Query]

We five friends have purchased an agricultural land to the extent of ½ Acres to 1.50 Acres each, around 5 years back. We have built a fish tanks in the land and doing the fishing business. The lands are in the names of individuals & since their Individual holding is very small, we have mentioned just one book and ledger for the control on this. The income from fishing activities is divided in the ratio of individual land holding. In case of one of the co-owners, income tax raid has taken place. We want to know whether the income from this fishing business is income of individual or income of an AOP?

Opinion:

It’s an interesting query. It may be noted that in CIT vs. K. Karunakaran (1988) 68 CTR (Ker) 13, it has been held that a commercial adventure of co-owners of assets with a view to obtaining and dividing the profits among them ordinarily assumes the characteristic of a partnership. It is generally regarded in law as partnership. And if their relationship falls short of a partnership by reason of any legal infirmity or for whatever cause then their activities in the pursuit of profits may still assume, albeit not in a strictly legal sense, some of the attributes of a firm or partnership, and they will be treated as AOP for the purpose of assessment.

This decision lays down a principle that when individuals employ their assets in a joint enterprise with a view to make profit, though not as partners, they constitute an AOP by reason of their common purpose or common action.

In your case, facts narrated indicate employment of land by all the co-owners in a joint enterprise with a view to make profit. The profits earned in joint enterprise are divided amongst the concerned individuals. The fact that division of profits is in proportion to land holding of the individual participants in the enterprise is immaterial.

If there are no other material facts, income will be treated as income of an AOP and not income of Individual. Only arguments could be that since individual members of association have already been assessed in respect of their share in the profits of the joint enterprise, assessment of AOP separately would amount to taxation of the same income twice.