SRINIVASAN J. - The question of law referred for the determination of this court under section 66(1) of the Act is, 'Whether the assessments on the association of persons for the assessment years 1951-52 to 1956-57 are valid.'
The assessee on record is described as M.M.Ipoh principal officer, M.S.M.M Meyyappa Chettiar, Karaikudi. A Hindu undivided family going by the vilasam 'M.S.M.M.' consisted of the father Meyyappa and two minor sons, Chockalingam and Meyyappa. It carried on business in money-lending, rubber growing and purchase and sale of properties in the Malay States, Burma and India. Four business were exclusively owned by the family. The family was also a partner in another business. By a deed dated April 5, 1940, a partition was effected among the members of the family with effect from February 22, 1940. At this partition, the mother of the minors acted as their guardian. Of the four business owned by the family, the two referred to as the Karaikudi and Rangoon business were exclusively allotted to the father, Meyyappa. In addition, the father took for himself three rubber estates and three house properties. The other business were divided equally among the sharers, the father and the two minor sons. Notwithstanding the partition, the father continued to be in management of all the businesses and the properties.
In respect of the three rubber estates and the house properties allotted to the father, Meyyappa, separate books of account were opened under the vilasam.'M.M.' In 1941, another son, Chettiappa, was born to Meyyappa. Thereafter, the father and this minor son constituted the Hindu undivided family in respect of the properties allotted to Meyyappa at the partition.
The management of all the properties by the father, Meyyappa, continued till about 1949, when one of the sons, Chockalingam, attained majority. On December 30, 1949, a partnership arrangement was entered into between the father, Meyyappa, and Chockalingam, to the benefits of which partnership the other minor son, Meyyappa, was admitted. This was in respect of the business carried on under the vilasam 'M.S.M.M.' at Ipoh. In this partnership, Meyyappa represented the Hindu undivided family consisting of himself and his minor son, Chettiappa.
As between Meyyappa and Chettiappa, a partition was effected on April 13, 1950. In pursuance of this partition, necessary entries were made in the accounts of 'M.M. Ipoh' and other businesses. Chettiappa was also admitted to the benefits of the partnership earlier referred to, to the extend of half the fathers interest in that partnership. The deed to partnership was, however, executed only in May, 1953, but it was accepted by the income-tax department and the partition recognised as effective from 13th April, 1950.
In 1951 the son, Chockalinga, appears to have posted against the exclusive allotment of the rubber estates and house properties to the father, Meyyappa, at the partition of the year 1940. On behalf of himself and the other son, Meyyappa, he asked the father, Meyyappa, for a half share in those properties. The father agreed, and a half share in these items of properties was given to the M.S.M.M. firm. It would be remembered that in this M.S.M.M. firm, the joint Hindu family consisting of the father, Meyyappa, and the minor son, Chettiappa, was a partner, and that later the minor son himself was admitted to the benefits of the partnership to the extent of half the fathers share in that partnership. There was no division by metes and bounds of the properties concerned in this re-allocation, but the necessary entries were made in the relevant books account. It appears undisputed also that the management of all the properties continued to remain with the M.S.M.M. firm. Up to April 13, 1950, the date of the partition between the father, Meyyappa, and the minor, Chettiappa, the income from the rubber estates and the house properties referred to was assessed in the hands of Meyyappa either as an individual or as the karta of the Hindu undivided family consisting of himself and Chettiappa. For the assessment years 1951-52, 1952-53 and 1953-54, the Income-tax Officer issued notices to Meyyappa under section 34, proposing to assess him in his capacity as the principal officer of an association of persons. For the assessment years 1954-55, 1955-56 and 1956-57, similar notices under section 22(2) appear to have been issued to Meyyappa. Meyyappa denied that there was any association of persons, but the Income-tax Officer overruling the objection held that for the first of the assessment years, that is, 1951-52, Meyyappa and his minor son, Chettiappa, were members of an association of persons and that for the remaining assessment years these two persons and the firm of M.S.M.M. were the members of such an association. Assessment were accordingly made on that basis. In the appeals to the Assistant Commissioner, objections to the assessment on the basis of an association of persons were rejected, but the Appellate Assistant Commissioner, however, directed that the rental income from properties should be assessed in the hands of the several owners thereof. In the appeals to it, the Appellate Tribunal also upheld the assessment on the association of persons.
It is under these circumstances that the question of law set out above stands referred to this court.
Broadly stated, the argument of the learned counsel for the assessee are that for the assessment year 1951-52, the assessment has been improperly made on the assessee as representing an association of persons. It is claimed that not only is there no evidence to establish the existence of such an association, but the fact that the other member of the association is a minor who has no contracting capacity and no volition of his own is in itself sufficient to destroy the basis for bringing into existence an association between an adult and a minor. In the case of the subsequent years, it is again claimed that there is the additional disability that a firm as such cannot be a member of an association of persons. Lastly it is claimed that in assessing Meyyappa Chettiar as the principal officer of the association of persons the department has neither followed the procedure contemplated under the Act nor has it been able to secure any evidence to establish that Meyyappa Chettiar was in fact the principal officer of the association.
In answering the question referred to us, we shall deal with the first of the assessment years 1951-52 separately. We have already stated that Meyyappa and the minor, Chettiappa, formed a Hindu undivided family between 1941-50. A partition was effected between the father and that son on April 13, 1950, and though the necessary document was executed only in 1953, the genuineness of that partition arrangement is not disputed by the department. The father, Meyyappa, has been resident in the taxable territories from 1949 onwards, and it is common ground that the management of the properties, rubber estates and house properties was always in the hands of the firm, M.S.M.M. At this partition, the minor, Chettiappa, was represented by his mother, Alagammai Achi. The share allotted to the minor at this partition is referred to as here-under :
'The share in the Ipoh M.S.M.M. firm and the M.M. properties should pertain in equal shares between the party of the first part (Meyyappa) and second part (Chettiappa), and whereas, in full quit of the interest of the party of the second part in the business of Karaikudi and Rangoon, the party of the second part (Chettiappa) has been fully compensated by the party of the first part.'
This document does not mention the manner in which the properties were to be managed, though in paragraph 9 of the statement of the case, the Tribunal states :
'It was agreed that the M.M. properties should be continued to be held by Meyyappa and Chettiappa in two equal shares and should be under the management of the M.S.M.M. firm.'
That there was any agreement with regard to the management of the properties does not appear from the partition deed. But this statement nevertheless appears to find support from the fact that a share of the profits of the M.M. properties was credited, as commission due, to the accounts of the M.S.M.M. firm on April 13, 1951, in the books of the M.M. Ipoh. This appears to offer clear enough indication that a ten per cent. commission of the profits was being given to the M.S.M.M. firm in respect of its management of these properties. It seems to be fairly well established, therefore, that subsequent to this seems to be fairly well established, therefore, that subsequent to this partition, the properties in question were managed by the M.S.M.M firm, and that firm while taking to itself ten per cent. of the profits as commission was crediting the balance in the M.M. Ipoh account to Meyyappa and his son, Chettiappa. In so far as the assessment year 1951-52 is concerned, these are the only facts on the basis of which any conclusion as to the existence of an association of persons composed of the father, Meyyappa, and the minor, Chettiappa, treated as the assessable entity, can be drawn.
An association of persons has not been defined in the Act, and we have necessarily to turn to decided cases in order to ascertain in what circumstances a body of persons can be assessed as an association of persons. In one of the earliest cases, B.N. Elias, In re, certain persons who jointly purchased properties in definite shares executed a general power-of-attorney in favour of one of themselves to manage all their affairs in relation to these and other properties belonging to them. They objected to an assessment on them as an association of individuals. Derbyshire C.J., after observing that the words 'association of individuals' would have to be construed in their plain ordinary meaning, proceeded to say (page 415) :
'Did these individuals join in a common purpose, or common action, thereby becoming an association of individuals In my view, they did. In the first place, they jointed together in the purchase of this property.... 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 jointed together, as the powers of attorney show, for the purpose of holding this property and of using it for the purpose of earning income to the best advantage of them all. Under these circumstances, it seems to me that looking at the position and construing the words of the Act in their ordinary common meaning, the four persons named are an association of individuals.'
Costello J. also observed (page 417) :
'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, co-adventurers to use an archaic expression then I think no difficulty whatever arises in the way of saying that in this particular case these four persons did constitute an association of individuals.....'
This case was followed in Commissioner of Income-tax v. Laxmidas Devidas. There two individuals jointed together in purchasing certain immovable properties contributing the purchase money in equal shares, and the properties were jointly held and managed by or on behalf of them. The management resulted in profits which were shared equally. It was held that the two persons formed an association of individuals assessable in that capacity on the ground that they were associated together for the purpose of acquiring property and deriving profit from it. This case is of some importance, as one of the members of the association was minor who was represented by his father and natural guardian in matters pertaining to the association. Whether and to what extend the principles of this decision would apply in the present case where the minor, Chettiappa, does not appear to have been represented by any one - if at all he was represented, he was so represented by his father, Meyyappa, who was himself the other member of the association - would call for some examination.
The two cases that we have referred to deal with cases where certain persons banded themselves together for the joint acquisition and joint management of certain properties. In Dwarkanath Harischandra Pitale, In re, a case was considered where two brothers became entitled to certain properties under the will of their grandfather. The properties were at first managed by the executor but were ultimately handed over to the two brothers. From that time onwards, they held the properties jointly and managed them jointly. They divided the net income equally between themselves. The question arose whether the two persons could be assessed as an association of individuals. In a short judgment, Beaumont C.J. observed, referring to B.N. Elias, In re (page 721) :
'The only distinction between that case and the present one is that the original association in the present case not a voluntary act on the part of the assessees. They did not purchase the property for the purpose of managing it : they received it under a will, and it may be said that in the first instance they did not constitute an association of individuals. But as soon as they elected to retain the property and manage it as a joint venture producing income, it seems to me that they became an association of individuals within the meaning of the Income-tax Act, and that they are properly assessed......'
It is clear from this decision that a body of persons who acquire, though involuntarily, a joint interest in certain properties, would yet be assessable as an association of persons, if they choose to remain joint in the ownership and management of the property and the enjoyment of its income.
The Supreme Court had occasion to consider a similar question in Commissioner of Income-tax v. Indira Balkrishna. They approved of the decisions set out earlier. In the case they had to deal with, three co-widows were the legal heirs of the estate of the deceased consisting of immovable properties, shares and money in deposit. They were assessed as an association of persons on the ground that they had not exercised their right to separate enjoyment. But except for receiving the dividend from the shares and the interest from the deposits jointly, they had done no act which would help to produce the income. Their Lordships of the Supreme Court held that, as the three widows had not combined in any joint enterprise to produce the income and had done no act which had helped to produce the income, they could not be assessed in the status of an association of persons. Their Lordships however cautioned (page 552) :
'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.'
In Commissioner of Income-tax v. Baporia it was pointed out that when an individual inherits a share in property he has an opportunity of deciding whether he will by reason of having inherited that share form an association of individuals or renounce such relationship. By merely inheriting a share of property, however, no person can become a member of an association, unless there is some forbearance or act on his part to show that his intention and will accompanied the new status which he had been asked to receive. In that case it was found that the appointment by the co-heirs of a single person as their agent to realise the income from shares and property left to them by their father and mother under the Mohammedan law and the continuance of this arrangement for a long number of years was sufficient to constitute an association of individuals.
In the case of Estate of Khan Sahib Mohd. Oomar Sahib v. Commissioner of Income-tax, a bench of this court, to which one of us was a party, laid down certain criteria which would serve to determine the existence of an association of persons as an entity :
(1) the exercise of volition by, or in the case of minors on behalf of, those who form the association;
(2) unity of purpose and objectivity; and
(3) the ultimate object of the association must be to produce income, profits and gains and to be earned on their behalf.
In the light if the decided cases, it may further be added that in the absence of express volition to form an association, such volition could be implied if a person, who would otherwise be entitled to separate, elects to remain joint. In any event, it is quite clear that in order to form an association of individuals, the above indicia in some form or other must exist.
Learned counsel for the assessee urges that there cannot be an association of persons between a single adult and a minor. This broad proposition can hardly gain acceptance. In one of the cases that we referred to, two persons formed an association, one of whom was a minor. But he was represented in his dealings as a member of the association by his natural father and guardian. It cannot be stated as any rule of law that a minor cannot be a member of an association of persons. Nor can we accept the very large proposition advanced by the learned counsel for the department, that there can be an association of persons wholly composed of minors. Such a question does not arise here and we prefer not to express any opinion upon the correctness of that proposition. There is however the requirement, laid down in the last of the cases referred to, that there should be a volition on the part of the members to form and to continue as an association of persons, actuated by a conscious unity of purpose motivated by the object of producing income, profits and gains. The question is whether, in the present case, in so far as the association of the father, Meyyappa, and the minor son, Chettiappa, is concerned, the facts are sufficient to establish this requirement.
What is the incident that happened upon which the department relies in support of its claim that an association of persons was brought into existence Till the eve of April 13, 1950, Meyyappa and the minor, Chettiappa, were members of a joint Hindu family. On April 13, 1950, a division in status was brought about; it was not the result of any mutual agreement between the coparceners; it was brought about by the father Meyyappa, in the exercise of his power to do so under the Hindu law. The father is competent to make a partition during his life, a partition binding upon his sons, whether the sons are consenting parties thereto or not. It is a right inherent in the father under the Hindu law. Whether or not there is an actual division of the property among the dividing members is immaterial. In the present case, then, Meyyappa and Chettiappa become divided in status; and so long as a division of the property was not effected, their right and interest in the property was that of tenants-in-common.
The learned counsel for the department purports to claim that on and after the division in status, it was open to the divided members of the family to separate their interests in the family properties, and their failure to exercise their right for such separate division and enjoyment amounts to election on their part to become members of an association of persons. We are not satisfied that solely from the feature that the share of the minor son was not separated by metes and bounds, we can reach the conclusion that the two persons thereafter continued as members of an association of persons. If any volition of the part of the member is called for, obviously the minor had no volition of his own to express, and the fact that at the partition the minor was represented for purposes of form and nothing more by his mother, cannot be taken to mean that the mother as his guardian exercised any volition on behalf of the minor. There is no evidence that the mother acted as the guardian in any transaction. It must be remembered that in so far as the management of the property was concerned, even when this unit was undivided, the property was under the management of the M.S.M.M. firm, and during this year of assessment 1951-52, the same state of things was allowed to continue. We fail to see on what ground it can be urged that any of the tests laid down in Oomar Sahibs case is satisfied here. So long as the family continues to be joint, the father as the karta is not accountable, generally speaking, to the other members of the family. But on and after a division in status is effected but before an actual division by metes and bounds, the status of the members is that of tenants-in-common, and if the other members of the family who have become divided in status are minors, the father is accountable to them only as a tenant-in-common. The argument of the learned counsel for the department that on and after any division in a Hindu undivided family the failure to divide the properties by metes and bounds would bring into existence an association of persons is far too broad a proposition to be accepted. Such a view may perhaps be valid if there are members of the family who are sui juris capable of exercising volition and to taking part in the management of the properties of the family. But where, as in this particular case, the family consisted of only the father and a minor son, and the father exercised his right under the Hindu law to effect a division, it is impossible to hold that immediately the division in status was effected, an association of persons was brought into existence. It may be that for an association of persons no agreement enforceable at law is necessary. But that is not the same thing as to say that you can infer an agreement, express or implied, where none can possibly exist. It seems to be vaguely suggested that the father in his capacity as the natural guardian of the minor could be deemed to have agreed on behalf of the minor to be a member of an association of persons, that is to say, agreed with himself in his individual capacity as the other member of the association. This argument seems to our minds to be too fanciful for acceptance. It follows accordingly that in so far as the assessment year 1951-52 is concerned, there was no evidence to show that Meyyappa and the minor, Chettiappa, did form an association of persons liable to be assessed as such.
The association of persons which has been assessed in the subsequent years in composed of Meyyappa, the father, Chettiappa, his divided minor son, and the M.S.M.M. firm. It has been earlier stated that in 1951, at the request of the other two sons, Chockalingam and Meyyappa, a half share in the rubber estate and the house properties forming the M.M. properties was given to the M.S.M.M. firm. It would be recalled that at the partition of the year 1940, these items of properties had been exclusively allotted to the share of Meyyappa, the father, and in those properties the minor, Chettiappa, who was born subsequent to the partition, acquired an interest as member of the joint family consisting of himself and the father, Meyyappa. It is not necessary for us to consider whether it was competent for the father to give away a half share in what were formerly joint family properties and which had been divided as between himself and the minor, Chettiappa, to the other sons who had become divided from the family at an earlier date. As a result of this arrangement, Meyyappa and Chettiappa were entitled to a quarter share in the M.M. properties in addition to these shares, by reason of the interest which the joint family had acquired in the partnership in relation to the M.S.M.M. Ipoh business and by the subsequent admission of Chettiappa to the benefits of that partnership, these two persons would appear to have become further entitled to a fractional interest in the M.M. properties, half of which was given away by the father to the M.S.M.M. firm. It is not necessary to determine the quantum of interest owned by each of these persons. But in so far the assessments for the subsequent years are concerned, the department took the view that in relation to the M.M. properties, there was an association of persons consisting of Meyyappa, Chettiappa and the M.S.M.M. firm, in which firm itself the partners were Meyyappa, the sons, Chockalingam and Meyyappa, and the minor, Chettiappa, who had been admitted to the benefits of the partnership. It is common ground that the properties were under factual management of the M.S.M.M. firm during the account years relevant to the assessment years in question.
On behalf of the assessee, the contention has been advanced that a firm as such cannot be a member of an association of persons. 'Person' has been defined in the Act to include a Hindu undivided family and a local authority. The definition of a firm is the same as it appears in the Indian Partnership Act. In the General Clauses Act, 'person' has been defined more extensively to include company, association or body of individuals, whether incorporated or not. In support of the proposition that a firm cannot brought within the scope of the expression 'association of persons', learned counsel for the assessee relies upon Dulichand Laxminarayan v. Commissioner of Income-tax. That was a case where several firms, each acting through a partner purported to form a partnership along with an individual and a joint Hindu family. An application signed by the individual, by the karta of the Hindu undivided family and by certain persons on behalf of the firms was presented for registration of this larger firm. The application was rejected on the ground that neither a firm nor a Hindu undivided family as such could enter into a partnership with other firms or individuals. When the matter came to the Supreme Court, the main question that was considered was whether a firm as such could be a partner in another firm. Their Lordship went extensively into the law relating to partnerships, drawing largely upon the principles of English law, which have been adopted in our partnership law, and came to the conclusion which they expressed in these words (page 541) :
'According to the principles of English jurisprudence, which we have adopted, for the purposes of determining legal rights there is no such thing as a firm known to the law as was said by James L.J. in Ex parte Corbett : In re Shand. In these circumstances to import the definition of the word person occurring in section 3(42) of the General Clauses Act, 1897, into section 4 of the Indian Partnership Act will, according to lawyers, English or Indian, be totally repugnant to the subject of partnership law as they know and understand it to be. It is in this view of the matter that it has been consistently held in this country that a firm as such is not entitled to enter into partnership with another firm or individuals.... We need only refer to the case of Bhagwanji Morarji Goculdas v. Alembic Chemical Works Co. Ltd., where it has been laid down by the Privy Council that Indian law has not given personality to a firm apart from the partners.'
Further they stated (page 542) :
'In our opinion, the word persons in section 4 of the Indian Partnership Act, which has replaced section 239 of the Indian Contract Act, contemplates only natural or artificial, i.e., legal persons, and for the reasons stated above, a firm is not a person and as such is not entitled to enter into a partnership with another firm or Hindu undivided family or individual. In this view of the matter there can arise no question of registration of a partnership purporting to be one between three firms, a Hindu undivided family business and an individual as a firm under section 26A of the Act.'
It seems to us that this decision of the Supreme Court does not directly touch upon the question which we are dealing with at present. While by reason of the special position which a firm enjoys under the Partnership Act it was held that a firm as such could not be a partner in another firm, the question whether a firm could not be a member of an association of persons was not even remotely considered in this decision. Their Lordships only dealt with those special features attendant upon the firm in the light of the provisions of the Partnership Act and the accepted notions both in Indian and English law, in holding that a firm which itself is composed of a number of persons standing in a particular relationship towards each other could not enter as a partner in another firm. It was to that limited extend that they laid down that a 'firm' is not a 'person' within the meaning of the Partnership Act. This decision cannot to our minds be taken to mean that a firm cannot be regarded as a person for any purpose.
A similar question arose but was not decided in Lahore Ice Factories Association v. Commissioner of Income-tax. In that case, four individuals, one limited company, one registered firm and one unregistered firm entered into an agreement forming themselves into an association. This association was assessed as an association of individuals engaged in business. The association objected to the assessment and on the refusal of the Commissioner to state a case to the High Court, took the matter to the High Court under section 66(3) of the Act. The learned judges held that a question of law did arise and directed a reference whether such an association would be an assessable entity under section 3 of the Income-tax Act. Though this decision is not conclusive upon the point raised, the learned judges did not take the view that a firm as such could never be a member of an association.
An identical question came up for consideration in Mian Channu Factories Union v. Commissioner of Income-tax. That was a case where two firms and a Hindu undivided family each of which owned a ginning factory entered into a partnership. This partnership set out the shares owned by each of the entities in the partnership and provided for the management of the factories and the division of profits. Though the judgment in the case was that a firm as such could not be a member of another firm, it was held, that the Union was liable to be assessed as an association of individuals.
A different view was taken in Commissioner of Income-tax v. Ahmedabad Millowners Association. There the question which arose was whether an association consisting of sixty limited companies and one human being could be chargeable to tax as an association of individuals. According to the learned judges, the expression 'individual' in the context meant a human being and would not include a company. It would, however, be remembered that by a later amendment, the expression 'association of individuals' has been replaced by 'association of persons' in the Act and the decisions have consistently held that 'person' in the context would mean either a human being or a legal person. It would, therefore, follow that a company or other juristic person could be a member of an association of persons under the law as it stands at present, Though this decision is not directly in point, it serves to emphasise the difference between the expression 'individual' and the expression 'person' in the context of section 3 of the Act. It seems to us accordingly that there is no legal impediment whatsoever to a firm being a member of an association of persons or to such an association of persons being assessed as an assessable entity under section 3 of the Act.
The further question that we have to consider is whether this association of persons in the present case satisfies the requirements laid down in the case that we have earlier referred to. In order to be an assessable entity, as an association of persons, it has been pointed out that those persons should have engaged themselves in a joint enterprise for the purpose of producing income, profits or gains. That this test is satisfied in the present case cannot be gainsaid. Meyyappa, his son, Chettiappa, and the M.S.M.M. firm were together interested in fractional shares in the M. M. properties which were being managed by the M.S.M.M. firm. Though the actual management of the rubber plantations was in the hands of a local superintendent, the control exercised over him in the hands of the M.S.M.M. firm. For a long number of years, at any rate, during the five assessment years from 1952-53 onwards, the same management continued and the parties divided profits from these properties in accordance with the fractional interest which each owned in the properties. There was undoubtedly an identity of interest; and the profit-making motive on the part of the members of the association and the course of conduct continuing over a period of years would justify the inference, that there was the necessary agreement among the members of the association for the management of the properties and the acquisition of income therefrom. The defect that was pointed out in relation to the assessment year 1951-52 where in respect of association of persons composed of only the father, Meyyappa, and the divided minor son, Chettiappa, the latter could not be deemed to have expressed any volition to form the association, does not to our mind exist in relation to the association of persons consisting of these two persons and the M.S.M.M. firm. In this association of persons, it was open to the father to act as the guardian of his divided minor son, Chettiappa, and express his consent on behalf of the minor in all matters relating to the management of the properties. We have pointed out that in so far as the smaller association in the assessment year 1951-52 was concerned, there was nothing at all to indicate the existence of those indicia which would establish the existence of an association and we declined to draw the inference of the existence of an association from the mere fact that the father was looking after the share of the properties of his minor son along with his own share in the properties. In the present case, however, that is, in respect of the subsequent years, by the introduction of a third entity, the M.S.M.M. firm, into this association of persons, the set-up has radically altered, and that was no impediment to the father exercising on behalf of his minor son his right to arrange for the management of the properties and to allow such management to be carried on by the M.S.M.M. firm. It follows, therefore, that in the view that the firm as such could be a member of an association of persons, these three parties did form such an association and the assessment made on that basis cannot be challenged.
The assessment has been made upon Meyyappa as the principal officer of M.M. Ipoh. In submitting returns, Meyyappa contended that there was neither a firm nor an association under that name and that the M.M. Vilasam was only the head of an account maintained for the properties in question. These objections were rejected by the Income-tax Officer, who further took the view that the principal officer of this association, Meyyappa Chettiar of Karaikudi, is resident and ordinarily resident, controlling all the businesses from the taxable territories. The orders made in the appeals to the Appellate Assistant Commissioner do not appear to deal specifically with the question whether Meyyappa Chettiar could be regarded as the principal officer of the association. On behalf of the assessee, it is contented that this question was raised before the Appellate Tribunal as well, but that the Appellate Tribunal did not record any finding whatever in its appellate order. When the assessee sought to raise the specific question in his application under section 66(1) of the Act and suggested the following question :
'Whether, on the facts and in the circumstances, there are any materials to hold the assessee as the principal officer of M.M. Ipoh assessed in the status of an association of persons ?'
the Tribunal observed :
'Question No. 1 above cannot be referred to as it does not arise out of the Tribunals order. No doubt, a ground was taken before the Tribunal but the Tribunal did not deal with it, as it was not agitated before and dealt with by the Appellate Assistant Commissioner.'
It is clear from this that the question was in fact raised before the Appellate Tribunal, and the Appellate Tribunal as the ultimate Tribunal of both fact and law, was bound to deal with the question urged it, whether that question had or had not been raised before the Appellate Assistant Commissioner. That the Tribunal failed to decide the question cannot be construed to mean that this question does not arise out of the Tribunals order. If, in fact, a question was indeed posed and argued before the Tribunal as arising out of the facts of the case and out of the decisions of the lower authorities, the Tribunal was bound in law to consider that question and its failure to do so cannot justifiably lead to the conclusion that such a question does not arise out of the Tribunals order. At the hearing of this reference before us, the learned counsel for the assessee pointed out these features and sought for permission to file a petition under section 66(2) of the Act raising this question. Under the circumstances above stated, we allowed this petition (T.C.P. 33 of 1961). It was conceded by the learned counsel for the assessee that it was not necessary to call upon the Tribunal to submit a further statement of the case in relation to the question now sought to be raised and that the materials already on record would suffice. We accordingly allow the following question :
'Whether, on the facts and in the circumstances of the case, there are any materials to hold the petitioner as the principal of M.M. Ipoh assessed in the status of an association of persons ?'
to be urged and proceed to answer it.
Under section 2(12) of the Act, a principal officer used with reference to any association means any person connected with the authority, company, body or association, upon whom the Income-tax Officer has served notice of his intention of treating him as the principal officer therefor. The learned counsel for the assessee appears to contended that before a person can be treated as the principal officer of an association, a separate notice of the intention of the department to treat him as such should have been given to him. We are not satisfied that this contention can be support either on principle or on authority. If, in calling for a return under section 22(2) of the Act or under section 34 of the Act, a party is addressed as the principal officer of an association of persons, to be assessed, that appears to meet with the requirements of the law in that regard. We may contrast section 43 of the Act, which deals with the assessment of a non-resident. This section enables the Income-tax Officer to treat as the agent of the non-resident any person employed by or on behalf of the non-resident or having business connection with such non-resident, and who is in receipt of any income, profits or gains on behalf of such a non-resident. In such a case, it is open to the department to treat that person as the agent of the non-resident, But the section requires the Income-tax Officer to cause a notice to be served of his intention to treat him as the agent of the non-resident and provides further that no person shall be deemed to be the agent of a non-resident person unless he has had an opportunity of being heard by the Income-tax Officer as to his liability. This section makes it quite clear that before a person can be treated as the agent of a non-resident, a specific notice in that regard is required to be issued and objections, if any, heard. But, in so far as the principal officer of an association is concerned, the section does not provide for the issue of any specific notice. Obviously, a member of an association is a person 'connected' with the association and in view of the difficulty of reaching any particular person as the secretary, treasurer, manager or authorised agent of the association - in fact many associations of this kind may have no officer of the above designations - power is given to the department to reach the association through any person connected with the association. We do not, therefore, agree with the learned counsel for the assessee that before Meyyappa could be treated as the principal officer, a specific notice should have been given to him and his objections heard on that head.
We have found that there was an association of persons composed of Meyyappa, the minor Chettiappa and the M.S.M.M. firm in which firm itself Meyyappa was a partner. Moreover, Meyyappa was the father of the other parties who were members of the association. Whether or not Meyyappa had the controlling hand in the management of the association is immaterial because section 2(12) enables the Income-tax Officer to deal with any person connected with the association as its principal officer. Though in the first three assessment years section 34 was resorted to and the connected notice does not appear to have described Meyyappa as the principal officer of the association, for the subsequent three years, in the notices issued under section 22(2) of the Act, he appears to have been so described. All of these assessments were made practically simultaneously, so that Meyyappa did, in fact, have notice of the intention of the Income-tax Officer to him as the principal officer of the association of persons. We consider that there has been sufficient compliance with the requirements of the law and no prejudice has been caused to the assessee on the ground of absence of a separate notice.
It was next argued that section 3 of the Act gives an option to the assessing authority to assess either the association of persons or its members individually and this option should have been exercised in favour of the assessee, that is to say, in a manner so as to impose the lighter burden. It is no doubt true that if the members of the association had to be assessed individually, the incidence of tax would have been less. Reliance was placed on Thakkar v. Commissioner of Income-tax, where Chagla C.J. observed (page 663) :
'The Indian Income-tax Act is a taxing statue and therefore the courts must be zealous to see that no right which an assessee has under that Act has been taken away by any action on the part of the department. Even though it may not be obligatory upon the department to follow a particular procedure the court will insist upon the department following the procedure if that procedure leads to a beneficial result as far as the assessee is concerned and the procedure followed by the department is prejudicial to the assessee.'
Whether or nor the principle of the above decision would call for implementation in the present case does not however appear to arise. This contention was not taken before any of the officers below or even before the Tribunal. That being the case, the argument outlined above seeks to pose a question which does not arise from the order of the Tribunal. We therefore decline to deal with it.
We answer the questions as hereunder :
Question No. 1 : The assessment on the association of persons for the assessment year 1951-52 was not lawfully made. The assessments for the subsequent years in the status of an association of persons are valid.
Question No. 2 : In the circumstances of the case, the Income-tax Officer was justified in holding the assessee to be the principal officer of M.M. Ipoh.
Since the assessee has failed in the major part of the case, he should pay the costs of the reference. Counsels fee Rs. 250.
Questions answered accordingly.