Judgment:
M. Srinivasan, C.J.
1. The questions referred to us read as follows:
'1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the Income-tax Officer, A Ward, Shimla, held proper jurisdiction in this case to initiate proceedings under Section 147(a) of the Income-tax Act, 1961, and there was no inherent lack of jurisdiction ?
2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law and on facts in annulling the assessment framed in the status of association of persons ?
3. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law and on facts that there was no association of persons in existence for the period from April 11, 1963, to February 29, 1964 ?
4. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that there was no mental exercise by the Board in the granting of approval under Section 151 for the start of assessment proceedings under Section 147(a) and the Board have exercised their discretion illegally ?
5. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the cash credits of Rs. 1,12,160 were before the business was set up ?'
2. The first question was referred at the instance of the assessee while the remaining questions were referred at the instance of the Revenue.
3. The contention of the assessee that the Income-tax Officer, A Ward, Shimla, had no jurisdiction in this case and that the matter should have been dealt with only by the Income-tax Officer, Solan, is unsustainable. This objection was not raised in the first stage itself within a period of 30 days from the receipt of notice. Hence, it is not open to the assessee to raise that question at a later stage. Further, the proceedings in the first instance were initiated long back by the Income-tax Officer, Shimla, who had jurisdiction at that time. Later, the Tribunal quashed the assessment on the ground that there was no firm in existence. Thereafter, the proceedings were initiated for assessing the assessee on the ground that they areassociation of persons. In one sense, that can be treated as continuation of proceedings. If that is so, the reasoning of the Punjab and Haryana High Court in Lt. Col Paramjit Singh v. CIT would apply and consequently the Income-tax Officer A Ward, Shimla, will have jurisdiction.
4. However, we find that the Income-tax Officer, Solan, came into being only in 1977. The assessment relates to 1964-65. Hence, the contention that the Income-tax Officer, Shimla, had no jurisdiction has to fail. Consequently, we answer the first question in the affirmative that the Tribunal is right in holding that the Income-tax Officer, A Ward, Shimla, had jurisdiction to initiate proceedings under Section 147(a) of the Income-tax Act and there was no inherent lack of jurisdiction.
5. As regards the second question, originally the assessment was on the footing that there was a partnership firm comprising four persons. It was found that two of them had disowned any connection with the partnership. Murari Lal said in the course of examination that he had neither made investment nor was he a partner. He had stated that it was just out of respect that he signed the deed and that he was not a man of means. Another person by name Smt. Vidya Devi, who was the wife of Murari Lal had disowned her deposits in the said firm. Shankar Dass denied the deposit, but admitted having entered into the partnership. The only other person was Bhupinder Kumar. The present assessment proceeding was on the footing that two persons, Shankar Dass and Bhupinder Kumar, constituted an association of persons. Admittedly, Bhupinder Kumar was a minor at the relevant date. Hence, the Tribunal took the view that there was no question of any voluntary association of the two persons for the purpose of running the business or having a joint enterprise.
6. The question has been considered by the Supreme Court of India in G. Murugesan and Brothers v. CIT : [1973]88ITR432(SC) . The Supreme Court held that for forming an association of persons, the members of the association must join together for the purpose of producing an income and it can be formed only when two or more individuals voluntarily combine together for a certain purpose. The court observed that volition on the part of the members of the association was an essential ingredient. No doubt, the court pointed out that even a minor can join an association of persons if his lawful guardian gives his consent. In this case, there is absolutely no material to show that the guardian of the minor, Bhupinder Kumar, gave his consent for the minor being associated in the business.
7. In such circumstances, the Tribunal is right in holding that there was no association of persons in the eye of law to be proceeded against in the assessment proceedings. Consequently, we answer questions Nos. 2 and 3 in the affirmative holding that the Tribunal was right in annulling the assessment framed in the status of association of persons on the footing that there was no association of persons in existence for the period from April 11, 1963, to February 29, 1964.
8. When the proceedings were sought to be initiated again for assessment on the footing that there was an association of persons, sanction of the Board was obtained by the Income-tax Officer under Section 151(1) of the Income-tax Act. The reasons were set out by the Income-tax Officer that there was an association of persons and it should be proceeded against for assessment of the income-tax. The Board had granted that sanction, but it is found by the Tribunal that when the facts set out by the Income-tax Officer were themselves wrong, then the Board's sanction was consequentially illegal. We have now found that there was no association of persons to be proceeded against on that footing. Hence, the sanction granted by the Board on the footing that there was an association of persons was illegal. The view expressed by the Tribunal is, therefore, correct. Question No. 4 is answered in the affirmative.
9. As regards the last question, it turns on the facts of the case. The facts set out in the order of the Tribunal show clearly that there was no cash credit before the business was set up. The relevant dates are clearly mentioned in the order of the Tribunal. Hence, we do not find any justification to take a different view. The last question is also answered in the affirmative.
10. The reference is answered as above.