Commr. Of Income-Tax v. Parukutty Moopilamma

Paripoornan, J.:— At the instance of the Commissioner of Income-tax, Kerala II, Ernakulam the following two questions of law have been referred to this court under S. 256(2) of the Income-tax Act, 1961. The assessment years concerned are 1969-1970 and 1970-1971 and the same assessee is the respondent in both the referred cases. The questions referred to this court are the following:

1. Whether, on the facts and in the circumstances of the case, and on an interpretation of the partition deed No. 1283 of 1957 and the agreements subsequent to that the Income-tax Appellate Tribunal is right in law in fixing the status of the assessee as individuals and not as a Hindu Undivided Family or an Association of Persons or a Body of Individuals for the purpose of assessment of the capital gains that arose from the sale of forest trees in the Malavaram properties?

2. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in law and had any material before it in holding that the Malavaram Properties were also partitioned into 18 shares and that therefore the Hindu Undivided Family had ceased to exist?

2. The short facts necessary to appreciate the question at issue are as follows: The assessee, Smt. Parukkutty Mooppilamma, was a member of a marumakkathayam tarwad. The tarwad was in possession of vast properties. Some of them were Malavaram properties. Including minors, there were 18 members, entitled to a share on partition at the relevant time. The properties of the tarwad were divided into 18 shares. To the extent possible, they were also divided by metes and bounds. The partition deed is Annexure A (document No. 1283/1957 dated 21st of June, 1957). The properties left out of division were mentioned in paragraph 5 of the said deed and enumerated in Ext. A schedule. They were specified as ‘malavaram properties marked, not yet surveyed’. It was specifically mentioned in the deed that it was not proper to divide these malavaram properties then and so it would be kept as common property. But all the same, the deed made it clear that each one of the members had 1/18 share therein. Paragraph 11 of the deed authorised Mooppilamma to manage the properties which had not been divided by metes and bounds. The malavaram properties being thick forests Parukkutty Mooppilamma applied to the District Collector on 13-3-1968 and 11-10-1968 for permission under S. 3(2) of the Madras Presidency Private Forest Act, to cut and remove the trees standing in the Malavaram properties in an area of 75 acres and 200 acres. The permission applied for was granted. It was stipulated that the clear felled area should be planted with eucalyptus before 31-7-1969. Mooppilamma entered into an agreement with two persons giving them the right to cut and remove the trees. She did so on behalf of all the members of the tarwad, in pursuance to the authorisation given to her by paragraph 11 of the partition deed. The agreement allowed the contractors to cut the trees with roots. The persons who entered into an agreement with Mooppilamma to cut and remove the trees paid Rs. 11/2 lakhs during the year ended 31-3-1969 and Rs. 2,15,000/- during the year ended 31-3-1970. The agreements are Annexure 8 series. For the assessment years 1969-70 and 1970-71, Parukkutty Mooppilamma filed nil returns. In part 4 of the returns she specified the amounts received (mentioned above) staling ‘consideration received on sale of standing trees uprooted to convert the land for agricultural purposes less expenses capital gains arising from agricultural land’. The status shown in the returns was ‘Body of Individuals’, and was signed by Parukkutty Mooppilamma. Before the assessing authority, the assessee contended that no assessment could be made in the status of “Body of individuals” since each member of the erst-while tarwad had 1/18 share in the property. The Income-tax Officer did not accept this contention. He held that the receipts mentioned above, obtained for parting with the right to cut and remove the trees was income assessable under the Act. After allowing certain expenses, the Income-tax Officer assessed the said income in the hands of the assessee. The status assigned was “body of individuals”. The assessment orders for the years 1969-70 and 1970-71 are Annexures Cl and C2. Io the appeals, the Appellate Assistant Commissioner held that the correct status to be assigned was that of an “association of persons” for the various reasons given in his consolidated order for both the years, Annexure D, dated 28th February 1972. The assessee filed second appeals from the consolidated order of the Appellate Assistant Commissioner dated 28-2-1972 before the Appellate Tribunal, Cochin Bench as I.T.A Nos. 22 and 23 Cochin 1972-73. The Appellate Tribunal passed a consolidated order in both the appeals dated 31st of October, 1975, evidenced by Annexure-E. Various contentions were taken before the Appellate Tribunal. But in these two references We are concerned only with the status assigned to the assessee. The Appellate Tribunal after an exhaustive consideration of the matter in paragraphs 9 to 11 of its order, held “that the individual members should be assessed direct” and “the capital gains computed has to be divided into 18 shares as each individual member has that much right therein.” (Para 10). The Appellate Tribunal also categorically found that the status of ‘body of individuals’ cannot be assigned. The Revenue has, in the above circumstances, pursued further proceedings under S. 256(2) of the Act to refer the questions of law mentioned herein above. The sole question that falls for consideration in this case is “whether the Appellate Tribunal was justified in fixing the status of the assessee, as “individuals” and not as a ‘Hindu Undivided Family’ or an ‘Association of persons’ or ‘Body of Individuals.’

3. Before us counsel for the Revenue Mr. P.K Ravindranatha Menon, did not press question No. 2 referred to this Court. That question deals with the aspect as to whether the Hindu Undivided Family had ceased to exist. In view of the fact, that the said question was not pressed and no arguments were addressed to us on that aspect, we do not propose to deal with that matter. Even on the first question counsel for the Revenue Mr, Menon pressed only one aspect, i.e the Appellate Tribunal erred in not sustaining the status assigned to the assessee, as a ‘body of individuals’. According to counsel, the Appellate Tribunal erred in assigning the assessee the status as an “individual”. Counsel stressed the fact that the assessee herself filed the return showing the status as a “body of individuals” and in such circumstances it was not open to her to claim during the assessment proceedings or even later that the status should be a different one, i.e as “an individual”. Before the Appellate Tribunal, this aspect was high-lighted and the Appellate Tribunal negatived the submission. The Appellate Tribunal said: “It may be that by mistake she originally showed the status as such but on being apprised the correct legal position she could object to being assessed in that status.” We agree. It should also be stated that an assessment is to be made, not solely based on the admission of a person and the view of law which he takes. A proper order of assessment should be made on the basis of all facts and circumstances and on a correct application of the relevant provision of law. Counsel for the Revenue contended that in this case Parukkutty Mooppilamma was authorised as per the partition (Annexure A) to manage the instant properties and so when she acted in that behalf and obtained the income it should be deemed to be, for and on behalf of all the 18 members and in such circumstances the correct status that should be assigned is ‘a body of individuals’. Says counsel, that common design or common will, to manage and obtain income, is not necessary in order to constitute “a body of individuals”. Reliance was placed on the decisions of the Andhra Pradesh High Court in Deccan Wine and General Stores v. Commissioner of Income-tax (106 ITR. 111), of the Gujarat High Court in Commissioner of Income-tax v. Harivadan Tribhovandas (196 ITR. 494) and that of the Punjab and Haryana High Court in Meera and Company v. Commissioner of Income-tax (120 ITR. 564). On the other hand counsel for the assessee Mr. K.P Radhakrishna Menon contended that in this case the Appellate Tribunal found, on an evaluation of the entirety of facts and circumstances, including Annexure A, partition deed, that the status to be assigned cannot be as a “body of individuals” and this is normally a question of fact, not open, to be canvassed in these proceedings. Counsel also contended that the term ‘body of individuals’ occurring in S. 2(31) of the Income-tax Act should be understood in the context and in the collocation of words and so understood, it cannot be that in all cases of co-owners enjoying the property, the co-owners could be assigned the status “as a body of individuals.” It is only in a case where the co-owners joined together by volition for the specific purpose of enjoying the income, if could be considered to be an instance of a “body of individuals.” In other words, something more than merely enjoying the property together, is necessary, in order to constitute “a body of individuals”. It was pointed out, that in this case as per Annexure A, power or authorisation has been given by each one of the 18 persons to Parukutty Mooppilamma to manage the property which had not been divided by metes and bounds. If in law each one of the 18 persons can enjoy his own share of the property obtained in the partition, either by himself or through an authorised agent, the mere fact that it so happened that in this case all the 18 persons authorised a common person to manage the property, each, on his own behalf, will not make them “a body of individuals”. According to counsel, the income never accrued to the body of individuals and so the status assigned as “a body of individuals” is unsustainable.

4. After bestowing our anxious thought to the rival contentions raised, we are of opinion that the decision of the Appellate Tribunal is justified on the facts and circumstances of this case and does not call for any interference. In paragraph 11 of the appellate order, the Appellate Tribunal observed:

“It is now well settled that there should be a voluntary association by the members and that such association should be for the purpose of producing income, profits or gains. In the concept of Body of Individuals the implications of the word association has been removed and so the requirement of voluntarily coming together becomes unnecessary. But the second, that the body of individuals must as a unit act with object of producing income, remains…… … … … …We are only conerned with a transfer of capital asset for which there need not be any action in unison. It appears to us that the property owned by the unit of Body of Individuals should be joint tenancy and not co-ownership or tenants-in-common. The income should first accrue to the Body of Individuals. Nobody should have a clear title to it apart from being a member of the Body of Individuals. Otherwise the inclusion of Body of Individuals in S. 86(v) would become meaningless. It is now well settled that after partition the members own the properties not yet divided by metes and bounds as tenants-in-common. Tenants in common and co-ownership appear to be synonymous terms and are interchangeable… … … …If there is no community of profits or loss then the income does not accrue to the Body of Individuals initially. The income goes directly to the members and it was only for convenience sake that one of them receives it on behalf of others. We will, therefore hold that the status cannot be Body of Individuals.”

(Emphasis supplied)

5. We agree with the aforesaid reasoning and conclusion of the Appellate Tribunal. S. 2(31) of the Income-tax Act states:

“‘person includes—

(i) an individual,

(ii) a Hindu undivided family,

(iii) a company,

(iv) a firm,

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

(vi) a local authority, and

(vii) every artificial juridical person, not falling within any of the preceding sub-clauses;”

6. It is trite law that the word “Body of Individuals” occurring in the definition section (S. 2(31)(v)) should be understood in the context and collocation of words and not in isolation. In the words of Blackbarn J., in Rein v. Lane (36 L.J Q.B 81), quoted by M.S Menon, J. in Varkey v. S.T.O (5 S.T.C 348)—

“It is; I apprehend, in accordance with the general rule of construction in every case, that you are not only to look at the words, but you are to look at the context, the collocation, and the object of such words, relating to such a matter, and interpret the meaning according to what would appear to be the meaning intended to be conveyed by the use of the words under such circumstances.”

7. In Bidie v. General Accident Fire & Life Assurance Corporation, (1948 (2) All E.R 995 at p. 998), Lord Green observed that:

“the first thing one has to do………………in construing words in a section of an Act of Parliament is not to take those words in vacuo, so to speak, and attribute to them what is sometimes called their natural and ordinary meaning. Few words in the English Language have a natural and ordinary meaning in the sense that they must be so read that their meaning is entirely independent of their context. The method of construing statute that I prefer is not to take particular words and attribute to them a sort of prima facie meaning which may have to be displaced or modified. It is to read the statute as a whole and ask oneself the question, in this state, in this context, relating to this subject matter, what is the true meaning of that word?”

8. Id Bourne v. Norwich Crematorum Ltd., (1967 (2) All E.R 576 at p. 578) the Court held:

“English words derive colour from those which surround them. Sentences are not mere collection of words to be taken out of the sentence defined separately by reference to the dictionary or decided cases, and then put back again to the sentence with the meaning which you have assigned to them as separate words so as to give the sentence or phrase a meaning which as a sentence or phrase it cannot bear without distortion of the English language.”

9. These observations were quoted with approval by Sikri, C.J in Kesavananda v. State of Kerala ((1973) 4 SCC 225 : AIR. 1973 SC. 1461 at. p. 1497). The decision of the Supreme Court in Sanjana v. Elphinstone Mills ((1971) 1 SCC 337 : AIR. 1971 SC 2039 (para 18)), establishes the proposition that “every word in a provision should be construed in the context in which it occurs in order to discover its appropriate meaning”, and, the decision in M.K Ranganathan v. 1. Government Of Madras (AIR. 1955 SC. 604), indicates that a word is known by the company it keeps. It was held in the said decision that “it is a well recognised rule of construction then when two or more words which are susceptible of analogous meaning are coupled together “noscuntur a sociis”. They are understood to be used in their cognate sense. They take, as it were, their colour from each other, that is, the more general is restricted to a sense analogous to the less general.” - (Maxwell—Interpretation of Statutes—10th Edn. p. 332). In construing the words “body of individuals” occurring in S. 2(31), alongside the words, “association of persons” we should bear in mind the aforesaid well settled principles of interpretation laid down by courts. It is now well settled by decisions of Supreme Court that in order to constitute “an association of persons” persons must join in a common purpose or action and the object of the association must be, to produce income. It is not enough that the persons receive the income jointly. The word ‘body of individuals’ occurring in S. 2(31) of the Act, alongside “associations of persons” should be understood in the said background and context. The meaning to be given to the words “association of persons” above referred to, was first laid down by the Supreme Court in C.I.T v. Indira Balakrishna (AIR. 1960 SC. 1172.) a decision rendered as early as 14-4-1960. So that when Parliament enacted the Income-tax Act, 1961, and inserted the definition in S. 2(31) of the Act, Parliament should have used the words, “association of persons” alongside “body of individuals”, fully being aware of the meaning given to the words “association of persons” by the Supreme Court. A provision similar to S. 2(31) of the Income-tax Act, occurring in S. 2(18) of the Gift Tax Act 1958, came up for interpretation before the Supreme Court in Commissioner Of Gift Tax, Kerala v. Smt R. Valsala Amma ((1971) 82 ITR. 828). S 2 (xviii) of the Gift Tax Act, defines “person”. “Person” includes a Hindu undivided family, or company, or an association or a body of individuals or persons, whether incorporated or not.” In that case, the assessee and her sister received under the will of their mother inter alia a Cinema Theatre, building with machinery and another building called police quarters. Each one of them had half share in the property. They gifted these buildings to their brother by means of a single gift deed. The question was whether the assessee and her sister could be assessed in respect of the gift, as individuals or an association or body of individuals. Speaking for the Court Hegde, J. said at page 230:

“Now the question is in what capacity the gift was made by the assessee. Did they do it as an association or as a body of individuals or as individuals. The property received by the assessee under the will of their mother was admittedly received by them as co-tenants. Each one of them had half share in that property. The question whether they divided that property or not is not a material question. In law each one of them had half the right in the property that they gifted to their brother. They were holding that property as tenants-in-common and not as joint tenants. Hence they made the gift as tenants-in-common and not as joint tenants. Each one must be held to have made a gift of her share of the property though the gift is made through one single document. It is surprising that the Income-tax Officer or the Appellate Assistant Commissioner or the Tribunal should have ever thought that the gift in question was by an association or by a body of individuals. The Gift-tax Act did not change the general law relating to the rights of property. It merely sought to tax a gift of the property owned by a person. As mentioned earlier the property with which we are concerned in this case is a property owned by two persons as tenants-in-common, each one having a definite share”.

(Emphasis supplied)

10. In Commissioner of Income-tax v. I.V Suresh Chandran (1980) 121 ITR. 985 at pp. 994 and 995, speaking for the Bench, Subramonian Poti J. (present C.J) observed:

“We are at the question whether the purchase is by an association of persons and not whether an association of persons came into existence after the purchase to run a joint venture. We have already indicated the elements required to find a combination styled “association of persons”. Some element of volition is necessary even for “a body of individuals”. What exactly would be the distinction between “a body of individuals” and “an association of persons” is a matter on which we need not speak further, for, that may not be relevant for the purpose of this case. A body of individuals is different from individuals and if they are treated as a person because they are a “body” there must be jointness by volition.”

11. In C.I.T v. Deghamwala Estates (1980) 121 ITR. 684 the Madras High Court, after adverting to the legislative history of S. 2(31) of the Income-tax Act, the deviation made by the parliamentary draftsman, in throwing the “association of persons” and “body of individuals” in one category, from the comprehensive one suggested by the Law Commission, and the applicability of the rule of construction, “noscitur i sociis”, (ejusdem generis) in respect of the above two categories, held at page 692 as follows:—

“S. 47(2) itself appears to us to give a clue to the interpretation of the expression “body of individuals”. It contemplates “distruction of capital assets on the dissolution of the body of individuals”, as in the case of a firm or other association of persons. This itself shows that the body of individuals whether incorporated or not must be capable of holding properties as an entity and of distributing them at the time when it dissolves. Thus, a common purpose or a common tie, actual or potential capacity to hold properties or disposable income would be the minimum requirement of such a body of individuals. The purpose or the aim should, in the context of the I.T Act, be to produce income or hold income-producing assets.”

12. In this connection it should be stated that the rule of interpretation by context is the rule of “ejusdem generis or noscitur i sociis” and is a well accepted principle of interpretation of statutes. In Powell v. Kemptom (1899 Appeal Cases 143) the question, was, whether the prohibition contained in S. 1 of the Betting Act, prohibited betting in a “house, office, room or other place”, will take in betting with bookmakers in an uncovered place. The House of Lords, following the above rule of interpretation, by reference to context, restricted the words ‘other place’ to covered enclosures and held that betting with bookmakers in an uncovered place was not prohibited. In Attorney-General v. Brown ((1920) I KB 773) the words “any other goods” in the expression “arms, ammunition, gunpowder or any other goods” were held to be restricted to the category of the preceding objects and it was held that pyrogallic acid did dot come within the meaning of “any other goods” and its importation could not be prohibited. In Brownsea Haven Properties Ltd. v. Poole Corporation ((1958) I All E.R 205), where the concerned authority directed that traffic in a street would be one-way for six months, it was held that the order was beyond the power given in S. 21 of the Town Police Clauses Act authorising regulation of road traffic in all times of public processions, rejoicings or illuminations, and in any case when the streets are thronged or liable to be obstructed. It was held that the direction that the traffic in a street would be one-way for six months, went far beyond the power given to the authority under S. 21 of the Act, and the words ‘in any case’ should be read only to cover, cases of traffic dislocation under the specified circumstances and not in cases of day-to-day jam. We need not multiply instances where courts have adopted the said principle of interpretation, by reference “to the context.” The decisions of the Kerala and Madras High Courts referred to above, have reviewed the entire case law on the point and have also applied the test laid down by the Supreme Court in the Valsala Amma's case (1971) 82 ITR 828 and are in conformity with the well settled principles of interpretation. We hold, that in the light of the above judicial pronouncements and the principles of interpretation to be borne in mind, the reasoning and conclusion of the Appellate Tribunal to hold that the status of the assessee in the instant case cannot be a body of individuals, is well justified. It should be a case where as held by the Tribunal, that the individual members should be assesseed directly regarding the capital gains.

13. It remains to consider the decisions cited by the counsel for the Revenue. Of the three decisions brought to our notice, the earliest one is that of Andhra Pradesh High Court reported in 106 ITR. 111, which was referred to in the later decisions reported in 106 ITR. 494 and 120 ITR 564. The Madras High Court has in the decision referred to above, 121 ITR. 684, adverted to the Andhra Pradesh, Gujarat, and Punjab & Haryana decisions and has analysed the matter in detail. We may at once state that the aforesaid decisions of Andhra Pradesh, Gujarat and Punjab & Haryana, have not given due and sufficient importance, to (1) the legislative history of S. 2(31) of the Act and principle of interpretation to be applied in construing S. 2(31) of the Act, in the context, and also (2) to the decision of the Supreme Court reported in 82 ITR 828. The decision of the Andhra Pradesh High Court is also distinguishable. That was a case where the mother and two children were running a “business” and the status of a body of individuals was upheld. Ir is common knowledge that in a business there is an object of producing income or profits. The Gujarat High Court dissented from the Andhra Pradesh decision regarding the manner in which the decision of the Supreme Court reported in 82 ITR. 828 was distinguished and ultimately returned the reference unanswered. The Punjab & Haryana Court only followed the above decisions. The aforesaid decisions do not, therefore, directly clinch the question at issue arising in this case and are distinguishable. The Editors of Kanga and Palkhivala, The Law and Practice of Income-tax (Supplement to 7th Edition 1982) at pages 15 and 16 have commented that the decision of the Andhra Pradesh High Court reported in 106 ITR 111 is incorrect. In “The Law of Income-tax”, by Sampath Iyengar, (7th Edition 1981) Vol. I, the matter has been exhaustively discussed at pages 409 to 411. In the light of the above, we answer the first question in the affirmative and against the Revenue and in favour of the assessee. In view of the fact that the second question referred to us was not pressed by the counsel for the Revenue we are not answering that question. In the circumstances there shall be no order as to costs.

14. A copy of this judgment under the seal of the High Court and the Signature of the Registrar will be forwarded to the Income-tax Appellate Tribunal, Cochin Bench as required by law.