Holding

The business of Mis Meera & Co. after the proprietor's death is a "body of individuals" and its income is assessable under Section 4 in conjunction with Section 2(31)(v), not under the special minor provisions.

Summary

The deceased businessman Prem Narain's sole proprietorship, Mis Meera & Co., was continued after his death by his widow Krishna Gupta on behalf of herself and their three minor children. The Income Tax Officer treated the business as a "body of individuals" and assessed the income accordingly, which the Appellate Assistant Commissioner later altered to assess it solely in the widow's name. Both the Revenue and the assessee appealed, and the Income Tax Appellate Tribunal was divided, with one member holding that special provisions for minors (Sections 160, 161, 166) should apply, while the other held that the entity fell under Section 4 read with Section 2(31)(v). The Supreme Court held that the widow and minors formed a joint enterprise constituting a "body of individuals", and that the income must be taxed under the general charging provisions, not the special minor provisions. It affirmed that a minor can be a member of such a body and that the combined activity is taxable as a single unit. Consequently, the Court dismissed the appeals, upholding the assessment as a body of individuals.

Issues considered

Whether Mis Meera & Co. after the death of its proprietor constitutes a "body of individuals" for income‑tax purposes.
Whether the income of the business should be assessed under Section 4 read with Section 2(31)(v) of the Income Tax Act, 1961, or under the special provisions for minors contained in Sections 160, 161 and 166.

Legislation cited

Hindu Succession Acts. 8
Income Tax Act, 1961s. 160, s. 161, s. 166, s. 2(31)(v), s. 4

Subjects

body of individualsassociation of personsincome tax assessmentminorrepresentative assesseeSection 4Section 2(31)(v)Section 160Section 161Section 166joint venturetaxation of family business

Judgment

MIS MEERA AND COMPANY, LUDHIANA ETC. A
v.
COMMISSIONER OF INCOME TAX, PUNJAB, J&K AND
CHANDIGARH PATIALA

MARCH 11, 1997
B
[B.P. JEEVAN REDDY, SUHAS C. SEN AND G.T. NANAVATI, JJ.)

Income Tax Act, 1961-Sections 4 rlw S 2 (31)(v), 160, 161, 166-As-
sessment as 'body of individuals'-A minor can be a member of such a body
or association-Business inherited by widow and minor children-Business C
continued by widow on her own behalf and on behalf of her minor
children-Assessmelll in status of 'body of individuals' proper.

One p, an individual, carried on business under the name Mis Meera
& Co. He died intestate survived by his mother, widow and three minor D
children. All the assets of the deceased including the business devolved on
his five legal heirs. The mother of the deceased relinquished her interest
in the assets of the deceased. The business of Mis Meera & Co. was
continued as a single unit in the same name by the widow of the deceased
on her behalf and on behalf of all the three minor children. The accounts
were maintained in the name of Mis Meera & Co. The yearly profits were E
ascertained and divided. In the Income Tax Return for the assessment
years 1963-64 to 1967-68, the status of the assessee was described as
'association of persons'. Subsequently it was contended that the-income
from the business should be assessed in equal shares in the hands of four
legal heirs of the deceased. The minor children of the deceased also filed p
separate returns where the share of profit from the Company was included
for rate purposes only. However, the Income-Tax Officer held that the
business was for one common unit and the same was assessable in the
status of 'body of individuals'. In appeal, the Appellate Assistant Commis-
sioner held that the entire income was assessable in the hands of the widow
as a person carrying on business in individual capacity. In appeals filed G
by both the Revenue and the assessee, the Accountant Member of the
Appellate Tribunal held that on the death of P, his estate fell to his legal
heirs u/s 8 of the Hindu Succession Act as tenants-in-common and that
the special provisions regarding the minors and guardians contained in
Section 160, 161 or 166 of the Income Tax Act shall apply and will override H
991
992 SUPREME COURT REPORTS [1997] 2 s. C.R.

A the general provisions contained in Section 4 and 2 (31)(v) of the Act.
According to the Judicial Member, the entity was liable to the assessed u/s
4 r/w S 2 (31) (v) of the Act. On reference, a third Member agreed with the
view taken by the Judicial Member and the appeals of the assessee were
con~e11uently dismissed.

B In Reference the High Court held that the expression 'body of
individuals' should receive wide interpretation to include a combination of
individuals who have unity of interest and were actiwly engaged in the
business carried on for the benefit of all of them by one of them and in the
instant case, on the death of P, business passed on to his widow and her
C three children and the fact that the minors had 110 legal capacity to enter
into an agreement was irrelevant for determining their status as a con·
stituent in the 'body of individuals' in terms of Sec. 2 (31)(v) of the Act.
This appeal had been filed against the order passed by the Division Bench
of the High Court.

The appellant contended that in the facts of this case, it could not
be said that the mother and three minor children had formed 'body of
individuals' -and were assessable as a unit and the business 1irofit should
have been apportioned and assessed in the hands of each of the heirs
separately and in the status of individual; that the special provisions
E relating to the minor contained in Chapter XV of the Act will override the
general provisions relating to assessment in other parts of the Act and
when the income of the firm accrued to the minor, assessment should have
been done in accordance with the provisions of Section 160, 161 of the Act.

Dismissing the appeals, this Court
F
HELD : 1.1. When several individuals are found to have joined
together for the purpose of making profit, the group of individuals may be
conveniently described as "a body of individuals". "An association of per-
sons" or "a body of individuals", whether incorporated or not, has been
O brought within the net of taxation. The intention of the legislature is clearly
to hit combination of individuals or other persons wbo are engaged
together in some joint enterprise. The combinations may or may not be
incorporated. A profit-yielding joint venture has to be taxed as a single
unit. (1006-F; 1007-A]

H 1.2. The widow and the minor sons did not start the business. The
MEERAAND CO. v. C.l.T. 993

business was inherited. But the fact that the business had been continued A
by the widow on her own behalf as well as on behalf of the minor sons after
buying the interest of the mother goes to show that there is an organised
activity jointly carried on to produce income. It is a clear case of a joint
business venture of a few individuals. The income of this business had been
rightly asses~ed in the status of a "body of individuals". A minor can be a B
member of such a body or association. Section 161 of the Income Tax Act,
1961 is an enabling provision. The charge that is imposed by Section 4 may
be computed and recovered in the manner laid down in the Act including
Sections 160, 161 and 166. When the minors along with their mother form
a body to generate income, leave of tax nuder section 4 is on that body.
The mother cannot insist that the income of the joint venture must be C
assessed separately on her and the minors even when a joint business is
carried on. [1007-B-C, 1007-D-E, 1009-A-C]

CIT, Bombay N01th Kutch and Saurashtra v. Indira Balkrislma, (1960)
39 ITR 546; G. Mumqesan & Brothers v. Commissioner of Income Tax,
Madras (1973) 88 ITR 432 and Mohamed Noomllah v. Commissioner of D
Income Tax, Madras, (1961) 42 ITR 115; distinguished.

CIT. Bombay v. Laxmidas Devidas & anr, (1937) 5 ITR 584, referred
to.

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 1297- E
1301 of 1980 ETC.

From the Judgment and Order dated 6.9.78 of the Punjab & Haryana
High Court in I.T.R. Nos. 22-26 of 1972.

G.C. Sharma, S.K. Bagga, T.A. Ramachandran, B.S. Ahuja, Seeraj
F
Bagga, Ms. Tanuj Bagga, Ms. S. Bagga and Mrs. Janki Ramachandran for
the Appellants.

Dr. R.R. Misra, S. Rajappa, V.K. Verma for the Respondent.

The Judgment of the Court was delivered by
d
SEN, J. This is an appeal against an order passed by the Division
Bench of the Punjab & Haryana High Court disposing of an Income Tax
Reference relating to assessments of the Assessment Years 1963-64 to
1967-68. H
994 SUPREME COURT REPORTS (1997] 2 S.C.R.

A The following questions of law had been referred to the High Court
by the Income Tax Appellate Tribunal:

"1. Whether on the facts and in the circumstances of the case, the
Tribunal was right in law, in holding that Meera & Co. is a body
of individuals and is assessable as such?
B
2. Whether on the facts and in the circumstances of the case, the
Tribunal was right in holding that the assessment of the body of
individuals identified as Meera & Co. should be made under
Section 4 read with Section 2 (31)(v) and not under Section 160,
c 161 or 166?"

The High Court has given brief summary of the relevant facts as
under:

Shri Prem Narain, an individual, carried on business under the name
D Mis. Meera & Co. at Ludhiana. He died intestate on August 25, 1962
survived by his mother, widow and three minor children. All the assets of
the deceased including the business styled as Meera & Co. devolved on his
five legal heirs. The mother of the deceased relinquished her interest in
the assets of the deceased against a lump sum payment. For the purpose
of these references, we are concerned with the widow and three minor
E children of the deceased. The business of Mis Meera & Co. was continued
as a single unit in the same name by Smt. Krishna Gupta, widow of the
deceased, obviously on her behalf and on behalf of all the three minor
children as their guardian. The accounts were maintained in the name of
Mis. Meera & Co. The yearly profits were ascertained and divided. The
p Income Tax Return for the assessment years 1963-64 to 1967-68 were filed
by Smt. Krishna Gupta on behalf of Mis .. Meera & Co. The status of the
assessee was described as 'association of persons'. These returns reflected
the entire income from business previously carried on by Shri Prem Narain,
deceased. On January 25, 1968, Smt. Krishna Gupta filed the return under
protest and further revised the returns for the assessment years 1963-64 to
G 1966-67, declaring the same income that had been shown in the returns
already filed but without specifying the status therein. It was contended
that the income from the business should be assessed in equal shares in
the· hands of four legal heirs of the deceased. The minor children of the
deceased also filed separate returns where the share of profit from Mis.
H Meera & Co. was included for rate purposes only. The Income- tax Officer
MEERAAND CO. v. C.l.T. [SEN,J.) 995

did not agree with the altered position taken by the assessee that the A
income from the business was liable to be assessed in equal shares in the
hands of the four heirs of the deceased. He held that the business was for
one and common unit and the same was assessable in the status of 'body
of individuals'. The assessee, being dissatisfied with the order of the
Income Tax Officer, filed an appeal and the Appellate Assistant Commis-
sioner held that the entire income of the business was assessable in the B
hands of Smt. Krishna Gupta as a person carrying on business in individual
capacity. The Revenue and the assessee both filed appeals before the
Income Tax Appellate Tribunal. The Accountant Member of the Appellate
Tribunal found that the business was carried on as a organic unit by Smt.
Krishna Gupta on her own behalf and on behalf of her three minor children C
as their natural guardian. On the death of Shri Prem Narain, his estate fell
to his legal heirs under Section 8 of the Hindu Succession Act as tenants-
in-common. The special provisions regarding the minors and guardians
contained in Sections 160,161 or 166 of the Income Tax Act, (hereinafter
referred to as the 'Act') shall apply and will override the general provisions D
contained in Sections 4 and 2 (31)(v) of the Act. The Judicial Member took
a different view. According to him, the entity was liable to be assessed
under Section 4 read with Section 2(31)(v) of the Act. He repelled the
•
contention of the assessee that the assessments of the minors should have
been done under the special provisions meant for representative assessees,
i.e. Sections 160, 161 etc. He held that before the assessec could _be so E
treated, he must filter through the charging Section 4 read with Section 2
(31)(V) of the Act and if he cannot do so, he must stay there. In the event
of the assessee being a body of individuals, as defined in Section 2 (31)(v),
the question of the applicability of Section 160, 161 etc. of the Act did not
arise. As the two members of the Appellate Tribunal differed, the matter
F
was referred to a third Member who agreed with the view taken by the
Judicial Member and the appeals of the assessee were consequently dis-
missed.

Before the High Court, the contention made on behalf of the appel-
lant was that Sml. Krishna Gupta had two capacities in this matter. She G
was managing the business of Meera & Co. in her own right as well as a
guardian of the minor children. As a guardian-trustee of the minor
children, she should have been assessed as a representative assessee in
accordance with the provisions of Sections 160,161 and 166 of the Act.
Krishna Gupta acted on behalf of the minors in running the business of H
y
996 SUPREME COURT REPORTS [1997) 2 S.C.R.

A Meera & Co. Income from the business representing the share of the minors
a,ccrued to them or to their· guardian representing them. That being the
lease, the mode of assessment contained in Chapter XV of the Act shall
get precedence being special provisions relating to the minors and assess-
ment should be made· accordingly. It was further contended that the
B assessment could not be made in the status of 'body of individuals' which
postulates more than one individual. In this case, the business was being
managed by Krishna Gupta on her own behalf and also on behalf of the
minors. There is no question of assessing the income of the father in the
status of ~body of individuals'.

C The High Court was, however, of the view that the expression 'body
of individuals' should receive wide interpretation to include a combination
of individuals who have unity of interest (mother and her three minor _,
ch.ildrcn) and were actively engaged in the business carried on for the
benefit of all of them hy one of them and therefore, they would constitute
D 'body of individuals'. In the instant case, on the death of Prem Narain,
business under the trade name Meera & Co. passed on to Krishna Gupta
and her three minor children. The fact that the minors had no legal
capacity to enter into an agreement was irrelevant for determining their
status as a constituent in the 'body of individuals' in terms of Section 2
(31)(v) of the Act. In that view of the matter, the High Court answered
E both the questions in the affirmative and in favour of the Revenue.

In the appeal before us, it ha~ been contended that in the facts of
this case, it could not be said that the mother and three minor children
and formed a 'body of individuals' and were assessable as a unit. The
F business profit should have been apportioned and assessed in the hands of
each of the heirs of Prem Narain separately and in the status of individual.
Secondly, it was contended that the special provisions relating to the minor
contained in Chapter XV of the Act will override the general provisions
relating to assessment in other parts of the Act. When the income of the
firm accrued to the minor, asscs5mcnt should have been done in accord-
•
G ance with the provisions of Sections 160, 161 and 166 of the Act.

We are unable to uphold any of these two contentions. The business
of Meera & Co. was set up by Prem Narain who ran this business as a
sole-proprietory concern till his death. After his death, the entire business
H devolved upon his mother, widow and minor children. The mother's share
MEERAAND CO. v. C.I.T. (SEN, J.] 997

was bought by the widow and her children and they carried on the business A
in the name of Meera & Co. The business was carried on as before jointly
by the widow on her own behalf as well as on behalf of the minor children.
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 minor children. In such a ~ituation, the assessment had to be
made in respect of the income generated in the business in the status of B
'body of individuals'.

On behalf of the appellant it has been contended that "a body of
individuals" is an altogether different entity and should not be equated to
"an association of persons". The phrase "an association of persons: is well C
understood in the Income Tax Act and has been explained in a number of
cases. The legislature is presllmedto know the judicial interpretations given
to the phrase "Associaticmof Persons". "Body of individuals" in this back-
ground of facts. must be held to be some other entity not akin to "Asrocia-
tion of Persons". ABoard of Trustees or a society of persons can be treated
as "a body of individuals". A group of individuals cannot be treated as "a D
body of persons" more so when the group is receiving income from an
enterprise not set up by that group. The meaning ascribed to ''association
of persons" cannot be applied to "body of individuals".

Before examining this question, we shall notice how the expression
"association of persons" had been understood under the Income Tax Act, E
1922 over the years.

Initially, the charge under Section 3 of the Indian Income Tax Act,
1922 was on income of "individual, company, firm and other association of
individuals". These words were substituted by Section 3 of the Indian F
Income Tax (Amendment) Act, 1939 by the words "individual, Hindu
undivided family, company and loeal authority, and of every firm and other
association of persons or the partners of the firm of the association
individually". Commenting on this charging Section, it was observed by
Beamount, C.J. in Commissioner of Income Tax, Bombay v. Laxmidas
Devidas and another, (1937) 5 ITR 584 at page 589 as under: G

"It seems to me that an association of two or more persons for
acquisition of property which is to be managed for the purpose of
producing income, profits or gains falls within the words "other
association of individuals". . . H
y
A
998 SUPREME COURT REPORTS (1997] 2S.C.R.

The fact that one of the assessees during the year of assessment.
--
was a minor, does not, I thi_nk, affect the question .... What we
have got is the ownership of property by two persons, and the
production by that property of profits or gains."

In the case of Commissioner of Income Tax, Madras v. Salem District
B Urban Bank Ltd., 8 !TR 269, a Bench of three Judges of the Madras High
Court took the view that 'association of individuals' in Section 3 of the
Income Tax Act., 1922 would apply even to a corporate body which for the
most part was composed of co-operative societies. On behalf of the appel-
lant reliance was placed on the judgment in the case of Commissioner of
C Income Tax, Bombay v. Ahmedabad Mill- ow1ze1:~ Association, 7 !TR 369,
where it was held that the expression 'association of individuals' in Section
3 meant an association of human beings. Leach, C.J., considered the
opip.ion expressed in The Tmstees of Sir c1111imbhoy Ebrahim Baronetcy
Trust v. commissioner of Income Tax, (1932) 5 ITC 484, preferable to that
expressed in the case of Ahmedabad Mill Owners Association, (supra) ~
D held that 'Association of Individuals' did not mean an Association of
human beings only. Leach, CJ., observed:-

"If a corporate body created by a statue is an individual within the
meaning of the section and I hold that it is, a cooperative society
registered under the Co-operative Societies Act must fall within
E
the same category. It is a corporate body and has perpetual
succession. I consider that it is not reasonable to suppose that the

-
Legislature intended that there should be a difference in the
meaning: ,if the word 'individual' and the plural 'individuals'. If the
word 'individual' includes a corporation, the words 'association of
F individuals' must embrace an association of corporate bodies, and
therefore, the assessee is an 'association of individuals'."

Possibly because of this difference of opinion about the meaning of
the phrase 'association of individuals', Section 3 of the 1922 Act was
G amended in 1939 .and charge was imposed on "every individual, Hindu
undivided family, a company and local authority, every firm and other
.association of persons or the partners of the firm or the members of the

H
association individually''.

This amendment took care of the controversy as to whether the
phrase "association of individuals" will take in association of natural and
-
'
- MEERA AND co. v. c.r:r. [SEN, J.] 999

artificial persons or bodies like co-operative societies. Derbyshire, C..J.
explained the amended charge in the case of Re. B.N. Elias & Others, 3
ITR 408, in the following words :
A

"Previous to the year 1924, the words of the section in question
were "individual, company, firm and Hindu undivided family". By
· the Indian Income Ta.x Amendment Act of 1924 (Act XI of 1924) B
the words "individual, Hindu undivided family, company, firm, and
other association of individuals" were substituted for the former
words. Those words "association of individuals" have to be con-
strued in their plain, ordinary meaning. There is no difficulty about
the word "individuals". "Associate" means, according to the Oxford C
Dictionary, "to join in common purpose, or to join in an action".
Did these individuals join in a common purpose, or common
action, thereby becoming an association of individuals? In my view,
they did ..... In arriving at that conclusion, I am fortified by the
words of LORD JUSTICE COTTON in the case of Smith v.
Anderson (15 Ch. 247, at page 282). There the learned LORD D
JUSTICE is discussing the meaning of the word "association" as
used in Section 4 of the Companies Act of 1862. The word occurs
along with the words "company or partnership". Cotton, L.J. says
· at page 282 : "I do not think it very material to consider how far
the word "association" differs from company or partnership, but I
think we may say that if "association" is intended to denote some- E
thing different from a company or partnership, it must be judged
by its two companions between which it stands, and it must denote
something where the associates are in the .nature of partners. It
seems to me (not that I think it material) that it might have been
intended to hit the case which we have frequently seen, of a number
of persons or a number of firms joining themselves together for F
the purpose of carrying on a particular adventure in order to make
gain by it". Then he goes on to describe instances of that.

In my view, these persons have joined themselves together and
remained joined together for the purpose of buying, holding and G
using that property "Norton Buildings" in order to make gain by
it. In so doing they have become and were, at the time of this
assessment and "association of individuals" within the meaning of
Section 3 of the Indian Income Tax Act." .

Costello, .T. Tn his concurring judgment observed : H
y
A
1000 SUPREME COURT REPORTS [1997] 2 S.C.R. .

"Mr. Banerji was at very great pains to demonstrate to us lhat the
combination of individuals with which we are concerned could not
-
properly be described as partnership and he emphasised the fact
that they were co-owners of the property which is known as the
"Norton Building". I have no doub,t whatever that Mr. Banerji was
perfectly justified and correct in inviting us to take the view that
B this was not a partnership but it seems to me bearing in mind the
juxtaposition which I have mentioned, that although these four
persons did not constitute a body which was the same as partner-

c
ship it was in many respects similar to a partnership and was
approximate to a partnership and it may well be that the intention
of the legislature was to hit combinations of individuals who were
--
engaged together in some joint enterprise but did not in law
constitute partnership within the meaning of both Section 3 and
Section 55 of the Indian Income Tax Act, 1922."

D Costello, J .'S Observation that the intention of the legislature was to
hit combinations of individuals who were engaged together in some joint
enterprise but did not in law constitute partnerships aptly sums up
the position. Bodies or Associations which were neither companies nor
partenrships in law were sought to be taxed if the persons or individuals
constituting the body or the association combined to engage in an activity
E to produce income.

It is .also important to note that in that case costello, J. was invented
to give a general definition of the expression "association of individuals".
He observed:-
F
"Mr. Banerji invited us to take upon oursdves to difficuit but not
indeed impossible task of laying down a general definition of the
expression "association of individuals". In my opinion that is not
desirable from any point of view whatever. Each case must be
decided upon its own peculiar facts and circumstances. When we
G find, as we do find in this case, . that there is a combination of
persons formed for the promotion. of the joint enterprise banded
together 'if I may so put it, as co-adventures 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
H an "association of individuals" within the meaning of both Section
,;:. -

• MEERAAND CO. v. C.I.T. [SEN,J.]

3 and Section 55 of the Indian Income Tax Act, 1922."

We were also referred lo the case of Re: Kesharadeo Chamria, 5 ITR
246 and it was contended that in a family business, a situation may arise
1001

A

where some members of a family carry on the business jointly. From that
it does not follow ·that the members of the family must be assessed as an
"association of persons". In that case, there was a partition suit followed by B
a~pointment of a Commissioner for .Partition for dividing the properties
among the members of the family. Panckridge, J. observed that the status
of the members of a Mitakshara family changed after the preliminary
decree of partition. He went on to observe:

"The members of such a family appear to me to be in the same
c
position as the members· of a Dayabhaga family, and it has never
bee11. suggested as far as I know that members of such a family
cannot be individually assessed in respect of their shares."

It was held in that case that the members of the family could not be D
treated as an "association of persons". It is to be noted that in that case no
business was carried out jointiy by two individual members of the family,
but after partition the members of the family held properties as tenants in
common like the members of a Dayabhaga family.

In the case of Commissioner of Income Tax, Bombay No11h Kutch E
and Sauraslztra v. Indira Balloislma, (1960) 39 ITR 546, this Court held that
"association of persons" meant an association in which two or more persons
joined in a common purpose or comm0n action. As the words occurred in
a section which imposed a tax on income, the association must be one the
object of which was to produce income, profits or gains. In that case, the F
co-widows of a Hindu governed by Mitakshara law inherited his estate
which consisted of immovable properties, shares, money lying in deposit
and a share in a registered firm. The Appellate Tribunal found that they
had not exercised their. right to separate enjoyment and that except for
jointly _receiving the dividends from the shares and the interest from the
deposit~, they had done no act which had helped to produce income. This
o.
Court held that the co-widows succeeded as co-heirs to the estate of the
deceased husband. It was held that since the widows had an equal share
in the income from imovable properties, Section 9 (3) of the Indian Income
Tax Act, 1922 will apply. So far as other incomes were concerned, it was
~: H
A
1002 SUPREME COURT REPORTS [1997] 2 S.C.R.

"Coming back to the facts found by the Tribunal, there is no findin~
that the three widows have combined in a joint enterprise to
produce income. The only finding is that they have not exercised
·-
their right to separate enjoyment, and except for receiving the
dividends and interest jointly, it has been found that they have done
no act which has helped to produce income in respect of the shares
B and deposits. On these findings it cannot be held that the three
widows had the status of an association of persons within the
meaning of section 3 of the Indian Income Tax Act."

The meaning of "an association of persons" was also examined by this
C Court in the case of G. Mwuqesan & Brothers v. Commissioner of Income
Tax, Madras, (1973) 88 ITR 432. It was held in that case that an association
of persons could be formed only when two or more individuals voluntarily
combined together for certain purposes. Volition on the part of the
members of the association was an essential ingredient. It was further held
D even a minor could join "an association of persons" if his lawful guardian
gave his consent. The income in that case arose under two heads - house
property and dividends from shares. The question before this Court was 1
whether the dividend income should be assessed in the hand of an associa-
tion of persons or individuals. One Sinnamani Nadar executed a settlement
deed in favour of his four grand-sons. The property covered by the settle-
.E ment deed comprised of a house property which had been !el out and some
shares. The donees were to enjoy the income of these properties during
their life-time. Thereafter, the properties were to devolve on their children.
In that case, it was pointed out that Income Tax return was filed in the

F
status of association of persons prior to the assessment year 1959-60. For
the years 1959- 60 to 1962-63, the returns were submitted as individuals
specifically stating that the donees were not functioning as an association
-
of persoris.

In the case of Mohamed No01ullah v. Commissioner of Income Tax,
Madras, (1961) 42 ITR 115, one Oomer Sahib used to carry on business of
G manufacture and sale of Spade Clover brand beedies. After his death his
minor son, Mohamed Noorullah, and his widow, Luthfunnissa Begum, and
four children by her who were all minors at the date of the death of Oomr
Shaib, carried on the business. Noorullah through his next friend applied
to sue in forma pauperis and during the pendency of those proceedings
H two advocates of the High Court were appointed joint receivers of the
MEERAAND CO. v. C.I.T. (SEN,J.] 1003

properties of the deceased on March 17, 1943. On May 10, 1943, the widow, A
Luthfunnissa, filed a suit for partition and also applied for the continuance
of the joint receivers. By an order dated May 25, 1943, the receivers were
ordered to be continued and they carried on the business as before. In due
course a preliminary decree for partition was passed. The High Court
noted that none of the parties wanted to break the continuity of the B
business after the death of Oomer sahib. The joint receivers continued the
business till November 25, 1946 when the business was put up for sale by
auction and was purchased by Noorullah. The question was as to the status
in which the income of the business was to be taxed.

This Court held that the High Court had rightly come to the con- C
clusion that the business was the business of an association of persons.
None of the partners wanted to break the unity of control of the business
or its continuity and the business was of such a nature that it could not be
carried on without such consensus. The income was the income of a
business which was carried on as a single business by the consent of all the
parties. The mere fact that a suit was pending at the time for the ad- D
ministration of the estate of the deceased or for the separation of the shares
of the co-heirs did not affect the incidence of taxation.

Although strong reliance was placed on these three decisions on
behalf of the appellant, none of these decisions come to the aid of the E
contentions made on behalf of the appellant.

The finding of fact in the case of Indira Balakrislma (supra) was that
the widows except for receiving the interest and dividend jointly had done
no act which had helped to produce the income.
F
In the case of G. Mwukesan (supra), dividend from shares and
income from properties were received by the heirs. Here again no business
activity was involved.

Mohamed Noomllah's case (supra) comes very close to the facts of
the case before us. The business was continuing after the death of the G
father. None of the heirs wanted the business to come to an end. Although
the widow and the minor children had not started the business together,
they continued to carry on the business together. Therefore, income from
the business had to be assessed without dividing the income between the
widow and the minor children. To borrow the language of Costello, J., the H
1004 SUPREME COURT REP.ORTS [1997] 2 S.C.R.

A intention of the charging Section even under the Act of 1961 is to hit
combinations of individuals who engaged together in some joint enterprise,
even though they did not in law constitute a partnership.

The contention on behalf of the appellant is that they assessment has
been wrongly done in the status of ''body of individuals". This phrase is not
B to be found in the repealed Act of 1922 and the meaning ascribed to this
phrase must be quite distinct and separate from the meaning given by the
Courts to the phrase "association of persons".

Section 4 is the charging section under the 1961 Act. It has imposed
C a tax on the income earned by a 'person' in the pervious year. 'Person' has
been defined in Section 2 (31) of the Act as under:

"(31) 'Person' includes-

(i) an individual,

D (ii) a Hindu undivided family,

(iii) a company,

(iv) a firm,

E (v) an association of persons or a body of individuals, whether
incorporated or not,

(vi) a local authority, and

(vii) every artificial juridical person, not falling within any of the
F preceding sub-clauses:"

In this definition, in clause (v), both 'association of persons' and
'body of individuals' have been included with the added words "whether
incorporated or not". Another thing to note is that clause (v) speaks of "an
association of persons or a body of individuals". This implies that an
G "association of persons" is not something distinct and separate from "body
of individuals". It has been added to obviate any controversy as to whether
only combinations of human beings are to be treated as a unit of assess-
ment. The intention dearly is to hit combinations of individuals and in-
dividuals,. combinations of individuals and non- individuals and also
H combinations of non-individuals with other non-individuals who are
MEERAAND CO. v. C.LT. [SEN,J.] 1005

engaged together in some joint enterprise when such joint enterprise does A
not fall within any of other categories enumerated in sub-section (31) of
Section 2 of the Act.

It is of interest to note that the phrase ''body of individuals" has been
used by the Parliament in a revenue Act even before the Income Tax Act,
1961 was passed. Under the Gift Tax Act, tax was imposed on gifts made B
in. course of every assessment year commencing on and from the first day
of April, 1987 at the prescribed rate by a "person". "Person" was defined in
clause (xviii) of Section 2 as under:

"(xviii) 'person' includes a Hindu undivided family or a company C
or an association or a body of individuals or persons, whether
incorporated or not;"

When the Gift Tax Bill was introduced in the Parliament, 'person' in
clause (xviii) of Section 2 was defined as" 'person' includes a Hindu
undivided family". The charge of gift Tax was on gifts made by a person D
during the previous year.

In the Statement of Objects and Reasons to the Gift Tax Bill, it was
stated:-

''The object of this Bill is to levy a tax on gifts made by individuals, E
Hindu undivided families, companies, firms and associations of
persons. Gifts from one person to another provide a convenient
means of avoiding or 1educing liability to estate duty, income-tax,
wealth-tax and expenditure-tax."

In spite of this Statement of Objects and Reasons, there was no F
specific mention of any other entity apart from Hindu undivided family in
the inclusive definition of 'person' in the Bill, although it was stated that
one of the objects of the Bill was a prevent evasion or reduction of income
tax liability. ·
G
After the Bill passed through the Select Committee clause (xviii) of
Section 2 was modified and 'person' was .defined as under:-

"(xviii) 'person' includes a Hindu undivided family or a company
on an association or a body of individuals or persons, whether
incorporated or not;" H
1006 SUPREME COURT REPORTS (1997] 2 S.C.R.

A The Income Tax Bill was introduced in Parliament in 1961. There
the charge was on total income of a person. In the Notes on Clauses it was
explained in Clause 4 that for the different entities, individual, Hindu
undivided family etc. mentioned in Section 3 of the existing Act, the word
'person' had been substituted. Sub-clause (31) of Clause 3 explained the
definition of 'person' in the following words:-
B
"(31). The definition of 'person' in section 2 (9) of the existing Act
has been amplified. The existing definition includes (a) a Hindu
undivided family and (b) a local authority. The General Clauses
Act defines 'person' as including a company or association or body
c of individuals, whether incorporated or not. The charging section
of the existing Act enumerates the units for taxation as "individual,
Hindu undivided family, company, local authority, firm and other
association of persons or the partners of a firm or the members of
the association individually". Section 4 of the existing Act refers to
a 'person'. It is, therefore, desirable to have a comprehensive
D
definition of the word 'person' so as to cover all the entities
mentioned in (i) the existing definition in section 2 (9), (ii) the
existing charging provisions in sections 3 and 4 and (iii) the
General Clauses Act."

E In the Indian Income Tax, 1922 'person' has been defined to include :
a Hindu undivided family and a local authority, The object of giving the
expanded definition was to cover all entities taxable under the Indian
Income Tax Act, 1922 as well as the entities falling within the definition of
'person' under the General clauses Act. In other words, the intention of
the legislature was not to limit the charge to certain specified entities only.
F
In the background of these definitions when several individuals are
found to have joined together for the purpose of making profit, the group
of individuals may be conveniently described as "a body of individuals". We
have seen how the controversy arose under the Indian Income Tax Act as
G to the meaning of "association of individuals". There was a conflict of
opinion on whether 'individuals' include artificial or non-juridicial persons.
But there can be no scope of any controversy now. "An association of
•
persons" or "a body of individuals", whether incorporated or not, has been
brought within the net of taxation. The intention of th.e legislature is clearly
H to hit combination of individuals or other persons who were engaged
MEERAAND CO. v. C.l.T. (SEN,J.] 1007

together in some joint enterprise. The combinations may or may not be A
incorporated. A profit-yielding joint venture has to be taxed as a single
unit.

In the case before us, we have a widow and her minor son& who are
engaged in the business activity which generates income. It does not make
any difference that the widow aud the minor sons did not start the business. B
The business was inherited. But the fact that the business has been con-
tinued by the widow on her own behalf as well as on behalf of the minor
sons after buying the interest of the mother goes to show that there is an
organised activity jointly carried on to produce income. It is a clear case
of a joint business venture of a few individuals. The income of the business C
has been rightly assessed in the status of a "body of individuals".

We are of the view that the High Court has come to a correct
decision. It is not necessary to refer to the large number of cases that have
been cited before us but it is well settled by this Court under the Act of
1922, by a series of judgments that 'association of persons' must be an D
as,sociation which is formed by volition of the parties for the purpose of
generation of income. This is the basic test. That a minor can be a member
of such a body or association is also well settled by a number of decisions
right from the case of Commissioner of Income Tax, Bombay v. Laxmidas
Devidas and another (supra). E
Two more arguments were advanced on behalf of the appellant
which must be noted. The first was that a "body of individuals" implied an
artificial body like a Board of Trustees or Board of Commissioners etc.
Such bodies may be brought within the ambit of the expression "body of
individuals". But that will not limit the scope of the expression "body of F
individuals". It may take in artificial persons as well as natural persons.

The second argument was made with reference to Section 160, 161
and 166 of the Income Tax Act that since the mother was acting as
guardian of the minors, the mother's liability under the Income Tax Act G
was as representative assessee. Sections 161 and 166 of the Income Tax Act
are as under :

"161. Liability of representative assessee.- (1) Every representative
assessee, as regards the income in respect of which he is a repre-
sentative assessee, shall be subject to the same duties, respon- H
1008 SUPREME COURT REPORTS [1997) 2 S.C.R.

A sibilities and liabilities as if the income were income receiving by
or· accruing to or in favour of him beneficially, and shall be liable
to. assessment in his own name in respect of that income : put any
such assessment shall be deemed to be made upon hiitl in his
representative capacity only, and the tax shall, subject to the other
provisions contained in this Chapter, be levied upon and recovered
B from him in like manner and to the same extent as it would be
leviable upon and recoverable from the person represented by him.

(IA) Notwithstanding anything contained in sub- section (1),
where any income in respect of which the person mentioned in
c clause (iv) of sub-section (1) of section 160 is liable as repre-
sentative assessee consists of,· or includes, profits. and gains of
business, tax shall be charged on the whole of the income in respect
of which such person is so liable at the maximum marginal rate:

Provided that the provisions of this sub-section shall not apply
D where such profits and gains are receivable under a trust declared
by any person by will exclusively for the benefit of any relative
dependent on him for support and maintenance, and such trust is
the only trust so declared by him. '

E Explanation - For the purposes of this sub-section "maximum
Marginal are" shall have the meaning assigned to it in explanation
to below sub-section (3) of section 164.

(2) Where any person is, in respect of any mcome, assessable
under this Chapter in the capacity of a representative assessce, he
F shall not, in respect of that income, be assessed under any other
provisions of this Act."

"166. Direct Assessment or recovery not ba1red. - Nothing in the
foregoing sections in this Chapter shall prevent either the direct
assessment ofthe persons on whose behalf or for whose benefit
G income therein referred to is receivable, or the recovery from such
person of the tax payable in respect of such income".

It was contended on behalf of the appellant that the minors' income
had to be assessed in the hands of the mother as a representative a>.sessee.
H It could not be clubbed with any other income of the mother. Mother was
MEERAAND CO. v. C.l.T. [SEN,J.] 1009

a legal guardian and her personal income must be assessed separately A
altogether. In view of the provisions of Section 161 it was not open to the
Income Tax Officer to tax the income of the minors as well as the mother
in the status of "body of individuals".

We arc unable to uphold this argument. Section 161 is an enabling
provision. The charge that is imposed by Section 4 may be computed and B
recovered in the manner laid down in the Act including Sections 160, 161
and 166. When the minors along with their mother form a body to generate
income, levy of tax under section 4 is on that body. The mother cannot
insist that the income of the joint venture must be assessed separately on
the minors and her even when a joint business is carried on. C

The underlying idea behind these sections was explained by Addison,
J. in the case of Hotz Tmst Simla v. The Commissioner of Income Tax,
Punjab and N Frontier Provinces, 5 ITC 8 at 16. Dealing with the cor-
responding provisions of the 1922 Act, it was held that where trustees D
carried on a business under a testamentary trust, the assessment in respect
of the business profits should be made not on the beneficiaries in respect
of their individual net shares of the profits but on the trustees as an
"association of persons". It was observed :

"Section 40 is merely a machinery section, making the trustee E
liable for beneficiaries in certain cases where the beneficiaries
are difficult or impossible to get at, and where the trustee acts
as a conduit-pipe for the conveyance of the income to the
beneficiaries. It does not affect the charging sections 3 and 10
of the Indian Act under which the trustees as an association of p
individuals, carrying on a business, are liable to be assessed in
respect of the gains of the business carried on by them. In fact
it is clear that this is the only way that the profits and gains of
the business, carried, on by the trustees, can be taxed. For it is
obvious that, if what goes to each beneficiary every year only
can be taxed, much of the income acquired by the business will G
altogether escape taxation, and that the income received by the
beneficiaries is not the true assessable income as many of the
expenses incurred by the trustees, which would be paid out
before the distribution takes place, would not be admissible
under the Act. The profits and gains of this business carried on H
1010 SUPREME COURT REPORTS (1997] 2 S.C.R.·

A by the trustees, can only be calculated in the hands of the trustees
as such and the assessment in the hand~ of the beneficiaries would
be. in reality inconsistent with the intention of the Income-tax Act.
The trustees both carry on the business and are in receipt of the
profits and it is they who must be taxed under the charging
sections."
B
The full Bench of Madras High Court in the case of J. V. Saldhana
v. The Commissioner of Income-tax, Madras, 6 ITC 114, reiterated the same
principle in a case where a widow with her six minor children succeeded
to the .estate of her deceased husband consisting of coffee plantations,
C house properties and a third share in a firm of coffee curers and settlers.
The widow continued to carry on the business in the same manner as was
done by the deceased. It was held by the Full Bench that when properties
of a number of individuals were put together and one business was carried
on "~th the combined resources, it was open to the Income Tax Officer to
regard it as one business carried on by an "association of individuals" within
D the meaning of section 3 of the Act. A single assessment should be made
under Section 10 (1) of the Income Tax Act on tlie entire income from the
business. It was also held that Section 40 and the following sections were
machinery and enabling sections and not charging sections.

E In our view, these two decisions correctly stated the law under the
Act of 1922. These principles will also apply to the corresponding
provisions of the Income Tax Act, 1961.

In view of the aforesaid, the appeals arc di:m1issed. There will be no
order as to costs.
F
CA.Nos. 1664-66/86 and 4365 to 4369185

In view of our judgment in C.A No. 1297-1301/1980, these appeals
are also dismissed with no order as to costs.

G CA. No. 1694 of 1995
It appears that in this case, the question was whether there was a
sub-partnership between AN. Agarwal and his wife and minor son and as
such the income of the sub-partnership could not be assessed in the hands
of the assessee unde~ Section 64 (l)(i) and (iii) of the Income Tax Act,
H 1961. It has also been stated in the appeal that in the case of AN.Agarwal,
MEIERAAND CO. v. C.l.T. [SEN,J.] 1011
' '

I
assessment was made i~ the status of individual for the years 1964-65 and A
1965-66. In those proc1edings special l~ave petitions have also been filed.
\' The point involved in this case is not tli!e same as the point that came up
for consideration in th~ case of C.A. No. 1297-1301/1980. Therefore, this
appeal is directed to lie delinked from the other appeals that are being
disposed of today. ' I
B
R.A. Appeals dismissed.