JUDGMENT M. C. DESAI, C.J. - This is a case stated by the Agricultural Income-tax Revision Board under section 24(1), on its own motion, on the ground that the following question of law arising in a proceeding before it is of importance requiring final decision of this court :
"Whether, on the facts and in the circumstances of the case, the two owners can be assessed as an association of individuals on the income of the entire areas under their joint cultivatio ?"
One Bhagwati Prasad was the owner of the land in dispute. He granted a lease of 326.1 acres in favour of the assessee, M. L. Bagla, on April 20, 1942, and another lease of 316.3 acres in favour of Puranmal Jaipuria on January 21, 1941. For the Fasli years 1356, 1357, 1358 and 1359, they jointly appointed one person as manager to cultivate the lands of the two leases jointly appointed one person as manager to cultivate the lands of the two leases jointly. The manager cultivated the lands of the two leases, maintained one set of accounts of the expenditure incurred over the cultivation of the lands and of the income derived from them and distributed the profits between them in proportion to the areas of their lands. Each of them was assessed separately to agricultural income-tax for the four Fasli years. They preferred appeals against the assessment for 1359 Fasli and the State pleased that they should have been assessed as an association of persons and not as individuals. This plea was allowed by the Commissioner and the remanded the case to the assessing authority for assessing the two persons jointly as an association of persons. The State filed revision applications against the assessment orders in respect of Fasli years 1356, 1357 and 1358 before the Revision Board and the two persons filed revision applications against the remand orders in regard to 1359 Fasli. When the eight revision applications came up for hearing before the Revision Board, it felt that the question raised was of law and importance and referred the cases to this court. At first it did not state its own opinion on the question of law framed by it and this court called upon it to do so. Then it submitted fresh statements of the cases. This statement relates to the assessment of M. L. Bagla and the associated statement to the assessment of Puranmal Jaipuria. The facts in the two statements are common.
Under section 3 of the Agricultural Income-tax Act, agricultural income-tax is charged for each Fasli year "on the total agricultural income of the previous year of every person". "Person" is defined in section 2(11) to mean "an individual or association of individuals, owning or holding property for himself or for any other, or partly for his own benefit and partly for that of another, either as owner, trustee, receiver, manager, administrator or executor or in any capacity recognised by law, and includes an undivided Hindu family, firm or company." An individual is undoubtedly a person; two or more individuals are a person if two conditions are fulfilled, (1) that they form an association, and (2) that they own or hold property for themselves or for any other person either as owners or as trustees, receivers, etc. It is not enough that two or more individuals form an association; they must also own or hold property either as owners or as trustees, receivers, etc. The first question is whether the two persons have formed an association and our answer is "Yes". They have associated with each other with the object of getting their lands cultivated jointly. They have appointed one person to manage their lands by cultivating them and deriving profits from the cultivation. Common management of the lands belonging to two persons, and on their behalf was impossible without their associating with each other. The circumstances in which the common manager was appointed are not known, but it is obvious that he was appointed by both acting jointly or in concert. It was not that one appointed a certain person to manage his land and the other happened to appoint that very person to manage his land also. The manager did not act in two capacities, one as manager of one and the other as manager of the other. He was one manager for the lands of both. That is why he maintained one set of accounts of the income and expenditure of the lands belonging to both. If the two assessees had separately appointed one person to manage their lands separately, it could not be said that they formed an association merely because they happened to choose the same person to be their manager, but if they joined together in making the appointment and appointed him to manage their lands jointly, they certainly formed an association. Their joining together for the purpose of appointing one manager for their lands amounted to their forming an association.
In our finding that the two individuals formed an association, we are supported by Commissioner of Income-tax v. Smt. Indira Balkrishna. The Supreme Court held in that case that two co-widows succeeding as co-heirs to the estate of their deceased husband did not form an association of persons within the meaning of section 3 of the Indian Income-tax Act. "Association of persons" is not defined in the Income-tax Act just a "association of individuals" is not defined in the Agricultural Income-tax Act. S. K. Das J. speaking for the court, referred to the meaning of "association" given in the Oxford Dictionary as "to join in a common purpose, or to joint in an action" and observed :
"An association of persons must be one in which two or more persons join in a common purpose or common action, and as the words occur in a section which imposes a tax on income, the association must be one the object of which is to produce income, profits or gains.. . When we find.. . that there is a combination of persons formed for the promotion of a joint enterprise... no difficulty arises whatever in the way of saying that... these persons did constitute an association.. ."
As there is no definition of association of persons or individuals in the Income-tax Act and the Agricultural Income-tax Act and the two are taxing Acts, the meaning given to the phrase used in one Act must be the meaning given to the phrase used in the same context in the other. In Commissioner of Income-tax v. Buldana District Main Cloth Importers Group the Supreme Court held that a group of four persons who were appointed as sole agents by a Deputy Commissioner for the import of cloth from mills and distribution of it among dealers formed an association of persons within the meaning of section 3 of the Income-tax Act. Kapur J., speaking for the court, referred to the above decision in Indira Balkrishna and held the group to be an association because the import and distribution of cloth which was the business carried on by it was done on a joint basis, the purchases and the sales were joint and the profits were ascertained on a joint basis and then distributed among the members in proportion to the capital contributed by them. On the same reasoning the two individuals in the instant case formed an association. Mohamed Noorullah v. Commissioner of Income-tax is another decision dealing with the meaning of "an association of persons" occurring in section 3 of the Income-tax Act. Kapur J. applied the test laid down in Indira Balkrishnas case. The learned judge observed that "a combination of persons formed for the promotion of a joint enterprise banded together as if they were co-adventurers" constituted an association. He approved of the statement made in Commissioner of Income-tax v. Dwarakanath Harischandra to the effect that "as soon as there was election to retain the property and manage it as a joint venture the persons so electing became an association of individuals."
The next question is whether the association of the two individuals own or hold property as owners or in any other capacity recognised by law. As regards owning, it was not seriously disputed that the association could not be said to own the lands. The two persons joined together for common management but the common management of their lands did not result in common ownership. Though the lands were managed by one person appointed by them, one remained the exclusive owner of 316.3 acres and the other the exclusive owner of 326.1 acres; the former had no title over any part of 326.1 acres and the latter had no title over any part of 316.3 acres. It could not be said that the association owned 642.4 acres. In common parlance, it could be said that M. L. Bagla and Puranmal Jaipuria own 642.4 acres but what it really meant was that they own 316.1 acres and 316.3 acres respectively. The word "respectively" means that it was not joint or common ownership by them and what is required under section 2(11) is joint or common ownership by the association. The association should be an owner of every square inch of the land. The individuals who are members of the association must own the land jointly and not separately. The lands of the two leases could not be said to have been owned by the association of the two persons within the meaning of section 2(11).
As regards holding, the position is different. Ownership requires title but not holding. There can be joint or common holding of property belonging to different owners. Just as one individual can own a property and another can hold it, so also two individuals can own parts of a property and an association of them can hold it. Whether an association of them holds it or not is an inference to be drawn from the established facts. The established facts here are that the two individuals jointly allowed the common manager to cultivate their lands and derive profits from them. They pooled their lands and got them cultivated as if they belonged to only one of them. The manager made no distinction between one piece of land and another piece of land; he managed them jointly. Only at the time of the distribution of the profits he took into consideration the fact that one owned 316.3 acres and the other 326.1 acres. By pooling their lands together they eliminated the distinction between one holding 316.3 acres and the other holding 326.1 acres; each allowed the other to hold the land belonging to him. There is nothing anomalous in the association of the two individuals holding property part of which is owned by one of them and part by the other. The association held the property for its members and for their benefit.
It was not enough that the association held the lands for its members and for their own benefit; it must have done so either as owner, trustee, receiver, manager, administrator or executor or in any other capacity reconised by law, such as a partnership or a company or a local authority. Now the State is in difficulty because it cannot say in what capacity recognised by law the association of the two individuals held the lands. It was not the owner. It was not the trustee, receiver administrator or executor of the lands. It was also not the manager of the lands because it itself did not manage them. It pooled the lands together for the purpose of their being managed by another person and it is that other person who was the manager. The individuals cannot be said to have formed a partnership. No capacity recognised by law can be assigned to the association holding the lands. Its holding the lands might not be unlawful or illegal but that is immaterial. What is required is that it must hold the property in a capacity recognised by law. The positive existence of a law recognising the capacity in which it held the lands is required, but it is totally absent. The manager appointed by the two individuals may be a person within the meaning of section 2(11) but not they themselves as an association. As there is no positive law recognising the capacity in which the association of the two individuals held the lands, the association does not come within the definition of "person".
In the result our answer to the question is "No".
We direct that a copy of this judgment shall be sent under the seal of the court and the signature of this Registrar to the Revision Board as required by section 24(7) of the U. P. Agricultural Income-tax Act.
The question has not been free from difficulty and we think that the parties should be left to bear their costs themselves. Counsels fee is assessed at Rs. 100.
Question answered in the negative.