VEERASWAMI, J. - This reference relates to the assessment years 1958-59 and 1959-60, the accounting period being from September 1, 1956. There was one N. V. Shanmugam & Co., a firm of partnership, carrying on business in the manufacture and sale of snuff under a deed of partnership dated April 20, 1955. There were four partners, one of whom was a minor. There was a provision in the deed of partnership, that the firm could not be dissolved before August 31, 1955, but parties could arrange for the continuance of the business by entering into fresh partnership on fresh terms and conditions. On September 17, 1956, one of the partners, S. P. Ramiah Nadar, instituted a suit on the file of the city Civil Court at Madras praying for a declaration that the partnership stood dissolved as from September 1, 1956, and for accounts of the assets and liabilities of the partnership. He also asked for appointment of a receiver for taking charge of the assets and liabilities of the partnership and for conducting the business for the beneficial winding up thereof. The plaint proceeded on the basis that after August 31, 1955, it was not found possible to come to any arrangements with reference to further continuance of the partnership firm. It appears that the first defendant was the managing partner of the firm between August 1, 1948, and August 31, 1952, and that thereafter Ramiah Nadar himself became the managing Partner up to August 31, 1955. It is not necessary for purpose of this reference to refer to the averments and counter averments in the pleadings in that suit. It will suffice to say that between September 1 and September 21,1956, the firms business came to a standstill. By an order of the City Civil Court dated September 21, 1956, S. P. Ramiah Nadar, S. P. Shanmugam, another partner of the firm, who figured as the second defendant in that suit, and an advocate were appointed as joint receivers 'to reopen and conduct the snuff business for the purpose of winding up' with powers to realise the outstandings and discharge the debts of the firm. The order also directed that the receivers should function as per the terms of the joint endorsement. The joint endorsement contained various terms as to dispensation of security to be published by the receivers and remuneration to the advocate-receiver and none to the party receivers and other matters of which the following are of importance in the present context :
'4. The receivers can carry on the business of the partnership firm normally.
8. The profits, if any, earned from September 1, 1956, will be treated as an asset of the firm subject to be divided between the parties in the manner set out in paragraph 10 of the document dated April 20, 1955. The receiver or receivers shall not be entitled to any share in the profits for the management.
9. The receivers will pay Rs. 1,500 to the plaintiff and Rs. 1,500 to the first defendant and Rs. 750 to the second defendant and Rs. 750 to the third defendant by his guardian from November 1, 1956, per month.'
The receivers made a return for the two assessment years in which they reported nil income, but mentioned in Section D of the return that the income was Rs. 93.739 and Rs. 1,54,393 respectively for the two assessment years. They stated that the income should be assessed in the hands of the beneficiaries as they were already assessees having other sources of income. But the Income-tax Office was of the view that, since the receivers were not only entitled to receive the income, profits or gains on behalf of the partners of this firm, but they were actually carrying on the business as an 'association of persons' under the courts direction, the profits, if any, earned from 1956, would be treated as an asset of the firm subject to be divided between the parties in the manner set out in paragraph 10 of the document dated April 20, 1955, and that the receivers could carry on the business of the partnership firm normally. He was also of the view that the receivers would be liable to assessment as an 'association of persons' under section 10 of the Income-tax Act. 1922, and that section 41 of the Act would be inapplicable. With this view the Appellate Assistant Commissioner concurred. In the assessment order, the assessee was described as 'Sarvashri S. P. Ramiah Nadar, N. V. S. P. Shanmughavel and Ram Mohan (advocate)' and their status was mentioned as 'association of persons' -joint receivers in O. S. No. 1547 of 1956, on the file of the city Civil Court, Madras. But the Appellate Assistant Commissioner in his order described the appellant as 'N. V. Shanmugam & Co., by joint court receivers. ' But nothing turns on this discrepancy, and no point seems to have been made at any of the lower stages that the assessment should have been made on the erstwhile partners themselves as an 'association of persons', and it does not arise, therefore, for consideration in this reference. On a further appeal by the receivers, the Tribunal considered that the receiver could not be considered to be an 'association of persons' for the purpose of either carrying on or enjoying the profits of the trade, because they were held together, not because they themselves wanted to carry on the business jointly, but in obedience to the courts order that the receivers should carry on the business for the purpose of its winding up. On this ground the Tribunal distinguished Mohamed Noorullah v. Commissioner of Income-tax, where, according to the Tribunal, none of the co-heirs wanted to break the unity of control of the business or its continuity unlike in the present case. On that view of Tribunal, the principle of Commissioner of Income-tax v. Balwantrai Jethalal Vaidya would be more appropriate to the case and it said that, though it related to the case of a trustee, all that was necessary to apply the principle of that case was to substitute the words 'receiver appointed by court' for the word 'trustee'. The Tribunal wound up by stating that, as the shares of the beneficiaries in this case were determinate, section 41 must be applied after the income had been computed under section 3 and 10. This reference under section 66(1) is as to :
'Whether the income of the business in snuff could be assessed on the receivers as an association of persons under section 10 or under section 41 of the Act ?'
The answer to the question will depend upon whether the receivers could be regarded as an 'association of persons' within the meaning of section 3, carrying on the business in snuff to attract section 10, and whether the facts are not such as to attract section 41.
Nowhere the Act defines the term 'association of persons'. Section 3 says :
'... income-tax shall be charged... in respect of the total income... of every individual, Hindu undivided family, company and local authority, and of every firm and other association of persons or the partners of the firm or the members of the association individually.'
An 'associations of persons' is, therefore, assumed under section 3 to be a unit assessment. Section 10 itself does not make any reference to any particulars states to persons who could be charged, but uses the language 'The tax shall be payable by an assessee under the head profits and gains of business, profession or vocation in respect of the profits or gains of any business, profession or vocation carried on by him.' Now, what is an 'association of persons This has been the subject-matter of judicial pronouncements which we shall immediately refer to. In B. N. Elias, In re, the Calcutta High Court, while holding that four persons, who jointly purchased a building by each contributing a portion of the purchase-money and who subsequently, through their agents, who was one of the joint purchasers, managed the properties and entered income, were liable to be assessed as an 'association of persons' on the joint income, observed :
'Those words association of individuals have to be construed in their plain, ordinary meaning. There is no difficulty about the word individuals. Associate means, according to the Oxford Dictionary, to join in common purpose, or in join in an action. Did these individuals join in a common purpose, or common action, there by becoming an association of individual In my view, they did. In the first place, they joined together in the purchase of this property on the 9th January, 1920. In the second place, they have remained joint as owners of this property from the date of the purchase down to the present time. Thirdly, they have joined together, as the power of attorney shows, for the purpose of holding this property and of using it for the purpose of earning income to the best advantage of them all.'
These observations of Derbyshire C.J. were concurred in by Costello J. with his own observations :
'When we find, as we do find in this case, that there is a combination of persons formed for the promotion of a joint enterprise banded together, if I may so put it, as co-adventurers to use an archaic expression, then I think no difficulty whatever arise in the way of saying that in this particular case these four persons did constitute an association of individuals within the meaning of both section 3 and section 55 of the Indian Income-tax Act, 1922.'
In 5 I. T. R. these are two judgments which may be usefully referred to, one at page 584, Commissioner of Income-tax v. Laxmidas Devidas and another at page 716, Dwarakanath Harischandra Pitale, In re. The first related to a joint purchase of immovable property by two individuals, each contributing the purchase money in equal share. They were jointly held and managed by or on behalf of them and them and the management resulted in certain profits or gains which were shared equally by them. The Bombay High Court held that they constituted an 'association of individuals' and were liable to be assessed as such. Like the Calcutta High Court, Beaumont C.J. expressed the view that the words 'association of individuals' in section 3 must be construed in their plain and ordinary meaning and should not be understood ejusdem generis with the word immediately preceding, namely, 'firm'. The learned Chief Justice further observed that the only limit imposed on the words was such as necessarily followed from the fact that the words appeared in an Act imposing a tax on income, profits and gains so that the association must be one which produced income, profits or gains. It may be noticed that one of the joint purchaser in that case was a minor represented by his father as his guardian. With reference to this, Beaumont C.J. stated :
'The fact that one of the assessees during the year of assessment was a minor, does not, I think, affect the question. In point of fact, the two assessees have associated together for the purpose of the equation of this property. Whether or not the minor is bound by any contract entered into by his father on his behalf is immaterial for the purposes of this reference. What we have got is the ownership of property by two persons, and the production by that property of profits or gains.'
Blackwell J. expressed his opinion thus :
'I do not think we are concerned with what was the legal effect of the contract of purchase entered into. In my opinion, the minor was none the less associated with the major assessee in acquiring the property, although he was a minor at the time; and I think that all we have to decide is whether, as a matter of fact, these two persons were associated together as individuals for acquiring the property.'
The other case concerned two brothers who became entitled to a certain house as tenants-in-common in equal shares under the will of their grandfather. They managed the properties as joint owners and derived profits therefrom, the net income of which they shared equally. It was held by Beaumont C.J. and Blackwell J. that, though the assessees in the first instance did not constitute an 'association of individuals', they became an association of individuals within the meaning of section 3 of the Income-tax Act when they elected to retain property and manage it as a joint venture producing income. The assessment on the brothers as an 'association of Pakistan, which was decided by the Federal Court of Pakistan, shared that view of the Calcutta and Bombay High Courts and said that the word 'association' had no technical meaning and was wide enough to include all groups or aggregation of persons formed for the promotion of a joint enterprise. Actually, the decision in that case related to the right of the Federation of Pakistan to tax the Province under section 204 of the Government of India Act, and it was held that the expression 'association of persons' was wholly inapplicable to the persons who were running the Government of a Province in Pakistan. Commissioner of Income-tax v. Indira Balkrishna was a case of co-widows of a Hindu governed by the Mitakshara law, who inherited his estate which consisted of immovable properties, shares and money. In view of the finding of the Tribunal in that case that the widows had not exercised their right to separate enjoyment and that except for receiving the dividends from the shares and the interest from the deposits jointly, they had done no act which had helped to produce the income, the Supreme Court was the view that the 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 and that, in the absence of a finding that the widows combined in a joint enterprise to produce income, it could not be said that they had formed an 'association of persons'. In coming to that conclusion the Supreme Court considered what an 'association of individuals' was and expressed the view that, in the absence of any definition as to what constituted an 'association of persons' the words must be construed in their plain ordinary meaning and one must remember that the word occur in a section which imposed a tax on the total income of each one of the units of assessment, and they must be understood in that context. After referring to In re B. N. Elias, Commissioner of Income-tax v. Laxmidas Devidas and In re Dwarakanath Harischandra Pitale, the Supreme Court went on to observe :
'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 word occur in a section which imposes a tax on income, profits or gains.'
Having said that, the Supreme Court also sounded a note of caution :
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 particulars facts and circumstances of each case as to whether the conclusion can be drawn or not.'
The decision itself was based on the consideration, as we already indicated, that there was no finding that the widows had combined in a joint enterprise to produce income and did an act which had helped to produce income in respect of the shares and deposits. One other decision which may notice is Mohamed Noorullah v. Commissioner of Income-tax. There, a Mussalman died intestate leaving his son by a pre-deceased wife, his widow and four children by her. The widow along with another carried on the business after the husbands death. The son by the predeceased wife sued for partition and pending the action, at his instance two advocates were appointed as joint receivers of all the properties by consent of parties. The widow filed another suit for partition and applied for the continuance of the joint receivers. The son opposed the application on the ground that different persons should be appointed as receivers. But this opposition was overruled and the joint receivers already appointed were directed to continue. The receivers who carried on the business in that capacity were assessed to tax on the business income in the hands of the heirs as an 'association of persons'. This was confirmed by the Tribunal. This court held, agreeing with that conclusion, that as the business was continued without any interruption after the death of the original owner and all the heirs wanted to continue the business although through the receivers, there was sufficient material on which the department and the Tribunal could find that the co-heirs constituted an 'association of persons'. The Supreme Court accepted that view on the ground that none of the partners wanted to break the unity of control of the business or its continuity and the business was of such a nature that it could not be carried on without such consensus. The Supreme Court, referring to what constituted an 'association of persons', adverted to B. N. Elias, In re; Commissioner of Income-tax v. Laxmidas Devidas and Dwarakanath Harischandra Pitale, In re, and stated that the view expressed in those cases was correct as to the test for determining what was an 'association of persons' and that in each case the conclusion had to be drawn from the circumstances. The decision of this court in that case is in Estate of Khan Sahib Mohamed Oomer Sahib v. Commissioner of Income-tax and it appears therefrom that in deciding what should be the basis of assessment under section 41(1) and the question whether the joint receivers themselves constituted an association under section 41(1), the liability of the joint receivers was taken to be the same as that of the persons whom they represented. It would appear to have been contended in that case for the revenue that, independent of section 41, the department was entitled to tax the profits of the business in the hands of the joint receivers who had earned its profits, treating them as forming an 'association of persons'. But this court left the matter open, as the determination of that question was not strictly necessary for the disposal of that case. The assessee there was not described as 'the Estate of the late Khan Sahib Mohamed Oomer Sahib, by joint receivers, Messrs. S. Azizuddin and K. K. Sridharan, Madras', as constituting an 'association of persons.'
It is clear from these decided cases in the context of section 3 that an 'association of persons' is a combination of persons for the purpose of producing income by their joint act or venture in that direction. It is unlike a contract of partnership. An 'association of persons' need not necessarily be on the basis of a contract. But when persons combined for such a purpose, it should be assumed that it is a consensual act on their part and is the result of some understanding between them. The Tribunal took the view that the receivers in this case having been appointed by an order of court could not be regarded as an 'association of persons', more especially because the erstwhile partners of the firm were disagreed on question of continuing the business of partnership. On behalf of the revenue, it is urged that for the formation of an 'association of persons', it is not necessary that it should be as a result of a mutual understanding and that if persons are thrown together by external factors like an order of court they may well be considered as an 'association of persons.' We do not think that the proposition can be accepted in that form. Even where there is a courts order appointing receivers, the court cannot compel a particular person to be a receiver. In that sense, when the receivers, pursuant to an order of court, enter upon their duties, it must be taken that they did so on an understanding between them that they will combine to carry on the business and produce income by their joint act. It may also be noticed that in this case the terms on which the receivers functioned had been agreed to by the parties and filed in court in the form of a memorandum. In the circumstances of this case, therefore, in any case the receivers appointed answer the description of an 'association of persons'. Undoubtedly, the receivers were associated and they carried on the business conjointly and produced profits.
But the question is whether they could be assessed as an 'association of a persons' under section 10. For the application of that section, it is necessary that the assessee carried on the business. That means that the assessee should carry on the business in his own right, although he may not be the owner of the business. The joint endorsement, which was appended to the order of appointment of the receivers, contained a clause stating :
'The receivers can carry on the business of the partnership firm normally.'
This clause contemplated that the receivers themselves were entitled to carry on the business. But another clause in the joint endorsement is to the effect that the profits, if any, earned after a certain date will be treated as an asset of the firm. Can it be said that the joint receivers carried on the business in the circumstances in their own right, or they carried on the business as agents of the partie S. T. Desai, in the Law of Partnership, third edition, page 346, is of the view that the receiver or a receiver-cum-manager appointed in a partnership suit is not an agent of the parties to the suit because he is not appointed by them and he is not bound to obey their directions. The author points out :
'A necessary incident of this relation is that not being an agent of the parties, he acts on his own responsibilities and credit; he is personally liable for his acts including contracts entered into by him.'
The author further says :
'So that if a receiver is appointed with authority to continue a business for purposes of winding it up and in the course of such business debts are properly incurred by the receiver, the person to whom the debts become due may proceed not only against the receiver personally but also against the partnership property in his hand for the recovery of their debts in priority to other creditors of the business.'
There is force in this view, and we are inclined to accept it in regard to the character of a receiver in a partnership action. On the facts in this case also, there appears to be no room for doubt that the parties by the joint endorsement appended to the receivers order consented to the receivers carrying on the business themselves, though the profits produced by them should be treated as an asset of the firm. We are of opinion, therefore, that the joint receivers could well be said to have in their own right carried on the business during the accounting periods.
The question then remains whether section 41 is inapplicable. It should be observed that section 41 is not a charging or liability section. It is merely procedural, and is an enabling machinery section. By an application of section 41, the liability of the beneficiaries under the charging provisions under the relevant head is not and cannot be altered. Section 41 will apply to a case of a receiver who, whether as an agent or not, factually manages the property of behalf of another under an order of court and it entitled to receive and receives on behalf of the other the income from that property. In such a case, the tax under the section shall be levied upon and be recoverable from the receiver in the same manner and to the same extent as it would be from a person on whose behalf the receiver receives such income. The section, therefore, makes no difference to the liability of the beneficiaries to tax or the manner of levy or recovery of tax from them. The only effect of section 41 is that it enables the revenue to charge the income in the hands of the receivers and collect the tax from them, not because the receivers are themselves personally liable but because the income liable to tax, which along with its source belong to the estate of beneficiaries, is in the hands of the receivers and it is convenient for the revenue to reach it at that place. Though the levy and collection are upon and from the receivers, they are really in assessment and enforcement of the liability of the beneficiaries. When receivers themselves carry on business, though in winding up, under direction of court, and partake the status of an 'association of persons' producing income by their joint act or venture, these characteristics, in our view, are reflected on the beneficiaries as to the source, character and liability to tax of the income which ultimately belongs to them. The shares of the beneficiaries here are no doubt determinate. But, having regard to the source of and the mode in which the income was derived, we are of the view that the receivers were rightly assessed as an 'association of persons' under section 10 and that the jurisdiction to so assess them is under section 41. Notwithstanding the approach made by the revenue and the Tribunal, and also the frame of the question under reference, the proper way to look at it, as we consider, is that the assessment should be treated as one made under section 10 read with section 41.
We answer the question referred to us in favour of the revenue with costs. Counsels fee Rs. 250.