JUDGMENT
1. The following question is referred by the Income-tax Appellate Tribunal for the opinion of this court under Section 256(1) of the Income-tax Act, 1961 (briefly "the Act") :
"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in holding that no assessment could be made in the status of association of persons in the case of the assessee ?"
2. The facts, as stated in the statement of the case, are that in the business, known as Johns Mills, there were four groups with the share ratio as follows :
1. Johns group consisting of S/Sh I. L. John, M. L. John and Mrs. Doris Hara 26/80
2. Patni group consisting of 1/rs of late Sh. Hira Lal Patni comprising N. K. Patni and others 19/80
3. Sh. Munni Lal Mehra 19/80
4. M/s Bambhir Mal Pandra Pvt. Ltd.
3. The Income-tax Officer in the course of reassessment proceedings made assessment for the assessment years 1971-72 and 1972-73 in the status of association of persons. He did so on the ground that the returns were filed by the receiver in the status of an association of persons.
4. On appeal, the Appellate Assistant Commissioner held that there was no association of persons, which could be assessed with regard to the share from Johns Mills. He found that the income of Johns Mills consisted of rents from letting out of godowns only and in fact, no business was carried on. It was brought to the notice of the Appellate Assistant Commissioner that the receiver was directed by the court to file the returns on behalf of six legal heirs of the late Heera Lal. The receiver filed only one return instead in the status of an association of persons. The Appellate Assistant Commissioner, therefore, cancelled the assessment made in the status of an association of persons and remitted the matter back to the Assessing Officer to assess the income in the individual hands of the legal heirs of the deceased.
5. On further appeal, the Appellate Tribunal agreed with the Appellate Assistant Commissioner.
6. The question for consideration is whether, on the facts and in the circumstances of the case, rental income could be assessed in the status of an association of persons. In CIT v. Indira Balkrishna, [1960] 39 ITR 546, the Supreme Court held that the word "associate" means "to join in common purpose, or to join in an action". Therefore, "association of persons", as used in Section 3 of the Income-tax Act, means an association in which two or more persons join in a common purpose or common action, and the association must be one the object of which is to produce income, profits or gains. In the said case, the facts were that 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; they were entitled as between themselves to an equal share of the income. Though they took as joint tenants, no one of them had a right to enforce an absolute partition of the estate against the others so as to destroy their right of survivorship. But they were entitled to obtain a partition of separate portions of the property, so that each might enjoy her equal share of the income accruing therefrom. As there was no finding of the Appellate Tribunal 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, the Supreme Court held that it could not be held that they had the status of an association of persons.
7. In the case at hand also the six legal heirs of the deceased did not join in a common purpose or common action with the object of producing income, profits or gains and, therefore applying the test laid down in the case of Indira Balkrishna, [1960] 39 ITR 546 (SC), we are of the view that the Appellate Tribunal rightly reached the conclusion that there was no association of persons.
8. Standing counsel relying on Mohamed Noorullah v. CIT, [1961] 42 ITR 115 (SC), urged that the Income-tax Officer rightly assessed in the status of an association of persons. We are of the view that this case is not at all applicable to the facts of the case at hand, inasmuch as in that case the parties combined together for a common purpose to carry on the business and to produce the income.
9. The Appellate Tribunal in its order dated March 18, 1980, held as follows ;
"Further after the death of Shri Hira Lal Patni his share devolved on his six legal heirs in accordance with the provisions of the Hindu Succession Act, 1956. Each legal heir should, therefore, be assessed on his or her share which fell to him in accordance with the aforesaid Act."
10. From this finding, it is clear that the legal heirs became co-owners of the share of the deceased in the property. Section 26 of the Act provides that where property consisting of buildings or buildings and lands appurtenant thereto is owned by two or more persons and their respective shares are definite and ascertainable, such persons shall not in respect of such property be assessed as an association of persons, but the share of each such person in the income from the property as computed in accordance with Sections 22 to 25 shall be included in his total income. In view of the Hindu Succession Act, 1956, the share of each legal heir is welt determined and, therefore, in view of Section 26 of the Act they could not be assessed in the status of an association of persons but could be assessed individually in respect of their share.
11. For the aforementioned reasons, we are of the view that the Appellate Tribunal rightly held that the assessments could not have been made in the status of an association of persons.
12. The above mentioned question is, therefore, answered in the affirmative, that is in favour of the assessee and against the Revenue.