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TMI Blog1981 (7) TMI 116X X X X Extracts X X X X X X X X Extracts X X X X ..... er in issue in these appeals. These appeals were, therefore, referred on 6-12-1979 by that Bench to the President, Appellate Tribunal, under section 255(3) of the Income-tax Act, 1961 ("the Act"), to constitute a Special Bench. These appeals have come up for hearing before us in pursuance of the direction of the President constituting the Special Bench. 3. Up to and inclusive of the assessment year 1972-73, Shri Sunku Subbalakshmaiah was assessed in the status of a HUF. This family consisted of the following members: 1. Sunku Subbalakshmaiah Karta 2. Viswanatha Gupta Minor son 16 years 3. Badrinatha Gupta Minor son 6 years 4. Swarajya Lakshmi Minor daughter 14 years 5. Vasundhara Devi Minor daughter 12 years 6. Prasanna Lakshmi Minor daughter 7 years 7. Smt. Nagarajamma wife 38 years On 1-1-1972 there was a partial partitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit did not create any overriding title in favour of the minor sons in respect of the profits earned by the father. He, accordingly, held that the entire income of the assessee was assessable in the hands of the body of individuals, consisting of Shri Sunku Subbalakshmaiah and his minor children. This order was passed by the ITO for the assessment year 1973-74 on 27-2-1976. For the next assessment year 1974-75 the succeeding ITO, following the order for the assessment year 1973-74, held that the business belonged to the association of persons and he completed the assessment, adding back the interest paid to the minor sons of Rs. 8,848 and also the amount paid to them of Rs. 27,022, by an order dated 17-3-1977. Appeals were preferred before the AAC against the above assessments. The AAC observed that the facts of the case in these appeals were on all fours with the facts of the case before the Appellate Tribunal, Hyderabad Bench 'A' in IT Appeal Nos. 1040 and 1041 (Hyd.) of 1976-77 (order dated 31-12-1977) relating to the assessment year 1973-74, in which it was held that the divided minor coparceners got their share in the net profits of the business by reason of an overridin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 27-2-1976 under section 171(3) of the Act accepting the partial partition of the bigger family of Shri Sunku Subbalakshmaiah. Besides, he also cited a number of decisions in which the terms "BOI" and "AOP" were discussed. 5. We have considered the rival submissions. The following questions arise for decision in these appeals : 1. Whether the ITO can change the status declared by the assessee in the return filed by him ? 2. Whether there was a "BOI" in the instant case ? 3. Whether the amounts disallowed by the ITO represented the income that accrued to the "BOI" ? 6. Let us take up the first question for consideration. It is common ground that in the instant case the assessee had filed the returns in the status of HUF, consisting of himself and his wife, which is referred to as smaller HUF. The ITO has, however, made the assessment in the status of an "AOP". The AAC on appeal had found the correct status as HUF. The revenue is aggrieved with the order of the AAC regarding the status of the assessee. According to the revenue, the correct status is that of BOI. According to the assessee, the correct status is that of a smaller HUF. In support of the submission that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tus declared by the assessee can be changed---Mangat Ram Hazari Mal v. CIT [1968] 67 ITR 788 (Punj. Har.) and Chiranji Lal v. CIT [1965] 56 ITR 715 (All.) The above decisions also supports his stand. We, therefore, hold that the contention of the assessee that the status declared in the return cannot be changed is not acceptable. This question is, therefore, answered against the assessee. 7. Now let us turn to the question as to what is the correct status of the assessee. In other words, whether the status of "BOI" or "AOP" determined by the ITO is correct. The revenue has heavily relied upon the ruling of the Andhra Pradesh High Court in the case of Deccan Wine General Stores v. CIT to support its argument that the correct status of the assessee is that of "BOI". The term "BOI" is not defined in the Income-tax Act. Several High Courts have attempted to define the said expression. In CIT v. Deghamwala Estates [1980] 121 ITR 648, the Madras High Court referred to the ruling of the Andhra Pradesh High Court in Deccan Wine General Store and observed that it was a case where on the death of an individual his heirs succeeded to the three businesses carried on by him, that for so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... called an "AOP", and that they must combine to engage in an activity with a common design to produce income. The High Court observed that the absence of a common design principally distinguished the "BOI" from an "AOP". Thereafter the Andhra Pradesh High Court expressed the opinion that the expression "BOI" should receive a wide interpretation but not to include a combination of individuals, who merely receive income jointly without anything further as in the case of co-heirs inheriting shares or securities, but certainly wide enough to include a combination of individuals who have a unity of interest, but who are not actuated by a common design, and one or more of whose members produce or help to produce income for the benefit of all. The Andhra Pradesh High Court observed that they would leave the matter at that and they would not attempt a comprehensive definition stating that there was danger in doing it. Now having regard to the dictum laid down by the Andhra Pradesh High Court, let us examine the facts of this case. In the instant case, in the bigger family of Sunku Subbalakshmaiah, admittedly, there was a partial partition. This partial partition was accepted by the ITO b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ortion of the cash property of the family, i.e., capital of the family in family books known as Sunku Subbalakshmaiah Sons, Tadpatri and Sunku Cotton Traders Prop: Sunku Subbalakshmaiah, Tadpatri, under powers vested in me under Hindu Law as father and in pursuance of this I have ascertained the net capital of the family in both the sets of accounts as detailed below : On 1-1-1972 : Sunku Cotton Traders Prop. : S. Subbalakshmaiah, Tadpatri - Rs. 55,546.81 On 1-4-1972 : Suuku Subbalakshmaiah Sons, Tadpatri - Rs. 30,696.86 Out of the above family capital in Sunku Cotton Traders, Prop : Sunku Subbalakshmaiah, Tadpatri, the following sums were allotted to the female members as detailed below for their education and marriage expenses : Shri Swarajyalakshmi (Minor) Rs. 4,000 Shri Vasundharadevi (Minor) Rs. 3,000 Shri Prasannalakshmi (Minor) Rs. 2,000 Shri Padmaja alias Lakshmi Padmaja (Minor) Rs. 2,000 The above amounts were credited to their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sailed in a Court of law even at a later date by my sons to manage the above affairs personally by myself and in return for such personal services, 20 per cent of net profits should be charged towards my remuneration every year before parting with the profits as abovementioned to my sons and my smaller family. I further declare that the partial partition between myself and my minor sons made by me on 1-1-1972 and 1-4-1972 was complete and final as far as the portion of the family capital and family business is concerned and it had the blessings and concurrence of my wife. I further declare that the rest of the properties of the HUF are kept in the hotch potch of the family. I also declare that myself and my sons are separate as far as the above are concerned. I further declare that the fact of this partition is being made known to the public as far as possible. S/d S.S. Laxmaiah The contents of the above declaration having been read over and explained to the deponent and he having accepted the same as correct, signed before me today the 26th day of April, 1972. Sd/- XXX Designation Honorary Magistrate Dated 26-4-1972.". A plain reading of the above declaration sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s would constitute an expenditure wholly and necessarily incurred by Shri Rathnayya Setty for the purpose of business carried on by him. The Accountant Member further held that there was no dispute about the factum of payment of share of profits of the business to his sons by Shri Rathnayya Setty and these payments were on the basis of an agreement entered into by him with his sons. In this view, he held that the payments constituted business expenditure and were admissible deductions. 9. The revenue had relied upon the order of the Appellate Tribunal in IT Appeal No. 1628 (Hyd.) of 1973-74 (order dated 29-12-1975). In that case the Tribunal has found that the partial partition was recorded under document dated 31-1-1971, which stipulated that a first charge was created against the business stocks and other assets of the business taken over by the karta for the payment of profits to the minor sons. Further there were two other declarations incorporating the same dated 2-8-1971 and 17-8-1971. Having referred to these documents, the Tribunal in paragraph 5 of its order had found that there was only an actual division of the capital in the business between the karta and his three so ..... X X X X Extracts X X X X X X X X Extracts X X X X
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