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TMI Blog1990 (7) TMI 191X X X X Extracts X X X X X X X X Extracts X X X X ..... d by various partners was indicated in para 5 of the said deed. A. Y. Khare, the appellant herein, had contributed Rs. 7000 and A. Y. Khare had contributed Rs. 14,000. This partnership was assessed upto the asst. yr. 1969-70. On 1st July, 1969 there was a partial partition of the HUF of Y. A. Khare, Karta, his son Anant Y. Khare and his wife Sumati Yashwant Khare. In terms of such partial partition the 14 per cent share of Y.A. Khare was divided between himself, his son and his wife equally. His son A.Y. Khare received on such partition share of 4.67 per cent which was stated to be received by his smaller HUF which consisted of himself and his wife. An order recognising this partition was passed by the ITO Assessment XI, Nagpur, on 8th Jan., 1975 for the asst. yr. 1970-71 and 1971-72. The share of Y.A. Khare representing himself and the two partitioned members of his family, namely, A.Y. Khare (HUF) and Smt. Sumati Y. Khare was increased to 24 per cent w.e.f 1st Oct., 1971. A.Y. Khare in his individual capacity continued to have 7 per cent share in the firm. Thus from 1st Oct., 1971 the shares fo the three members of the Khare family together was 31per cent as under: Yashw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he share of the members of the Khare family were revised as under: (1) A.Y. Khare (Individual) 15% (2) S.Y. Khare (HUF) 6% (3) Smt. Sumathi Y. Khare 8% In the partnership deed drawn on 5th July, 1978 the entire 29 per cent was shown as a share of Anant y. Khare and the capital contributed by him was shown at Rs. 1,16,000. A memorandum of understanding was drawn on 1st July, 1979. This memorandum of understanding was between Anant Y. Khare and his mother Smt. Sumati Y. Khare. It recorded all the facts as enumerated above and stated, inter alia, in the preamble portion as under: "And whereas consequent to the induction of M/s Khare Tarkunde Private Limited in the said Partnership firm by virtue of Deed of Partnership dt. 5th July, 1978, Shri A.Y. Khare for and on behalf of the said co-claimants became entitled to 29 per cent of the right, title and interest in the partnership firm M/s Khare and Tarkunde". The memorandum of understanding in effect laid down the interest in the partnership firm represented by A.Y. Khare and the late Y.A. Khare from time to time, in cl. 1 as under: "1. It has been agreed and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and accepted by the Department and a memorandum of understanding dt. 1st July, 1979. There was also a declaration of family arrangement on 7th April, 1980. Shri Dewani pointed out that the WTO Circle I(3) assessing the assessee in the capacity of the Karta had completed the assessments of A.Y. Khare, HUF, on the basis of the partial partition of the family of Y.A. Khare in 1969 and had accepted not only the factum of such partial partition, but the factum of representation by Y.A. Khare and his son A.Y. Khare in the firm on behalf of the three co-claimants for the asst. yr. 1979-80 and 1980-81 by an order dt. 27th Nov., 1984 under s. 16(3) of the WT Act. Similarly the Income-tax and Wealth-tax assessments of Sumati Y. Khare have been completed by the ITO, Circle I(4) and WTO, Circle I(3) on the basis of the partial partition of the HUF of Y.A. Khare in 1969 and the fact that the co-claiments were represented by Y.A. Khare first and thereafter by A.Y. Khare in the firm was also accepted in the assessment of Mrs. Sumati Y. Khare in the firm was also accepted in the assessment of Mrs. Sumati Y. Khare in the asst. yr. 1979-80. According to Shri Dewani the capital shown against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave been assessed to tax on the share received by them from Shri A.Y. Khare (Individual) and such conduct of the parties could not be ignored. Shri Dewani relied on a catena of cases in support of his stand. He relied on three decisions of the Bombay High Court in: Ratilal B. Daftari vs. CIT (1959) 36 ITR 18 (Bom); CIT vs. Nariman B. Bharucha Sons (1981) 130 ITR 863 (Bom); CIT vs. M.D. Kanoria (1981) 22 CTR (Bom) 262 : (1982) 137 ITR 137 (Bom); and there decisions of the Supreme Court is: CIT vs. Sitaldas Tirathdas (1961) 41 ITR 367 (SC); Charandas Haridas Another vs. CIT (1960) 39 ITR 202 (SC); State Bank of Travancore vs. CIT (1986) 50 CTR (SC) 290 : (1986) 158 ITR 102 (SC). 4. It appears that the claim for separate assessments on the ground of an over-riding title created by the memorandum of understanding was not accepted either by the assessing authority or the first appellate authority mainly on the ground that there was neither a pre-existing legal obligation nor a sub-partnership. The CIT(A) in para 5 rejected the claim of the appellant for the asst. yr. 1981-82 in the following words: "5. The appellant's claim for excluding a portion of the share of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 32 ITR 355 (Mad). The Departmental Representative further argued that in the partnership deed dt. 13th Nov., 1977, the appellant, namely, Shri A.Y. Khare was described as existing partner and he was admitted with an increased share and there was nothing in the partnership deed to indicate that the said A.Y. Khare was representing himself, his smaller HUF and his mother which together amounted to the 29 per cent indicated above. 6. Replying to the argument of the Departmental Representative, Shri Dewani pointed out that the assessment made in the case of A.Y. Khare, HUF, for the asst. yrs. 1981-82 and 1982-83 were substantive assessments and the assessments made in the case of Smt. Sumati Y. Khare for the asst. yr. 1981-82 was substantive and for the asst. yr. 1982-83 was protective. 7. We have carefully considered the submissions made by both the parties. In the course of proceedings we called upon Shri Dewani to produce the original paper of the memorandum of understanding which has been so produced and examined. A Xerox copy of the same has been filed. The memorandum of understanding dt. 1st July, 1979 is a stamped document and the stamp paper was purchased on 23rd Oct., 1978 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the hands of Y.A. Khare (Individual), A.Y. Khare (HUF) and Smt. Sumatibai Khare as well as A.Y. Khare (Indl.) at 8 per cent, 8 per cent, 8 per cent and 7 per cent respectively and such assessments continued upto asst. yr. 1978-79. From the asst. yr. 1979-80, however, the entire 31per cent share was taxed by the Department in the hands of the appellant as individual and in the subsequent assessment years also the revised 29 per cent share has been taken by the Department in the hands of the individual of A.Y. Khare. Similarly in wealth-tax assessments upto 1978-79 the various shares as declared were assessed in the respective hands of the co-claimants, namely, Y.A. Khare (Indl.), A.Y. Khare (HUF), Smt. Sumati Khare and A.Y. Khare (Indl.), but from the asst. yr. 1979-80 31 per cent share is assessed in the hands of A.Y. Khare (Indl.) and from the asst. yr. 1980-81 onwards 29 per cent share has been taken in the hands of the A.Y. Khare (Indl.). We have now to decide whether the memorandum of understanding entered into on 1st July, 1979 has the effect of providing an overriding title on the shares earned by A.Y. Khare in the partnership which share as per the latest document of part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a partition in Hindu law might have no effect upon the position of the partner, in so far as the law of partnership was concerned, but it had full effect upon the family in so far as the Hindu law was concerned. Just as the fact of a Karta becoming a partner did not introduce the members of the undivided family into the partnership, the division of the family did not change the position of the partner vis-a-vis the other partner or partners. The income-tax law before the partition took note, factually, of the position of the Karta, and assessed him not as partner but as representing the HUF. In doing so, the income-tax law looked not to the provisions of the Partnership Act, but to the provisions of Hindu law. But once the family had disrupted, the position under the partnership continued as before, but the position under the Hindu law changed. The decision, in our opinion, would appear to support the stand of the appellant on the present facts of the case. A similar situation arose in the case of CIT vs. M.D. Kanoria. In that case also the Karta of an HUF consisting of himself, his wife and two minor sons was a partner in the firm for and on behalf of the family. There was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the same, namely, A.Y. Khare (Indl.), A.Y. Khare( HUF) and Smt. Sumati Y. Khare. The conduct of the parties which is in consonance with the terms of the memorandum of understanding would support the argument that the memorandum of understanding created an overriding charge and such charge was attached to the source of income which was the share in the partnership firm. In fact such charge was attached to the source even at the point of time when partial partition was effected. The memorandum of understanding only confirmed the position obtaining at the time of partial partition. It is not disputed that the appellant had paid the shares due to the HUF of A.Y. Khare as well as to Smt. Sumati Y. Khare. Also we find that both these entities have been independently assessed in respect of share of income declared by them in their income-tax returns and have also been assessed to tax on the value of their interest in the partnership firm. In the light of the above discussion, we hold that the share earned by the appellant from the partnership firm of Khare Tarkunde has to be, by virtue of the memorandum of understanding which we have held is a genuine and contemporaneous document, a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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