# MOHD. OOMER SAHIB January ;8 v. THE COMMISSIONER OF INCOME-TAX, MADRAS

- **Citation:** [1961] 3 S.C.R. 515
- **Court:** Supreme Court of India
- **Decided:** 1961
- **Case number:** Civil Appeals Nos. 303 to 307 of 1960
- **Bench:** J. L. Kapur, M. Hidayatullah, J.C. Shah
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/mohd-oomer-sahib-january-8-v-the-commissioner-of-income-tax-madras-2039
- **Pages:** 9

## Headnote

lnconte.tax-Assess111ent of an association of persons-Business
ca,rried on by M ohaniedan-Continuance by hei1's-Receivers appointed by consent of parties-Asscss111ent on the receivers as income of an
association of persons-· Validity-Indian Income-tax Act, r922 (II
of I922). S. 3·
The business of manufacture and sale ol a particular brand
of beedies was carried on by 0, a Mohamedan, who died in 1942
leaving a minor son, the appellant, by his pre-deceased wife, his
widow L, and four children by her.
Proceedings were taken first
by the appellant and later on by L in connection with the partition of the properties left by 0, including the business, and
during the pendency of the proceedings the business was carried
on by receivers who had been appointed by the court by consent
of parties on May lJ, 1943· The receivers continued the business
till November 25, 1946, when during the course of the proceedings the business was put up for sale by auction between the
co-heirs and was purchased by the appellant. For the years
of assessment, 1944-45 to 1947-48, for which the accounting
years were 1943 to 1946, the profits of the business were assessed
to income-tax in the hands of the receivers as the income of an
association of persons, and the claim of the appellant that the
shares of the profits of each of the co-heirs should have been
separately taxed was rejected by the income-tax authorities.
The facts showed that the business was inherited by the heirs of
0 and was carried on without break during the accounting years
first by Land another and then by the receivers, that the nature
of the business was such that it could not be divided up and that
all the parties desired that the business should be carried on as
one whole with a unity of control.
Held, that on the finding that the business was carried on by
the consent of all parties as one unit with unity of control, the
co-heirs did form an association of persons within the meaning of
s. 3 of the Indian Income-tax Act, 1922, and that the income of
the business was assessable as the income of an association of
persons ; and the mere fact that a suit was pending at the time
for the administration of the estate of the deceased or for the
separation of the shares of the co-heirs did not affect the
incidence of taxation in the case.
Commissioner of Income-tax, Bombay v. Indira Balkrishna,
[1960] 3 S.C.R. 513, followed.
z96z
Mohamed
Noor1'llah
v.
Commissioner of
Jn,ome-tax,
.'Madras
Kapu• J.
516
SUPREME COURT REPORTS
[1961]
S. C. Mazumdar, Receiver, Trigunait Brothers' Estate v. Commissioner of Income-tax, (1947) 15 I.T.R. 484, disapproved in so
far as it was contrary to the above decision of the Supreme
Court.

## Text

3 S.C.R.
SUPREME COURT REPORTS
515
MOHAMED NOORULLAH, REPRESENTING THE
ESTATE OF LATE KHAN SAHIB
1961
MOHD. OOMER SAHIB
January ;8.
v.
THE COMMISSIONER OF INCOME-TAX, MADRAS.
(J. L. KAPUR, M. HIDAYATULLAH and J.C. SHAH, JJ.)
lnconte.tax-Assess111ent of an association of persons-Business
ca,rried on by M ohaniedan-Continuance by hei1's-Receivers appointed by consent of parties-Asscss111ent on the receivers as income of an
association of persons-· Validity-Indian Income-tax Act, r922 (II
of I922). S. 3·
The business of manufacture and sale ol a particular brand
of beedies was carried on by 0, a Mohamedan, who died in 1942
leaving a minor son, the appellant, by his pre-deceased wife, his
widow L, and four children by her.
Proceedings were taken first
by the appellant and later on by L in connection with the partition of the properties left by 0, including the business, and
during the pendency of the proceedings the business was carried
on by receivers who had been appointed by the court by consent
of parties on May lJ, 1943· The receivers continued the business
till November 25, 1946, when during the course of the proceedings the business was put up for sale by auction between the
co-heirs and was purchased by the appellant. For the years
of assessment, 1944-45 to 1947-48, for which the accounting
years were 1943 to 1946, the profits of the business were assessed
to income-tax in the hands of the receivers as the income of an
association of persons, and the claim of the appellant that the
shares of the profits of each of the co-heirs should have been
separately taxed was rejected by the income-tax authorities.
The facts showed that the business was inherited by the heirs of
0 and was carried on without break during the accounting years
first by Land another and then by the receivers, that the nature
of the business was such that it could not be divided up and that
all the parties desired that the business should be carried on as
one whole with a unity of control.
Held, that on the finding that the business was carried on by
the consent of all parties as one unit with unity of control, the
co-heirs did form an association of persons within the meaning of
s. 3 of the Indian Income-tax Act, 1922, and that the income of
the business was assessable as the income of an association of
persons ; and the mere fact that a suit was pending at the time
for the administration of the estate of the deceased or for the
separation of the shares of the co-heirs did not affect the
incidence of taxation in the case.
Commissioner of Income-tax, Bombay v. Indira Balkrishna,
[1960] 3 S.C.R. 513, followed.
z96z
Mohamed
Noor1'llah
v.
Commissioner of
Jn,ome-tax,
.'Madras
Kapu• J.
516
SUPREME COURT REPORTS
[1961]
S. C. Mazumdar, Receiver, Trigunait Brothers' Estate v. Commissioner of Income-tax, (1947) 15 I.T.R. 484, disapproved in so
far as it was contrary to the above decision of the Supreme
Court.
CIVIL APPELLATE JURISDICTION:
Civil Appeals
Nos. 303 to 307 of 1960.
Appeals by special leave from the judgment and
order dated May 14, 1957, of the Madras High Court,
in Case Referred No. 111of1953.
R. Ganapathy Iyer and G. Gopalakrishnan for the
appellant.
K. N. Rajagopal Sastri and D. Gupta, for the
respondent.
1961. January 18. The Judgment of the Court was
delivered by
KAPUR, J.-These appeals are brought by special
leave against the judgment and order of the High
Court of Madras in an Income-tax reference under
s. 66(1) of the Indian Income-tax Act, hereinafter
termed the " Act". The question referred was :-
"Whether the income-tax assessment of the business of ' Spade Clover Beedies ' belonging to the
estate of the deceased and carried on during the
previous years 1943 to 1946 as an association of
persons for the assessment years 1944-45 to 1947-48
is valid?!'
And this question was decided in the affirmative and
therefore against the appellants.
The facts leading to the appeals are that one Khan
Sahib Mohamed Oomer Sahib, who was carrying on
the business of manufacture and sale of Spade Clover
brand BeeG.ies, died on December 17, 1942, leaving a
minor son Mohamed Noorullah (the appellant) by his
pre-deceased wife, a widow, Luthfunnissa Begum, and
four children by her who were all minors at the date
of the death of Oomer Sahib. Noorullah through his
next friend applied to sue in forma pauperis and duri1tg
the pendency of those proceedings two Advocates of
the Madras High Court were appointed joint receivers
of the properties of the deceased on March 17, 1943.
This appointment was by consent of parties. On
-
I
·.
I
3 S.C.R. SUPREME COURT REPORT!::i
517
May 10, 1943, the widow, Luthfunnissa., filed a suit for
partition and also applied for the continua.nee of the
joint receivers. Noorulla.h opposed this application
but 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 has observed
that none of the parties wanted to break the continuity of the business after the death of the father. In
the beginning Luthfunnissa and Dawood carried on
the business and from the date of their appointment,
i.e., May 17, 1943, the joint receivers continued the
business till November 25, 1946, when during the
course of the proceedings the business was put up for
sale by auction between the co-heirs and was purchased
by N oorullah.
The years of assessment are 1944-45 to 47-48, the
relevant accounting years for which were the calendar
years 1943 to 1946. The profits of the business were
assessed to tax in the hands of the receivers as the
income of an association of persons and the contention
of the appellant that the share of the profits of each
of the co-heirs should have been separately taxed, was
rejected by the Income-tax authorities as well as by
the Income-tax Appellate Tribunal. The only question which was raised both befor!J the department as
well as before the Tribunal was the assessment to tax
of the income of the business. There was no dispute
in regard to the income of the properties which was
taxed under s. 9(3) of the Act.
The business was inherited by the heirs of Oomer
Sahib and was carried on without break during the
accounting years first by the widow and Dawood and
then jointly by the receivers. The nature of the business was such that it could not be divided up and had
to be carrie<!,on as one whole with a unity of QOntrol
and all the :farties desired to preserve and did preserve
this unity. The opposition by the appellant to the
&pplication for receivership filed on behalf of Luthfunnissa., the widow, was only on the ground that the
appellant wanted different persons to be appointed and
not to the continuance of the business or to the unity
Moliam~4
Noorullah
v.
Commissione' of
Income-lax.,
Madras
Kapur J.
1961
Mohamed
Noorullalt
v.
Commissioner of
Income-tax,
ll'fadras
A·apur ].
518
SUPRE:\IE COURT REPORTS
[1961]
of control. The Income-tax Appellate Tribunal in its
order stated :-
"In fact, there was no change in the continuity of
the business ana from the date of death of Md. Oomer
Sahib up to 24th March, 1943, the busin0ss was
carried on by mutual agreement and consent by
Luthfunnissa Begum acting on her own behalf
and on behalf of her minor children and her minor
step-son Md. Xoorullah. There can, therefore, be no
gainsaying the fact that immediately after the death
of Md. Oomer his estate was inherited and run by
combination of individuals who had pooled their
resources for the common purpose of earning
income."
And the High Court has observed :
"The opposition was apparently to the persons to
be appointed receivers and not to th.J continuance
of the business or to the unitv of control that was
necessary. Noorullah himsel(had realised that when
he applied earlier for the appointment of receivers
to conduct the business among other thiugs. Despite
Noorullah's opposition when Luthfunnissa asked for
the continuance of receivers in her application No.
1162 of 1943, the existence of the desire of all the
co-sharers including Noorullah for the continuance
of the business with proper persons to take charge
of the business under the orders of court was clear.
That intention was material on which the departmental authorities and the Tribunal which agreed
with them could find that the co-sharers did constitute an 'association of persons'."
From the finding of the Tribunal it is obvious that the
business was such that it was not capable of division,
it being the manufacture and sale of "Beedies" of a
particular brand and the finding of the Tribunal was
that the business was carried on with the consent of
the parties. On this finding it has to be decided whether the business was the business of an "association
of persons" and its profits are assessable as such ?
The contention of counsel for the appellant was
(1) that on the death of Md. Oomer his estate including the business devolved upon his heirs in specific
'
I
3 S.C.R.
SUPREME COURT REPORTS
519
shares; and (2) there was no consensus of opinion
'96'
between the heirs which is shown by the fact that the
M•h•',,,,d
appellant filed an application to sue in forma pauperis
Noorullah
and before that application could be decided the widow
v.
sued for partition and even though receivers were Commission" of
appointed objection was taken by the appellant to the Income-tax, Madras
appointment of receivers. But these facts do not
Kap;:; J.
assist the case of the appellant. As has been said
above, the business was in the first instance carried on
by the widow and Dawood on behalf of the heirs of
Oomer and subsequently when the suits were brought
none of the parties wanted to break the unity of
control of the business nor its continuity and it was of
such a nature that it could not be carried on without
such consensus and therefore the receivers carried on
the business. On these findings the High Court has
rightly come to the conclusion that the business was a
business of an association of persons ..
This Court in Commissioner of Income-tax, Bombay
v. Indira Balkrishna (')considered the question as to
what an association of persons means.. The test laid
down in three cases: In re B. N. Elias & Others(');
Commissioner of Income-tax v. Laxmidas Devidas and
Another(') and In re Dwarkanath Harischandra Pitale (')
was accepted by this Court as correctly laying down
the crucial test for determining what is an association
of persons and that in each case the conclusion has to
be drawn from the circumstances. In the first case
the test was laid down as applying to combinations of
individuals who were engaged together in some joint
enterprise but not constituting a partnership. Such a
combination of persons formed for the promotion of a
joint enterprise banded together as if they were " coadventurers" it was held would constitute an asssociation of individuals. In the second case, that is,
Commissioner of Income-tax v. Laxmidas Devidas and
AMther (3) Beaumont, C. J., at p. 589 laid down the
test as follows :-
" In my opinion, the only limit to be imposed on
the words 'other association of individuals' is
(1) [1960] 3 S,C.R. 513.
(2) [1935] 3 l.T.R. 408,
67
(3) [1937] 5 I.T.R. 584.
(4) [1937) 5 !. T.R. 716.
Moliamed
Noorullah
v.
520
SUPREME COURT REPORTS
[1961)
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 which produces income, profits or gains. It
Commissioner of
lnco1ne-tax, Madras
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' in s. 3; and
un<l~r
s. 9 of the Act, the Association of individuals is
the owner of the property and as such is assessable."
Kapur].
In that case it was also held that the fact that one of
the assessees was a minor during the year of the
assessment did not affect the question. In In re Dwarkanath H arischandra Pitale (1) the a.ssessees were two
brothers who became entitled to certain house properties as tenants in common and held and managed the
properties as such and derived profit therefrom. It
was held that though the assessees in the first instance
did not constitute an association of individuals, they
became so when they elected to retain the property
and manage it as a joint venture producing income.
The test there laid down was that as soon as there
was election to retain the property and manage it R.s a
joint venture the persons so electing became an association of individuals. The Rangoon High Court in The
Commissioner of Income-tax, Burma v. M.A. Baporia
and Others (2) also laid down the same interpretation
of the words" association of individuals". That was
a case of Mohammedan co-heirs and it was held that
by merely inheriting a share of property no person
can become a member of an association of individuals
unless there is some forbearance or a.ct upon his part
to show that his intention and will accompanied the
new status, that is, an association of individuals.
One of the co-heirs in that case was appointed an
agent to realise the income from the properties left to
the co-heirs by their father and mother under
Mohammedan Law and that was held to be sufficient
to constitute them an association of individuals.
(1) (1937]' l.T.R. 716.
2) [1939] 7 I.T.R. 22,.
3 S.C.R.
SUPREME COURT REPORTS
521
I96I ·
It is unnecessary to refer tc>" other cases. Taking
the test as laid down by this Court in Indira
Balkrishna's case(') it appears to us that the appellant
!1:!:7i:~·
and other co-heirs were rightly assessed as an associav.
tion of persons. No doubt a suit for partition had Commissio...,, of
been filed which was preceded by an application madeine....,-tax,Madras
by the appellant to sue in forma pauperis, but the suit
in reality was for ensuring the proper conduct of the
business and not its discontinuance. During the period
that the suit was pending and even before that, i.e.,
after the death of the father the business was carried
on by the consent of all parties as one unit as indeed
it had to be, becausfl it had to be carried on as one unit
with unity of control and therefore the co.heirs did
form an association of persons within the meaning of
s. 3 of the Act.
Counsel for the appellant relied on S. C. Mazumdar,
Receiver, Trigunait Brothers' Estate v. Commissioner of
Income-tax('). Thl)ot was a case of persons who formed
a joint family being governed by the Mitakshitra School
of Hindu Law. A suit for partition was filed and the
court appointed a receiver and a preliminary decr<0e
was passed but the receiver was continued in regard
to certain portion of the property and the income was
assessed by the taxing authorities as the income of an
association of persons. It was held that the income
from property could not be taxed as such because the
shares of the parties were definite and ascertainable.
The amount paid by the lessees could not be taxed in
a lump sum as being the profits of a business carried
on by an association of persons and the assessment
was, therefore, made in accordance with the provisions
of s. 9(3). It was also held that the assessees were not
carrying on a trade or business themselves and there
was no association of persons as contemplated by the
Act. But that case can be of no assistance in the deci.
sion of the matter now before us. The income to be
assessed there was not income of any business carried
on by or on behalf of the assessees and it was held
that letting out property was not a trade or business.
With regard to the income received by the receiver
(1) (1960) 3 S.C.R. 513.
(2) [1947) 15 l.T.R. 484.
Ka/JU•].
522
·SUPREME COURT REPORTS
[1961]
1961
who employed contractors to carry on the business of
Mohamed
coal-cutting au<l raising it on the pit head; it was held
Nooru//ah
that that was not the income of an association of
v.
persons on the ground (1) that the receiver was in
co .. .,issio1ur of possession and he employed contractors for coal1 .... ....iu, Madras cutting and raising of coal; (2) that the assessees had
Kapur.]. · no hand in the business which produced royalty and
(3) that the assessees had disassociated themselves
from each other because of this partition suit. In our
opinion the case so far as it relates to the carrying vn
of the business and in so far as it is contrary to the
opinion expressed by this Court in Indira Balkrishna's
case('), is not correctly decided. Another case relied
upon by the counsel for the appellant was Buldana
District Main Cloth Importers' (Jroup, Khamgaon v.
Commissioner of Income-tax, Nagpur (2). In that case
a certain group of persons were directed to import
cloth in the district and had to work a scheme for the
distribution and sale of cloth which had been evolved
by the District authorities. That:was held not to be
an association of persons. It appears that although
they were appointed as a group of importers,. all of
them did not participate in that scheme during the
entire period. There were changes in the personnel of
the group from time to time and there was no com'
pulsion to work the scheme. On these facts it w,as held
that the group did not agree to carry on the business
or share the profits. That case must be taken to have
been decided on its own facts and does not in any way
affect the meaning of the phrase "asso!Jiation of
persons."
Counsel also relied on Khan Bahadur i
M. Habibur Rahman v. Commissioner of Income-tax,·
Bihar & Orissa (') in which a waqf deed was executed
by which the assessee dedicated the income with ultimate benefit to the poor and constituted himself the
sole mutwali of the trust. The deed provided that
the beneficiaries should be benefited concurrently and
in the same proportiol:\. It was held thats. 41(1) was
inapplicable and the assessee· should, therefore,, be
taxed on the basis of profits falling to the share of
(1) [1960] 3 S.C.R. 513.
(2) (1956) 30 I.T.R, 61.
(3) [1945) 13 I.T.R. 189.
-
38.C.R.
SUPREME COURT RRPORTS
523
each beneficiary and not ou the footing that all the
1¢ 1
beneficiaries constituted an association of persons.
Mohamed
Faz! Ali C. J. (as he then was) there observed at
NoortUlah
p. 194 :-
v.
'
"It seems to me therefore that the finding of the Commi.s•i""" 01
Tribunal that there were only 24 persons who were 1"'.,,,.....'.'.'.:'._Madras
entitled to share the profits in the accounting year
Kapur J.
and that they were entitled to equal shares therein
must be accepted. As it does not seem to have
been contended that the assessee had any other
relations than those enumerated by the Tribunal
who would be entitled to share the profits, it is
academic to discuss whether the various categories
of persons referred to by the Appellate Assistant
Commissioner of Income-tax were included in the
term ' family ' or not."
On this ground the income. was not assessed as the
income of an association of persons and that case was
also decided on its own facts.
The question in the present case is as to what
income was to be taxed. 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 fa.ct that
. a suit was pending at the time for the administration
of the estate of the deceased or for the separation of
the shares of the co-heirs does not affect the incidence
of taxation in this case, because the business was
carried on, as said above, as one business with unitary
control and by the consent of the parties. The High
Court was right in holding that the income was
assessable as an income of an association of persons.
The appeals must, therefore, be dismissed with costs.
One hearing fee.
Appeals diBmi&Bed.