Commissioner of Income Tax, Kerala, Ernakulam vs Devadasan and others

P. Govindan Nair, J.—Acting u/s 66 of the Indian income tax Act, 1922, the income tax Appellate Tribunal, Madras Bench has referred the following question to this Court: Whether assesses did constitute an Association of Person carrying on business for gain?

This reference was originally numbered as I. T. R. 32 of 1963. But when the case came up for hearing, this Court found that the Power of Attorney executed by the heirs of Cherutty was necessary for deciding the question referred to us and accordingly called for a fuller statement of the case under sub-section (4) of Section 66 of the Indian income tax Act, 1922 by order dated 12th August, 1954. We have now before us the additional statement as well as the copy of the Power of Attorney. And a result of the discussion at the Bar, it is now clarified that the only income with which we are concerned in this reference is the income derived by the felling of trees from a forest area that had been taken on a verum-pattom ''lease'' by Cherutty the deceased. Cherutty died on 15.10.1956 and we are concerned in this reference with the question of assessment for the two years 1959-60 and 1960-1961. 2. The heirs of Cherutty had executed a Power of Attorney on 24.10.1956 in favour of one Devadasan who is also one of the heirs of Cherutty. This Power is Annexure-D and paragraphs 1 and 2 reading as under, enumerating the powers of Devadasan are the material ones for answering the question raised. 1. To be in possession and custody of all the property movable and immovable owned by the aforesaid deceased and to which were along with the said Attorney are entitled as co-owners thereof:

To carry on and conduct the business known as C. C. Brothers for the common benefit of all of us and for the said purpose to do all such acts and things as may be necessary or expedient at his discretion.

The Tribunal in its order observed:--

He further held that the assessee had extracted timber from its own Estate for the purposes of planting pepper, coffee etc. on a part of the thousand acre Estate which had been taken on lease for five years in 1956. He brought to tax the sums of Rs. 30,225/- and Rs. 58,176/- as income from this source in the two years. The Appellate Assistant Commissioner confirmed these findings.

And in paragraph 5 it said:--

One thousand acres, as we stated above, had been taken on lease in 1956; Forty acres of it were paddy growing land. The rest had to be cleared for cultivation. Sixty acre of this were clear felled in the accounting year relating to 1959-60 and one hundred acres in the next.

After referring to the decision of the Supreme Court in Commissioner of Income Tax, Bombay Vs. Smt. Indira Balkrishna, , the Tribunal came to the conclusion that there is no reason to hold, that the heirs of the deceased Cherutty form an "association of persons" to be assessed as such in relation to the income which we have referred to. In the additional statement of the case in paragraph 7, it is stated:--

The document dated 24.10.1956 thus merely confers upon the eldest son Devadasan the power to manage the properties of the other co-owners. The shares of the co-owners are definite and ascertainable. There is no pooling of their shares in any fresh enterprise. There is therefore nothing in the document to indicate that an Association of Persons was formed by the parties in the document.

The test to be applied has been laid down by the Supreme Court in Commissioner of Income Tax, Bombay Vs. Smt. Indira Balkrishna, .