1. The following common question has been referred under Section 256(1) of the I.T. Act for the assessment years 1965-66 to 1968-69 :
' Whether, on the facts and in the circumstances of the case, it hasbeen rightly held by the Appellate Tribunal that the Income-tax Officerwas not justified in assessing the assessee in the status of body of individuals '
2. For the assessment year 1965-66 the accounting year ended on November 4, 1964. T. M. Sidhpurwala and T. M. Badruddin Mohammed Ali sold on February 28, 1964, the property bearing No. 12/13, Angappa Naicken Street, Madras, for a consideration of Rs. 12,000. On 12th October, 1964, the two brothers along with three others sold certain house sites in survey No. 4 at Sidhpur in Mehsana District of Gujarat for Rs. 24,628'04. The ITO brought to tax a sum of Rs. 42,084 as long-term capital gains, after giving a deduction of Rs. 5,000 being the statutory exemption in respect of the above transactions. The assessment was made in the status of ' association of persons '. There was an appeal to the AAC, who held that the capital gains' could not be assessed in the hands of an ' association ofpersons ', but had to be assessed only in the hands of the two individuals, Sidhpurwala and Badruddin Mohammed All. The department filed an appeal before the Tribunal, and by its order dated 16th July, 1969, it held that the sales were not effected by the association of persons and that, therefore, there was no capital gains assessable in the hands of the ' association.' Against that decision there was a reference to this court in T.C. No. 320 of 1970, The decision of this court on the reference is CIT v. Deghamwala Estates : 109ITR416(Mad) . It was held that the two persons were only tenants-in-common in respect of the shares inherited from their father, and that they did not constitute an ' association of persons '. With reference to one of the properties, which was in Gujarat State, the father himself had only one-half share and the two heirs succeeded only to that share, and the strangers, who owned the other half share, also joined together in the execution of the sale deed. It was held that the said two persons could not be taken to have constituted an association of persons in respect of that property also. The reference was answered on April 5, 1976.
3. Immediately after the order of the Tribunal in that case, the ITO took proceedings against the assessee as a ' body of individuals ' under Section 147(a) of the Act, as the said body of individuals had not filed any return of income. He again brought to tax the same income as was assessed unsuccessfully in the hands of the association. As the assessee has not contested the validity of the proceedings under Section 147(a), we do not find any need to go into the question whether the ITO was justified in taking these proceedings when the same amount had been assessed to tax under the status of ' association of persons' earlier and the assessment had been found to be wrong by the AAC and the Tribunal.
4. For the assessment year 1967-68, the two brothers sold a property in Sidhpur in Gujarat State for a consideration of Rs. 1,35,000 and Rs. 76,673 was computed as capital gains. There is no dispute about the amount ascertained as capital gains. For that year also the status taken was ' body of individuals '.
5. The assessee appealed against each of the assessments before the AAC. He held that the capital gains was not assessable in the hands of the ' body of individuals ' and that each co-owner should be separately assessed. The department appealed to the Tribunal. The Tribunal came to the conclusion that the two brothers did not constitute a ' body of individuals ' and that the assessment could not be sustained. Aggrieved by this decision of the Tribunal, the Commissioner of Income-tax has come up on reference raising the question already extracted.
6. Section 4 of the I.T. Act, 1961, provides as follows :
' Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, this Act in respect of the total income of the previous year or previous years, as the case may be, of every person......' (underlining* ours).
7. The word ' person ' has been denned in Section 2(31) as follows :
'' Person ' includes-
(i) an individual,
(ii) a Hindu undivided family,
(iii) a company,
(iv) a firm,
(v) an association of persons or a body of individuals whether incorporated or not,
(vi) a local authority, and
(vii) every artificial juridical person, not falling within any of the preceding sub-clauses.'
8. Under the Indian I.T. Act, 1922, before its amendment in 1939, the expression that found a place in the Act was ' association of individuals '. Under the amendment made in 1939 the expression ' association of persons ' came to be substituted for ' association of individuals '. When the I.T. Act, 1961, came to be enacted, one more category was included in Section 2(31) and that is the ' body of 'individuals' apart from the ' artificial juridical person ' covered by Clause (vii).
9. The Law Commission of India in its twelfth report drew up a Bill to give effect to the proposals it had made in the report. Clause 2(27) defined the word 'person'. In the Bill as drafted by the Law Commission, in relation to the categories with which we are now concerned, the provision was as follows :
' ' Person ' includes--...
(iv) a firm or other association of persons, whether incorporated ornot, or the partners of the firm or the members of the association individually,
(v) a body of individuals, whether incorporated or not...... '
10. In explaining its recommendation the Law Commission observed as follows :
' The definition of ' person ' in existing Section 2(9) has been amplified. The existing definition includes (a) Hindu undivided family and (b) a local authority. The General Clauses. Act [Section 3(42)], defines ' person ' as including a company or association or body of individuate Whether incorporated or not. The charging section (Section 3) of the Income-tax Actenumerates the units for taxation as ' individual, Hindu undivided family, company, local authority, firm and other association of persons, or the partners of a firm or the members of the association individually '. Section 4 of the Act refers to a ' person '.
It seems desirable to have a comprehensive definition of the word ' person ' in the Act so as to cover all entities mentioned in-
(i) the existing definition [Section 2(9)],
(ii) the existing charging provisions [sections 3 and 4], and
(iii) the General Clauses Act.
The definition has, therefore, been amplified on the above lines. '
11. However, when the bill came to be introduced, Section 2(31) defined the word ' person ' in the manner as it is found in the Act itself. In other words, while an ' association of persons ' or a ' body of individuals ' were separate categories put under two sub-clauses in the bill, as provided by the Law Commission, they were put together in Sub-clause (v). In the Notes on Clauses, practically the same passage as in the Law Commission report, already extracted, occurred.
12. The circumstances under which an association of persons can be said to have come into existence have been examined in a number of decisions of the Supreme Court. In CIT v. Indira Balkrishna : 39ITR546(SC) , the Supreme Court accepted the observations of Derbyshire C.J. in In re B. N. Elias : 3ITR408(Cal) that the word ' associate means ' to join in common purpose, or to join in an action'. Therefore, an association of persons as used in 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 tax on income, the association must be one the object of which is to produce income, profits or gains. In the case of CIT v. Indira Balkriskna : 39ITR546(SC) the co-widows of a Hindu governed by the Mitakshara law inherited the estate which consisted of immovable properties, shares, money lying in deposit and a share in a registered firm. It was held 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 they were entitled to an equal share of the income. 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 was held that they did not constitute an association of persons.
13. In Mohamed Noorullah v. CIT : 42ITR115(SC) a Mohamedan carrying on the business of manufacture and sale of beedies died intestate leaving several heirs. His widow and his four children by her carried on the business. A son by a predeceased wife applied for leave to sue for partition in forma pauperis and pending those proceedings two advocateswere appointed as joint receivers. The widow also filed another suit for partition but applied for the continuance of the joint receivers. The Supreme Court held that the business in beedies was carried on by an association of persons which was liable to tax. It was pointed out that none of the partners wanted to break the unity of control of the business or its continuity and that the business could not be carried on without such consensus. As the income arose from a business which was carried on as a single business by the consent of all the parties, the income was held liable to tax in the hands of the association.
14. In G. Murugesan & Brothers v. CIT : 88ITR432(SC) one Sinnamani Nadar executed a settlement deed in 1955 conveying to his four grandsons a life interest in a house property with remainder to their children. He had also certain shares in joint stock companies in the name of Murugesan and Brothers. Murugesan attained majority in 1955 and the youngest of his four brothers attained majority in 1962. The income from the house property as well as from the dividends was credited in the books of Murugesan and Brothers and transferred in equal proportion to the four individuals. There was an assessment in the status of ' association of persons ' and the Supreme Court held that as during certain years the members of the association chose to realise their dividends individually, there was an end of the association. In the course of the judgment at page 437 the circumstances under which an association of persons comes into existence have been set out as follows :
' For forming an ' association of persons ', the members of the association must join together for the purpose of producing an income. An ' association of persons ' can be formed only 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. '
15. Even minors could become members of an association through their guardian, if the guardian gave his consent for the said purpose.
16. It is these principles which were, in effect, applied by this court in CIT v. Deghamwala Estates : 109ITR416(Mad) , in the case of the very same assessee when the earlier assessment came to be made as an ' association of the persons '. The co-owners, who were tenants-in-common, it was held, did not constitute an association,' as the two persons had not done anything, which the owner of the property would not do to convey title, and as there were no materials to hold that there was concerted action with a view to earn capital gains.
17. Thus, in order to constitute an association of persons, there must be joining together in a common purpose or in a common action, the object of which is to produce income, profits and gains. The question is whetherthe expression 'body of individuals' requires any different test. The only difference between the present reference and the earlier reference is that the status adopted is ' body of individuals ' as against an 'association of persons ' adopted in the earlier case. If the same ctest is applicable to both categories, then the case, CIT v. Deghamwala Estates : 109ITR416(Mad) , would apply. The point to be examined is whether any different test is to be adopted in relation to the body of individuals.
18. Before the 1939 amendment, as seen already, the expression used was'association of individuals'. In the case of CIT v. Ahmedabad MillOwners' Association : 7ITR369(Bom) , the association consisted of 61members of whom 60 were limited companies and one a human being.The question was whether such an association was chargeable as association of individuals. It was held that ' individuals ' in Section 3 meant humanbeings and did not include a company. In order to counteract this decision, the expression ' association of persons ' was incorporated in the Act.In CIT v. Salem District Urban Bank Ltd. : 8ITR269(Mad) ,there was a co-operative central bank out of whose shareholders, therewere 138 persons and 533 co-operative societies. This court, differing fromthe Bombay High Court in the Ahmedabad Mill Owners' Association case : 7ITR369(Bom) , held that the bank could be assessed as an ' associationof individuals' even though some of its members were co-operativesocieties.
19. But there were other cases where the problem arose in a different form. For instance a corporation created by a statute or a University or Bar Council were treated as ' individuals '. See CIT v. Bar Council. Madras : 11ITR1(Cal) . Similarly, the trustees of a Baronetcy Trust incorporated by the Baronetcy Act were held to be assessable as an individual. See Currimbhoy Ibrahim Baronetcy Trust v. CIT  5 ITC 484 affirmed in  2 ITR 148. Apparently, in order to avoid any doubt in respect of such categories, the new provision came to be incorporated. The artificial juridical persons were brought in as a separate category, and the 'body of individuals' was also brought in for the purpose of getting in all the categories set out in the General Clauses Act.
20. There is no decision brought to our notice, which has gone into the concept of ' body of individuals ' found in Section 2(42) of the General Clauses Act. In Ramanatha Iyer's Law Lexicon, at page 144, the meaning of the word ' body ' has been given as follows :
' A number of individuals spoken of collectively, usually associated for a common purpose, joined in a certain cause, or united by some common tie or occupation ; as, a legislative body ; the body of the clergy ; a body corporate. '
21. Thus, the above meaning of the word ' body ' would require an association for some common purpose Or for a common cause or there must be unity under some common tie or occupation. A mere collection of individuals without a common tie or a common aim cannot be taken to be a body of individuals falling within Section 2(31).
22. It would of course be tautologous if all the requisites of an association of persons were required to constitute a body of persons. In such a case, both would be the same entity. In such a case the legislature need not have provided for a separate category of body of persons when association of persons could have fulfilled the purpose. The two entities cannot be identical in conception. But it is not possible to state precisely what combination would constitute an association of persons and what a body of individuals. There may be some overlapping and the incorporation of this category into the definition can be attributed to an anxiety not to leave out any category from assessment. One aspect has to be borne in mind, and that is as contrasted with the Bill as drawn, up by the Law Commission, the parliamentary draftsman has thrown the association of persons and body of individuals in one category thereby showing that the rule of construction of noscitur a sociis would have to be applied in respect of the two categories, viz., association of persons and body of individuals. Further, the words ' whether incorporated or not ' would show that the category is such as can be incorporated or is susceptible of incorporation, if the members so chose. For instance, an unincorporated members' club would be in a position to incorporate itself and hence it would be a body of individuals even while remaining unincorporated. It is only on the facts of each case that one would have to examine whether any given group is a body of individuals or not.
23. The Andhra Pradesh High Court and the Gujarat High Court have examined the question of what constitutes a ' body of individuals ' in two recent decisions. The decision of the Andhra Pradesh High Court is Deccan Wine and General Stores v. CIT : 106ITR111(AP) . That was a case where on the death of an individual his heirs succeeded to the three businesses carried on by him. For some years they were assessed as an HUF, and then as an association of persons. Later, these persons were taken to constitute a 'body of individuals'. The matter which came before the High Court related to the assessment year 1966-67 when the status was taken as ' body of individuals '. The High Court found that the three individuals had a common interest in the business carried on for the benefit of all of them by one of them, and that they would constitute a body of individuals. At page 117 it was observed as follows :
' We are of the view that the expression ' body of individuals ' should receive a wide interpretation, perhaps not wide enough to include a combi-nation 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. We will not attempt a comprehensive definition; nor will we attempt to catalogue the characteristics of a body of individuals. There is danger in doing either. '
24. This passage was quoted with approval by the Gujarat High Court in CIT v. Harivadan Tribhovandas : 106ITR494(Guj) . In that case certain properties had been received in partition by three brothers in' 1958. In 1961 they divided the properties among themselves. In doing so, the assessee in that case received a sum of Rs. 36,630 in lieu of his share of the land. The value of his share in the partition deed was declaimed as Rs. 18,400. The ITO sought to assess the difference between the two amounts as capital gains. One of the contentions urged was that they constituted a body of individuals coming within the scope of Section 47(ii). Under that provision, any distribution of capital assets on the dissolution of a body of individuals would be exempt from the levy of capital gains tax. The assessee in that case wanted to take advantage of this exemption. The High Court could not answer the question, as the Tribunal had failed to decide two points, viz., whether the assessee and his brothers constituted a body of individuals, and whether the lands were agricultural lands as claimed by the assessee. The reference was returned unanswered. But in the course of the judgment, the concept of body of individuals was discussed and the aforesaid passage from the decision of the Andhra Pradesh High Court was extracted with approval.
25. Section 47(2) itself appears to us to give a clue to the interpretation of the expression ' body of individuals '. It contemplates ' distribution of capital assets on the dissolution of the body of individuals ', as in the case of a firm or other association of persons. This itself shows that the body of individuals whether incorporated or not must be capable of holding properties as an entity and of distributing them at the time when it dissolves. Thus, a common purpose or a common tie, actual or potential capacity to hold properties or disposable income would be the minimum requirement of such a body of individuals. The purpose or the aim should, in the context of the I.T. Act, be to produce income or hold income-producing assets. In this view, though a body of individuals is not identical with an association of persons, they have some similarities. An association of persons may consist of non-individuals too. But a body of individuals has to consist only of individuals or human beings.
26.Examined in the light of the above, it would be found that in so far as the sales of the Madras and Sidhpur properties are concerned, there has been a mere execution of a sale deed by the two brothers together. Such execution was not enough to constitute an association. It would not be enough to constitute a body. Any two or more co-owners having interest in the same property may execute a sale deed jointly. Thus, execution of the sale deed cannot bring about the ' body '. Even on this occasion, there is no material to show that in effecting the sale the two persons did anything more than what a plurality of owners of a property would do to convey title. There is also no material to hold that they had acted in concert either, while holding the property or while selling it with a view to earn capital gains. In the absence of these materials, the Tribunal rightly held that the assessee cannot be assessed as a body of individuals too. Apart from the absence of materials as mentioned above, there is also one further infirmity and, that is in addition to the two brothers, there were three strangers, who joined the execution of the sale deed in respect of the Gujarat property. The two brothers could not be separately taken as a body of individuals for the purpose of effecting a sale of that property.
27. The Tribunal has in the course of its order referred to a decision of the Supreme Court in CGT v. R. Valsala Amma : 82ITR828(SC) . In that case the assessee and her sister received under the will of their mother a cinema theatre building with machinery and another building called ' police quarters '. Each one of them had a half share in the properties. They gifted these buildings to their brother by a single gift deed and the question was whether the assessee and her sister should be assessed in respect of the gift as individuals or as an association of persons or a body of individuals. It was held by the Supreme Court that in law each one of them had a half share in the properties, and that they made the gift as tenants-in-common, and that each one of them must be held to have made a gift of his or her share of the property, though the gift was made through one single document. They could not, it was held, be assessed as an association or as a body of individuals. This decision was distinguished by the Andhra Pradesh High Court in Deccan Wine and General Stores v. CIT : 106ITR111(AP) on the ground that that case arose under the G.T. Act and that the meaning of the same expression under the two different Acts may vary. This manner of distinction of the Supreme Court's decision has been dissented from in the judgmeift of the Gujarat High Court in CIT v. Harivadan Tribhovandas : 106ITR494(Guj) . We would agree, with respect, with the Gujarat High Court in the view that it has taken regarding the applicability of the decision. Whatever may be the position regarding the applicability of the Supreme Court's decision to the facts inthe case before the Andhra Pradesh High Court, still as far as the case before us is concerned, we find that it has great relevance. As against the gift in the Supreme Court's decision, there are sales in the case before us. If two co-owners executing a gift deed in respect of certain properties could not be a body of individuals for the purpose of assessment to gift-tax, similarly the tenants-in-common executing a sale deed would not constitute a body of individuals. There must be something more than joining together and executing a document to bring the co-owners together as a body of individuals. In the present case, on the facts, we hold they do not constitute a ' body of individuals '.
28. In the result, the question is answered in the affirmative and in favour of the assessee. The assessee will be entitled to its costs. Counsel's fee Rs. 500 one set.