1978 (2) TMI 50 - HC - Wealth-tax

Summary

Issues Involved:
1. Whether the right to share the future profits of the firms was held both by the assessee and his divided sons or was vested solely in the assessee.
2. Whether clause 5 of the partition deed could override the legal rights and obligations created under the document.
3. Whether the Tribunal was correct in excluding the profits and accretions attributable to the assessee's sons' shares from the wealth-tax assessments of the assessee.

Detailed Analysis:

Issue 1: Right to Share Future Profits
The court examined the partition deed executed on March 31, 1961, which divided the capital account of the family in various partnership firms equally among the assessee and his two minor sons. The Tribunal found that the interest in the partnership firms was to be held by the assessee and his sons as tenants-in-common, with a right to division of profits. The court upheld this view, stating that the profits realized by the assessee did not belong to him exclusively but were held on behalf of himself and his two sons. The legal position was that, following the partition, the assessee was liable to account for the minors' share in the profits as a trustee or agent under Section 90 of the Indian Trusts Act.

Issue 2: Interpretation of Clause 5 of the Partition Deed
Clause 5 of the partition deed stated that "all the family business and interest in partnerships shall hereafter belong to J. K. K. Angappa Chettiar (assessee)." The revenue argued this clause allowed the assessee to appropriate all profits. However, the court disagreed, interpreting the clause in the context of the entire partition deed. The clause was intended to ensure that any new business ventures undertaken by the assessee would be his personal liability and not affect the divided capital investments. The court concluded that Clause 5 did not override the legal rights of the sons to their share of the profits from the existing investments.

Issue 3: Exclusion of Profits from Wealth-Tax Assessments
The Tribunal had held that the profits and accretions attributable to the minors' shares in the partnership firms should be excluded from the wealth-tax assessments of the assessee. The court agreed, stating that the assessee was not entitled to the entirety of the profits post-partition and was only entitled to his share. The profits attributable to the minors' shares were to be treated as their wealth and excluded from the assessee's net wealth computation.

Conclusion:
The court answered all three questions against the revenue, affirming that the right to share future profits was held by both the assessee and his sons, Clause 5 did not override the sons' legal rights, and the profits attributable to the sons' shares should be excluded from the assessee's wealth-tax assessments. The assessee was awarded costs, with counsel's fee set at Rs. 500.