Mother and two minor sons having common interest in the inherited business carried on for the benefit of all by one of them would constitute ‘BOI’s
Key observation by the court in the case of Deccan Wine & General Stores Vs. Commissioner Of Income Tax by Andhra Pradesh High court was as under:
1. BOI to be construed ejusdem generis with ‘AOP’;
2. ‘BOI’ must have a distinct meaning of its own; it cannot be the same thing as or a mere species of’ ‘AOP’ though may have some characteristic common with ‘AOP’
3. ’BOI’ is wide enough to include a combination of individuals who have a unity of interest but who are unlike ‘AOP’ not actuated by common design and one or more of whose members produce of help to produce income for the benefit of all
4. Mother and two minor sons having common interest in the inherited business carried on for the benefit of all by one of them would constitute ‘BOI’
5. The juxtaposition of the two expressions does suggest that the expression “BOI” should be interpreted ejusdem generis with the expression “AOP”. But, naturally, the interpretation should not be so as to destroy the separate identity of the expression “BOI”. The expression must have a distinct meaning of its own; otherwise Parliament would not have introduced it. It may have some characteristics common with “an AOP” but it cannot be the same thing as an AOP, or, as contended by the counsel, a mere species of “AOP” which is better described as “a BOI”. The absence of a common design is what principally distinguishes a BOI from an AOP. Another distinguishing feature is that the one refers to persons and the other to individuals. A person, by definition, includes an individual. But an individual, apparently, does not include a person. Under the 1922 Act, there was some controversy whether the word “individual” meant a natural person, i.e., a human being only or whether it included an artificial juridical person. In the present Act an artificial juridical person is placed in a special category in s. 2(31)(vii). Presumably, an individual under the new Act means only a human being. These are the features which distinguish “BOI” from “AOP”. The two expressions are placed alongside each other in s. 2(31)(vii) because of the common characteristic possessed by them; both deal with combinations, whether of persons or individuals, who have a common interest and who are engaged in income producing activity. The expression “BOI” should receive a wide interpretation, perhaps not wide enough to include a combination of individuals who merely receive income jointly without anything further as in the case of co-heirs inheriting shares of securities, but certainly wide enough to include a combination of individuals who have a unity of interest but who are not actuated by a common design, and one or more of whose members produce or help to produce income for the benefit of all. In the present case, the three individuals have a common interest in the business. The businesses are carried on for the benefit of all of them. They cannot constitute an AOP because two of them are minors and their guardian is herself the third person of the combination and there is, therefore, none who can agree of their behalf with the third person. But, though the businesses are not carried on pursuant to a common design, they are carried on for their common benefit by one of them representing all of them. The individuals, clearly constitute a BOI.
DECCAN WINE & GENERAL STORES vs. COMMISSIONER OF INCOME TAX
Chinnappa Reddy & A.D.V. Reddy, JJ.
Legislation Referred to
Case pertains to
Decision in favour of:
Counsel appeared:
T. Ramachandrarao, for the Assessee : P. Rama Rao, for the Revenue
Late Pannalal, apart from owning immovable properties with which we are not concerned, ran certain businesses known as “Deccan Wine and General Stores”, “Moti Wine and General Stores” and “Tinu’s Bar and Hotel”. Pannalal died in 1959 and his heirs, his widow and two minor children succeeded to the three businesses. For the asst. yrs. 1959-60 and 1960-61, assessments in respect of the income from the three businesses were made as if the assessee’s collective status was that of an “individual”. For the asst. yrs. 1961-62, 1962-63 and 1963-64, assessments were made as if the assessee’s status was an “HUF”. For the asst. yrs. 1964-65 and 1965-66 assessee claimed the status of an “AOP” and assessments were made on that basis. For the asst. yr. 1966-67 also the assessee submitted a return claiming the status of an “AOP”. However, by a subsequent letter dt. 27th March, 1967, it was claimed that each of the three individuals, i.e., the mother and the two minor children (the children continued to be minors), should be separately assessed in their “individual” status on their respective one-third share of the income from the businesses. It was pointed out in the letter that in the course of the year of account there was a partition of the businesses in the sense that the capital of the businesses was divided in equal shares between the three individuals. The ITO did not accept the plea that the three persons should be separately assessed as individuals. The ITO held that the three persons constituted a “BOI” and should be assessed as such and not as an “AOP” either. The order of assessment made by the ITO was confirmed by the AAC and the Tribunal. At the instance of the assessee the Tribunal has referred to us the following question :
“Whether, on the facts and in the circumstances of the case, the assessment for the asst. yr. 1966-67 has been validly made in the status of a ‘BOI’ ?”
2. Before us, it was common ground that the mother and the two minor children would not constitute an “AOP” since it could not in law be said that these three individuals had joined together in a common purpose or a common action with a view to produce income, profits or gains. Sri T. Ramachandrarao, learned counsel for the assessee, submitted that on the same principle these three individuals would not constitute a BOI, which expression, according to him, should be construed ejusdem generis with the expression “AOP”. In fact, according to Sri Ramachandrarao, the category of “BOI” was added to the other categories of persons assessable to income-tax by the 1961 Act, with a view to more accurately describe co-executors, co-trustees and the like who, while they possessed unity of title and interest, could not be said, without strain on the language, to have joined together with a common design to produce income.
3. Sec. 3 of the Indian IT Act of 1922 listed the units chargeable to income-tax. It mentioned an “AOP” but not a “BOI”. In the IT Act of 1961, income-tax is levied on a person and “person” is defined in s. 2(31) by an inclusive definition which includes, among other categories, the category of “an AOP or a BOI, whether incorporated or not”. Thus a “BOI” is brought in and placed alongside “an AOP”. The juxtaposition of the two expressions does suggest that the expression “BOI” should be interpreted ejusdem generis with the expression “AOP”. But, naturally, the interpretation should not be so as to destroy the separate identity of the expression “BOI”. The expression must have a distinct meaning of its own; otherwise Parliament would not have introduced it. It may have some characteristics common with “an AOP” but it cannot be the same thing as an AOP, or, as contended by the learned counsel, a mere species of “AOP” which is better described as “a BOI”.
4. The learned counsel read to us a passage from ‘The Law and Practice of Income Tax’ by Kanga and Palkhivala (sixth edition), where the learned authors have said :
“The words ‘BOI’, placed in the same clause in juxtaposition with ‘AOP’, were not in the 1922 Act. Since ‘AOP’ contemplates persons joining in common action with the object of producing income, presumably the words ‘BOI’ were introduced as being more appropriate to describe the status of persons like executors who merely receive jointly income such as dividends and who may be assessable jointly as representing the estate, or co-trustees who may likewise merely receive income jointly and be assessable in the like manner and to the same extent as the beneficiaries individually. In such cases, the new and more accurate label or status of ‘BOI’ would not enhance or in anyway affect the tax liability. Co-executors or co- trustees may be assessed as a BOI because their title and interest is indivisible.”
5. We do not agree with the learned authors that the expression “BOI” was introduced to more appropriately describe the status of persons like co-executors and co-trustees. There is no warrant for placing any such restrictive interpretation on a broad expression like “a BOI”. The principle of ejusdem generis does not justify it. The other provisions of the Act are against it. For example, s. 86(v) provides that income-tax shall not be payable by a assessee, if the assessee is a member of an AOP or a BOI other than an HUF, a company or a firm, in respect of any portion of the amount which he is entitled to receive from the association or body on which income- tax has already been paid by the association or body. There can never be any question of a co-executor or a co-trustee being entitled to receive any amount from the body of co-executors or co-trustees. Sec. 86(v) can never apply to a co-executor or a co- trustee. If the expression “BOI” is given the restricted meaning suggested by the learned authors and the learned counsel, it is hard to imagine a case of “a BOI” to which s. 86(v) applies. In the light shed by s. 86(v), it becomes clear that the “BOI” mentioned by s. 2(31)(v) must also include bodies whose members are entitled to receive part of the income of such bodies. Again, it may be noted here that under the present Act there is an express provision (s. 168) which prescribes that executors should be assessed as “an AOP”. Even under the 1922 Act the law was well-settled that co-trustees and co- executors could be assessed as “an AOP”. (Vide Hotz Trust vs. CIT (1930) 5 ITC8 (Lah), Nagore Durgah (Trustees of) vs. CIT (1954) 26 ITR 805 (Mad) : TC44R.380, CIT vs. Ibrahimji Hakimji (1940) 8 ITR 501 (Sind) : TC44R.533, Raghavulu Naidu (V.M.) & Sons vs. CIT (1950) 18 ITR 787 (Mad) : TC44R.876 and Estate of V.R.RM.S. Chockalingam Chettiar vs. CIT (1960) 40 ITR 429 (Mad) : TC44R.869. There was hardly any need to introduce the expression “BOI” merely to cover cases already held to be covered by another expression.
6. In order to understand what Parliament meant by the expression “BOI”, it is necessary to understand the meaning of the expression “AOP”. The expression “AOP” is not defined in the 1961 Act. It was not defined under the 1922 Act. But it was interpreted by judges. In the case of B.N. Elias, In re (1935) 3 ITR 408 (Cal) : TC44R.913, Derbyshire, C.J. referred to the Oxford Dictionary, where the meaning of the word “associate” is given as “to join in common purpose, or to join in an action” and proceeded to pose the question, “Did these individuals join in a common purpose, or common action, thereby becoming an association of individuals?” In CIT vs. Lakshmidas Devidas (1937) 5 ITR 584 (Bom) : TC44R.314, Beaumont C.J. accepted this view and applied it to a case where one of the members of the association was a minor who was represented by his father as natural guardian. In Dwarkanath Harischandra Pitale, In re (1937) 5 ITR 716 (Bom) : TC44R.915, Beaumont C.J. extended the principle to a case where though the original association was not a voluntary act on the part of the members, they elected to retain the property and manage it as a joint venture producing income. The Supreme Court in Indira Balkrishna’s case (1960) 39 ITR 546 (SC) : TC44R.916 approved these three decisions and said :
“Therefore, an AOP must be one in which two or more persons join in a common purpose or a common action, and as the words occur in a section which imposes a tax on income, the association must be one the object of which is to produce income, profits or gains.” The Supreme Court also expressed the following words of caution :
“It is, however, necessary to add some words of caution here. There is no formula of universal application as to what facts, how many of them and of what nature, are necessary to come to a conclusion that there is an AOP within the meaning of s. 3; it must depend on the particular facts and circumstances of each case as to whether the conclusion can be drawn or not.”
7. The facts of that case were that three widows jointly inherited the estate of their husband which consisted of immovable properties, shares in companies, deposits and a share in registered firm. In respect of the income from immovable properties, the provisions of s. 9(3) of the IT Act, 1922, expressly prohibited the three widows from being treated as an AOP. With regard to the remaining items of income there was no finding by the fact-finding authorities that the three widows had combined in a joint enterprise to produce income. All that the widows had done was not to exercise their right to separate enjoyment. In respect of the shares and deposits, except for receiving the dividends and interest jointly, they had done no act which had produced or helped to produce income. On those findings the Supreme Court said that the three widows were not an AOP within the meaning of s. 3 of the IT Act, 1922.
In M.M. Ipoh vs. CIT (1962) 46 ITR 301 (Mad) : TC44R.933 the question arose whether an AOP could consist of a father and his minor son. The learned judges held that there was no bar against a single adult and a minor constituting an AOP if the minor was properly represented in his dealings as a member of the association. Where, however, the only adult member happened to be the minor’s father and guardian, the learned judges thought it could not be said that the father as an individual agreed with the father as guardian of the minor son to constitute an AOP.
8. It is, therefore, clear that an AOP does not mean any and every combination of persons. It is only when they associate themselves in an income-producing activity that they become an AOP. They must combine to engage in such an activity; the engagement must be pursuant to the combined will of the persons constituting the association; there must be a meeting of the minds, so to speak. In a nutshell, there must be a common design to produce income. If there is no common design, there is no association. Common interest is not enough. Production of income is not enough. This interpretation of the expression “AOP” flows from the meaning of the word “association”. When the word “association” is replaced by the word “body”, it must follow that the feature of common design or combined will so peculiar or distinctive to an AOP is not a characteristic of a BOI. The absence of a common design is what principally distinguishes a BOI from an AOP. Another distinguishing feature is that the one refers to persons and the other to individuals. A person, by definition, includes an individual. But an individual, apparently, does not include a person. Under the 1922 Act, there was some controversy whether the word “individual” meant a natural person, i.e., a human being only or whether it included an artificial juridical person. In the present Act an artificial juridical person is placed in a special category in s. 2(31)(vii). Presumably, an individual under the new Act means only a human being. These are the features which distinguish “BOI” from “AOP”. The two expressions are placed alongside each other in s. 2(31)(vii) because of the common characteristics possessed by them; both deal with combinations, whether of persons or individuals, who have a common interest and who are engaged in income producing activity.
9. We are of the view that the expression “BOI” should receive a wide interpretation, perhaps not wide enough to include a combination of individuals who merely receive income jointly without anything further as in the case of co-heirs inheriting shares or securities, but certainly wide enough to include a combination of individuals who have a unity of interest but who are not actuated by a common design, and one or more of whose members produce or help to produce income for the benefit of all. We are content to leave it at that. We will not attempt a comprehensive definition; nor will we attempt to catalogue the characteristics of a BOI. There is danger in doing either.
10. Sir Ramachandra Rao relied upon the decision of the Supreme Court in CGT vs. R. Valsala Amma (1971) 82 ITR 828 (SC) : TC35R.709. That was a case under the GT Act. Sec. 2(xviii) of the GT Act defines a person as including an “HUF or a company or an association or a BOI or persons, whether incorporated or not”. The facts were that a mother bequeathed to her two daughters “a cinema theatre building with machinery” and another building described as police quarters. The two daughters gifted the building to their brother. The question arose whether gift-tax should be assessed treating the two ladies as an association or a BOI or as distinct individuals. The Supreme Court held that the property was received by the two ladies as tenants-in-common, each had a definite half share and each must, therefore, be considered to have gifted her half share of the property. They did not make the gift as an association or a BOI. We do not think that the case is of any assistance. It is commonplace in the interpretation of statutes that the same word or expression occurring in different statutes or in different parts of the same statute need not mean the same thing. The word or expression must take its colour from the context. More so in the labyrinth of taxing statutes. We are not concerned with a BOI in the abstract. We are concerned with “a BOI” in the context of the IT Act which is different from “a BOI” in the context of the GT Act. The considerations which determine whether a gift is made by a BOI are obviously different from the considerations which determine whether income has accrued or is deemed to accrue to a BOI. Further, in the case before the Supreme Court the subject-matter of the gift was property, i.e., buildings and not businesses. If the subject-matter of the gift was a running business carried on by the two ladies, perhaps the position might have been different. For example, if the ladies were carrying on cinema business and had gifted both the theatres and the business it might perhaps have been possible to argue that while the building was gifted by the ladies as individuals, the business was gifted by the them as a BOI. That, however, was not the position.
11. In the present case, the three individuals have a common interest in the businesses. The businesses are carried on for the benefit of all of them. They cannot constitute an AOP because two of them are minors and their guardian is herself the third person of the combination and there is, therefore, none who can agree on their behalf with the third person. But, though the businesses are not carried on pursuant to a common design, they are carried on for their common benefit by one of them representing all of them. The three individuals, in our opinion, clearly constitute a BOI. The question referred to us is, therefore, answered in favour of the Department. The assessee will pay the costs of the reference. Advocate’s fee Rs. 250.
