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TMI Blog1998 (11) TMI 151X X X X Extracts X X X X X X X X Extracts X X X X ..... potential in the immediate future. The partition of the value of rights, interest and title in the said two business was also made during the course of such total partition of the family properties made on27th March, 1989. The relevant clauses relating to the partition of the interest in the two business concerns contained in cls. 5.1 to 7 are reproduced hereunder: "5.1. Now this memorandum further witnesseth that a question was raised by the party of the Second Part both on her own as well as on behalf of the parties of the Third and Fourth Parts that the business in the names of Gaurav International and Sunny International had considerable profit potential as evident from the figures detailed in para 5 supra; and that merely dividing and allotting in the parties of the Second, Third and Fourth parts one-fourth share each in the total value of the aforesaid joint family interests in the said two businesses as represented by the credit balances and reserves as on 27th March, 1989 and more particularly described in cl. 1 supra would not be a fair division; that looking to the profit potential the two business had exhibited as evident from the business results upto 27th March, 198 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e two businesses part-owners (even though under the law such a right was available absolutely as regards the proprietary business and subject to the consent of the other partners as regards the partnership business) yet it would not advance the interests of the two businesses in the light of the circumstances noted above; that it was therefore, mutually agreed between the party of the First Part an the party of the Second Part (acting on her own and in her representative capacity) that keeping in view the profits earned in the two businesses in the past and looking to the profit potential of the two businesses in the immediate future, a fair adjustment (against the giving up by the parties of the Second. Third and Fourth Parts the right to join the two businesses as part-owners and participate in the profits that would be accruing after 27th March, 1989, could be reasonably placed at Rs. 9,00,000 i.e. at Rs. 12,00,000 in all representing a 25 per cent share in the firm of Gaurav International; that therefore an allotment of Rs. 3,00,000 each to the parties of the Second, Third and Fourth Parts (totalling in all Rs. 9,00,000) in the partition account was agreed upon between the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said two businesses would, after 27th March, 1989, belong solely to the party of the First Part; that further all the direct taxes or refunds, if any, of the said joint family upto and including 27th March, 1989, would be apportioned equally among the parties to this memorandum and the same would be met out of the properties allotted to them individually at the partition of 27th March, 1989; that similarly any demands raised on the aforesaid erstwhile family on its properties or income upto and including 27th March, 1989, would also stand apportioned equally among the four parties hereto and would be discharged by them, out of the properties allotted to them individually at the partition of 27th March, 1989; and that after 27th March, 1989, the parties of the Second, Third and Fourth Parts would not be liable in anyway for such demands of tax, penalty, interest or other sums demanded with regard to the properties that stood allotted to the party of the First Part under the partition of 27th March, 1989." 3. The facts of the case of Smt. Prabha Uppal are also exactly similar. Smt. Prabha Uppal is wife of Vijay Uppal. The HUF styled as Vijay Uppal (HUF) consisted of Vijay Uppal, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nil . 32,59,601.99 . I Party of the Second Part . 32,59,604.87 . Nil . 5,00,000.00 . 37,59,604.87 . II Party of the Third Part . 32,59,604.87 . Nil . 5,00,000.00 . 37,59,604.87 . III . 97,78,811.73 10,00,000.00 10,00,000.00 97,78,811.73 . 3.1. The other relevant clauses are similar worded in the memorandum of partition of this family executed on 29th day of March, 1989, hence those other clauses are not repeated for the sake of brevity. 4. The AO in the case of Mrs. Sunny Uppal held that the amount of Rs. 4 lakhs received by her represents a sale consideration of her future rights in the aforesaid business and, therefore, the same is taxable as a revenue receipt. The AO relied upon the judgment of the Supreme Court in the case of CIT vs. Gangadhar Baijnath 1972 CTR (SC) 310 : (1972) 86 ITR 19 (SC). Likewise, the AO in the case of Smt. Prabha Uppal had treated the amount of Rs. 5 lakhs as sale consideration received by the assessee for transfer of her future rights in the aforesaid businesses of the erstwhile HUF and treated the same as taxable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total partition made on 27th March, 1989, in the cases of both these HUFs which is evident from the fact that elaborate terms and conditions in relation to such payment for their share in the business interest have been incorporated in the respective memorandum of partition of these two HUFs executed on 29th March, 1989. He also pointed out that total partition of these two HUFs have also been approved vide orders under s. 171(3) passed in the cases of these two HUFs. Copies of orders under s. 171(3) in the case of Vijay Uppal HUF and in the case of Virender Uppal HUF were furnished. A perusal of the order under s. 171(3) dt.30th March, 1990passed in both these cases clearly shows that a copy of the memorandum of partition dt.29th March, 1989, was filed in both these cases. The total partition made on27th March, 1989, which is evidenced by the memorandum of partition dt.29th March, 1989, was duly recognised and approved under s. 171. 7.1. The learned counsel also cited the following decisions during the course of hearing : (1) Asstt. CIT vs. Smt. Mahinder Pal Bhasin 1978 CTR (All) 96 : (1978) 117 ITR 26 (All); (2) A.K. Sharfuddin vs. CIT (1960) 39 ITR 333 (Mad); (3) Asstt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich the compensation could be allocated to the several rights. The assessee-firm thereafter continued to carry on various business activities and, with the aid of the sum of Rs. 35,01,000 received as compensation, acquired the controlling shares in two other companies, B.J. Co. also continued to be the managing agents of Swadeshi Cotton Mills Co. The question, inter alia, was whether the sum of Rs. 35,01,000 constituted business income of the assessee-firm under s. 10 of the IT Act, 1922, or whether it was a capital receipt as contended by it; Held , on the facts that since no deed of partnership had been entered into, the partnership was terminable at will and consequently the possibility of the termination of the partnership was inherent in the very course of business. The assessee-firm had various business activities and to join B.J. Co. was only one such activity. The trading structure of the assessee-firm was not affected. The firm merely replaced one trading activity by another. What happened was that the partners representing the assessee-firm in B.J. Co., had surrendered their rights in the partnership to the other partners and obtained certain payment for surrender ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ual adjustment was made with a view to ensure full and fair adjustment of the rights of the respective members of the HUF at the time of making a total partition of the family properties. The aforesaid amounts were allotted to the present assessee and minor sons with a view to ensure that the ladies and minor members of the family are allotted a reasonable share in the entire properties and assets belonging to the family. The Karta of the family who continued to enjoy rights of running the business in his individual capacity after the partition of the erstwhile HUF agreed to pay the money value of the share of other members of the disrupted family. Such mutual adjustment of rights on the total partition of a family cannot give rise to any taxable income in the hands of any of the members of the disrupted HUF. This was merely a mode of partition of the family properties including the interest of the erstwhile HUF in the business concerns. The total partition made in the cases of both these HUFs in accordance with the Memorandum of Partition executed in both these cases on 29th March, 1989, have been recognised and approved by the respective AOs of the two HUFs. The total partition e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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