9911796707
TMI Blog1978 (5) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... . Shri Chandmal Modi being the sole co-parcener of the HUF was under obligation to maintain Smt. Chunnibai, widow of Shri Suganchand. According to the assessee there arose family disputes between Smt. Chunnibai, widow of Shri Suganchand and wife of Shri Chandmal Modi. The dilemma of Shri Chandmal Modi that if he predeceased Smt. Chunnibai, his wife, as the widow of the sole surviving co-parcener, would be entitled to the entire property absolutely and his Aunt Chunnibai would be left to the mercy of his wife. If, on the other hand, Smt. Chunnibai makes an adoption, her position would improve to the detriment of his wife. So according to the assessee a settlement in order to decide family disputes was badly needed, and it was in the best interest of all the parities concerned and also it was necessary in order to avoid further disputes among the members of the family. 3. In order to maintain peace in the family, Shri Chandmal Modi and Smt. Chunnibai appointed Shri Surajmal Jain as sole arbitrator. Both the parties agreed to appoint him as sole arbitrator. It was agreed that the finding of the arbitrator would be binding on the parties. On 15th Sept., 1961 Surajmal Jain gave the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the paper book. For the purpose of clarity the sub-partnership deed is being reproduced which is as under: Partnership deed: "This instrument of partnership made this 11th day of Jan., One thousand nine hundred and sixty three by and between: 1. Shri Chandmal Modi son of Shri Nandkishoreji Modi aged 65 years by caste Maheshwari resident of Beawar, hereinafter called the First party ; and 2. Smt. Chunnibai widow of Shri Suganchandji Modi aged about 60 years by caste Maheshwari resident of Beawar hereinafter called the Second party; Whereas the party on the first part is a partner in M/s. New Ganesh Finance Co., Beawar with an investment of over Rupees Two lacs towards capital contribution and is holding 27 per cent share of profit and or losses in the said firm. And Whereas the first party had formed a sub-partnership on 1st July, 1962 and Smt. Raj Kumari Bai and Shri Prem Kishan were working as his sub-Partners on the terms and conditions mentioned in the partnership deed dt. 1st July, 1962 and whereas the said Smt. Rajkumari Bai and Shri Prem Kishan have stopped out of this Partnership on and from 31st Dec., 1962. And Whereas the second party was having a credit b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rded in the books of Smt. Chunnibai. She disclosed all such income in her return. The assessments of Smt. Chunnibai were completed in accordance with law. Till today those assessments hold good. 5. In all the appeals the following points are in controversy : (i) Whether a sum of Rs. 1 lac was transferred by Shri Chandmal Modi as Karta of the HUF in favour of Smt. Chunnibai. (ii) The interest income earned on such deposits are to be taxed in the hands of the assessee M/s. Nandkishore Chandmal Modi. (iii) Whether there was a valid sub-partnership between Shri Chandmal Modi as Karta of the HUF and Smt. Chunnibai. (iv) Whether the entire income of sub-partnership was includible in the hands of the HUF 6. It is common ground that more or less all these points were in issue before the Tribunal in the case of the assessee in respect of assessment years 1964-65, 1965-66, 1966-67, 1967-68 and 1968-69. In the case of M/s. Nandkishore Chandmal Modi vs. The ITO and M/s. Chandmal Modi vs. The Income-tax Officer, Beawar, the Tribunal vide its order dt. 16th Aug., 1975 decided the issue against the assessee. In substance the finding of the Tribunal was that there was no valid transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alid. According to the learned counsel the income earned by way of interest by Smt. Chunnibai on the deposit of Rs. 90,000 in the books of New Ganesh Finance Co, could not be incredible in the hands of the assessee as it was income of Smt. Chunnibai and the same was assessed in her assessments by the competent authority. Similarly, it was submitted that the income earned by Smt. Chunnibai as a result of sub-partnership was not includible in the hands of the assessee as that income was of Smt. Chunnibai and the same was taxed regularly in her hands. According to the learned counsel, in these years the assessee produced material and important evidence which was not filed in earlier years. So in view of decision of the Supreme Court in the case of CIT, West Bengal vs. Brijlal Lohia and Mahabir Prasad Khemkaa (1), the Tribunal can reconsider the whole issue and if necessary may change its earlier view. According to the learned counsel the decision of the Tribunal of earlier years is not res judicata and each year is independent year. According to the learned counsel in that case also in earlier years the ultimate finding was given that the gift was not genuine. The same matter was in i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dmitted the evidence. It is common ground that the Tribunal never passed the order holding that the additional evidence is not admitted. It means that the Tribunal impliedly admitted the evidence filed by the assessee. It is settled law that the Tribunal is to go by substance and not by form. In the present case in substance the additional evidence filed by the assessee has already been admitted by the Tribunal. So at this stage when matter has been heard again by the Tribunal it does not lie in the mouth of the Revenue to contend that the additional evidence may not be admitted. From the entire facts and the material on record it is clear that the aforesaid additional evidence has already been admitted by the Tribunal. 12. The other contention of the Revenue that the points in controversy have already been decided by the Tribunal and as such they may not be reconsidered again is not correct. 13. As a general rule the principle of res judicata is not applicable to the decision of Income-tax Authorities. Assessment for a particular year is final and conclusive between the parties only in relation to the assessment for that year and the decision given in an assessment for an earl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee and which remained obscure in earlier years, the whole conclusion can be changed. 16. We may point out that the parties have argued the whole case afresh with reference to the facts, documents and the evidence on record. So the whole point will have to be reconsidered again in the light of the contentions raised by the parties. 17. So the first point for determination in these appeals is whether there was a valid transfer of Rs. 1 lac by Shri Chandmal Modi as Karta of the HUF to Smt. Chunnibai. Whether this transaction was genuine or not. 18. We have discussed the facts of the case under what circumstances the said transfer was made. According to the learned counsel for the assessee the said transfer was valid and was duly acted upon. On the other hand, according to the Revenue, the said transaction is not valid. It is a sham transaction. In order to decide this controversy it would be necessary to decide that under what circumstances the said transfer took place. From the aforesaid facts it is clear that there was family dispute. After the death of Shri Suganchand, Shri Chandmal Modi became the sole surviving co-parcener in the family. Smt. Chunnibai was the widow of Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntitled to that respect which is due to judgement of a Court of last resort. Therefore, if the award which has been pronounced between the parties has in fact or can, in law, be deemed to have dealt with the present dispute. The second reference would he incompetent. This position also has not been and cannot be seriously disputed." At page 887 the Supreme Court further ruled as under : "The award shall be final and binding on the parties and persons claiming under them respectively. If the award is final and binding on the parties it can hardly be said that it is a waste paper unless it is made a rule of the Court." In the case of Kripa Singh Biswas vs. Sudha Sindhu Biswas Others (6), the Hon'ble High Court held that "An award is an equivalent to a final judgment, though not enforced. Even if it is not filed in the Court it is not on that account invalid. The cause of action having merged in the award, a valid award constitutes a bar to any action on the basis of the original demand". In the case of Bungo Steel Furniture (Pvt.) Ltd. vs. Union of India (7) the Supreme Court at Page 378 ruled as under: "If an arbitrator, in deciding a dispute before him, does not rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal it appears that the Tribunal at that time had an idea in their mind that the award should have been made rule of the Court. From the said observation it appears that the Tribunal has not considered the said award property because in its view it was waste of paper because it was not made rule of the Court. As discussed above, the aforesaid decisions of the Supreme Court were not brought to the notice of the Tribunal. It means that the observations of the Tribunal made above were not correct and were also not in accordance with the law. In view of the aforesaid facts and ratio of the decision of the Supreme Court it is clear that in the present case the award given by the arbitrator was valid and binding on the parties. It was as good as judgment of the highest Court. 21. As a matter of fact on the basis of the award Smt. Chunnibai has acquired a legal right to enforce the recovery of Rs. 1 lac from Shri Chandmal Modi, Karta of the HUF from the evidence on record which we will later discuss, it is clear that in pursuance of this award a capital account of Rs. 1 lac of the HUF is stood reduced and a sum of Rs. 90,000 was credited in the account of Smt. Chunnibai in the books of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... New Ganesh Finance Co. the sum was debited to the account and consequent credit of Rs. 90,000 was given to Smt. Chunnibai. It means that w.e.f. 30th June, 1962 Smt. Chunnibai became creditor of the firm New Ganesh Finance Co. We may also point out that the award was given on 5th Sept., 1961. A credit entry in favour of Smt. Chunnibai was made in the books of the HUF on 10th Nov., 1961. Smt. Chunnibai was made payment of Rs. 5,000 on 30th Sept., 1961. The copy of the account of the HUF is on the paper book. A sum of Rs. 90,000 was paid to Smt. Chunnibai by way of entries in the books of the HUF on 30th June, 1962. This entry in the books of the H.U.F, corresponds with the entry in the account of Smt. Chunnibai in the books of New Ganesh Finance Co. Smt. Chunnibai was paid Rs. 3,000 by an entry dt. 6th July, 1962. An entry to this effect was duly made in the books of the HUF Another sum of Rs. 4,000 was paid to Smt. Chunnibai by entry dt. 11th Oct., 1962. The copy of the account in respect of this item is also on the paper book. From the material on record it also comes out that Smt. Chunnibai had an old deposit of Rs. 17,395.61 with M/s. New Ganesh Finance Co., Beawar. The said firm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he transfer of Rs. 1 lac by way of award and the entries were bogus and sham. At this stage we may point out that it was not the case of either party that Shri Chandmal Modi gave Rs. 1 lac in cash to Smt. Chunni Bai in pursuance of the award. This position become more clear from letter dt. 23rd Nov., 1967. This letter was written by the learned ITO to the assessee in respect of asst. yr. 1963-64. This said letter reads as under: "The following information may be furnished: (i) Capital account has been debited by Rs. 1 lac which is that payment to Smt. Chunnibai as per arbitrator's award. The nature of this payment may please be explained. Please let me know why gift tax should not be charged on this amount. A copy of arbitrator's award may be furnished." So even from this letter it is clear that the Revenue also took the stand that payment of Rs. 1 lac was made to Smt. Chunnibai on the basis of entries in the books. In the assessment order the learned ITO also never held that Shri Chandmal Modi in pursuance of the award gave Rs. 1 lac to Smt. Chunnibai in cash on 5th Sept., 1961 when the award was given. As a matter of fact, this was not the case of the either party. So the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted to invest that amount of 1 lac after taking from my capital, as I could not give immediately the amount, without retiring from M/s. New Ganesh Finance Co. And also because they were not agreeing to diminish my capital invested therein and there I was earning profits very well. If we read this statement of Shri Chandmal Modi carefully it would be clear that sum of Rs. 1 lac as maintenance was fixed by the arbitrator. As a result of the award a sum of Rs. 1 lac was never given in cash. The payment was made on the result of books entries. As a matter of fact the following question put by the ITO itself goes to indicate that a sum of Rs. 1 lac was only credited to the account of the lady. The question was as under: "Then why you gave 35 NP share in the profits of Smt. Chunnibai after setting apart the corpus of 1 lac to her account? Shri Chandmal Modi never stated that he gave Rs. 1 lac to Smt. Chunnibai on the date of award in cash. As a matter fact, Smt. Chunnibai never deposited any amount with New Ganesh Finance Co. in cash. The statement of Smt. Chunnibai is also material. The copy is on the paper book. In the statement, the lady stated that she received Rs. 1 lac as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he lady also stated that sum of Rs. 1 lac was also shown as her capital in the WT returns and the same was also accepted by the WT Officer. The statement of the lady was recorded after 7 or 8 years of the award. If there was any discrepancy in her statement it was due to lapse of time. Such discrepancies are natural. As a matter of fact, the statement of the lady and her affidavit are consistent. Her statement and other evidence if considered carefully the only conclusion which could be drawn would be that as a result of the award the lady was given Rs. 1 lac for her maintenance. Credit entries were made in the books of the HUF as discussed above. Consequently on the instruction of Shri Chandmal Modi the sum of Rs. 90,000 was credited in the books of New Ganesh Finance Co. on 30th June, 1962. A corresponding debit entry was made in the account of Shri Chandmal Modi in the books of M/s. New Ganesh Finance Co. What ever interest was earned by the lady on such credit deposits were duly assessed in the hands of the lady. 26. On the aforesaid facts it was submitted on behalf of the assessee that transfer of book entries constitutes a valid transfer. Reliance was placed on the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in possession, dominion and control of the money. If she had been carrying on a banding business and had made the entries in her books of account of the business it might have been said that thereby Om Nath obtained possession, dominion and control of the money. In this decision the Hon'ble High Court pointed out that a distinction must be drawn between cases whether the entries are made in the account of the donor and the donee in the books of the third party holding money to the credit of the donor and a case where the doner purports to effect the transfer by making entries his own books. In this decision the Hon'ble High Court also rules as under : "It is settled that a transfer can be effected in the books of the donor's firm by making a debit entry in the account of the donor and making a corresponding credit entry in the account of the donee. So long as the entries made in the respective accounts put the gifted amount beyond the control of the donor and result in his ownership in it being replaced by the owner ship of the donee there is a reason why a valid gift cannot be effected through such book entries. The adequacy of a cash balance in the books of the firm on the rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ettled that in order to complete a gift of cash actual physical delivery of currency notes to the donee is not essential. Where a donor having an account with a third party for example, the firm in which he is a partner instructs the firm to debit his account and credit the donee's account and such entries are effected with the consent of the donee, the gift is complete irrespective of the question whether cash has actually been paid to the donee on that date or not. The income thereafter which accrues from such gifted amounts accrues to the donee. The questions of delivery is not a sine qua non of the matter, for delivery in such case is always deemed to be symbolical. What is essential is that there should be sufficient assets in the hands of the third party, namely, the firm, to the credit of the partner, who is making the gifts, to cover such transactions. That position is not in dispute in the instant case. That being so the fact that the firm did not have sufficient cash balance on the date of the gifts would not afford any indication of the incapacity of the firm to make such cash payments if so demanded. The question as to how far the possession of the thing gifted can be g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r with the corresponding amounts. The joint family firm carried out instruction and submitted voucher with sign. In the case of Ratnaswami Nadar Sons vs. CIT Madras(26) the Hon ble High Court at page 1152 ruled as under : "Actual delivery is not mere evidence of the gift but is part of the gift itself. In ordinary English language and in legal effect there cannot be a gift without a giving and taking. But delivery need not necessarily be actual manual delivery. A Constructive delivery by which the donee is effectively put in possession of the subject matter of the gift is sufficient compliance of the requisite of law ". The Hon'ble High Court further ruled as under: "Whether the gift consists of cash or money the donor can be merely handling over the subject-matter of the gift to the donee effectively bring about a gift. It is open to the donee to hand back the gift to the donor asking him to keep it with him on his behalf or treating him as his debtor. It is implicit in a credit entry in favour of the donee in the account books of the donor that the amount standing to such credit has been gifted to the donee and has been invested with the donor. Though the entry as such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ook. Smt. Chunnibai also maintained her regular books. Sum of Rs. 1 lac was shown as her capital. WT was paid by her on this amount. All such income-tax assessment orders and WT orders are final. They still hold good. 30. The aforesaid facts and book entries are also fully corroborated of the statement of Shri Surajmal, Shri Chandmal and Smt. Chunnibai. The affidavit of Smt. Chunnibai is also on the paper book. The statement of Shri Chandmal Modi as reproduced above clearly goes to establish the case of the assessee that after the award the book entries were made in respect of Rs. 1 lac to the credit of Smt. Chunnibai. She became creditor of HUF after the award was given. The statement of Smt. Chunni Bai in substance goes to prove the aforesaid facts. She clearly stated that whatever she got as a result of the award, was deposited in the books of New Ganesh Finance Co. As discussed above it was not either of the party before the authorities below or before the Tribunal that Smt. Chunnibai was given Rs. 1 lac in cash at the time of the award. The Department also proceeded on the footing that whatever capital Smt. Chunni Bai was given as per maintenance was deposited in the books o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ossession by the husband on any property, ancestral or self-acquired. Reference may be made to the decision in the case of Vadeboyina Talasamma Other vs. Vaddeboyuama Seha Reddi.(27) It is also settled law by now that the right to maintenance flows from the social and temporal relationship between the husband and the wife by virtue of which the wife becomes a sort of co-owner in the property of her husband, though her co-ownership is of a subordinate nature. Where a Hindu widow is in possession of the property of her husband, she is entitled to retain the possession in lieu of her maintenance unless the person who succeeds to property or purchases the same is in a position to make due arrangements for her maintenance. In this respect we may point out that even during the British times, there were certain legislations modifying certain provisions of the Hindu Law e.g. the Hindu Law Inheritance Act, which added a few more heirs including some females, the Hindu Women's right to property Act, 1937, which provided that on partition a widow would be entitled to the same shares as the sons in the property of her husband. The Act of 1937 while giving a share to the wife on a partition h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s. New Ganesh Finance Co. and also from other sources used to be assessed from year to year. This is a clear from the assessment orders, copies of which are on the paper book. The books maintained by the HUF and M/s. New Ganesh Finance Co. are regularly kept. Copies of the accounts of New Ganesh Finance Co. were filed before the Tribunal. They were also supported by a certificate reproduced above. M/s. Jamnalal Ramkimti, Khajuiri Bazar, Mahatma Gandhi Marg, Indore also made corresponding entry and gave credit of Rs. 5,000 to Smt. Chunnibai. Smt. Chunnibai became creditor to the said extent to M/s. Jamnalal Ramkimti, Indore. The said firm is also assessed the Income-tax. It also maintained regular books of account. Similarly, M/s. Lalchand Jagdishprasad, Mewari Bazar, Beawar made corresponding entries and gave credit of Rs. 7,000 to Smt. Chunnibai. In this case also Smt. Chunnibai became creditor to the said extent of M/s. Lalachand Jagdishprasad, Beawar. 35. Looking to the aforesaid facts, the entire evidence on record and entirety of circumstances, it is proved to the hilt that as a result of the award Smt. Chunnibai became creditor of Rs. 1 lac of Shri Chandmal Modi, Karta o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upee. Smt. Chunnibai............. 35 NP in a rupee. According to cl. 5 of the sub-partnership deed Smt. Chunnibai was required to keep a minimum balance of Rs.1 lac in M/s. New Ganesh Finance Co. Till this sub partnership continues. Clause 6 of the sub-partnership deed is very material. According to this clause, the said partnership shall be only to share the profit or loss following to the share of Shri Chandmal Modi in M/s. New Ganesh Finance Co., Beawar. The interest credited by M/s. New Ganesh Finance Co., Beawar to both the party's accounts shall solely belong to them. It means that whatever interest would be earned by the partners shall be credited in their accounts in the books of M/s. New Ganesh Finance Co. 38. In all the appeals the point of determination is whether the share income accrued to Smt. Chunnibai on the basis of this sub-partnership would be includible in the hands of the assessee or not. 39. This point was also decided against the assessee by the Tribunal in earlier years. As discussed above in these years the assessee had filed additional evidence which has been discussed in detail in preceding paragraphs. We have also held that he transfer of Rs. 1 l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... share of the lady were credited in the books of M/s. New Ganesh Finance Co. On those deposits Smt. Chunnibai got interest and the same were duly recorded in her account in the books of the said firm. We have already held that he account books maintained by New Ganesh Finance Co. were closed and adjusted. Atleast in these years there was no evidence to the contrary showing that the books maintained by New Ganesh Finance Co. were not reliable. 41. It is significant to note that the share income received by the lady was duly returned by her in the return filed by her from time to time. Copies of the assessment years 1963-64 to 1971-72 of Smt. Chunnibai are on the paper book In all those assessment orders the share income from M/s. Chandmal Modi was duly assessed in her hands. Even the interest income earned by the lady on the deposits with New Ganesh Finance Co. was also duly returned and assessed. In the assessment orders 1964-65 to 1971-72 there income from Shri Chandmal Modi was assessed at Rs. 5,752, 12,462, 23,067, 30,785, 32, 494 15, 037 and 4,689 respectively. These assessments were not completed on protective basis. They became final. Those assessments still hold good. We ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st. yr. Income Assessed Wealth Assessed 1957-58 3,080 ... 1958-59 3,523 ... 105960 4,578 ... 1960-61 4,144 .... 1961-62 4,561 ... 1962-63 5,401 .... 1963-64 10,520 .. 1964-65 15,833 2,27,349 1965-66 28,871 2,46,877 1966-67 41,642 2,99,148 1967-68 51,431 2,97,518 1968-69 60,867 3,25,065 1969-70 27,060 3,46,335 (v) The preparation of copy of my Capital Account since the beginning of my assessment will take lot of time for which I may please be granted time." In this reply Smt. Chunnibai in clear words stated that since Sept., 1961 when the award was given, she was no more a member of the HUF. She clearly stated that her sources of income were from house property, interest income from money lending, share in the firm M/s. Chandmal Modi and income from other sources. The lady was given details of her assessed income from assessment year 1963-64 to 1969-70. She also gave details of he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment. If, therefore, several persons are partners and one of them agree to share the profits derived by him with a stranger, this agreement does not make the stranger a partner in the original firm. The result of such an agreement is to constitute what is called a sub-partnership. That is to say, it makes the parties to it partners interse; but it in no way affects the other members of the principal firm. The right s and obligations of a sub-partner as between himself and his co-partner would primarily be governed by the agreement between them. 44. In view of the law prevailing at the moment it is clear that sharing of profits is strong evidence of part but in no sense conclusive. In determining whether partnership exists between a number of persons, the Court and tribunal the must have regard to the real relationship between to be ascertained from all the facts and circumstances of the case. The receipt by a person of a share of the profits of a business is an important element and strong evidence of the existence of partnership between him and the persons carrying on the business though not conclusive evidence. In our opinion it is a circumstance and a very strong one which has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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