E.M Viswanatha Chettiar Petitioner v. The Agricultural Income-Tax Officer, Coorg, Mercara .

Hegde, J.:— In this Reference under Section 54 of the Coorg Agricultural Income Tax Act, 1951, to be hereinafter referred to as “the Act”, two questions of law have been referred to us for our opinion. They are:

“1. Whether there were materials for the Commissioner of Agricultural Income Tax to hold that the status of the applicant is an ‘association of persons’ for purposes of assessment under the Coorg Agricultural Income Tax Act, 1951?

2. Whether the sale proceeds of timber removed from petitioners' Estate can form part of Agricultural Income?”

Statement of facts of the Case.

“Sri E.M Muthappa Chettiar, the former owner of the Estate Called the ‘Cotacaudu and Jeynacaudu Estates’ Sonti-koppa Coorg, by a deed of settlement dated 19th December, 1955 transferred the right of ownership of the estate to his three sons in shares who continued to administer and cultivate the lands of the estate as equal partners. As the ownership of the estate was merely transferred from the father to the sons, the Agricultural Income Tax Officer, Coorg, treated the status of the assessee as that of an ‘Association of persons’ and assessed them to tax. Being aggrieved of the assessment, an appeal was filed before the Deputy Commissioner of Agricultural Income Tax, Coorg, who remanded the case for fresh disposal but the appellate authority upheld the stand taken by the assessing officer in so far as the question of status was concerned. As could be seen from the order of reassessment passed by the Agricultural Income Tax Officer on 14th March, 1960, the right of co-owernership and separate assessment was passed but it was turned down as there was no such provision under Coorg Agricultural Income Tax Act, 1951 analogous to Section 3(3) of the Mysore Agricultural Income Tax Act, 1957 or Section 9(3) of the Indian Income Tax Act, 1920.

The petitioners filed a Revision Petition before the Commissioner of Agricultural Income Tax and the same was dismissed for reasons discussed in my order dated 29th December, 1961. The present reference application has arisen out of this order setting out therein the following points of law:—

1. Whether there were materials for the Commissioner of Agricultural Income Tax to hold that the status of the applicant is an association of persons for purposes of assessment under the Coorg Agricultural Income Tux Act, 1951?

2. Whether the sale proceeds of timber removed from petitioners' estate can form part of Agricultural Income?

The deed of settlement dated 19th December, 1955 has transferred the right of ownership of the estate from the father to the sons. From that day onwards the three brothers joined themselves for a common purpose namely to work the estate together and earn profits. This is fortified by the fact the estate is not specifically devided and no share in the corpus is defined.

What constitutes an ‘Association of persons’ has been laid out very lucidly in the decision of the Supreme Court in the case of The Commissioner of Income Tax, Bombay North Kutch and Sourashtra, Ahmedabad v. Smt. Indra Balakrishna. The decisions in (1) B.N Elias (2) The Commissioner of Income Tax, Bombay v. Laxmidas Devidas and (3) Dwarakanath Harischandra Pitab may also be referred to. In the present case the association of three brothers which, is a combination of persons for promotion of joint enterprise in producing income, is an association of persons within the scope and meaning of Section 3 of the Coorg Agricultural Incejtne Tax Act, 1951 and hence the finding of the Agricultural Income Tax Officer with reference to the status of the assessees as an Association of persons was upheld by me.

The second question of law which the petitioner has raised is whether-income from timber removed from petitioners' estate is liable to agricultural income tax.

The definition of agricultural income as set out in Coorg Agricultural Income Tax Act, 1951 includes any income derived from the land which is used for agricultural purposes. The income from the sale of timber in question was derived from the estate which is used for agricultural purposes”.

Now, coming to the first question referred to us, the finding of the Commissioner of Agricultural Income Tax, to be hereinafter referred to as “Commissioner” is as follows:—

“The deed of settlement dated 19th December, 1955 has transferred the right of ownership of the estate from the father to the sons. From that day onwards the three brothers joined themselves for a common purpose namely to work the estate together and earn profits. This is fortified by the fact that the estat is not specifically divided and no share in the corpus is defined.”

On this finding, which finding is binding on us, it cannot be successfully contended that the assessees are not an “association of persons”. Sri V. Krishnamurthy, the learned counsel for the petitioners contended that the above finding of the Commissioner is unsupported by the decision given by him in A.I.T/R.P.N/S.R/15 of 1960–1961. This contention does not appear to be correct. But before going to that finding we may first refer to Section 3(1) of the Act that reads:—

“Agricultural Income-tax at the rate or rates specified in the schedule to this Act shall be charged for each financial year in accordance with and subject to the provisions of this Act, on the total agricultural income of the previous year of every individual, Hindu undivided family Marumakkattayam tarwad or tavazhi, Aliyasanthana family or branch, firm, company association of persons, whether incorporated or not, and institution capable of holding property.”

The finding of the Commissioner in his order on the point under consideration is as follows:—

“From the above it is clear that any combination of persons formed for the promotion of a joint enterprise or a combination jointly engaged in producing income is an association of persons within the scope of the expression in Section 3 of the coorg Agricultural Income-tax Act, 1951. Evidently to work the Estates and produce income therefore is the common purpose and object of the three petitionrs. The joint action in this objective is also admitted as is evident from the statement that the accounts are maintained in the name of all the three brothers and the cheques are drawn by all the three brothers jointly for making any payment.”

In other words, the finding of the Commissioner was that the assessees, who are brothers, joined in a common venture to produce income from out of the estate settled on them by their father. Such a joint venture, in our opinion, makes them an ‘association of persons’ within the meaning of that expression found in Section 3 of the Act. The Act is modelled on the bais of the Indian Income-tax Act, 1922. The question when joint owners become “association of persons” has been considered in several decisions. In such cases, the true test is to see whether they had joined in a joint venture to raise producer or to earn income, profits or gains from the estate inherited or received by them. This question came up for consideration in Commissioner of Income-tax, Bombay v. Laxmidas Devidas(1). Speaking for the Court, Beaumont, C.J held in that case:—

“The words ‘other association of individuals’ in Section 3 have to be construed in their plain ordinary meaning. The only limit to be imposed on the words ‘other association of individuals’ is such as naturally follows from the fact that the words appear in an Act imposing a tax on income, profits and gains, so that the association must be one when produces income, profits or gains. An association of two or more persons for the 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’ in Section 3 and under Section 9 of the Act, the association of individuals is the owner of the property, and as such is assessable.”

This decision was cited with approval by the Supreme Court in Commissioner of Income-tax, Bombay v. Smt. Indira Balakrishna(2). Dealing with the point under consideration, this is what S.K Das, J., who spoke for the Court, observed in-paragraph 9 of the judgment:—

“It is enough for our purpose to refer to three decisions: In re: B.N Elias, (3) Commissioner of Income-tax, Bombay v. Laxmidas Devidas.