N.V. Balasubramanian, J.
1. Tax Case No. 941 of 1985, relates to the assessee, the Yennarkey R. Ravindran Family Trust, doing business known as Standard Match Industries, Sivakasi, for the assessment year 1976-77. Tax Case, No. 161 of 1985 relates to the assessee, Ashok Match Industries (B-Unit), Sivakasi, for the assessment year 1976-77 and Tax Case No. 1457 of 1985 relates to another assessee, Hariram Match Industries, Sivakasi, for the assessment year 1978-79.
2. In compliance with the directions of this court in T. C. P. No. 278 of1983, dated February 21, 1984, in the case of the Yennarkey R. RavindranFamily Trust, Sivakasi, the following question of law has been referred tous for our consideration :-
'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that the income from the business of Ashok Match Industries (B-Unit) run by Sankaralingam and his wife as trustees after partition cannot be assessed in the status of association of persons as such but should be assessed on each beneficiary individually ?'
3. In the case of Ashok Match Industries (B-Unit), Sivakasi, the followingquestions of law have been referred in pursuance of the directions of thiscourt :
'1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that the income from the business of Ashok Match Industries (B-Unit) run by Sankaralingam and his wife as trustees after partition cannot be assessed in the status of association of persons as such but should be assessed on each beneficiary individually
2. Whether, on the facts and in the circumstances of the case, theAppellate Tribunal was correct in holding that there was an absence ofconsent of the minor ?'
4. In the case of Hariram Match Industries, Sivakasi, the Tribunal has referred the following questions of law under Section 256(1) of the Income-tax Act, 1961, for our opinion :
'1. Whether, on the facts and in the circumstances of the case, theAppellate Tribunal was justified in law in holding that the income frombusiness of Ashok Match Industries (B-Unit) run by Sankaralingam and hiswife as trustees after partition cannot be assessed in the status of association of persons as such but should be assessed on each beneficiary individually ?
2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in holding that there was an absence of consent of the minor ?'
5. The order of the Appellate Tribunal which is the subject-matter of reference in Tax Case No. 161 of 1985 in the case of Ashok Match Industries (B-Unit), Sivakasi, was followed in other orders of the Appellate Tribunal in the cases of Yennarkey R. Ravindran Family Trust and Hariram Match Industries which are the subject-matters of Tax Case No. 941 of 1985 and Tax Case No. 1457 of 1985, respectively. Since the issues involved in all the tax cases are common, the facts found in one of the tax cases are noticed for the purpose of deciding all these cases.
6. The assessee in Tax Case No. 941 of 1985, by name, the Yennarkey R. Ravindran Family Trust filed its return of income for the assessment year 1976-77 admitting a taxable income of Rs. 1,88,521 and declared the status of the assessee as 'trustee'. The assessee in the covering letter attached to the return stated that it filed the return of income for the purpose of determining the share income of the beneficiaries of the trust. The beneficiaries of the trust were stated to be as under :
(i) Yennarkey R. Ravindran (smaller-HUF),
(ii) Master R. Rajaratnam,
(iii) Master R. Chiranjeevi Ratnam.
7. The Income-tax Officer found the following facts :
The Standard Match Industries was owned by Yennarkey R. Ravindran (bigger-HUF) and the said Yennarkey R. Ravindran was the karta of the bigger-Hindu undivided family. On August 30, 1974, the karta effected a partial partition of the Hindu undivided family in respect of the business assets between himself and his two minor sons by dividing the capital account of the business books into three equal portions. The terms of the declaration in so far as it is relevant for the purpose of these cases read as under :
'I, Yennarkey R. Ravindran, son of N. R. K. K. Rajaratnam, Hindu, aged 37 years, residing at No. 3, Chairman A. R. Arunachalam Road, Sivakasi, do hereby solemnly and sincerely affirm and state as follows :
I am the karta of the joint family consisting of myself, my wife Thilagavathy, my sons, Rajaratnam and Chiranjeevi Ratnam. The joint family owns movable and immovable properties. I have decided to effect a partial partition of the properties of the joint family. In exercise of the powers as a Hindu father, I have effected a partition of the movable properties, shares in limited companies, investments in institutions and the shares in the partnerships, namely, Stanco Traders, Sivakasi, and Pany Company, Tirunelveli. The most beneficial way of partitioning the above movable properties benefiting the minor co-parceners is by effecting division by book entries evidencing partition, as the assets, namely, business of Standard Match Industries (with all its branches, shares in the partnerships) is incapable of physical division and carry on the said business and hold the assets in trust, so that the continuity is unbroken. I have already consulted my wife, Smt. Thilagavathy, who also considers the above as the best form of partition.'
8. On the next day, i.e., on August 31, 1974, the karta of the bigger-Hindu undivided family declared a deed of trust which, inter alia, states as under :
'This deed of trust executed this the thirty first day of August, one thousand nine hundred and seventy four by Shri Yennarkey R. Ravindran, son of Shri N. R. K. K. Rajaratnam, aged about 37, Hindu, residing' at 23, Chengamalanachiarpuram Road, Sivakasi, in Ramnad District, hereinafter called the first party, in favour of (1) Shri Yennarkey R. Ravindran ; (2) Smt. Thilagavathy, wife of Shri Yennarkey R. Ravindran, Hindu, aged about 32, residing at Sivakasi, hereinafter called the trustees, which term shall mean and include their successors-in-office for the benefit of Shri Yennarkey R. Ravindran (2) Minor R. Rajaratnam, aged about 8 years (3) Minor Chiranjeevi Ratnam, aged 3 years, hereinafter called the beneficiaries.
Whereas the first party as karta of the joint family consisting of himself, his wife, Thilagavathy, his sons, R. Rajaratnam and Chiranjeevi Ratnam, owned and possessed both movable and immovable properties ;
Whereas Shri Yennarkey R. Ravindran intended to effect a partial partition in exercise of his powers as a Hindu father with respect to the assets of the family, namely, 'Standard Match Industries and partnership interests in Stanco Traders, Sivakasi, and Pany Company, Tirunelveli' and,
Whereas the said asset, namely, the business is incapable of physical division having certain immovable properties as part of the assets of the business and, consequently, the party of the first part has on August 30, 1974, effected a division of the capital of the business equally among the coparceners thereby partitioning the above asset and the said partition is duly recorded and evidenced by means of appropriate book entries ;
Whereas as a part of the partition arrangement it was considered desirable and expedient to constitute a trust to enable the business to be carried on without break as that would serve the best interest of the minor coparceners who are entitled to a share in the said asset ;
Whereas Smt. Thilagavathy has also been consulted and it was mutually agreed that this would be the best form to effect the partition of the joint family assets ;
Whereas the trustees have accepted the obligation reposed on them to hold the property, namely, the business of Standard Match Industries and shares in the partnership firm of Stanco Traders, Sivakasi, and Pani Company, Tirunelveli, with all the assets and liabilities as a running concern in equal shares for the beneficiaries to receive or be entitled to receive the income therefrom in equal shares.'
9. The deed of trust also provides that the trustees shall carry on the business of Standard Match Industries and also the shares in the two firms, namely, Stanco Traders and Pani Company, holding the same for the benefit of and on behalf of the beneficiaries in equal shares and to receive and be entitled to receive the income therefrom in equal shares. The trust deed also provides that Yennarkey R. Ravindran constituted himself as a trustee along with his wife, Thilagavathy.
10. The Income-tax Officer closely examined the transactions and came to the conclusion that a scheme was adopted by Yennarkey R. Ravindran involving' three distinct and successive steps and they are as under :
'(i) The partition of the business assets of Standard Match Industries into three shares allotted to Shri Yennarkey R. Ravindran and each of his two minor sons on August 30, 1974, the three persons becoming co-owners (CWT v. J. K. K. Angappa Chettiar : [1979]116ITR456(Mad) ) of the assets,
(ii) The second step, necessarily possible only after partition, by the three co-owners deciding to exploit and utilise the assets in the business of match factory as a joint venture for producing income for the common benefit. In other words, forming of an association of persons owning assets and desirous of producing income according to the principle laid down by the Supreme Court in CIT v. Indira Balkrishna : [1960]39ITR546(SC) .
(iii) The third step of putting into action the object of the association of persons by a particular method, viz., to form a trust, declare the business assets of each as trust property and enjoin on the trustees the obligation to run a business and hand over the income to the beneficiaries who are the testators themselves. This was done on August 31, 1974.'
11. He, therefore, came to the conclusion that the beneficiaries have formed an association of persons and created a trust and appointed the trustees to carry on the business and, therefore, the status should be taken as association of persons. He rejected the contention of the assessee that the minors cannot be members of the association and the entire income from Standard Match Industries was assessable in the hands of the asses-see as an association of persons and the beneficiaries being the members of the association of persons would be entitled to the appropriate relief under Section 86 of the Income-tax Act, 1961 (hereinafter to be referred to as 'the Act'). The same reasoning has been adopted by the Income-tax Officer in the other two cases also.
12. The assessee appealed to the Commissioner of Income-tax (Appeals), Madurai, against the orders of assessment treating the assessees as association of persons. The Commissioner (Appeals) upheld the order of the Income-tax Officer and held that the beneficiaries have combined together to carry on the business and had there been no trust, the income of the business would have been assessed as a whole in the status of an association of persons and merely because there was a trust, the assessee cannot claim that it cannot be assessed in the status of an association of persons. In this view of the matter, he held that a minor can join in an association of persons if his lawful guardian gave his consent. He, therefore, dismissed the appeals preferred by the assessee.
13. The assessee went in appeal before the Income-tax Appellate Tribunal and the Tribunal considered the question in the case of Ashok Match Industries (B-Unit), Sivakasi, and held that the assessee cannot be assessed in the status of association of persons. The reasoning of the Tribunal is as under : There is nothing in the terms of the deed of trust to indicate that the minors were expressly represented by their guardian and he has given his consent for carrying on the business and, therefore, there was no relationship between the karta and two minor sons so as to make them co-owners. The Tribunal also noticed that it is not possible to imply any consent by the guardian for and on behalf of the minors as the minors were incapable of giving consent and common interest could not be created by a single individual acting in different capacities. The Tribunal also held that the karta of two minor sons could not form an association of persons and the minors would be entitled to shares of profits in accordance with their shares as tenants-in-common and the karta would be liable to render an account of profits as a custodian of their shares and the creation of the trust deed did not make any difference to that position and it is difficult to infer the existence of an association of persons. The Tribunal also held that after the partition, the business was not divided by metes and bounds. as it was incapable of such division, the karta, who, until the partition, was managing the business on behalf of the undivided joint family continued to manage it on behalf of the divided minor sons as well and the declaration of the karta was only a reinstatement of the factual position and the trustees cannot be considered to run the business for himself other than a representative assessee envisaged in Section 161 of the Act. The Tribunal, therefore, held that the mere fact that the trustees were carrying on the business was not sufficient to establish that the beneficiaries were participating in the business of their own volition and consent and it is an essential requirement and since the essential ingredient was absent, the Tribunal held that the assessee could not be assessed in the status of an association of persons. As already stated, the above order was followed in all other cases also and at the instance of the Revenue, the questions of law set out above have been referred to us for our consideration.
14. Mr. C. V. Rajan, learned counsel for the Revenue, submitted that the beneficiaries have combined together for the purpose of carrying on the business as a single unit and they associated themselves out of their own volition and the minors can be members of an association and the guardian can give consent on behalf of the minors. He, therefore, submitted that it was not possible to carry on the business except by joining together and by way of the trust deed they combined together and the business was carried on as a single unit. He submitted that the consent of the guardian can be implied from the fact that the trust was formed to carry on the business as a single unit and it was possible for the divided members to combine together when the father or the natural guardian of the minors gave consent on behalf of the minors admitting them to be the beneficiaries of the'trust. He further submitted that the trust was formed with the members including minors and the minor members can become members of association of persons if their father gave his consent to bring the minors' property into the trust. He submitted that the Tribunal's view that there was no consent is erroneous. He submitted that the business continued to be a single unit and there was a voluntary formation of trust and at the time of formation of the trust, there was a volition or consent on behalf of the minors and the properties of the minors were brought into a common till. He submitted that after the partition, the co-owners combined together to run the business as a single unit, and for that purpose the trust was formed and they carried on the business in the form of trust and the inference of consent could be drawn from the conduct of the parties. Learned counsel for the Revenue placed reliance on the following cases : (i) M. M. Ipoh v. CIT : [1968]67ITR106(SC) ; (ii) G. Murugesan and Bros. v. CIT : [1973]88ITR432(SC) ; (iii) M. M. Ipoh v. CIT : [1962]46ITR301(Mad) ; (iv) AT. V. Shanmugham and Co. v. CIT : [1971]81ITR310(SC) and (v) Meera, and Co. v. CIT : [1997]224ITR635(SC) .
15. Mr. Janarthana Raja, learned counsel for the assessee, on the other hand, submitted that there was no association of persons when there was a partition and the clauses of the partition make it clear that each one of them was entitled to a specific share. He, therefore, submitted that the trust has to be assessed under the provisions of Section 160 of the Act when the business was carried on by the trustees with equal shares to the co-owners. He referred to the provisions of Section 161(1A) of the Act and submitted that the co-owners did not carry on the business and the trustees carried on the business on behalf of the beneficiaries. Learned counsel for the assessee also submitted that the fact that there was no time gap between the partition and the formation of the trust would establish that there was no association of persons and there was no joining together of the divided members. He also submitted that the Tribunal has recorded a clear finding that there was no consent on behalf of the minors by the guardian and the consent cannot be inferred by the conduct of the parties as the business was carried on for the benefit of the beneficiaries with equal shares and the provisions of Sections 160 and 161 of the Act are mandatory in nature and the income, should be computed under the said provisions and the Department was not justified in trying to increase the burden. He also submitted that on behalf of the beneficiaries or co-owners, the business was carried on and there is nothing to show that they joined together to earn income and their intention was not to earn income and they have created a trust within the meaning of Section 161 of the Act and Section 161 of the Act would apply and a reading of the trust deed makes it clear that the beneficiaries are the co-owners and the case laws cited by learned counsel for the Revenue have no application to the facts of the case. Learned counsel for the assessee relied upon the decisions in (i) CIT v. Marsons Beneficiary Trust : [1991]188ITR224(Bom) ; and (ii) CWT v. Trustees of H. E. H. Nizam's Family (Remainder Wealth) Trust : [1977]108ITR555(SC) in support of his proposition that the assessment cannot be made in the status of an association of persons.
16. We have carefully considered the submissions of learned counsel. It is unnecessary to multiply the decisions. The Supreme Court in Meera and Co. v. CIT : [1997]224ITR635(SC) held that it is well-settled by a series of judgments that 'association of persons' must be an association which is formed by volition of parties for the purpose of generation of income and the apex court held that it is the basic test to determine whether there was an 'association of persons' or not. The Supreme Court in Meera and Company's case held that an association of persons or a body of individuals whether incorporated or not has been brought within the net of taxation and the intention of the Legislature was clear to hit the combinations of individuals or other persons who are engaged together in some joint enterprise and the combinations may or may not be incorporated and a profit-yielding joint venture has to be taxed as a single unit.
17. The decision of the Supreme Court in G. Murugesan and Bros. v. CIT : [1973]88ITR432(SC) makes it clear that even a minor can join in an association of persons, if his lawful guardian has given consent. It is, in the light of the above two decisions of the Supreme Court, the correctness of the order of the Appellate Tribunal has to be examined. The Tribunal held that there is nothing in the deed of trust to indicate that the guardian expressly recorded his consent for carrying on the business. The reasoning of the Appellate Tribunal is incorrect as the Tribunal has overlooked an important fact that there was a partial partition of the business assets of the joint family and without the consent of the guardian of the minors, it was not possible to treat the properties of the minors as the trust properties. A reading of the trust deed clearly shows that the father as karta has effected the partial partition with reference to the business assets known as Standard Match Industries in a manner known to law and in a manner permitted by law and it was considered desirable and expedient to constitute a trust to enable the business to be carried on without any break. The mere fact that the mother of the minors represented them in the deed of trust would not be conclusive of the matter that the natural guardian has not given his consent to bring in the properties belonging to the minors as trust properties. The trust deed, in more than one place, indicates that three owners decided to exploit the business and the recital in the deed makes it clear that with that intention in view, they carried on the business as a joint venture for the purpose of earning income. Though there is no express recital in the deed of trust that the father had given his consent for the minors being members of the association of persons, the conduct of the parties in carrying on the business with the minor's properties clearly implies that the father has given his consent for the minors being members of the association of persons. The view of the Appellate Tribunal that the guardian of the minors agreed to act in his individual capacity and there was no consent by the guardian is not correct. It is well-settled that it is open to a person, in any agreement, to sign the document in two capacities and it is permissible in law and there is no legal bar for the father to represent himself in his individual capacity and to give his consent as a guardian of the minors. Probably, it is only to avoid technical difficulties that may be raised at the time of registration of the deed of trust, the mother was shown in the deed as she was representing the minors. But, the minors' properties could not become trust properties without the consent of the father who is the natural guardian to bring in the minors' properties as trust properties.
18. The other reasoning given by the Appellate Tribunal is that there was no intention to form an association of persons as the minors were incapable of giving consent and common interest could not be created by a single person in two different capacities is also difficult to accept. We have already held that it is permissible for the father to act in two different capacities in the same deed and the view of the Appellate Tribunal that the consent could not be implied when the minors were represented by their mother is also erroneous in law. The facts of the case clearly show that after the partial partition of the joint family business assets, the parties agreed to carry on the business as a single and integrated unit and for that purpose, they decided to carry on the business through the medium of trustees. Therefore, the members by their own volition joined together and the purpose of the association was to generate income. Hence, the twin tests laid down by the Supreme Court in Meera and Co.'s case : [1997]224ITR635(SC) , are fully satisfied on the facts of the case. Their intention of earning income is manifest by their act in carrying on the business as a single unit and their intention to keep the business as a single unit shows that there was an intention to form a joint enterprise to earn income. The Supreme Court in the case of N. V. Shanmugham and Co. v. CIT : [1971]81ITR310(SC) held as under (page 315) :
'The control and the management of the business was in the hands of the receivers. That control and management 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 person who were the owners of the business. The receivers did not and could not have represented the individual interest of the various owners of the business. If they had done so, there would have been chaos in the business. The profits to which those owners lay claim and which they were not averse to pocket, were earned on behalf of an 'association of persons'. The profits were earned on behalf of the persons who had a common interest created by the order of the court and were on that account 'an association of persons'. The existence of specific or defined interest in the profits did not make the earning any the less by an 'association of persons'. Liability to tax depends upon the earning of profits by a unit and not upon the ultimate division of the profits.'
19. Applying the tests laid down by the Supreme Court, the conduct of the parties clearly shows that by their own volition, the business was continued and the owners of the business never objected to the continuance of the business. The guardian was not averse to taking the profit on behalf of the minor sons and it is not the case of the assessee that the guardian declined to receive the share of profit from the business on behalf of the minors. The conduct of the assessee clearly establishes that the father of the minors had acquiesced in the carrying on of the business as a single unit and for sharing the profit derived from the business in equal shares. Therefore, the mere existence of a specified or definite share in the profit would not be sufficient to hold that there was no association of persons. The members carried on the business through the medium of trust and earned profit from the business. In other words, the beneficiaries came together for a common purpose, common idea and common intention for generation of income.
20. The other reasoning given by the Appellate Tribunal that even if the trust deed has not been executed, the business would have been carried on and the karta would be entitled to account for the profits and, therefore, the existence of the association of persons cannot be inferred from the provisions of the trust deed is also without any force. We have to see what was the position prior to the formation of the partial partition and just a moment prior to the partial partition, the business was carried on by the joint family and had there been no partition, the profits from the entire business would have been assessed as a whole in the hands of the joint Hindu undivided family. Immediately after the partial partition, no doubt, there was a division of the properties of the business unit in favour of the karta and two minor sons, and if there was no trust, the karta would have carried on the business, not only with the assets obtained towards his share, but also with the shares belonging to the minors. The karta in that situation would have acted in two different capacities ; one as an individual owner and another as a natural guardian of the minor sons and if the business continued to be carried on as a single unit by combining together the divided properties, then, the entire profit might have been assessed in the hands of the single assessee, viz., either an association of persons or a body of individuals, as the case may be. The karta of the Hindu undivided family, instead of carrying on the business in two capacities in the above manner, created a trust, and in the deed of trust, the mother was added and the similar situation which continued before the formation of the trust and immediately after the partial partition of the joint family assets had the karta carried on the business as a single hand, continued with the karta of the joint family acting in the status of a trustee. Therefore, the view of the Appellate Tribunal that had there been no trust, the income would have been assessed separately and, therefore, the inter-position of the trustees would make no difference is clearly erroneous in law.
21. The Appellate Tribunal relied upon a decision of this court in M. M. Ipoh v. CIT : [1962]46ITR301(Mad) . This court in that case held that it cannot be stated under any rule of law that a minor cannot be a member of an association of persons. There can be an association of persons in which a minor can be a member, but the consent of the guardian should be obtained for the minor being admitted to be a member of the association of persons. This court in that case was dealing with a case of a joint family and there was a division in status in that family and after partition, the father and the minor son became divided in status and they continued as tenants in common as there was no division of properties for the assessment year 1951-52. This court, therefore, held that merely because the share of the minor was not divided by metes and bounds, it cannot be held that they continued as members of an association of persons. There was also evidence in that case to show that the mother of the minor acted as a guardian in that transaction and in that situation, this court, there fore, held that after the division in status, it was impermissible to hold that the association was brought into existence in view of mere continuance of the members of the erstwhile joint family in doing business without division of properties by metes and bounds. This court also rejected the contention that the natural guardian of the minor would have given consent for the minor being admitted to be a member of the association of persons and in the absence of any evidence, it cannot be stated that the father and the minor had formed an association of persons. We are of the opinion that the case in M. M. Ipoh v. CIT : [1962]46ITR301(Mad) , has no relevance to the facts of the case.
22. On the facts of the case, it is clear that there was a partial partition on August 30, 1974, and the deed of declaration of trust was executed on August 31, 1974, and in the deed of declaration, the mother represented the minor sons. So, it is not a case wherein the members of the- joint family were continuing after a mere division in status, without dividing the properties by metes and bounds, but, it is a case of a partial partition, division of the business assets in a manner permitted by law and then, execution of a deed of trust. The view of the Appellate Tribunal that the decision of this court in M. M. Ipoh's case : [1962]46ITR301(Mad) would apply to the facts of the case is clearly not warranted as there was an intermediary step of division of business assets in a manner known to law and then, there was a formation of trust.
23. The Supreme Court in M. M. Ipoh v. CIT : [1968]67ITR106(SC) in the appeal against the decision of this court in M. M. Ipoh v. CIT : [1962]46ITR301(Mad) for the subsequent assessment years, i.e., from 1952-53 onwards upheld the view of this court and held that there was an association of persons where there was a common management of the properties and a common selling' agency and where the mother acted as guardian of the minor in the deed of partition and the conduct of the mother showed that she had even given assent to the formation of association on behalf of the minor and various transactions relating to the interest of the management.
24. In this count, it is relevant to notice a decision of the Kerala High Court in CIT v. C. Karunaharan : [1988]170ITR426(Ker) , wherein a Bench presided over by T. Kochu Thommen J. (as his Lordship then was) held that it is open to the guardian to consent on behalf of the minors and when the mother and the daughters relinquished all their rights in the business by a registered document and the sons together carried on the business, the consent of the mother as guardian could be easily inferred from the conduct of the parties. Therefore, the conduct of the parties is a vital piece of evidence and on the facts of the case, it is clear that the karta and the guardian of the minor sons have agreed to keep the properties undivided and authorised the trustees to carry on the business on behalf of the beneficiaries. The above decisions of the Supreme Court and the decision of the Kerala High Court make it clear that the assent of the guardian can be inferred from the conduct of the parties and the consent need not be express.
25. The main contention of learned counsel for the assessee is that under the provisions of Section 161 of the Act, the assessment should have been made in the hands of the trustees. He submitted that when the shares of the beneficiaries are known, it is not open to the Department to treat the trustees as an association of persons. According to learned counsel for the assessee, once the provisions of Section 161 of the Act are attracted, the trustees should have been assessed in the same manner and to the same extent as the tax should have been leviable and recoverable from the beneficiaries represented by the trustees. He, therefore, submitted that Section 161 has an overriding effect and in that connection he relied upon a decision of the Bombay High Court in CIT v. Balwantrai Jethalal Vaidya : [1958]34ITR187(Bom) . The Bombay High Court in that case held that the liability of the trustees to income-tax is co-extensive with that of the beneficiaries and cannot in any case be a larger or wider liability and if the assessment is made upon a trustee, whatever the nature of the income, whatever the mode of computation, the liability to pay tax should be determined in accordance with Section 41 of the Indian Income-tax Act, 1922, corresponding to Section 161 of the Income-tax Act, 1961. He also relied upon a decision of the Supreme Court in CWT v. Trustees of H. E. H. Nizam's Family (Remainder Wealth) Trust : [1977]108ITR555(SC) , wherein the Supreme Court approved the decision of the Bombay High Court in Balwantrai Jethalal Vaidya's case : [1958]34ITR187(Bom) and held that under the Wealth-tax Act, whenever an assessment is made on the trustees, it must be made in accordance with the provisions of Section 21 of the Wealth-tax Act, 1957 (corresponding to Section 161 of the Income-tax Act, 1961), and every case of assessment on trustees must necessarily fall under Section 21 and that cannot be assessed apart from and without reference to the provisions of that section. He also relied upon a decision of this court in the case of CIT v. Venu Suresh Sanjay Trust : [1996]221ITR649(Mad) . But, we are unable to accept the contention of learned counsel for the assessee. A similar contention was urged on behalf of the assessee before the Supreme Court in N. V. Shanmugham and Co. v. CIT : [1971]81ITR310(SC) , and the arguments urged on behalf of the assessee were rejected by the Supreme Court and the decision of the Supreme Court makes it clear that the liability to tax depends upon the earning of the profit and not on the ultimate division or partition of the profits. Therefore, when the trustees on the basis of the authorisation given by the beneficiaries carried on the business for a common purpose and acted jointly, it must be held that they carried on the business as an association of persons and once the trustees are held to be an association of persons, the liability to tax on them would depend upon the charging Section 4 of the Act and the charge imposed on the association cannot be defeated by invoking the provisions of Section 161 of the Act.
26. Though learned counsel for the assessee urged that Section 161 should be applied in all cases of trustees and the decision in N. V. Shanmugham and Co. v. CIT : [1971]81ITR310(SC) has no application as the Supreme Court dealt with a case of receivers, we are unable to accept the contention urged by learned counsel for the assessee. On the facts of the case, the beneficiaries have come together for the purpose of carrying on business ; authorised the trustees to carry on the business on their behalf and the trustees derived the authority to carry on the business from the beneficiaries and not from some third parties, who have no connection with the trust properties. In that factual situation, consent of the beneficiaries is a material fact. On the authority conferred on the trustees by the beneficiaries, the beneficiaries cannot be regarded as mere recipients of the income of the trust. At the time of formation of the trust, the beneficiaries came together for a common purpose. They associated together for a common purpose to earn income and at that precise point of time, they constituted themselves as an association of persons and authorised the trustees to carry on the business on their behalf and in this factual situation, we are of the opinion, the principles laid down by the Supreme Court in N. V. Shanmugham and Co.'s case : [1971]81ITR310(SC) would apply to the facts of the case.
27. The decision of the Supreme Court in Meera and Co. v. CIT : [1997]224ITR635(SC) , is also significant in considering the question of applicability of Section 4 as well as Section 161 of the Income-tax Act, and the apex court held as under (page 652) :
'Section 161 is an enabling provision. The charge that is imposed by Section 4 may be computed and recovered in the manner laid down in the Act including Sections 160, 161 and 166. When the minors along with their mother form a body to generate income, levy of tax under Section 4 is on that body. The mother cannot insist that the income of the joint venture must be assessed separately on the minors and her even when a joint business is carried on.'
28. The above decision of the Supreme Court makes it clear that Section 161 of the Act does not in any way affect the operation of the charging Section 4 of the Act. It is relevant to notice here that the beneficiaries combined together for a common purpose to earn income and the business carried on by the trustees must be regarded as a business carried on by the trustees as an association of persons and it is permissible for the Department to make a single assessment on the trustees under Section 4 of the Act and Section 161 of the Act which is an enabling section cannot in any way defeat the imposition of charge imposed on that body.
29. Learned counsel for the assessee also placed reliance on the decision of the Karnataka High Court in CIT v. K. Shyamaraju (Trustees) : [1991]189ITR392(KAR) and the decision of the Bombay High Court in the case of CIT v. Marsons Beneficiary Trust : [1991]188ITR224(Bom) . Both the Bombay High Court and the Karnataka High Court have taken a view that under Section 161 of the Income-tax Act, tax shall be leviable or recoverable from the trustees in a like manner to the same extent as would be leviable from the beneficiaries. But, the distinguishing features present in the decisions of the Bombay High Court and the Karnataka High Court were that the trustees were empowered to carry on the business not by the beneficiaries but by a third party, i.e., the settlor, under the terms of the deed of trust. On the other hand, on the facts of the case, the beneficiaries authorised the trustees to carry on the business on their behalf and, therefore, the decisions of the Bombay High Court and the Karnataka High Court which relate to the carrying on of business by the trustees not on the basis of the authority given by the beneficiaries, but under the terms of the trust created by the settlor, have no application to the facts of the case. Here, the beneficiaries are not mere recipients of the profits from the business, but there was a prior agreement entered into between them to achieve a common purpose, namely, to earn profits through a joint enterprise. In a case of this kind, it would be difficult to imagine that the father as a guardian of the minors has not given his assent. In our view, the father of the minors acted in two different capacities and continued in both capacities in carrying on the joint enterprise and his tacit agreement to carry on the common enterprise can be seen from the continued participation in the joint venture as but for his consent, the assets of the minors could not become the properties of the trust and his act of execution of the deed of trust and his continued participation in the joint venture which was continued to be carried on as a single unit all would well establish that there are sufficient materials to infer that he had given his assent for carrying on the business for and on behalf of the minors.
30. The contention urged by learned counsel for the assessee that there was no time gap between the partition and the formation of trust and, hence, there was no association of persons is also not sustainable. We have seen the facts earlier that there was a partial partition and on the next day, the deed of trust was created and, in our opinion, when there was an earlier partition and, subsequently, when the members joined together by forming a trust, though there was only a short interval between the date of partition and the formation of the trust, still in law, the two transactions brought about must be regarded as separate in point of character, separate in point of time and separate and distinct from the point of view of law, and however short the interval may be, the guardian had given consent not only for himself, but also for the beneficiaries to enable the trustees to carry on the business, and that would be sufficient to formulate them as an association of persons. Further, whether the time gap is short or long is an immaterial consideration, but the test that must be satisfied is whether there was an intention to join together to earn income and when the intention is spelt out from the conduct of the parties, the association would be regarded as an association of persons.
31. A reading of the document clearly shows that the business was to be carried on without break and the mother of the minors was consulted and had mutually agreed which would be the best form to effect a partition of the joint family assets. It is also clear that the trustees have accepted the obligation imposed on them under the trust deed to carry on the business as a running concern with equal share for the benefit of the beneficiaries. A fair reading of the document indicates that the trustees on the basis of the authority of the beneficiaries, joined together to carry on the business as an association of persons. The subject-matter of property is business and after partition, if the father and divided sons carried on the business as one unit, they would have been assessable as an association of persons and by the creation of trust, the tax liability cannot in any way vary and the association would be subject to the same level of taxation as would be applicable to an association of persons. The fact that the guardian consented to carry on the business received the income from property, i.e., from the business and received the income for himself and distributed the income to the minors clearly indicates that there was an implied consent by the guardian. The view of the Appellate Tribunal that there was no consent by the guardian is not sustainable in view of the conduct of the parties in carrying on the business as a single unit through the medium of trust. We are, therefore, of the opinion that the Tribunal was not correct in holding that the creation of trust would make no difference and its view that it was difficult to infer an association of persons is not sustainable in law. Therefore, we answer the various questions of law in the tax cases in the negative and in favour of the Revenue. The Revenue is entitled to costs of a sum of Rs. 5,000 one set.