1. CHANDURKAR, J.-The following four questions have been referred to this Court under section 256(1) of the L-T. Act, 1961, at the instance of the Revenue "(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in upholding the orders of the Appellate Assistant Commissioner cancelling the assessments framed y the Income-tax Officer in the status of an A. O. P.?
(2) Whether the Appellate Tribunal was correct in holding that no association of persons was in existence and the assessm ents framed in the status of an A. O. P. Were not valid assessments?
(3) Whether the Appellate Tribunal was correct 'in holding that no A. O. P. Was formed by virtue of a memorandum of partition and the share income derived from the firm did not belong to an A. O.
2. P-?
(4) Whether the notices issued under section 148/139 were invalid?
3. This reference arises out of assessm ent proceedings for the assessment years 1972-73 and 1973-74 against the assessee, Indramohan Sharma, and other members of his erstwhile joint family, consisting of himself, his wife and two minor sons, on the footing that they were liable to be assessed as an associa--petition of persons. We have set out in detail the facts relating to the partition between the assessee and the other members of the joint family evidenced by the deed of partition dated 21st January, 1971, in our order is Income-tax Reference No, 412 of 1978, decided on 14th January, 1981, C. I.-T. v. Indramohan Sharma (No. 1) (1). We have also in that reference construed the legal effect of the partition deed vis-a-vis, the income in the form of profits of the partnership which came to the share of the assessee, Indramohan, who continued to be a partner in the firm by virtue of an agreement contained in the deed of partition and we have held that the profits received by the assessee. Indramohan, were received for and on behalf of the other members of the erstwhile joint family, who were entitled to their respective snares in their own independent right. It appears that alter the income in the form of share of profits from the, partnership firm, Messrs Flour Millers Engineering Corporation, was assessed by the I. T. O. In the hands of the assessee as the income of the H. U. F.. The I. T. O. Took the view that the members of the erstwhile joint family of assessee, Indramohan, along with himself were assessable on the income received through Indramohan in the status of an association of persons. Holding that there was a failure on the part of the assessee to file a returns under section 139 of the I.-T. Act, and further holding that income taxable had escaped assessment, the I. T. O. Proceeded under section 1 47(a) of the Act and issued a notice under section 148 on 11th March, 1977. The I.-T. O, rejected the case of the assessee that the erstwhile members of the rein: fancily could not be assessed as an association of persons. These orders for the two years in question were, however, set aside by the A.
4. A. C., who took the view that no association of persons or body of individuals or a firm came into existence on the partition of the joint family. Following the decision of the Gujarat High Court in Addl. C. I. T. v. Chandulal C. Shah ((1977) 107 I T R 91), tie held that the assessment as an association of persons could not be sustained and further, relying on the decision of the Tribunal in the appeal out of which Income-tax Reference No. 412 of 1978 C. I. T. v. Indramohan Sharma (No. 1) arose, it was held that the agreement of partition created an overriding title in favour of the erstwhile members of the joint family. The view of the A. A. C. Was upheld by the Tribunal dismissing the appeals filed by the Department. That is how the four questions, reproduced above, have been posed for decision.
5. Shri Joshi, the learned counsel for the Revenue. Contended that the erstwhile members of the joint family had combined together in a common purpose for earning profits from the partnership firm and though the erst-while Karta received the profits on behalf of the other members of the joint family, even according to the Terms of partition, the assessment of the erst--while members of the joint family as an association of persons should be held to be permissible.
6. It is not possible for us to accept this; contention. The finding given be the Tribunal and confirmed by us ire Income-tax Reference No. 412 of 1978 ;C. I. T. v. Indramohan Sharma (No. 1)] was that when Indramohan received profits of the partnership firm, he no doubt received them for himself as well as on behalf of the erstwhile members of the joint family, but it was also held, in that reference, that each erstwhile member of the jot Early was entitled to his stipulated share of the profits in his own right. On the terms of the partition deed, it was held that though the profits were received by Indramohan on behalf of all the members of the erstwhile joint family, the nature of the profits received was such that each one of them was severally entitled to his respective share in his own right. Now, it is difficult for us to see how on this finding recorded in respect of the Partition deed executed on 21st January, 1971, which is also annexed as Annex. A to the statement of the case in this reference, it can even be contended that the members of the erstwhile joint family had joined in a common purpose or had joined in any action or business. If an independent right in favour of each one of the members of the erstwhile joint family is created in respect of a particular stipulated share in the profits of the firm and each one thus has an independent right against the erstwhile Karta, merely because the Karta received the entire profits in a lump sum, it cannot be held that the members of the erstwhile joint family formed an association of persons. In G.
7. Murugesan & Brothers v. C. I. T: ((1973) 881 T F 432), the Supreme Court has reproduced the observations regarding the concept of ac association of persons. In the earlier judgment of the Supreme Court in C. L T, v. Indira Balkrishna ((1960) 39 I T R 546) after pointing out that "to associate" means "to join in common purpose, or to join in an action", the Supreme Court has observed as follows (p. 551); "Therefore, 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 impose a tax on income, the association 141 must be one the object of which is to produce income, profits of gains."
8. The pre-condition for persons being assessed an association of per sons, therefore, is that there must be an association, the object of which m be to produce income, profits or gains. It can hardly be disputed that where there is a disruption of the joint family, each member of the joint family holds the property which falls to his share as an owner in his own right. By the mere fact of partition no association of persons is brought into being. Indeed, if the effect of partition is that each member is separated in stat and estate from another, unless there is some further act on the part of such members on the basis of which an inference is drawn that they have combined or joined is a common purpose, it would be difficult to hold that they formed themselves into an association of persons as contemplated by the I. T. Act. The right to receive the stipulated share of profits from the partnership firm where the erstwhile Karta continued to be a partner, did not flow from any agreement between the parties to carry on any common venture, but the right flowed from the right of a separated member of a Hindu joint family as a result of partition. It is, therefore, difficult to accept the contention raised on behalf of the Revenue that the different members of the family of the assesses, after partition, could be assessed-- as an association of persons The finding recorded by the A. A. C, and the Tribunal that the action of the I. T. O. In proceeding to assess the members of the erstwhile joint family as an association of persons is invalid is justified in law. The answer to all the four questions would flow from this conclusion and would be against the Revenue.
9. The questions are thus answered as follow : Question No. 1 :-In the affirmative and against the Revenue.
10. Question No. 2 : -In the affirmative and against the Revenue.
11. Question No. 3 -In the affirmative and against the Revenue.
12. Question No. 4 :--In the affirmative and against the Revenue.
13. Revenue to pay the costs of this reference.
14. M. Z. M.