When persons come together to earn profit, or enter into any type of syndication or joint venture, it can result in the coming into existence of a separate taxable entity known as an association of persons.In the case of an association of persons, section 67-A prescribes the method of computing the shares of the members in the income of the association where the shares are determinate and known; section 86(v) provides for cases in which such shares would be exempt in their hands; and section 167-B provides for taxing the income of the association in its own hands where the shares of the members in such income are indeterminate or unknown. The words "association of persons" are not used in any technical sense but must be construed in their plain ordinary meaning.
When there is a combination of persons formed for the promotion of a joint enterprise, in other words, when co-adventurers are banded together in common action, they are assessable as an "association of persons", when they do not in lawconstitute a partnership.
Generally speaking, there can be no "association of persons" in business unless the members of the group have joined together of their volition or free will; but if the test governing an association of persons is satisfied, the circumstance that the association emerges as a result of an order of the Court appointing a receiver, or does business under a scheme evolved and controlled by a government authority, or is necessitated by quota regulations, is immaterial. After the dissolution of a firm, the income arising from the business carried on by the receiver should be assessed as belonging to an association of persons.
Where the income does not result from any joint venture or joint act, assessment in the status of an association of persons would not be justified. Reviewing the case-law on the point, the Supreme Court held in C.I.T v. Indira Balkrishna (39 I.T.R. 546) and Mohammed Noorullah v. C.I.T. (42 I.T.R. 115), that in order to constitute an association, persons mustjoin in a common purpose or common action and the object of the association must be to produce income, - it is not enough that the persons receive the income jointly.
Subba Rao J, speaking for the Supreme Court in C. Ag. I.T. v. Ratan Gopal (59 I.T.R. 728, 732), observed, "The collection of the entire income from the estate by one of the sharers or even by a common employee will not make that income an income from a joint venture". Likewise, the mere appointment of a common agent, manager or lessee will not make the owners assessable as an association of persons.
Co-heirs, co-legatees or co-donees joining together in a common purpose or action would be chargeable as an association of persons. In the case of a trust, the assessment may be either on the trustees or on the beneficiaries. Co-trustees or co-receivers cannot be assessed as an association of persons merely because they are more than one in number. The status in which they should be assessed depends upon the status of the beneficiaries theyrepresent.
In C.I.T. v. A.U. Chandrasekharan (229 I.T.R. 406), the ten respondents were all employees in the sales department of a company. They organised a joint venture, under which they agreed to jointly purchase lottery tickets for the total amount contributed by the members of the group.
The ticket numbers were to be typed with a written agreement signed by all members of the group and the proceeds of winning tickets would be equally divided among the members. The total number of members of the group was to be ten, although one or two members could be excluded and new members admitted from time to time.
The respondents entered into an agreement on February 17, 1977, under which they agreed to jointly purchase lottery tickets of the Tamil Nadu government, for which the prize was declared on February 28, 1977. They secured a prize of rupees one lakh for one of the tickets thus purchase. The ten persons authorised the first respondent to collect the prize amount through the Punjab NationalBank.
The bank, after realising the prize amount, credited the net amount thus drawn, i.e. Rs 67,000 (Rs 1,00,000 minus Rs 33,000 deducted by the Director of Raffles) to the respective bank accounts of the ten persons.
Each one of the ten person thus got a sum of Rs 6,700. The Income-tax Officer was of the view that the ten persons should be assessed in the status of association of persons, and brought the receipt to tax accordingly.On a reference, the Madras high court held that the ten persons by entering into an agreement had created a joint venture for purchasing the lottery ticker and the object of purchasing the lottery ticket was to win a prize.
The ten persons together had appointed one person for purchasing the ticket and maintaining the same till any one of the tickets won a prize. After a ticket won the prize, the money from the government was collected through a bank and credited in the name of each of the individuals according to their share.
Therefore, to say that the joint venture wasonly upto the purchase of the tickets and, thereafter, the winning was according to their luck was not correct.
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