Gopalan Nambiyar C.J. - At the instance of the Revenue ITAT has sent up its statement of the case and referred the following question of law for our opinion, viz :
'Whether, on the facts and in the circumstances of the case the Tribunal is right in law in holding that the assessees cannot be assessed as Association of Persons.'
2. Mr. Peston Cooverjee Dalal was a Parsi who had settled down in Kerala. He was possessed of several properties by way of rubber estates and other. He executed a will on 30-9-1954. By the said will be made certain bequests to persons and institutions named in the Will. With regard to residue he gave the following direction :
All the rest and residue of my property both movable and immovable of whatsoever kind including my residential house known as Marine Villa with all lands and buildings thereon, premises where the Parsi Priest resides, Valiapara and other estates and all my trade assets, claim and demands and goodwill and other property of any nature whatsoever, I bequeath to my two sisters Miss Choolbai Cooverjee Dalal and Miss Perin Cooverjee Dalal'.
He died sometime in 1955. The will was probated in 1956 and the administration of the estates was completed and the executors of the estate were released in 1963. The property inherited by the two sisters consisted of house properties, shares, fixed deposits, and certain forest lands in Malabar area called Valiapara estate. The forest land in the estate were sold for Rs. 2,20,000/-. The two sisters were being assessed in the status of an Association of Persons right from the time of their inheritance of the properties. During the accounting year i.e. 1968-69 the status given in the return filed by them was Association of Persons. But there is a note in Part IV of the return that there will be no capital gains on forest land.
3. The ITO calculated capital gains at Rs. 1,35,008/-. In doing so, he rejected the claim of the assessees with respect to their status as Association of Persons and treated them only as individuals. The AAC confirmed the said order in so far as it related to the status of the assessee. But differing from the ITO he took the view that the property was agricultural and therefore, no question of capital gain would arise. For the said conclusion he relied upon the decision of this Court in Venugopala Varmas case which was subsequently reversed by the Supreme Court. On further appeal to the Tribunal by the Revenue, the Tribunal pointed out that there had been no joint dealing or joint management by the two sisters which had led to generating income by them from the properties. There was no association in any profit-making activity. The Tribunal was of the view that unless there was association for common purpose or action with the object of producing income the status of association of persons cannot be obtained or granted. It therefore held that the ladies could be assessed only as individuals.
4. Counsel for the Revenue has attacked the conclusion of the Tribunal. He drew our attention to the earlier decision of the Bombay High Court in Dwarakanath Harischandra Pitale and Another by Chief Justice Beaumont and Mr. Justice Blackwell. The assessees there were two brothers who became residuary legatees under the will of their grandfather, to certain house properties in Bombay of the aggregate annual rental valuation of Rs. 25,000/-. These were first managed by an executor of the said will but were ultimately handed over to the assessee under a deed of release. The said deed provided that the assessees were to have and to hold the lands hereditaments and premises as tenants-in-common in equal shares. They were put in possession and the net income was divided between them. The ITO assessed them jointly as an Association of individuals. The assessees were dissatisfied and appealed to the AAC of IT who upheld the assessment order. As their prayer for separate assessment was not granted necessary questions of law were referred to the High Court. In a short judgment the High Court pointed out that the assessees had become residuary legatees in the year 1929 when the properties were handed over to them and that they had managed the properties as joint sons and derived profit therefrom. The case, it was said was really governed by the previous decision in CIT, Bombay v. Laxmidas Devidas. It was there held that two persons who had purchased property and managed it for the purpose of producing income were properly assessed as association of individuals u/s 3 of the It Act. In other words joint purchase and common management for producing income was all that was necessary. The principle of the decision was approved by the Supreme Court in Indira Balakrishanans case The Court observed :
'It is enough for our purpose to refer to three decisions : In Re B. N. Elias (1935) ITR 408); CIT v. Laxmidas Devidas and In re Dwarkanath Harischandra Pitale. In In re B. N. Elias, Derbyshire C.J., rightly pointed out that the word 'associate' means, according to the Oxford Dictionary, 'to join in common purpose, or to join in an action'. Therefore as association of persons must be one in which two or more persons join in a Comman purpose or common action, and as the words occur in a section which imposes a tax on income, the association must be one the object of which is to produce income, profits or gains. This was the view expressed by Beaumont, C.J., in CIT v. Lakshmidas Devidas at page 589 and also in In re Dwarkanath Harishchandra Pitale. In In re B.N. Elias, 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 ........... there 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 determining what is an association of persons within the meaning of section 3 of the IT Act, and they have been accepted and followed in a number of later decisions of different High Courts to all of which it is unnecessary to call attention. It is, however, necessary to add some words of caution here. There is no formula of universal application as to what facts, how many of them and of what nature, are necessary to come to a conclusion that there is an association of persons within the meaning of s. 3; it must depend on the particular facts and circumstance of each case as to whether the conclusion can be drawn or not.'
Counsel for the Revenue drew our attention to two other Supreme Court decisions viz : Mohamed Noorullah v. CIT and again to G. Murugesan & Brothers v. CIT, Madras. This last decision on the facts found, was against the status of an association of persons. But the principle of the previous decisions was in no way shaken. The conclusion was rested on the actual facts.
5. From the decisions noticed and examined, it is clear that a joint association and joint perception of income would suffice within the meaning of these decisions, to give the status of an association of persons to the assessee.
6. The Tribunal, we are afraid, does not appear to have kept in mind these decisions or the principle discussed and evolved by the said decisions. We are at a disadvantage in that there is no representation before us on behalf of the assessee. As we are satisfied that the question requires to be re-examined in the light of the principle of the decisions which we have stressed, we decline to answer the question of law raised in this Reference and would seal the appeal back to the Tribunal for being disposed of afresh in accordance with law and in the light of the observations contained in this judgment. We make no order as to costs.