JUDGMENT
K.S. Paripoornan, J.
1. At the instance of the Revenue, the Income-tax Appellate Tribunal has referred the following question of law for the decision of this court:
“Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the assessees cannot be assessed as an association of persons ?”
2. The respondents originally impleaded are two Parsi ladies, assessees under the Income-tax Act. One of them died during the pendency of the reference in this court in August, 1989. Her legal heirs, already in the party array, have been recorded as her legal heirs, by accepting the memo filed by the Revenue dated September 26, 19.89.
3. The matter relates to the assessment year 1969-70. The assessees are sisters of one Pestonji Dalai who had considerable properties. Shri Dalai made a will on September 30, 1954. He died in 1955. The will was pro-bated in 1956. The administration of the estate was completed and the executors of the estate released in 1963. The property inherited by the two sisters consisted of house properties, shares, fixed deposits and certain forest lands in Malabar area. For the assessment year 1969-70, a return was filed showing an income of Rs. 19,727, The forest lands were sold for Rs. 2,20,000. It was shown in Part IV of the return, specifying that they were agricultural properties and so no capital gains accrued. The Income-tax Officer, however, computed the capital gains at Rs. 1,35,008. In the appeal, the assessees pleaded that they should not have been assessed as an association of persons and that they should have been assessed separately as co-owners. The Appellate Assistant Commissioner held that the status of “body of individuals” would have been more appropriate. No relief was given. The matter came up before the Appellate Tribunal. Finally, the Appellate Tribunal held, after referring to the decisions on this subject, that the assessees cannot be assessed as an association of persons and that they should have been assessed only separately. It is thereafter at the instance of the Revenue that the question of law formulated hereinabove has been referred for the decision of this court.
4. We heard counsel. Admittedly, the two assessees inherited the properties from their brother. They did not effect any partition of the properties inherited by them. They collected or received the income from the properties jointly. They leased out the forest lands. The Revenue contended that in so far as the assessees admittedly leased the lands jointly and received the income, they should be assessed in the status of “association of
persons”. Counsel for the assessees submitted that from the mere fact that the assessees leased out forest lands and received the income therefrom, it cannot be said that the assessees constituted an “association of persons”. Counsel submitted that in order that the co-owners should be considered to be an association of persons, the members of the association must join together for the purpose of producing income ; the members’ should voluntarily combine together for the said purpose and that volition on the part of the members of the association, in that behalf, is essential. The – mere fact that the assessees jointly owned one or more assets and jointly received’the income therefrom is neither sufficient nor conclusive to hold that the assessees should be assessed in the status of an association of persons. Both sides invited our attention to the decided cases on the point.
5. There are innumerable decisions of the Supreme Court as also decisions of various High Courts dealing with the question as to when the status of an association of persons can be assigned to a group of individuals. We do not propose to refer to all of them. The real principle to be borne in mind, in considering the matter, has been laid down in CIT v. Indira Balkrishna [1960] 39 ITR 546, 552 (SC). The court held as follows :
“… 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.”
6. So, the question as to whether a group of persons or individuals can be called “an association of persons” should depend upon the facts and circumstances of each case. In a matter of variables like this, the ultimate decision is one of mixed question of fact and law. The appellate Tribunal, in paragraph 9 of its order dated July 26, 1984, held that the two assessees in the present case will not become an association of persons merely because they did not effect a partition of the properties inherited by them or that they collected or received jointly the dividends or other interest on deposits due to them. It also observed that no details relating to the manner in which the forest land was being enjoyed earlier was available. Finally, the Triburial concluded thus :
“… We are inclined to take the view that the assessees will not constitute themselves as an association of persons merely because they leased out the forest land. Leasing out of forest lands and agricultural lands is a normal method of enjoying the land. In fact, much more concerted action by the two heirs would have been required if they were to manage the forest lands directly to exploit the same. Leasing out the forest land will be
a method of collecting the income with the least amount of trouble and
organisation. It will, therefore, be a case of the assessees just continuing to
receive the income from the forest lands and income from dividends and
fixed deposits. We, therefore, hold that the assessees cannot be assessed as
an association of persons and that they should have been assessed only
separately.”
7. In coming to the above conclusion, the Appellate Tribunal referred to the decision of the Supreme Court in Indira Balkrishna’s case [1960] 39 ITR 546 and the later decisions in G. Murugesan and Brothers v. CIT [1973] 88 ITR 432 and CGT v. R. Valsala Amma [1971] 82 ITR 828, besides various High Court decisions. The later decisions of the Supreme Court in R. Valsala Amma’s case [1971] 82 ITR 828 and G. Murugesan and Brothers’ case [1973] 88 ITR 432, at page 437, are relevant. In R, Valsala Amma’s case [1971] 82 ITR 828, the assessee and her sister received under the will of their mother, inter alia, 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 means of 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 as a body of individuals. The Supreme Court held that they should be assessed only in the status of individuals. In G. Murugesan and Brothers v. CIT [1973] 88 ITR 432 at page 437, the court held 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. It is true that even a minor can join an ‘association of persons’ if his lawful guardian gives his consent. In the case of receiving dividends from shares, where there is no question of any management, it is difficult to draw an inference that two or more shareholders function as an ‘association of persons’ from the mere fact that they jointly own one or more shares, and jointly receive the dividends declared. Those circumstances do not by themselves go to show that they acted as an ‘association of persons’.”
8. The decisions of the Supreme Court and other High Courts have been considered by two Bench decisions of this court in CIT v. T. V. Suresh Chandran [1980] 121 ITR 985 and CIT v. A. P. Parukutty Mooppilamma [1984] 149 ITR 131. The above Bench decisions of this court have held that in order to assign the status of an association of persons, the persons must join in a common purpose or action and the object of the association must be to produce income and that it is not enough that the persons
receive the income jointly. It is essential that the persons must join in a common purpose or common action and the object of the association must be to produce income. The Income-tax Appellate Tribunal, after adverting to the above relevant decisions has held that this is a case of the assessees just continuing to receive the income from the forest lands and income from dividends and fixed deposits and it is the normal method of enjoying the said assets. The Tribunal also found that the assessees cannot be assessed as an association of persons on these facts.
9. Reading the order of the Appellate Tribunal as a whole, we are satisfied that the conclusion of the Tribunal is justified in law. We, therefore, answer the question in the affirmative, against the Revenue and in favour of the assessees.
10. A copy of this judgment under the seal of this court and the signature of the Registrar shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.