LexN. V. SHANMUGHAM AND CO. versus COMMISSIONER OF INCOME-TAX, MADRAS
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( 340 N. V. SHANMUGHAM AND CO. v. COMMISSIONER OF INCOME-TAX, MADRAS ,4pril 23, 1970 [J. 0. SHAH, K •. S. HEGDE AND A. N. GROVER, 'JJ.) lncome-tax .,4ct, 1922, s. :41 (!)-Receivers appoimed by Court to carry on business of dissolved. fir1n-Erstwliile partners acquiescing in .carrying on of bus_iness· by receivers and receiving fron1 thenz their shares ..of the profits earned-Aasessnzent of income of buYiness .,,,.hether to he 011 .erstwlrite partntrs as individuals ·or as constituting an association of indivi· .duals-Receivers whetf!i!r an e1ss0Clation of persons-Natttre of liab[/ity of receivers under s. 41(1). .The appellant was a partnership firm constituted under a deed April .20, 1955. On a, suit for dissolution being filed by one of the partners and an application being made for the appointment of a receiver, the Court appomted three receivers two of whom were the erstwhile partners of the .ffim and the third an advocate. The Court ordered the receivers to con· .tinue the business .for the purpose of winding up with the power to realise .the outstandings and discharge the dues of. the firm. The profits were to be divided among tfihe parties according to terms. of the partnership deed .dated April 20, 1955. The business yielded profits in .the assessment years 1958-59 and 1959-60. In response to notices issued.to the Income-tax ·Officer the receivers filed returns for these years showing 'nil' income. They showed the profits in >ection D of the return. They claimed that · .the income should be assessed in the hands of the beneficiaries as they were already assessees having other sources o'f income. The Income-tax Officer rejected the contention and held that the business was carried on ;by an ·association of persons' and as such no question of assessing ihe .indi- vidual partners on their share of income at the rates applicable to them would arise. The Appellate Assistant Commissioner confirmed the order .of the Income-tax Officer. The Tribunal took the opposite view but the High Court in reference answered the question referred to it, namely ·whether the income "could be assessed on the receivers as an association -0f persons under s. 10 or under s. 41 of the Act'', in favour df the reveRue. ln appeals· to this Court by certificate, · HELD: (i) The fact that there were three receivers was wholly irre- 'levaat for the purpose of asse>Sment and did not make them an associa- tion of receivers. In respect of business profits, all assessments of tax is <loae under s. 3 read with s. 10 df the Act. Section 3 imposes the charge and s. 10 provides for determining the profits and gains of business. Sec- tion 41 does not impose any separate charge but only ·empower the Revenue to levy and collect tax due from a person or persons, from his or their representative. The primary liability to pay the tax in the present ·arse was that of the real owners of the bus.iness i.e. the erstwhile partn'ers of the firm. 'fhe·te was thus no question of- assessing the receivers as an association of pers()ns. The re·ceivers were not Hable "u0der s. 10 or s. 41 <lf the Act"; their liability arose under s. 41 read with s. 10. [343 E-H; 344 A-BJ / (ii) The control and management of the receivers was a unified one. The receivers had joined in a common purpose and they acted jointly. When they did so they acted on behalf of the persons who we re the owners of the bu5iness. The receivers did not and could not llave repre- 'SCnted the individual . interest of the various owners of the business; that B c D F G H Sl!AN.MUGHAM v. C.I.T. (Hegde, J.) 341 .would have resulted in chaos. The profits were eamed on behalf of the persons who had a common interest created by the order of the co1¥1 and were on Iha! account an "assooiation of persons". [345 B-C] The fact that one of the erstwhile partners had objected to the conti· nuance ot the partnership could not lead to a contcary conclusion. All the owners of the business including the person who objected to the con· tinuance of the b1o1Siness were given month by month some amounts from the proceeds of the business and none of them had declined to receive the same ... They were therefore an "association of persons" within. the mean· ing of s. ~ of the Act having joined together for the purpose ()f produc· in1 income, profits or gains. [345 G-H; ~47 F] Commissioner of Income-tax, . Ahmedabad, v. Balwantrai ltthalal Vaidya Q
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