Madras H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the income from the business of Ashok Match Industries (B-Unit) run by Sankaralingam and his wife as trustees after partition cannot be assessed in the status of an AOP as such but should be assessed on each beneficial individually ?

JUDGMENT

Janarthanam, J.:

Shri Yennarkay R. Ravindran, as Karta, and his two minor sons, as coparceners, were earning income from the business known as “Standard Match Industries. On 30th Aug., 1974, the Karta executed a trust deed, stating that it was desirable and expedient to constitute a trust to enable the business to be carried on without break as that would serve the best interest of the minor coparceners and vested the business in himself and his wife as the trustees. Returns were filed for the asst. yr. 1976-77, claiming that the income should be computed in the hands of the trust and assessed in the hands of the beneficiaries. But the ITO was of the opinion that the creation of the trust shows that the Karta and his two minor sons were carrying on the business as an AOP and he assessed the entire income in that status.

The AAC cancelled the status of an AOP adopted by the ITO as against the statue of “trustees” declared by the assessee. He relied upon the decision of the Tribunal, Madras Bench “A”, Madras, in the assessee’s own case for the asst. yr. 1976-77 in ITA No. 2296/Mds of 1979, dt. 15th March, 1981.

The Revenue filed an appeal. The Tribunal held that the trustees could be assessed only in the status of individual in respect of the share of each beneficiary upholding the order of the AAC. It is on these facts, the Tribunal referred the question below under s. 256(1) of the IT Act, 1961, for the opinion of this Court :

“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the income from the business of Ashok Match Industries (B-Unit) run by Sankaralingam and his wife as trustees after partition cannot be assessed in the status of an AOP as such but should be assessed on each beneficial individually ?”

The arguments of Mr. R. Sivaraman, learned counsel representing Mr. C.V. Rajan, learned junior standing counsel representing the applicant and of Mr. K. Vaitheeswaran, leaned counsel representing M/s Subbaraya Ajya, Padmanabhan and Ramamani, learned counsel appearing for the respondent were heard.

It is brought to our notice that the issue arising for consideration in ITA No. 2296/Mds of 1979, dt. 15th May, 1981, came up for decision before a Division Bench of this Court in T.C. No. 941 of 1988 and the Division Bench of this Court, by its order dt. 25th March, 1998, reversed the order of the Tribunal and ultimately held that the assessment should be made in the status of an AOP only and not in the status of individual.

The said Division Bench of this Court while doing so, it is said, followed the decision of the Supreme Court in the case of Meera and Co. vs. CIT (1997) 224 ITR 635 (SC).

In that case, an individual who was carrying on business under the name and style of M and Co., died intestate on 25th Aug., 1962, and was survived by his mother, widow and three minor children. The mother of the deceased relinquished her interest in the assets of the deceased against a lump sum payment. The business, M and Co., was continued as a single unit in the same name by the widow on her behalf and on behalf of three minor children.

For the asst. yr. 1963-64 to 1967-68, the widow claimed that the income from the business should be assessed in equal shares in the hands of the four legal heirs of the deceased.

The ITO held that the business was one common unit and was assessable in the status of “BOI”. The Tribunal, by a majority, confirmed his view.

On a reference, the High Court held that the expression “BOI” should receive a wide interpretation to include a combination of individuals, who had unity of interest and were actively engaged in the business carried on, for the benefit of all of them, by one of them and that, therefore, the widow and her children would constitute a “BOI”, rejecting the contention that as guardian-trustee of the minor children the mother should have been assessed as a representative assessee in accordance with the provisions of ss. 160, 161 and 166 of the IT Act, 1961.

On appeal to the Supreme Court : Held, dismissing the appeals, (i) that the profits that arose out of the business were a result of the business activities carried on jointly by the mother on her own behalf and also on behalf of the minor children. It did not make any difference that the widow and the minor sons did not start the business. The business was inherited. It was carried on as before. The fact that the business had been continued by the widow on her own behalf as well as on behalf of the minor sons after buying the interest of the mother showed that there was an organised activity jointly carried on to produce income. It was a clear case of a joint business venture of a few individuals. The income of this business had been rightly assessed in the status of a “BOI”, (ii) that s. 161 is an enabling provision. The charge that is imposed by s. 4 of the Act may be computed and recovered in the manner laid down in the Act including ss. 160, 161 an 166 of the Act. When the minors along with their mother formed a body to generate income, the levy of tax under s. 4 was on that body. The mother could not insist that the income of the joint venture must be assessed separately on the minors and on her, even when a joint business was carried on.

6. For the reasons as above, it goes without saying that the Tribunal was not justified in law in holding that the income from business of Ashok Match Industries (B-Unit) run by Sankaralingam and his wife as trustees after partition cannot be assessed on each beneficiary individually. The question is answered accordingly.

The tax case is thus disposed of. There shall, however, be no order as to costs, on the facts and in the circumstances of the case.

[Citation : 247 ITR 724]