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Commissioner of Income-tax, Gujarat Iii Vs. Harivadan Tribhovandas - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberIncome-tax Reference No. 7 of 1971
Judge
Reported in[1977]106ITR494(Guj)
ActsIncome Tax Act, 1961 - Sections 2(9), 2(14), 2(31), 2(47), 4, 45, 47, 53 and 54
AppellantCommissioner of Income-tax, Gujarat Iii
RespondentHarivadan Tribhovandas
Appellant Advocate K.H. Kaji, Adv.
Respondent Advocate J.P. Shah, Adv.
Cases ReferredC) and Keshav Mills Co. Ltd. v. Commissioner of Income
Excerpt:
direct taxation - exemption - sections 2, 4, 45, 47 (ii), 53 and 54 of income tax act, 1961 - exemption under section 47 (ii) granted to assessee by tribunal - petition filed challenging same - facts as to conditions whether assessee and his brothers constituted body of individual and whether land in dispute is agricultural land not considered by tribunal - matter remitted back to tribunal for consideration of same. - industrial disputes act, 1947. section 2(s): [m.s. shah, sharad d. dave & k.s. jhaveri,jj] workman part time employees held, part time employees are not excluded from the definition of workman in section 2(s) merely on the ground that they are part time employees. the ex abundante cautela use of the words either whole time or part time by the legislature in the.....divan, c.j.1. in this reference made at the instance of the revenue, the following question has been referred to us by the income-tax appellate tribunal : 'whether, on the facts and in the circumstances of the case, the tribunal was right in holding that the case of the respondent was covered under clause (ii) of section 47 of the income-tax act, 1961, and, therefore, there was no capital gains made by the respondent liable to tax ?' 2. the facts giving rise to this reference may be shortly stated. the assessee is an individual and the relevant assessment year is 1962-63. prior to september 11, 1958, or even a short time prior thereto, the assessee was a member of a joint and undivided hindu family consisting of his father, two wives of his father and two brothers of the assessee and the.....
Judgment:

Divan, C.J.

1. In this reference made at the instance of the revenue, the following question has been referred to us by the Income-tax Appellate tribunal :

'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the case of the respondent was covered under clause (ii) of section 47 of the Income-tax Act, 1961, and, therefore, there was no capital gains made by the respondent liable to tax ?'

2. The facts giving rise to this reference may be shortly stated. The assessee is an individual and the relevant assessment year is 1962-63. Prior to September 11, 1958, or even a short time prior thereto, the assessee was a member of a joint and undivided Hindu family consisting of his father, two wives of his father and two brothers of the assessee and the assessee himself. This Hindu undivided family owned considerable movable and immovable properties. By a partition deed dated September 11, 1958, there was a partition amongst the members of the Hindu undivided family and there was a complete description and the properties were also divided by metes and bounds. At the time of this partition of 1958, property bearing survey No. 170-1 was allotted jointly to the assessee and his brothers. The partition deed showed that each of the three brothers was given one-third undivided share of the said property covered by survey No. 170-1 of Navrangpura village within the limits of Ahmedabad City. On the basis of the said partition deed the Hindu undivided family applied under section 25A of the Indian Income-tax Act, 1922, and on that application a finding was recorded by the competent authority that there was a complete partition by metes and bounds. On March 24, 1961, the property bearing survey No. 170-1 was divided amongst the assessee and his two brothers. According to this deed of March 24, 1961, the two other brothers of the assessee were given portions of land survey No. 170-1 and the assessee was given a sum of Rs. 36,630 in lieu of land from that survey number. It may be mentioned at this stage that at the time of the partition of 1958 between the assessee and other members of the Hindu undivided family, one-third portion of the land which was given to the assessee was mentioned as being worth Rs. 18,400. Thus, on the basis of the document of March 24, 1961, in the assessment proceedings of the assessee for the assessment year 1962-63, the Income-tax Officer held that the amount of Rs. 18,230 represented capital gains and must be assessed as such. Against the decision of the Income-tax Officer, the assessee appealed and the Appellate Assistant Commissioner came to the conclusion that the assessee's case was governed by section 47(i) of the 1961 Act, because, according to the Appellate Assistant Commissioner, there was a distribution of the capital asset on a partition of the Hindu undivided family. The Appellate Assistant Commissioner came to the conclusion that there was a partition of the Hindu undivided family property on March 24, 1961. He, therefore, held that the amount of Rs. 18,230 could not be treated as capital gains. The revenue appealed to the Income-tax Appellate Tribunal and before the Tribunal the contention of the revenue was that the assessee's case was not covered by section 47(i). On examination of the provision of section 47 of the Income-tax Act, 1961, the Tribunal held that the subsequent division amongst the three brothers under the deed of March 24, 1961, was not governed by the provisions of section 47(i). The Tribunal, however, accepted the alternative contention of the assessee that his case would be covered by section 47(ii) as the Tribunal came to the conclusion that at the time of divided of land by the deed of March 24, 1961, there was a distribution of capital assets on dissolution of a body of individuals, namely, the assessee and his two brothers, and the Tribunal held that the three brothers constituted a body of individuals since they were joint owners of the property after the earlier partition. The Tribunal also held that the property continued to be held undivided in their hands and they constituted themselves as a body of individuals. Since the body of individuals was dissolved and as a consequence of that dissolution the property held by members of that body jointly was divided amongst them, there was a distribution of capital assets of that body of individuals amongst its members and hence the case of the assessee fell squarely within the exemption set out in section 47(ii). The Tribunal did not deal with the other contentions urged on behalf of the assessee in the view that the Tribunal took regarding the applicability of section 47(ii) to the case of the assessee. The Tribunal, in view of this conclusion, upheld the order of the Appellate Assistant Commissioner though the reasons which appealed to the Tribunal were different from the reasons which appealed to the Appellate Assistant Commissioner. Thereafter, at the instance of the revenue, the question which we have set out at the commencement of this judgment has been referred to us for our opinion.

3. In order to appreciate the rival contentions in this case, it is necessary to refer to some of the provisions of the 1961 Act. Section 2, clause (14), defines 'capital asset' to mean property of any kind held by an assessee, whether or not connected with his business or profession, but does not include agricultural land in India. Section 2, clause (47), defines 'transfer', in relation to a capital asset, as including the sale, exchange or relinquishment of the asset or the extinguishment of any rights therein or the compulsory acquisition thereof under any law. Section 45 provides that any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in section 53 and 54, be chargeable to income-tax under the head 'capital gains', and shall be deemed to be the income of the previous year in which the transfer took place. Section 47 provides for transactions which are not to be regarded as transfers for the purposes of section 45. Section 47, in so far as it is material for our purposes, reads as under :

'47. Nothing contained in section 45 shall apply to the following transfers :

(i) any distribution of capital assets on the total or partial partition of a Hindu undivided family;

(ii) any distribution of capital assets on the dissolution of a firm, body of individuals or other association of persons;.....'

We are not concerned with the rest of the clauses of section 47.

4. It is obvious on the facts of this particular case that when the three brothers divided their jointly held property, namely, survey No. 170-1, they were not members of a Hindu undivided family but were joint owners of this property in which each one had a one-third undivided share and they were holding this property as tenants-in-common. The Tribunal was, therefore, right when it came to the conclusion that the assessee's case was not covered by section 47(i).

5. As regards the provisions of section 47(ii), it is obvious that the assessee and his two brothers were not partners of a firm and if the provisions of section 47(ii) are to be invoked, it must be held that they were either a 'body of individuals' or an 'association of persons'. We may point out that section 2, clause (31), mentions that 'person' includes an individual, a Hindu undivided family, a company, a firm, an association of persons of a body of individuals, whether incorporated or not, a local authority, and every artificial juridical person, not falling within any of the preceding sub-clauses. Under the Indian Income-tax Act, 1922, the definition of the word 'person' included a Hindu undivided family and a local authority in section 2(9), but the charging section mentioned as assessee an individual, Hindu undivided family, company and local authority, and every firm and other association of persons or the partners of the firm or members of the association individually. The phrase 'body of individuals' was not to be found in any of the provisions of the 1922 Act. It may, however, be pointed out that under the General Clauses Act, 1897, which applied to all Central Acts, under section 3, clause (42), the word 'person' was to include any company or association or body of individuals, whether incorporated or not. Thus, the 1922 Act adopted a narrower definition of the word 'person' though both under the General Clauses Act and under the 1922 Act, the definition of the word 'person' was a inclusive definition only; but under the 1922 Act, a body of individuals was not included within the definition of the word 'person' nor was a body of individuals to be treated as an assessee under the charging section, namely, section 3. When the legislature came to enact the Income-tax Act, 1961, it made a departure so far as the inclusive definition of the word 'person' is concerned by including a body of individuals also within the word 'person' and under the charging section of the Act of 1961, namely, section 4, the total income of every person of the previous year or previous years, as the case may be, as mentioned in the charging section is to be charged for income-tax purposes.

6. Though there was no definition of the phrase 'association of persons' occurring in the 1922 Act, by a series of decisions, the meaning of this phrase was precisely defined and tests were laid down in order to find out when a conglomeration of persons could be held to be an 'association of persons' for the purposes of the 1922 Act. In C. Murugesan and Brothers v. Commissioner of Income-tax : [1973]88ITR432(SC) , the Supreme Court considered all its earlier decisions on the point and summarised the legal position regarding the meaning of the words 'association of persons'. At page 436 of the report, Hegde J., delivering the judgment of the Supreme Court, observed :

'The expression 'association of persons' is not a term of art. That expression has come up for consideration before this court in more than one case. In Commissioner of Income-tax v. Indira Balkrishna : [1960]39ITR546(SC) this court, after referring to the various judgments, observed thus......'

7. Hegde J. then considered the decision in Commissioner of Income-tax v. Indira Balkrishna : [1960]39ITR546(SC) and set out in extension passages from that decision. He pointed out that the meaning of the words 'association of persons' was evolved by the judicial decisions in the case of In re B. N. Elias : [1935]3ITR408(Cal) , Commissioner of Income-tax v. Laxmidas Devidas : [1937]5ITR584(Bom) and in In re Dwarakanath Harischandra Pitale : [1937]5ITR716(Bom) . He pointed out that according to Derbyshire C.J. in In re B.N. Elias : [1935]3ITR408(Cal) the word 'to associate' means, according to the Oxford Dictionary, 'to join in a 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. In B.N. Elias, In re : [1935]3ITR408(Cal) it was pointed out :

'When we find..... that there is a combination of persons formed for the promotion of a joint enterprise....... no difficulty whatever arises in the way of saying that...... these four persons did constitute an association........'

8. According to the Supreme Court in Commissioner of Income-tax v. Indira Balkrishna : [1960]39ITR546(SC) , these decisions correctly laid down the crucial test for determining what is an 'association of persons' within the meaning of section 3 of the Indian Income-tax Act, 1922, and these decisions have been accepted and followed in a number of later decisions of different High Courts. 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. Thus, according to the Supreme Court, for forming an association of persons the members of the association must join together for the purpose of producing income and an association of persons can be formed when two or more individuals voluntarily combine together for a certain purpose. Hence, volition on the part of the members of the association is an essential ingredient. It is true that even a minor can join an 'association of persons' if his lawful guardian gives his consent.

9. We may point out that in another case decided by the Supreme Court the particular assessee and her sister received under the will of their mother, inter alia, a cinema theatre building with machinery and another building, each one of them had a half share in the properties. On their making a gift of those buildings to their brother by means of a single gift deed, it was held that each of the two sisters, namely, the assessee and her sister, had half the right in the properties that they gifted to the brother; they were holding the property and made the gift as tenants-in-common and each one must be held to have made a gift of her share of the property though the gift was made through one single document. This was the decision of the Supreme Court in Commissioner of Gift-tax v. R. Valsala Amma : [1971]82ITR828(SC) . It was observed by Hegde J., delivering the judgment of the Supreme Court, at page 830 of the report :

'The property received by the assessees under the will of their mother was admittedly received by them an co-tenants. Each one of them had held share in that property. The question whether they divided that property or not is not a material question. In law each one of them had half the right in the property that they gifted to their brother. They were holding that property as tenants-in-common and as joint tenants. Hence they made be half to have made a gift of her share of the property though the gift is made through one single document. It is surprising that the Income-tax Officer or the Appellate Assistant Commissioner or the Tribunal should have ever thought that the gift in question was by an association or by a body of individuals'.

10. Thus, according to the Supreme Court, in circumstances similar to the circumstances of the present case, person holding property as tenants-in-common, each one having a distinct defined share in that undivided property, cannot be said to be an 'association of persons' or a 'body of individuals' for the purposes of gift-tax. It is true, as Mr. J. P. Shah for the assessee urged before us, that this particular case before the Supreme Court in Commissioner of Gift-tax v. R. Valsala Amma : [1971]82ITR828(SC) was under the Gift-tax Act and not under the Income-tax Act. But, it seems to us that, in principle, there is very little difference between the provision of these two taxation statutes and there is no reason why the connotation of the words 'association of persons' and 'body of individuals' should differ between the Gift-tax Act and the Income-tax Act.

11. In Sri Ladukishore Das v. State of Orissa [1973] 87 ITR 555 the Orissa High Court held that after the partition of a Hindu undivided family by metes and bounds the erstwhile coparceners who became exclusive owner of separate parcels of land would not constitute an association of individuals merely because they live together in joint mess and one of the coparceners looks after the cultivation of the entire property. The decisions of the Supreme Court in Indira Balkrishna's case : [1960]39ITR546(SC) and other subsequent cases were considered by the Orissa High Court and applying the tests laid down in the earlier decisions of the Supreme Court, the Orissa High Court held that there was no 'association of persons' within the meaning of the decided cases after the partition of the Hindu undivided family.

12. It is clear from the test laid down by the Supreme Court in Indira Balkrishna's case : [1960]39ITR546(SC) and reiterated in G. Murugesan and Brothers v. Commissioner of Income-tax : [1973]88ITR432(SC) , that in order to form an 'association of persons' within the meaning of the Income-tax Act, there must be a body of individuals who are joined together for the purpose of producing income. In the instant case, the assessee and his two brothers who merely held the property jointly after the partition by metes and bounds arrived at in 1958, cannot be said to be an 'association of persons'. The question then arises whether the assessee and his two brothers, between 1958 and March 24, 1961, can be said to be a 'body of individuals'.

13. There is no decision of the Supreme Court or of this High Court laying down what is meant by a 'body of individuals' or what are the tests for determining when conglomeration of individuals can be said to be a 'body of individuals' for the purposes of the Income-tax Act. It is possible to attribute any one of the following three meanings to the expression 'body of individuals' occurring in the Income-tax Act, 1961 :

(1) On the same basis as an 'association of persons', that is, the members of the body must have joined together for the purpose of producing income;

(2) a conglomeration of individuals who happened to have come together but who carry on some activity with a view to earn income or profits or gains; and

(3) any conglomeration of individuals whatsoever irrespective of the object which brought them together and irrespective of the activities which they carry on.

14. It is clear that if the first meaning were to be adopted, that would be the narrowest meaning and adoption of that meaning would mean attributing tautology to the legislature. If the first of the three meanings set out therein were to be accepted, there would be no difference between an 'association of persons' and 'a body of individuals' and acceptance of that meaning would mean that the legislature has used the words 'body of individuals' in vain to describe one and the same group of individuals. On the other hand, if we are to accept the third meaning, then, we would be losing sight of the principle of noscitur a sociis and also of the fact that this phrase 'body of individuals' occurs in the context of the Income-tax Act and it is only that body of individuals which is earning income with which the Income-tax Act is concerned. Though the principle of ejusdem generis cannot be applied to the definition of the word 'person' occurring in section 2(31), since there is no specific genus to which an individual, a Hindu undivided family, a company, a firm or an association of persons can be said to belong, the principle of noscitur a sociis can certainly apply in the facts of this case. The body of individuals with which the Income-tax Act is concerned must be carrying on an activity with a view to earn income because it is only with such a body of individuals that the Income-tax Act is concerned and again the words 'body of individuals' derive colour from the context in which they occur, namely, an association of persons' and, therefore, in our opinion, the only course open to us as a matter of interpretation is to attribute the second meaning out of the three meaning set out hereinabove to the words 'body of individuals'. We, therefore, hold that the words 'body of individuals' occurring in the Income-tax Act in the definition of the word 'person' in section 2(31) means a conglomeration of individuals who carry on person activity with the object of earning income.

15. It was contended by Mr. Shah on behalf of the assessee, that even if this phrase 'body of individuals' is interpreted in the manner in which we have done for the purposes of section 47(ii), the words 'body of individuals' should be interpreted as a conglomeration of persons merely, that is, the third meaning should be attributed for the purposes on section 47(ii) and not the second meaning out of the three meaning which we have hereinabove set out. He contended that the same word or set of words can have different meaning in different parts of the same Act and, therefore, it is not necessary the meaning which is to be attributed to the words 'body of individuals' occurring in the context of the charging section, namely, section 4 should also be attributed to the exemption provisions of section 47(ii). We are unable to accept this contention because section 47(ii) deals with distribution of assets of a 'body of individuals' who would otherwise have been liable to tax on the basis of capital gains under section 45 but for the exemption provided by section 47(ii). Therefore, section 47(ii) contemplates a 'body of individuals' which is otherwise an assessable entity and the same meaning which is to be attributed to the words 'body of individuals' in the context of the charging section must be attributed also in the context of section 47(ii).

16. We may point out that the Andhra Pradesh High Court has also come to the same conclusion as we have done as regards the meaning of the words 'body of individuals' occurring in the Income-tax Act. In Deccan Wine & General Stores v. Commissioner of Income-tax : [1977]106ITR111(AP) , the facts before the Andhra Pradesh High Court were that one Pannalal who ran certain businesses died. His widow and two minor children succeeded to the businesses. The Income-tax Officer, for the assessment year 1966-67, assessed the income from the businesses in the status of a 'body of individuals'. On appeal, the Appellate Assistant Commissioner and the Tribunal confirmed the order of assessment. On a reference, the High Court held that the three individuals clearly constituted a body of individuals. The three individuals had a common interest in the business. The businesses were carried on for the benefit of all of them. They could not constitute an association of persons because two of them were minors and their guardian was herself the third person of the combination and there was, therefore, none who could agree on their behalf with the third persons. But though the businesses were not carried on pursuant to a common design, they were carried on for their common benefit by one of them representing all of them. The Andhra Pradesh High Court in : [1977]106ITR111(AP) considered different relevant decisions on the point and it observed in connection with Commissioner of Gift-tax v. R. Valsala Amma : [1971]82ITR828(SC) :

'That was a case under the Gift-tax Act...... We are not concerned with a body of individuals in the abstract. We are concerned with 'a body of individuals' in the context of the Income-tax Act which is different from 'a body of individuals' in the context of the Gift-tax Act. The consideration which determine whether a gift is made by a body of individuals are obviously different from the considerations which determine whether income has accrued or is deemed to accrue to a body of individuals. Further, in the case before the Supreme Court the subject-matter of the gift was property, i.e., buildings and not businesses. If the subject-matter of the gift was a running business carried on by two ladies perhaps the position might have been different.'

17. It was on these lines that the decision in R. Valsala Amma's case : [1971]82ITR828(SC) was distinguished; though we do not agree with the conclusion of the learned judges of the Andhra Pradesh High Court regarding this distinction between the provisions of the Gift-tax Act and the Income-tax Act, we do agree with the following observations of those learned judges in : [1977]106ITR111(AP) :

'We are of the view that the expression 'body of individuals' should receive a wide interpretation, perhaps not wide enough to include a combination of individuals who merely receive income jointly without anything further as in the case of co-heirs inheriting shares or securities but certainly wide enough to include a combination of individuals who have a unity of interest but who are not actuated by a common design, and, one or more of whose members produce or help to produce income for the benefit of all. We are content to leave it at that.'

18. We will now proceed to examine in the light of the above discussion whether the assessee and his two brothers could be said to be a 'body of individuals'. It is true that the three brothers were holding the property jointly. Some attempt was made by the operations were carried on in survey No. 170-1 but the Income-tax Officer has brushed aside that aspect of the case and subsequently the matter does not appear to have been agitated by the assessee before any higher appellate authority. Thus, on the facts of the case and on the record before us, it is obvious that though some agricultural income might have been derived from survey No. 170-1 between 1958 and 1961, the case has not been examined by the Appellate Assistant Commissioner or by the Income-tax Appellate Tribunal from the point of view of determining whether the assessee and his two brothers carried on any activity with the object of deriving income therefrom and whether any agricultural income was derived from survey No. 170-1 by the assessee and his three brothers and, in this sense, whether they constitute body of individuals.

19. Mr. Shah relied on certain observations of the Supreme Court in Commissioner of Income-tax v. Madurai Mills Co. Ltd. : [1973]89ITR45(SC) . The Supreme Court in that case was concerned with the question of distribution of assets of a company in liquidation and whether such distribution could give rise to capital gains chargeable under section 12B of the Indian Income-tax Act, 1922, which provided for capital gains under the Act of 1922. The observation on which Mr. Shah relies is at page 51 of the report. The judgment of the Supreme Court was delivered by Khanna J., who observed at page 51 as follows :

'It appears to us that the cases of the distribution of capital assets on dissolution of a firm or other association of persons or liquidation of a company were mentioned in the third proviso under the earlier Act, as a matter of clarification to allay fears even though the language of sub-section (1) of section 12B was not intended to apply to such cases. Provisos, as mentioned on page 221 of Cries on Statute law, sixth edition, are often inserted to allay fears. A proviso is inserted to guard against the particular case of which a particular person is apprehensive, although the enactment was never intended to apply to his case or to any other similar case at all. We have already stated earlier that the distribution of assets by a liquidator on the voluntary winding-up of a company cannot constitute sale, transfer or exchange for the purpose of sub-section (1) of section 12B of the Act. If the language of sub-section (1) of section 12B of the Act is clear and does not warrant the inference that distribution of assets on liquidation of a company constitutes sale, transfer or exchange, the said transaction of distribution of assets would not, in our opinion, change its character and acquire the attributes of the sale, transfer or exchange, because of the omission of a clarification in the first proviso to sub-section (1) of section 12B of the Act, even though such a clarification was there in the third proviso of the section inserted by the earlier Act (Act 22 of 1947). It is well-settled that consideration stemming from legislative history must not be allowed to override the plain words of a statute .... A proviso cannot be construed as enlarging the scope of an enactment when it can be fairly and properly construed without attributing to it that effect. Further, if the languages of the enacting part of the statute is plain and unambiguous and does not contain the provisions which are said to occur in it, one cannot derive those provisions by implication from a proviso.'

20. Mr. Shah contended on the basis of these observations that section 47(ii) in so far as it deals with distribution of capital assets on the dissolution of a body of individuals was inserted more by way of obedient caution than providing an exception to the provisions of section 45 which makes capital gains chargeable as part of income. We are unable to accept this contention because the observations on which he relies were made in the context of the provisions of section 12B of the 1922 Act. In the 1922 Act, the words 'extinguishments of any rights' in the capital assets which occur in the word 'transfer' were not to be found and to that extent there is a difference between the provisions of the 1922 Act and of the 1961 Act. Moreover, the opening words of section 47 indicate that even distribution of capital assets on the dissolution of a body of individuals would amount to a 'transfer' because the opening words are : 'Nothing contained in section 45 shall apply to the following transfers'. Under these circumstances the assessee cannot get any benefit from the observations of the Supreme Court which were made in the context of the provisions of the 1922 Act which materially differed from the provisions of the 1961 Act, inasmuch as extinguishment of any rights in a capital assets was not within the definition of the word 'transfer' for the purposes of section 12B. Section 12B(1) of the 1922 Act provided;

'The tax shall be payable by an assessee under the head 'Capital gains' in respect of any profits or gains arising from the sale, exchange, relinquishment or transfer of a capital asset effected.....'

21. There was no definition of the word 'transfer' in the 1922 Act, and thus the scheme of the 1961 Act regarding capital gains and exemption from capital gains is different from the scheme of the 1922 Act, and hence, the observation of the Supreme Court in Commissioner of Income-tax v. Madurai Mills Co. Ltd. : [1973]89ITR45(SC) cannot apply to the facts of this case.

We may point out that in paragraph 6 of its order at the time of disposing of the appeal before it, the Income-tax Appellate Tribunal observed :

'The assessee also raised a contention that capital gains was not chargeable inasmuch as the property sold was an agricultural land but in view of our conclusions arrived at above, we are not deciding this aspect of the matter.'

22. Thus, the Tribunal has not expressed its conclusion as to whether the land obtained by the assessee and his two brothers was agricultural land at the time when they obtained it on partition in 1958, and still continued to be agricultural land at the time when the document of March 24, 1961, was executed between the assessee and his two brothers. It is obvious that if this particular capital asset of the assessee, namely, his undivided one-third share in survey No. 170-1 was a share agricultural land, then, by reason of the definition section, any gains in the value thereof would not fall within the provisions of section 45 at all.

23. There is also another aspect of the matter. The Income-tax Officer in his order has considered the contention of the assessee about agricultural income. It was contended in the alternative before the Income-tax Officer that the plot of land was agricultural land and the surplus cannot be taxed as an item capital gains. In support of his contention that the plot was agricultural land, the assessee had produced a copy of the panipatrak which showed that the land was used for growing juwar. The Income-tax Officer held that the assessee was not in a position to prove that agricultural operations were carried on in survey No. 170-1. We may mention that both in the partition of 1958 and in the deed of March 24, 1961, survey No. 170-1 is referred to as agricultural land. But neither the Appellate Assistant Commissioner not the Income-tax Appellate Tribunal appears to have applied their minds to this aspect of the matter.

The question then arisen as to what orders we should pass in this matter. In Commissioner of Income-tax v. Indian Molasses Co. P. Ltd. : [1970]78ITR474(SC) , Shah J., as he then was, delivering the judgment of the Supreme Court observed :

'Two courses are now open to us : to call for a supplementary statement of the case from the Tribunal; or to decline to answer the question raised by the Tribunal and to leave the Tribunal to take appropriate steps to adjust it s decision under section 66(5) in the light of the answer of this court. If we direct the Tribunal to submit a supplementary statement of the case, the Tribunal will, according to the decisions of this court in New Jehangir Vakil Mills Ltd. v. Commissioner of Income-tax : [1959]37ITR11(SC) , Petlad Turkey Red Dye Works Co. Ltd. v. Commissioner of Income-tax : [1963]48ITR92(SC) and Keshav Mills Co. Ltd. v. Commissioner of Income-tax : [1965]56ITR365(SC) , be restricted to the evidence on the record and may not be entitled to take additional evidence. That may result in injustice. In the circumstances, we think it appropriate to decline to answer the question on the ground that the Tribunal has failed to consider and decide the question whether the expenditure was laid out or expended wholly and exclusively for the purpose of the business of the company and has not considered all appropriate provisions of the statute applicable thereto. It will be open to the Tribunal to dispose of the appeal under section 66(5) of the Indian Income-tax Act, 1922, in the light of the observations made by this court after determining the questions which ought to have been decided.'

24. In our opinion, in the interest of justice, it is but proper that we also, in the instant case, should follow the procedure which the Supreme Court followed in Commissioner of Income-tax v. Indian Molasses Co. P. Ltd. : [1970]78ITR474(SC) . It is obvious on the facts of the case before us that the Income-tax Appellate tribunal has not applied the proper test for determining what constitutes a 'body of individuals' for the purposes of the Income-tax Act and particularly in section 47(ii). Secondly, the Tribunal has not considered and applied its mind to the question whether this particular plot of land, namely, survey No. 170-1 was agricultural land or not. If we were to call for a supplementary statement of the case, the tribunal would be bound to submit the supplementary statement on the basis of the evidence on its own record and would not be entitled to take additional evidence and that might work hardship to both sides. Under these circumstances we decline to answer the question referred to us on the ground that the Tribunal has failed to consider and decide the two question : (1) whether the assessee and his two brothers constituted a body of individuals in the sense that they were a combination or conglomeration of persons who carried on some activity with the object of deriving income therefrom; and (2) whether this particular survey No. 170-1 was agricultural land at the relevant time, the one-third share of the assessee in that plot of land would not be a capital asset and the transfer of that one-third share would not be attract the provisions of section 45 of the Income-tax Act. It would be open to the Tribunal to dispose of the appeal before it under the provisions of the law and in the light of the observations made by this court after determining the questions which ought to have been decided. There will be no order as to costs of this reference.


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