A) ABSTRACT / HEADNOTE

The Supreme Court in Commissioner of Income-Tax, Bombay v. Smt. Indira Balkrishna [1960] 3 SCR 513, clarified the legal meaning and scope of the term “association of persons” (AOP) under Section 3 of the Indian Income-tax Act, 1922. The judgment revolved around the status of three widows inheriting property under Mitakshara Hindu Law and whether such joint ownership and receipt of income could be construed as constituting an AOP for income tax purposes. The Court held that merely receiving income jointly without a common design or enterprise to earn income does not amount to being assessed as an AOP under tax law. The decision is significant as it set out clear principles for the assessment of legal heirs and their status as taxable entities, especially under Hindu personal laws. This case distinguished passive receipt of income from active cooperation for earning income. The ratio decidendi continues to be a touchstone for interpreting the concept of AOP across Indian tax jurisprudence.

Keywords: Association of Persons, Income Tax Act 1922, Hindu Widows, Joint Tenancy, Tax Liability, Section 3 Income Tax, Income from Property, AOP Meaning

B) CASE DETAILS

i) Judgement Cause Title:
Commissioner of Income-Tax, Bombay v. Smt. Indira Balkrishna

ii) Case Number:
Civil Appeals Nos. 219 & 250 of 1958

iii) Judgement Date:
14 April 1960

iv) Court:
Supreme Court of India

v) Quorum:
S.K. Das, J., J.L. Kapur, J., and M. Hidayatullah, J.

vi) Author:
Justice S.K. Das

vii) Citation:
Commissioner of Income-Tax, Bombay v. Smt. Indira Balkrishna, [1960] 3 SCR 513

viii) Legal Provisions Involved:
Section 3 and Section 9(3) of the Indian Income-tax Act, 1922

ix) Judgments overruled by the Case:
None overruled; clarified and distinguished earlier rulings.

x) Case is Related to which Law Subjects:
Taxation Law, Hindu Succession Law, Personal Laws, Corporate Law

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The case arose from an appeal against the Bombay High Court’s decision wherein it had ruled that three Hindu widows jointly inheriting the estate of their deceased husband did not qualify as an association of persons under the Income-tax Act. The Income-tax Officer had treated the income earned from the deceased’s estate as income earned by an AOP, hence taxable jointly. The widows appealed this classification, arguing that their joint inheritance did not constitute a partnership or association. This raised a fundamental legal question about the interpretation of “association of persons” under Section 3 of the Income-tax Act, 1922.

Historically, under the Mitakshara school of Hindu law, widows inherit the property as joint tenants, possessing rights of survivorship but not necessarily intending a joint venture or partnership. In this context, the Supreme Court was called upon to evaluate whether passive joint receipt of income could be equated to an “association” with shared intent and active coordination to earn income.

The case posed constitutional significance regarding property and tax rights under personal law and fiscal statutes, and the ruling helped demarcate boundaries between joint ownership and income-earning associations.

D) FACTS OF THE CASE

Balkrishna Purushottam Purani, governed under the Mitakshara law, passed away in November 1947, leaving behind three widows — Indira, Ramlaxmi, and Prabhulaxmi — and two daughters. The widows inherited immovable properties, shares, firm interests, and other investments. They held the inherited property jointly, without exercising their rights for partition or separate possession. Importantly, the assets continued to yield income in the form of dividends, rents, and interest on deposits.

For the assessment years 1950–51 and 1951–52, the Income-tax Officer issued notices under the Income-tax Act and classified the entity as an association of persons. The returns were filed under different titles, once as “legal heirs” and in another case as an “association of persons.” The officer, however, taxed the estate in both years under the AOP classification.

The total income involved included substantial dividend income and property rents. The Appellate Assistant Commissioner partly upheld the AOP classification but excluded property income from the joint assessment under Section 9(3), holding that it should be assessed separately in the hands of each widow.

On appeal to the Tribunal, it was held that the widows jointly managed the property, thus qualifying as an AOP. Subsequently, the High Court was approached for reference under Section 66(1), which led to the present appeal.

E) LEGAL ISSUES RAISED

i) Whether the three widows could be taxed as an “Association of Persons” under Section 3 of the Indian Income-tax Act, 1922?

ii) Whether joint receipt of income from inherited property qualifies as active collaboration to constitute an AOP?

iii) Whether the immovable property income falls under the scope of joint taxation under AOP or Section 9(3) mandates separate assessments?

F) PETITIONER / APPELLANT’S ARGUMENTS

i) The counsels for Petitioner / Appellant submitted that the essential condition for an AOP was not necessarily mutual consent to generate income. They argued that even joint receipt of income without active management could suffice if the recipients had a common source of income. The Income-tax Department contended that since the widows jointly inherited the estate and did not separate the shares or income streams, their association met the statutory definition under Section 3.

Further, it was argued that joint enjoyment and absence of partition implied an understanding or conduct that suggested joint management of the estate. The Department stressed that income, particularly dividends and interest, accrued to them collectively, and thus their joint action amounted to a taxable association. They urged that the statutory language did not necessitate an active business-like intent to generate income.

G) RESPONDENT’S ARGUMENTS

i) The counsels for Respondent submitted that the widows had merely inherited the estate jointly and did not engage in any coordinated activity to produce income. The passive nature of the income (dividends, interest, rent) was emphasized. The legal status of co-widows under Mitakshara law makes them joint tenants by operation of law, and not due to any voluntary association or intention to pool resources.

They highlighted that the estate assets remained in their original form, and each widow was entitled to a one-third share of the income. Importantly, shares in companies were held separately in their names, undermining the notion of joint management. There was no evidence of any partnership, joint decision-making, or scheme to generate income, which is a prerequisite for the existence of an AOP as defined in precedents like In re: B.N. Elias [1935] 3 ITR 408 and Commissioner of Income-tax v. Laxmidas Devidas [1937] 5 ITR 484.

H) RELATED LEGAL PROVISIONS

i) Section 3 of the Indian Income-tax Act, 1922
[Link: https://indiankanoon.org/doc/1876159/]
It defines entities liable to income-tax including individuals, HUFs, companies, firms, and associations of persons.

ii) Section 9(3) of the Indian Income-tax Act, 1922
[Link: https://indiankanoon.org/doc/1299397/]
Provides that if the property income is received by multiple persons, and their shares are definite and ascertainable, they should be assessed separately.

I) JUDGEMENT

a. RATIO DECIDENDI

i) The Supreme Court held that an “association of persons” must be formed by persons who voluntarily come together for a common purpose or to earn income collectively. In this case, the widows became joint tenants due to succession laws, not by any voluntary action.

The Court clarified that merely receiving income from the same source does not mean the recipients have combined for the purpose of earning income. The ruling emphasized that intention and action to earn income collectively are essential to qualify as an AOP.

The Court relied on and affirmed the rulings in:

• In re: B.N. Elias [1935] 3 ITR 408

• CIT v. Laxmidas Devidas [1937] 5 ITR 484

• Re Dwarakanath Harishchandra [1937] 5 ITR 716

These precedents held that AOP must have a common venture for income production.

b. OBITER DICTA 

i) The Court observed that there is no universal test for identifying an AOP and that each case must be judged on its specific facts. It also warned that mere joint enjoyment of income, especially in cases of inheritance under personal law, should not be mistaken for an AOP.

c. GUIDELINES 

• AOP must arise from a voluntary union of persons with a shared objective to produce income.

• Passive receipt of income from a joint estate does not equate to AOP.

• Inheritance under personal law cannot imply a taxable association.

• Section 9(3) applies when income shares are definite and ascertainable.

J) CONCLUSION & COMMENTS

The Court’s judgment brings much-needed clarity to the intersection of tax law and Hindu personal law. It draws a crucial line between joint ownership and active association, especially in the context of inherited property. The Court protected the sanctity of succession laws, ensuring widows are not burdened with unintended tax liability under the AOP construct. The ruling prevented misuse of tax statutes by revenue authorities to widen tax nets without legitimate grounds. It remains a cornerstone case in defining Association of Persons in Indian tax law and continues to influence jurisprudence and legislative interpretation in analogous scenarios.

K) REFERENCES

a. Important Cases Referred

[1] In re: B.N. Elias, [1935] 3 ITR 408
[2] CIT v. Laxmidas Devidas, [1937] 5 ITR 484
[3] Re Dwarakanath Harishchandra, [1937] 5 ITR 716
[4] Commissioner of Income-Tax, Bombay v. Smt. Indira Balkrishna, [1960] 3 SCR 513

b. Important Statutes Referred

[5] Section 3, Indian Income-tax Act, 1922
[6] Section 9(3), Indian Income-tax Act, 1922