1. The facts out of which this reference by the Commissioner of Income-tax arises may be shortly stated. Mr. J.V. Saldanha, a resident of Mangalore, died in April, 1922, leaving behind him a widow and seven children, one of whom died subsequently. At the time of his death he owned coffee plantations in the Mysore State and house properties in Mangalore and was a partner to the extent of a one-third share in a firm of coffee curers styled A.J. Saldanha & Sons, Mangalore. Under the Indian Succession Act his property descended to his widow and to his children, the widow getting one-third share and the children getting equally the remaining two-thirds. They do not constitute a joint family but are tenants-in-common of the estate which has not been divided by metes and bounds. Mrs. Saldanha was originally assessed by the Income:-tax Officer on the basis that the whole of the income accrued to her. She then objected to the assessment and contended that she was the owner of only one-third of the estate and her children were separate owners of shares in the remaining two-thirds and that they may be liable to income-tax on their shares separately but that she was liable to pay income-tax only on her one-third share. This contention was upheld and she was accordingly assessed on her one-third share, the children being assessed separately. This was in October, 1928. Later on a notice was issued by the Income-tax Officer in September, 1930, calling upon her to submit returns of her income from the business for the two years 1929-30 and 1930-31 as he proposed to revise the assessment. The reason for this notice was a decision of the Lahore High Court reported in Hots Trust of Simla v. Commissioner of Income-tax (1930) I.L.R. 11 Lah. 724. Though she did not submit returns of her income the Income-tax Officer following the decision in Hots Trust of Simla v. Commissioner of Income-tax (1930) I.L.R.11Lah.724 and holding that she is assessable for the total business conducted by her on behalf of herself and her children on the ground that it is all one business made a further estimate of the income and assessed her accordingly. On appeal the Assistant Income-tax Commissioner agreed with the revised assessment and dismissed her appeal.
2. In paragraph 4 the Assistant Commissioner observed in reply to the argument of the appellant that she and her childfen could not be assessed as an association of individuals, that it was not the appellant's children that have been assessed in this case but the appellant individually. There was a review petition to the Commissioner of Income-tax with a prayer that the Commissioner should either cancel the re-assessment or refer the question of law for decision to the High Court. Accordingly the Commissioner of Income-tax referred the following question to the High Court:
Whether on the facts of this case, a single assessment should be made on Mrs. Saldanha on (1) the entire income derived from the business carried on by her, and (2) the whole of the one-third share of the profits derived by her from the business conducted by her under the style A.J. Saldanha & Sons in partnership with others, or whether separate assessments should be made on her and the other heirs on their respective shares of such income.
3. In his letter of reference he expresses the opinion that Mrs. Saldanha and her children constitute at least an association of individuals.
4. In the argument before us it was contended by the learned advocate for the assessee that the phrase 'association of individuals' in Section 3 of the Act refers to unincorporated companies and not to a case of this kind. Secondly, it was contended that the minors can each be separately assessed under Section 40 of the Act, the tax being levied from the guardian.
5. Now the argument based on Section 40 may first be disposed of. Section 40 and the following sections have been held to be not charging sections but only machinery sections. Section 40 provides that the trustees or guardians shall be assessed in a like manner and to the same extent as the beneficiaries or wards may be assessed. Apart from the fact that these are not charging sections it may also be observed that they are enabling sections, i.e., the Income-tax Officers can take steps to assess the trustees or guardians as representing their separate beneficiaries or wards as the case may be, if they so choose. But the sections do not compel the Crown to resort to them. The question in the case before us is not whether the Income-tax Officer can proceed under Section 40 or not but, where he has not chosen to proceed under Section 40 but proceeded to assess on other basis, Section 40 can be relied upon as preventing him from doing so. It is clear that the section cannot be so utilised. In the present case what the Commissioner finds is that there is a coffee curing business carried on by Mrs. Saldanha. It is true that the fund with which she carries on this business consists partly of her own property and partly of the property of her children. But whatever that may be, on the ground that she carries on one business she is assessed to income-tax under Section 10, Clause (1). Now it is clear that the existence of Section 40 cannot prevent an assessment under Section 10, Clause (1) if it is otherwise justified. In a case where guardians or trustees do not carry on business but merely receive incomes on behalf of wards or beneficiaries and there is no question of any business being carried on by guardians or trustees it may be that Section 10 will not be available to the Crown and in such a case the incomes of the various minors or beneficiaries cannot be added and each must be separately assessed whether directly or through the guardians or trustees under Section 40 of the Act. But the fact that in a case where the trustees or guardians act as bare trustees or as bare guardians in mere receipt of the incomes the incomes of the beneficiaries or wards cannot be added does not avail the assessees where a business is carried on with the combined resources. Presumably in the case of a business carried on by jointly utilising several funds the income may not always be regarded as total of several separate businesses but as something larger than such total because a combination of resources may produce advantages other than a mere arithmetical total of the separate parts. For instance, a trade carried on with a capital of a lakh rupees is capable of producing much larger profits than merely the sum of the profits of ten separate businesses each carried on with a capital of Rs. 10,000. The Income-tax Commissioner therefore regards the whole of the business carried on in this case as one business and with reference to the contention that the resources belong to several individuals, namely, Mrs. Saldanha and her children, his opinion is that the business belongs to an association of individuals. The learned advocate for the assessee contended that the word 'association' has a technical meaning. It seems to us that 'association' merely means a group. When properties of a number of individuals are put together and one business is carried on with the combined resources it is open to the Incometax Officer to regard it as one business carried on by an association of individuals within the meaning of Section 3 of the Act. This is the view taken in Hots Trust of Simla v. Commissioner of Income-tax (1930) I.L.R.11Lah.724. There the business was the business of a hotel in Simla. The original owner died after leaving a trust deed by which the hotel business was to be carried on for the benefit of his children. The children there were tenants-in-cgmmon as in this case but it was held that the whole business can be assessed as one business carried on by the trustees on behalf of the beneficiaries. The learned Judges relied on Williams v. Singer (1920) 7 T.C. 387 where it was pointed out by Sankey, J., as he then was, that Section 41 of the English Act (corresponding to Section 40 of our Act) is a mere machinery section. This observation was repeated by the Master of the Rolls in appeal. On further appeal Viscount Cave observed with reference to the argument that it was the beneficiary and not the trustee that should be assessed:
Even apart from these special provisions, I am not prepared to deny that there are many cases in which a trustee in receipt of trust income may be chargeable with the tax upon such income. For instance, a trustee carrying on a trade for the benefit of creditors or beneficiaries...appears to come within this category.
6. If so, a guardian carrying on one business on behalf of her wards appears also to come within the same category. Another decision relied on in that case, namely, Fry v. Shiels' Trustees (1915) 6 T.C. 583 throws also some light on the matter though somewhat indirectly. There a business was being carried on by trustees on behalf of minor beneficiaries. It was held that the business may be regarded as that of the trustees and that the benefit derived by the trustees themselves cannot be deducted in assessing. Now if the business there should be regarded solely as the business of the beneficiaries, then what the trustees derived from it ought to be deducted. But it was held that the business should be treated as that of the trustees because it was they that carried on the business and the deduction should not be allowed. This case leads to the conclusion that where a guardian or trustee carries on a business, though the persons ultimately deriving the benefit of the business may be some wards or beneficiaries, or as in this case partly the guardian and partly the minors, the business can be regarded as a business carried on by the trustee or guardian and can be assessed as a single business. This virtually amounts to saying that where the business is carried on by one person on behalf of a number of individuals, the whole group of individuals, on whose behalf the business is carried on can be assessed through the person who carries the business. It is true that all these considerations will not be available in a case where no business is carried on and the trustees or guardians act as bare trustees or guardians merely receiving the incomes and handing them over to the wards or beneficiaries. But in the present case we have to answer the question referred on the. footing that there is a business as the reference was made on that footing. It was suggested before us that as a matter of fact there is no business at all, the produce being merely brought from the estate in Mysore and being sold. But we are dealing with the. case on the basis that there is a business. If the assessee desires to raise a, point as to whether there is really a business, she must take proper steps for raising it as a question of law. At present the case has to be considered only on the footing that there is a business carried on by one person though it is really on behalf of several.
7. At first I thought that there was some hardship in this matter by the mere accident of Mrs.'Saldanha's children being minors and by the guardian carrying on business they have to pay income-tax on a larger scale as apparently there is no provision enabling the minors to obtain any refund. But on later consideration it seems to me that the hardship is no more than the hardship in the case of a Hindu joint family. A Hindu joint family consisting of a number of minors carrying on family business is liable to pay income-tax on the mere accident of all the sharers constituting a joint Hindu family and they cannot obtain a refund on the basis of a scale appropriate to the individual sharers. In a case where there is no joint family but still on account of the minority of sharers, the sharers have all to be looked after by a common guardian and the business is carried on with the properties of the tenants-in-common put together with the advantages of such condition the same consequence follows as in the case of a joint family. I do not think that there is greater hardship in this case than in the other. But whatever the hardship may be, it seems to me that Section 10(1) enables the Crown to assess the person carrying on the business when there is only one business carried on by utilising all the properties.