1976 (4) TMI 64 - AT - Income Tax

Summary

Issues Involved:
1. Determination of the assessee's share in the partnership firm for tax assessment.
2. Validity of the assessee's claim of partition and its effect on tax liability.
3. Whether a sub-partnership was created between the assessee, his wife, and his minor son.
4. Applicability of Section 64(i) and 64(ii) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Determination of the Assessee's Share in the Partnership Firm for Tax Assessment:
The assessee was a partner in the firm M/s. Shiv Narain Karmendra Narain, holding a half share according to the partnership deed. However, for assessment purposes, the assessee disclosed only 1/3rd of the half share, claiming that the remaining share belonged to his joint family, which had undergone partition. The Income Tax Officer (ITO) did not accept this plea and included the entire half share in the assessee's assessment, resulting in Rs. 2,27,740 for the assessment year 1969-70 and Rs. 5,87,458 for 1970-71.

2. Validity of the Assessee's Claim of Partition and Its Effect on Tax Liability:
The assessee argued that a partition in the family had occurred, recognized by the ITO under Section 171 of the Income Tax Act, thereby entitling him to only 1/3rd of the half share in the firm. The Appellate Assistant Commissioner (AAC) upheld the assessee's claim, directing that only 1/3rd of the share should be assessed in the assessee's hands, with the remaining shares assessable in the hands of his wife and minor son.

3. Whether a Sub-Partnership was Created Between the Assessee, His Wife, and His Minor Son:
The Departmental Representative argued that a sub-partnership was created between the assessee, his wife, and his son, invoking Section 64(i) and 64(ii) of the Income Tax Act, which would include the income of the wife and son in the assessee's total income. This argument was based on a previous Tribunal order in the assessee's own case for earlier years, where it was held that a sub-partnership existed.

4. Applicability of Section 64(i) and 64(ii) of the Income Tax Act, 1961:
The Tribunal had previously held that a sub-partnership was created, making the income of the wife and son includible in the assessee's income under Section 64(i) and 64(ii). However, the assessee's counsel argued that the earlier Tribunal's view was incorrect and required reconsideration, citing a Gujarat High Court decision in Addl. CIT Gujarat, Ahmedabad vs. Chandulal C. Shah, which held that no sub-partnership existed in similar circumstances.

Tribunal's Conclusion:
The Tribunal reconsidered the case in light of the Gujarat High Court decision and found that no sub-partnership existed after the partition. The Tribunal noted that the earlier decision was influenced by an agreement to share losses, which was absent in the current case. The Tribunal also emphasized that the Gujarat High Court's decision, being from a superior court, was authoritative and should be followed.

Final Judgment:
The Tribunal upheld the AAC's view that only 1/3rd of the share should be assessed in the assessee's hands, dismissing the Department's appeals. The Tribunal concluded that the earlier view of a sub-partnership was incorrect and not applicable to the current case, thereby excluding the income of the wife and son from the assessee's total income under Section 64(i) and 64(ii).

Result:
The appeals by the Department were dismissed.