1966 (7) TMI 3 - HC - Income Tax

On Dec. 8, 1958, a partition deed was executed, under which properties were allotted to assessee, his wife and his three sons. One of the properties so allotted was the shop in which assessee conducted his business - assessment of the assessee in the status of an individual was correct

Summary

Issues:
Assessment of income as individual vs. Hindu joint family status, Existence of partnership based on partition deed, Formation of partnership based on subsequent partnership deed.

Assessment as Individual vs. Hindu Joint Family Status:
The case involved a dispute regarding the assessment of income for the assessment year 1960-61. The assessee, Rangappa Setty, claimed that a partition deed executed in December 1958 transformed his self-acquired properties into those of a Hindu joint family. However, the Income-tax Officer and the Appellate Assistant Commissioner assessed the income as individual income. The High Court found that the properties were distributed among Rangappa Setty, his wife, and sons under the partition deed, making the properties individual and separate. The court held that the distribution did not require the properties to become joint family assets for the assessment.

Existence of Partnership based on Partition Deed:
The contention arose whether a partnership was formed based on the recital in the partition deed regarding profit distribution among family members. The court ruled that the recital did not establish a partnership as it lacked evidence of an agreement to share business profits. The court emphasized that the deed only outlined remuneration for family members' assistance in the business, not a partnership agreement.

Formation of Partnership based on Subsequent Partnership Deed:
The court analyzed a partnership deed executed in November 1959 and the claim that a partnership existed since December 1958. It was argued that recitals in the deed indicated an earlier partnership. However, the court concluded that the partnership was formed on November 18, 1959, based on the terms and conditions outlined in the partnership deed. The court dismissed the argument that a partnership existed prior to the execution of the partnership deed.

Conclusion:
The court determined that a partnership between Rangappa Setty and his sons was formed on November 18, 1959. Therefore, the income from the business should be assessed based on this partnership. The court disagreed with the Appellate Tribunal's decision to treat the income as that of an unregistered firm and directed individual assessments based on the distribution of properties under the partition deed. The court's decision clarified the assessment of income for the relevant periods and emphasized the importance of partnership formation based on valid agreements rather than assumptions from earlier deeds.