has now to turn to the first argument taken by the assessee based on the principles of res judicata. On this issue, in paragraph No. 5 of the order, my senior brother observed : On a perusal of the entire records it can be safely concluded that no fresh facts have come to the knowledge of the ITO at the time of making the assessment for the assessment year in question.

The above statement is absolutely correct. The decision given by the Supreme Court in Indira Balkrishna's case (supra) was given as early as 14-4-1982. It is an undisputed fact that between the primary facts of the three years relevant for the assessment years 1976-77 to 1978-79 both years inclusive on one hand and the facts of the year under consideration on the other hand, there is no difference whatsoever.

However, if on the earlier occasion, the ITO did not appreciate the principles laid down by the Supreme Court in Indira Balkrishna's case (supra), properly, and has made an assessment on an incorrect understanding of law, the issue is whether the ITO must be required to persist in making that mistake of law. My senior brother has not referred to the leading Indian case on the question of resjudicata, that the case of H.A. Shah & Co. v. CIT [1956] 30 ITR 618 decided by the Bombay High Court. The Chief Justice Chagla has observed: ... It may be said that even though the first Tribunal may take into consideration all the facts, still its decision may be so erroneous as to justify the subsequent Tribunal in not adhering to that decision. In a case like this, which indeed must be an extreme case, it could be said that the decision of the first Tribunal was a perverse decision, and if the decision of the first Tribunal was either arbitrary or perverse it would justify the second Tribunal in departing from the decision arrived at by the first Tribunal.... (p.

625) Now, if any understanding of the Supreme Court decision in Indira Balkrishna's case (supra) be correct, the assessee's case does not come within the rule of Indira Balkrishna's case (supra). Once, if it be the correct that the assessee's case does not come within the rule of Indira Balkrishna's case (supra), the decision by the ITO for the three years 1976-77 to 1978-79, both years inclusive, of necessity, has to be called to be so erroneous as to justify the subsequent Tribunal in not adhering to that decision it is unnecessary to state that the assessments properly made can be reopened when there is a retrospective amendment of the Act. Now, on this issue, the first leading case is that of the Supreme Court in U.K. Venkatachalam, ITO v. Bombay Dyeing & Mfg. Co. Ltd. [1958] 34 ITR 143. It will be recollected that that was a case where on a retrospective amendment of a particular provision, the Supreme Court has upheld the ITO's action in rectifying the assessment.

As far as the reopening is concerned, the leading case is that of the Bombay High Court in the case of CIT v. Bai Navajbai N. Gamadia [1959] 35 ITR 793. In that case, the ITO had finalised the assessment for the year 1952-53 on 29-8-1952. On 24-5-1953, Section 4(3)(i) of the Act was amended with retrospective effect from 1-4-1952. Thereupon the ITO initiated reassessment proceedings under Section 34(1 )(b) of the Act.

The Bombay High Court held, that the knowledge of that amendment was sufficient in law to constitute receipt of information within the meaning of Section 34(1)(ft) and the receipt of such information was sufficient for the Income-tax Officer to have reason to believe that the income of the assessee for the year 1952-53 had escaped assessment.

11. Now, in the instant case, even if my understanding of the Supreme Court in Indira Balkrishna's case (supra) be correct, the ITO would not be justified to reopen the assessment for the years 1976-77 to 1978-79 because at the time the ITO made those assessments, the Supreme Court had already given the decision. However, for the assessment under consideration, viz., 1979-80, the ITO is making an assessment for the first time and the issue is whether an assessment, which is being made for the first time, cannot be made in consonance of the law. Merely because the earlier assessments were incorrectly made.

12. For the reasons given above, with deepest regret, I am unable to agree with my learned senior brother regarding the decision on the first and the third arguments advanced by Shri Chhajed. Accordingly, I will decide the two arguments against the assessee. On that basis, in my understanding it follows that there being a difference, it is necessary to refer the case to the Hon'ble President under Section 255(4) of the Act.

1. The assessee in this matter is Bhopal Stud & Agricultural Farm (P.) Ltd. assessed in the status of an AOP. The assessee came into business, according to the ITO's version, to carry on business of breeding of good variety of horses for use in races. The stud farm, it was stated was started by Nawab Saheb till his death in 1961. After his death the business was stated to have been carried on by his widow Begum Suraiya Rasheed and his two sons Nadir Rasheed and Yawar Rasheed and his two daughters Mrs. Mahabano Ali and Mrs. Nilofar Khan. After the death of the Nawab Saheb, the entire property including the stud farm was inherited by the widow and her four children as co-heirs. According to the Muslim law, the shares of the widow and her children were specified. The widow got 6/48 share, the sons got 14/48 share each and the daughters got 7/48 share each. After the death of the Nawab Saheb, a private limited company was formed to carry on the horse breeding business and the name of the company was Bhopal Stud & Agricultural Farm (P.) Ltd. This was incorporated on 11-12-1962. After being in existence for about five and-a-half years, this company went into liquidation, with effect from 28-9-1968. Up to the period of liquidation, the income that arose by the carrying on of this horse breeding business was assessed in the hands of the company. It appears that there was no assessment on horse breeding business between 1968, i.e., after the liquidation of the company, and 1975, and the first assessment was made for the assessment year 1976-77 on the individual shares of the five co-heirs. For the assessment years 1977-78 and 1978-79, again the income from the horse breeding was assessed in the individual hands of the co-heirs according to their shares along with their other incomes like property, foreign income, etc. As the income of horse breeding was assessed in the hands of the individuals, as per their shares, the Bhopal Stud & Agricultural Farm (P.) Ltd. was not assessed to tax as an entity. For the first time for the assessment year 1976-77, a notice under Section 148 was given to the Bhopal Stud & Agricultural Farm (P.) Ltd., to assess the income of the horse breeding in the status of an AOP. Now for the assessment year, 1979-80 the assessee filed a return in the name of Bhopal Stud & Agricultural Farm (P.) Ltd. showing nil income. There was no notice issued under Section 148 for this year and the return filed by the assessee showing nil income appears to be voluntary. In support of the claim that there was no income accruing to Bhopal Stud & Agricultural Farm (P.) Ltd. assessable in its hands as a separate entity, the arguments addressed were that under the Muslim law the shares of the heirs were specified in the property left by the Nawab Saheb and each one of them got the property and the income attributable thereto in accordance with those shares and the assessment must be made only in the case of the individuals and their shares of income, which was being done in the earlier years and not in the hands of one entity aggregating the whole as belonging to, or accruing to or arising in the hands of that entity.

In order that the entity can be taxed, there must be volition on the part of all the members to come together and to carry on business. In this case there was no such volition as the members were otherwise entitled to specific shares of income according to their personal law.

The formation of the company and the subsequent liquidation did not alter their position of personal law and their rights vis-a-vis their personal law. Strong reliance was placed on the assessment made on the individual members on their shares of income in the earlier years and it was emphasised that no change had occurred this year to deviate from the assessments made in the past.

2. These arguments did not prevail with the ITO. His first point was that the rule of res judicata does not apply to income-tax proceedings because each year is an independent and separate unit. A decision taken in one year is not applicable in the second year. If in the earlier years the ITO exercised the option to assess the members individually in place of the entity, that option did not bind the successor officer's discretion to assess the income in the hands of the AOP.Relying upon a letter that the assessees wrote to the ITO, the ITO observed that there was a coming together of all the members to carry on an activity for profit with the common objective of earning profit.

Thus, a body of individuals has come into existence. There was no question of compulsion of law forcing these members to come together.

When an assessee carries on regular business and the income was shared, it was implicit in it that the members decided to come together because business could not be carried on without common consent. He, therefore, held that the income was earned by the AOP called Bhopal Stud & Agricultural Farm (P.) Ltd. and assessed the income shown by the profit and loss account by making suitable adjustments in its hands and allocated the income among the members according to their respective shares as per their personal law. The ITO also observed that if there was no AOP, there was at least a BOI and for this view, he placed reliance on 106 ITR 131 (sic). Aggrieved by this treatment, the assessee preferred an appeal before the Commissioner (Appeals), before whom the same contentions were reiterated which were again rejected by him. The new point taken up before him was that it was a Royal Western Indian Turf Club Ltd., an institution situated at Bombay, which controls and organises the racing activities of the country and unless one becomes a member of that club, he would not be recognised as a horse breeder and all co-heirs got themselves registered with that club separately and, hence, the income of the entity now sought to be assessed as an AOP should be allocated between the members. This argument did not find favour with the Commissioner (Appeals).

3. Aggrieved by this decision, there was a second appeal before the Tribunal. Before the Tribunal also the same arguments were addressed.

After concluding the hearing, the members could not agree on the conclusion. The learned Judicial Member held that there was no amount of force in the argument of the assessee. The department having assessed the individual members on their respective shares in the earlier years should not have departed from that procedure without any valid reasons to seek to assess the income in the hands of the entity as an AOP. He relied very strongly upon a decision of the Madhya Pradesh High Court in the case of Bhilai Engg. Corpn. (P.) Ltd. (supra), a decision of the Orissa High Court in Belpahar Refractories Ltd.'s case (supra) and that of a Bombay High Court in H.A. Shah & Co.'s case (supra). He has given several other reasons, which may be discussed at the appropriate time but the main conclusion reached by him was as stated above that the assessment in the hands of the AOP was uncalled for and it is also wrong in the light of the decision of the Supreme Court in Indira Balkrishna's case (supra). The learned Accountant Member, on the other hand, took a contrary view. He held that on the facts of this case, the very decisions on which the learned Judicial Member placed reliance to support his view, actually supported the view canvassed for the department, namely, raising an assessment in the status of an AOP because there was a common purpose and object for all the members to come together to carry on the business with a purpose to gain a common advantage, namely, gain. What the learned Accountant Member pointed out was that if the ITO did not properly appreciate the principles of law as explained by the Supreme Court in one year, the ITO is not to persist in making that mistake of law in subsequent years and it is open to him to correct that mistake. For this view, he placed reliance on the decision in the case of H.A. Shah & Co. (supra). He was also of the opinion that after the limited company, which was formed on 12-12-1962 by the co-heirs, went into liquidation on 28-9-1968, it was not the Muslim law that brought these five persons together but it is their own volition, by operation of company law. Since the Members could not agree on the conclusion, they have formulated the following points of difference for reference to the President under Section 255(4) : " 1. Whether, on the facts on record, the Income-tax Officer having assessed the legal heirs of Nawab Rashid-ur-Zafer Khan individually according to their shares as per Muslim law of the income from stud business for the assessment years 1976-77 to 1978-79 can deviate from his original stand and assess them as an association of persons contrary to the ratio laid down by their Lordships of the Madhya Pradesh High Court in CIT v. Bhilai Engg. Corpn. (P.) Ltd. [1982] 133 ITR 687 ; the Orissa High Court in CIT v. Belpahar Refractories Ltd. [1981] 128 ITR 610 and the Bombay High Court in H.A. Shah & Co.

v. CIT [1956] 30 ITR 618 2. Whether, on the facts, the assessee's case is covered by the decision of the Supreme Court in the case of CIT v. Indira Balkrishna [1960] 39 ITR 546 4. The President has assigned this case to me as a Third Member for my opinion. I have heard the parties at great length. Shri Firoze B.Andhyanaiji, appearing for the assessee, submitted that it is erroneous to adhere to the view that the principle of resjudicata has no application to proceedings under the Act. It is subject to a qualification, namely, that a finding reached in one assessment year after due enquiry would not be reopened in the subsequent year if it is not arbitrary or perverse and if no fresh facts come to light in the subsequent assessment year. Thus, the principle of res judicata yields to the principle of finality, namely, that in all litigations not excluding the income-tax litigation, the finality and certainty must be reached. This is how the Madhya Pradesh High Court explained the principle of res judicata in the case of Bhilai Engg. Corpn. (P.) Ltd. (supra) and it was placing the greatest reliance on that decision and urging that it was binding on us that he submitted that the ITO having assessed the individuals on their shares in the earlier years should not have deviated from that view to assess the income or combined it together in the hands of an AOP, on a plea that there was an AOP that came into being by the volition of the members without establishing such volition more particularly when the facts obtaining this year were similar to the facts obtaining in the earlier years. All the facts that were present in the year under reference were also present in the earlier years. Nothing new has happened in the assessment year except the change in the view. According to the Madhya Pradesh High Court the decision reached in the earlier years can only be reopened in the subsequent year if one of those four tests laid down by it are satisfied, i.e., the decision in the earlier year must not have been reached after due enquiry or the decision was perverse or arbitrary or fresh facts came to light. None of these conditions existing, it is not open to the ITO to merely change the opinion on the same set of facts.

Such a departure would violate the principles of finality and certainty, which the High Court observed must be protected and preserved. More or less to the same effect was the decision of the Orissa High Court in Belpahar Refractories Ltd.'s case (supra). The Orissa High Court has further pointed out that there was another limitation, namely, that the effect of revising an earlier decision should not lead to injustice and that the Court would prevent an assessing authority from doing something which would be unjust and unequitable. Proceeding on these lines of arguments, the learned counsel for the assessee urged that no new fact having come into existence, the department is not justified to change the procedure of assessment adopted in the earlier years so consistently and continuously. It was further submitted that it was the Muslim law that governed the devolution of shares even after the liquidation of the company. Dealing with the view expressed by the learned Accountant Member, that it was the company law that applied and riot the Muslim law, the learned advocate urged that the personal law of the parties governs the devolution of shares at every point of time and not the company law. There is nothing in the company law which stipulated the manner and method in which the shares of the shareholders and their rights inter se should be distributed on a dissolution of the company.

The distribution of these rights had to be done in accordance with the rights of the shareholders subject only to the condition, if any, laid down by the memorandum and articles of association of the company.

Otherwise, it is the personal law that governs the distribution of shares and it was pursuant to the personal law that the shares were taken by the co-heirs in the manner in which they were dividing the income and holding the property even prior to the formation of the company. This position was accepted by the revenue in the intervening assessment years when all the partners were sharing the income by appointing some common manager. It is now well settled that such a circumstance would not necessarily lead to the conclusion that all of them have joined together as an AOP for the purposes of carrying on business. He placed reliance on the decisions in the cases of S.R. Y.Sivaram Prasad Bahadur v. CIT [1971] 82 ITR 527 (SC), G. Murugesan & Bros. v. CIT [1973] 88 ITR 432 (SC), C.M. Aleemullakhan v. CAIT [1984] 148 ITR 696 (Kar.), CIT v. Deghamwala Estates [1980] 121 ITR 684 (Mad.), CIT v. T.V. Suresh Chandran [1980] 121 ITR 985 (Ker.), Indira Balkrishna v. CIT [1956] 30 ITR 320 (Bom.), CIT v. Raja Ratan Gopal[l966] 59 ITR 728 (SC) and lastly on CIT v. V.H. Sheth [1984] 148 ITR 169 (Bom.).

5. For the revenue, the learned departmental representative relying very strongly on the order of the learned Accountant Member submitted that what was being carried on by the assessee was only a business and all the members have joined together to carry on that business. If they are sharing the profits in a particular manner, that profit sharing ratio can only be said to be as dictated by the personal law to which they belonged and that did not mean that these co-heirs have not come together to carry on the business. Their conduct of formation of a company, carrying on the business, through the company, dissolution of the company and carrying on the business thereafter by coming together, all point to the same direction that this was a common object of carrying on this business with a view to earn profits and income. If the ITO in the earlier years had not applied his mind to these aspects, it does not mean that a mistake committed by him on a misappreciation of law should be allowed to perpetrate. The ITO has got option under the law either to assess the individual members of the association or the association as such and this option is available to him to be exercised every year de novo and he is not bound by the exercise of the option in one year to be followed in another year. The assessee filed return in this case showing nil income in the hands of the assessee. It is then open to the ITO to examine on the basis of the return filed as to whether the association has earned any income or did it really earn nil income. If in the course of this examination, he finds that there was an association carrying on business, he is duty bound under the law to assess that association in the status of an AOP and at that stage he is not to look back to the previous position of the assessment. He placed the reliance on the decisions in the cases of Punjab Cloth Stores v. CIT [1980] 121 ITR 604 (Delhi) and Mahendra Kumar Agrawalla v. ITO [1976] 103 ITR 688 (Pat.).

6. I have carefully considered the matter. It has not been an easy task to arrive at a proper conclusion as the matter is fraught with difficulties. On the death of Nawab Saheb, who originally started the stud farm, the coheirs got this property in specified shares according to the Muslim law and held it so. Except during the period when the stud farm was being carried on as a company, the income from the stud farm was being assessed to tax in the hands of the heirs according to their personal law and never an assessment was made in the status of an AOP combining the income of all these co-heirs. In view of this fact, the question now is whether it is open to the department to change that view. Nothing new has happened in this year in the sense that no new fact has come to light nor any new evidence. Whether on the same set of facts the department is entitled to change the view is the question. In a case that arose before the Madhya Pradesh High Court, the applicability of the principle of res judicata to income-tax proceedings had come up for consideration. There for the assessment year 1973-74, the assessee was granted relief under Section 80J of the Act. The ITO found that the assessee made substantial expansion by the installation of new plant and machinery and by the construction of a new building in the accounting year relevant to the assessment year 1973-74. However, for the assessment years 1974-75 and 1975-76, the ITO declined to grant the relief under Section 80J on the ground that the expansion of an existing undertaking did not make it a new undertaking.

On appeal, the AAC and, on further appeal, the Tribunal, granted relief to the assessee on the ground that it was not open to the ITO to take a different view for the subsequent years from that, taken for the assessment year 3 973-74. The question that was posed before the Madhya Pradesh High Court was whether the ITO can take such a view and the answer to this question depended upon the application of principle of res judicata. The High Court held that since no fresh material was brought in the assessment proceedings for the years 1974-75 and 1975-76 which would show that the finding reached by the ITO in the earlier assessment year was wrong, the action of the ITO in not following the earlier view was erroneous. While explaining the legal position and the principle of res judicata, Justice G.P. Singh, the Chief Justice of Madhya Pradesh High Court, observed : It is contended by the learned counsel for the department that the principle of res judicata has no application to proceedings under the Income-tax Act and the findings reached for one particular assessment year cannot be held to be binding in the assessment proceedings for a subsequent year. As a general rule, there can be no dispute with this principle. But this general rule is subject to the qualification that a finding reached in the assessment proceedings for an earlier year would not be reopened in the subsequent year if it is not arbitrary or perverse, has been arrived at after due enquiry and if no fresh facts are placed in the subsequent assessment year. This is on the principle that there should be finality and certainty in all litigations including litigations arising out of the Income-tax Act [see Burmah-Shell Refineries Ltd. v. G.B. Chand [1976] 61 ITR 493 (Bom.) and CIT v. Dalmia Dadri Cement Ltd. [1970] 77 ITR 410 (Punj. & Har.)]....(p.

688) It is, therefore, clear that it is not in every case that the principle of res judicata can be said to have no application to the proceedings under the Act. On the finding reached for one particular assessment year, it could not be held to be binding in the assessment proceedings for the subsequent assessment year. But this general rule is subject to certain qualifications. Those qualifications have been detailed above in the extract quoted from the judgment. It is common ground that none of these circumstances exist in the case before us. I have not heard the departmental representative urging that the decision reached in the earlier years to assess the individuals on their respective shares was a decision reached without due enquiry nor have I heard him arguing that the decision was arbitrary or perverse and certainly there was no fresh material. In order that the principle of finality and certainty in litigation should be protected, the same view taken by the ITO for the earlier years should also have been taken for this year also and he should not have deviated without first establishing one or all of the above criteria. This is not as if this is the solitary view expressed by the Madhya Pradesh High Court in the above case but this was also the view taken by the Bombay High Court as well as the Punjab and Haryana High Court and also by the Orissa High Court in Belpahar Refractories Ltd.'s case (supra). Dealing with the principle of res judicata, Justice R.N. Misra, the Chief Justice of the Orissa High Court, as he then was, speaking for the Court observed : ... We do not think it appropriate to differ from the view expressed on the earlier occasion particularly when it is the same dispute in one and the same setting. It is true that the rule of res judicata in terms does not apply to assessment proceedings, but two exceptions have usually been indicated, namely, an earlier decision on the same question cannot be reopened unless that decision is arbitrary or perverse or arrived at without due enquiry. The second limitation is that the effect of revising the earlier decision should not lead to injustice arid the Court may prevent an assessing authority from doing something which would be unjust and inequitable.... (p. 613) Therefore, on the same set of facts if the assessing authority is doing something which would be unjust and inequitable the Court must come to the rescue of the assessee by preventing the assessing authority from doing injustice. I may also add that this general principle of res judicata arising in civil law is written into the Act also particularly in Section 147(6). Under Section 147(b), an ITO can reopen an assessment only when new facts come to his knowledge whereby he comes to the conclusion that income liable to tax has escaped assessment.

This section does not give him the power as now interpreted by the various High Courts and the Supreme Court repeatedly on a mere change of opinion. Thus, Section 147(6) and its interpretation by the Courts is nothing but the application of the principle of res judicata. No new facts came into light and on a mere change of opinion the ITO cannot change his view and reopen the assessment. In other words, he is bound by the decision that was taken in the earlier years. I am, therefore, of the opinion that the ITO having assessed the legal heirs of late Nawab Saheb individually according to the shares as specified in the Muslim law for the assessment years 1976-77 to 1978-79 cannot deviate from that stand and assess them as an AOP. There being no new facts coming to light, this deviation is contrary to the ratio laid down by the Madhya Pradesh High Court in Bhilai Engg. Corpn. (P.) Ltd.'s case (supra) and the Orissa High Court in the Belpahar Refractories Ltd.'s case (supra) and the Bombay High Court in Indira Balkrishna's case (supra). In fact, it is the very principle laid down in this case by the Bombay High Court that has been followed subsequently by the Orissa High Court and the Madhya Pradesh High Court.

7. I may also add that on the question that there were no new facts coming to the knowledge of the ITO, there was absolute agreement between the learned Members. While the learned Judicial Member mentioned in his order categorically that on a perusal of the records, it could be safely concluded that no fresh facts came to the knowledge of the ITO at the time of making the assessment for the assessment year in question, the learned Accountant Member in his differing order had endorsed this statement by saying that it was absolutely correct. Thus, the Members were ad idem on the question that there were no new facts coming to the knowledge of the ITO. The point made out by the learned Accountant Member was that the ITO had in the earlier years misappreciated the law and came to erroneous conclusion and that conclusion he was entitled to rectify in the subsequent years." He seemed to be of the opinion that the leading decision of the Supreme Court in the case of Indira Balkrishna (supra) was not properly appreciated both by the ITO and the learned Judicial Member. According to the learned Accountant Member, the principle laid down by the Supreme Court in the case of Indira Balkrishna (supra) did not apply to the assessee's case. In view of that, the decision reached by the ITO for the earlier years must be held to be erroneous. He has not discussed in his order the applicability or otherwise of the rule enunciated by the Madhya Pradesh High Court in Bhilai Engg. Corpn. (P.) Ltd.'s case (supra) nor of the Orissa High Court in Belpahar Refractories Ltd.'s case (supra) but referred to the Bombay High Court's decision in H.A. Shah & Co.'s case (supra) for a different purpose. In view of the binding nature of the Madhya Pradesh High Court's decision and in view of the fact that there was an agreement between the learned members that no new facts had come to the knowledge of the ITO, the Madhya Pradesh High Court's decision would be applicable and according to that authority, the ITO cannot be permitted to change his view. On question No. 1, therefore, I am in agreement with the view expressed by the learned Judicial Member.

8. On question No. 2, I had to first notice the facts before the Supreme Court in the case of Indira Balkrishna (supra), and the law enunciated by the Supreme Court to decide whether that view applied or not to the facts of the case before me. One Balkrishna Purushottaai Purani died on 11-11-1947 leaving behind him three widows and two daughters, one of the widows was Indira Balkrishna. These widows as legal heirs inherited the estate of the deceased, which consisted of immovable properties, shares of joint stock companies, money lying in deposits, and shares in partnership firms. For the assessment years 1950-51 and 1951-52, the ITO issued notices to the legal heirs of Balkrishna Purushottam Purani, pursuant to which, 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 another. The ITO took the status of the assessee as an AOP and made assessments on that footing. On appeal, the point taken up was that the three widows should have been assessed separately and not as an AOP. The AAC did not accept this point. The Tribunal held that the assessment in the status of an AOP was correct. On a reference, the view taken by the Tribunal was reversed and it was held that assessments should not be made in the status of an AOP. Approving the view taken by the High Court, the Supreme Court held in this case that association means to join in common purpose, or to join in an action. Therefore, an AOP 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. They found on facts that the three widows have not combined in a joint enterprise to produce income. The Supreme Court held that in the absence of any finding that the three widows combined together in a joint enterprise to produce income, they could not be joined together to be assessed as an AOP. There is no finding recorded in a categorical way that the co-heirs have come together to join for the common purpose of earning income by carrying on the business of stud farm and on the other hand, the members agreed that no new facts have come to light so that the ITO could deviate from the view taken in the earlier years. The view taken in the earlier year was that the co-heirs should be assessed separately on their respective shares, which means that there was no joining together or togetherness for the purpose of producing income, which means that there is no association of these persons to form an AOP within the meaning of the Act as explained by the Supreme Court in Indira Balkrishna's case (supra).

From this point of view, there is no coming together of these co-heirs to carry on the business and it could be said that the case is covered by the decision of the Supreme Court in the case of Indira Balkrishna (supra). If there is coming together of these persons to produce income, then also it can be said that the case is covered by the decision of the Supreme Court in Indira Balkrishna's case (supra). The point of difference as framed by my learned brothers was such that the answer to this question can be given only on the facts found and admitted. On the facts found and admitted, the principle laid down by the Supreme Court cannot apply because there was no coming together of the co-heirs.

9. Indeed, it is to be mentioned that the property was held by the co-heirs in the shares specified in Muslim law. Since the property was thus held, they are to share income in that proportion. To share that income from that property, the question of the co-heirs coming together to produce income may not be said to arise. If a property is held by two or more persons in specified shares, they hold the property as tenants-in-common and that position in law continues to govern even in regard to sharing of income and when such income is shared, the question of an AOP as explained by the Supreme Court in Indira Balkrishna's case (supra) may not arise.

10. My answer to the second question, therefore, is that on the facts, the assessee's case can be said to be covered by the decision of the Supreme Court in Indira Balkrishna's case (supra) in the sense that they cannot be assessed as an AOP because the proof that all the co-heirs have come together to carry on the business was lacking. In the view that I am taking I felt it unnecessary to refer to the case laws that were mentioned before me at the time of hearing. Although all those cases of the Supreme Court in CGT v. R. Valsala Amma [1971] 82 ITR 828 and G. Murugesan & Bros.' case (supra) only repeat the principle laid down in Indira Balkrishna's case (supra). I would like to add that in G. Murugesan & Bros.' case (supra), the Supreme Court laid down a further test to find out whether there is an AOP or not and, i.e., that for forming an AOP the members of the association must join together for the purpose of producing an income and an AOP can be formed only when two or more persons voluntarily combine together for a certain purpose. The important rule laid down by the Supreme Court is that volition on the part of the members of the association is an essential ingredient. Here, there is no such volition nor is there a need for it at all except the obligation created by the operation of and compulsion of personal law. Further, the Kerala High Court has applied this view in the case of T. V. Suresh Chandran (supra). I do not want to dwell much upon the order of the learned Accountant Member on the question of the application of the principle laid down by the Supreme Court in Indira Balkrishna's case (supra) but all I would say is that the principle laid down in Indira Balkrishna's case (supra) by the Supreme Court does not apply to the facts of the case before me as stated earlier in the sense that for lack of proof to show that the co-heirs came together voluntarily to form an 'association of persons' to produce income. They are dealing with the property inherited by them.

11. Now the matter will go before the regular Bench for decision according to the majority opinion.


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