1982 (4) TMI 76 - AT - Income Tax

Business Assets Commissioner To Revise Diversion By Overriding Title Diversion Of Income Income Tax

Issues Involved:
1. Jurisdiction of the Commissioner under Section 263 of the Income-tax Act, 1961.
2. Validity of the partial partition and agreement dated 22-10-1968.
3. Whether the sum of Rs. 57,196 was income of the assessee.
4. Whether the business was carried on by an Association of Persons (AOP).

Detailed Analysis:

1. Jurisdiction of the Commissioner under Section 263:

The primary contention was whether the Commissioner had jurisdiction to initiate proceedings under Section 263 after the order of the Appellate Assistant Commissioner (AAC). The assessee argued that the assessment order had merged with the order of the AAC, thus the Commissioner lacked jurisdiction. The Tribunal noted that the sum of Rs. 57,196 was not the subject-matter of the appeal before the AAC, and hence, the original order did not merge with the AAC's order regarding this amount. The Tribunal cited the Gujarat High Court decision in Karsandas Bhagwandas Patel v. G.V. Shah, ITO [1975] 98 ITR 255, which held that only the part of the order reviewed by the AAC merges, leaving the rest open for revision under Section 263. Consequently, the Tribunal concluded that the Commissioner had jurisdiction to revise the order under Section 263.

2. Validity of the Partial Partition and Agreement:

The assessee contended that a partial partition had occurred on 22-10-1968, dividing the business assets among the assessee, his wife, and his son, each receiving a one-third share. An agreement dated 10-12-1968 stipulated that the business profits were subject to a charge in favor of the wife and son. The Tribunal found no evidence suggesting that the partition and agreement were not genuine. It emphasized that under Hindu law, such partitions are valid and binding, and the income-tax law recognizes these divisions for assessment purposes. The Tribunal accepted the partition and agreement as genuine and effective.

3. Whether the Sum of Rs. 57,196 was Income of the Assessee:

The Tribunal examined whether the sum of Rs. 57,196 was diverted by overriding title before it reached the assessee. The agreement stipulated that the profits were subject to a charge in favor of the wife and son, and the assessee was to bear any business losses alone. The Tribunal concluded that the income was diverted before it reached the assessee, as per the agreement, and thus, the sum of Rs. 57,196 did not constitute the assessee's income. The Tribunal relied on the Supreme Court decision in Charandas Haridas v. CIT [1960] 39 ITR 202, which supported the concept of diversion of income by overriding title.

4. Whether the Business was Carried on by an Association of Persons (AOP):

The Commissioner had held that the business was a joint venture by the assessee, his wife, and son, thus constituting an AOP. The assessee argued that he conducted the business individually, not as an AOP. The Tribunal found no evidence supporting the Commissioner's view that the business was carried on by an AOP. It concluded that the business was conducted by the assessee individually, as per the agreement, and thus, the Commissioner's finding was incorrect.

Conclusion:

The Tribunal allowed the appeal, holding that the Commissioner's order was incorrect. It concluded that the sum of Rs. 57,196 was not the income of the assessee, the partial partition and agreement were genuine, and the business was not carried on by an AOP. The Tribunal canceled the Commissioner's order under Section 263, thus allowing the appeal in favor of the assessee.

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