9911796707
TMI Blog1994 (7) TMI 306X X X X Extracts X X X X X X X X Extracts X X X X ..... family, but was not communicated to the partnership firms. Therefore, the capital sum invested on behalf of the erstwhile joint Hindu family and, after the partition, pertaining to the five members of the family amongst whom the capital was partitioned, remained intact. It was further agreed that the assessee would continue to be a partner for all the five members in the five firms and the capital now partitioned amongst the five members will remain the capital invested in those firms on their behalf. As a result of this arrangement, Jagdish Rai, the assessee, found that he was entitled to a share of profit of Rs. 6,463. Similarly, his wife, Smt. Saraswati Devi, and his minor son, Ravinder Kumar, were each entitled to receive their share of profit amounting to Rs. 6,463. For the assessment year 1978-79, the Income-tax Officer not only assessed the assessee in respect of his share of income, Rs. 6,463, but also included the shares of income devolving on Smt. Saraswati Devi and Ravinder Kumar, aggregating to Rs. 12,527. In the assessment year 1980-81, the assessee was not only found assessable in respect of his share of income of Rs. 9,193, but also the shares of income devolving on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... minors were not made liable for loss and, according to him, this was a material feature appearing in the facts of the present case, which distinguished the facts of this case from those considered by the Gujarat High Court. Having heard both the sides and gone through the finding of the two authorities below and also the memorandum of partition, we are not left in doubt that the Appellate Assistant Commissioner had quite misled himself in the matter. He had not been able to appreciate the true purport of the Punjab and Haryana High Court decision and, therefore, his reliance on the said decision to reach a finding on the facts of the present case was misconceived. He did not notice that their Lordships of the Punjab and Haryana High Court were not called upon to decide whether the provision, contained in section 64(1) was applicable or not. If he had perused the question, which was referred to him, he would have immediately got the point that that question was not before their Lordships. Their Lordships had to reach a finding on the basis of the facts, found by the Tribunal. The Tribunal did not find from the facts of the case that there was any sub-partnership. Their Lordships ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment for partial partition which was brought about in the family as a camouflage. In our opinion, it was incorporated no doubt in the memorandum of partition, but the true nature of the agreement cannot be hidden by the fact of its being incorporated in the memorandum of partition. We are not aware that there is any principle of partition, which goes to the extent of bringing about also an agreement amongst the members seeking partition to remain united or to enable them to act in concert after the partition has been effected. Therefore, we cannot let ourselves be misled by the fact of agreement being incorporated in the memorandum of partition. We have to separate the agreement from the act of partition to appreciate its true nature. That being so, we cannot help finding support for the finding of the Income-tax Officer that five members reached an agreement in the nature of sub-partnership to divide the shares of income earned by the assessee as a partner in the five firms. Or conversely as an agreement among five members to let the assessee be a partner in the five partnership firms and earn the share of profit not only for his share of capital contribution but also for the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er reciting the division of the capital invested in the five firms as per the Hindu undivided family books equally amongst the karta, his wife and three minor sons contains the following relevant clauses : "Whereas it is realised by the parties hereto that it is not possible to partition 1/8th, 11 per cent., 8 per cent., 20 per cent. and 8 per cent. partnership interest in Messrs. Sobha Mal Sagan Lal, Muktsar, Tek Chand Mool Chand, Muktsar, Messrs. Mool Chand Raj Kumar, Muktsar, Tek Chand Budh Ram, Muktsar, and Messrs. Muktsar Khad Supply Co., Muktsar, respectively, by metes and bounds due to administrative and other practical difficulties. Parties hereto therefore agree that the said Jagdish Rai shall continue to represent them in the said five firms and also authorise Shri Jagdish Rai, karta of the family, to invest capital, belonging to the members of the Hindu undivided family obtained as a result of partition in the said firms. The only mode left to the parties hereto is to divide the partnership interest in five equal shares, (i.e., 1/8th, 11 per cent., 8 per cent., 20 per cent. and 8 per cent. share of profit) receivable from the firms. The said Jagdish Rai agrees to rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court held that an overriding obligation was created to make over the income in favour of the minors and, therefore, the income corresponding to the share of each minor right from the inception accrued to each minor, creating thereby a superior title in favour of the minors. I will also like to point out the opinion expressed by the learned commentator in the "Law and Practice of Income Tax" by Kanga and Palkhivala in the Supplement of Seventh edition, at page I/122. The relevant quotation reads as under : " According to the Gujarat High Court, clauses (i) and (iii) apply even to a sub-partnership ( CIT v. Mahendrasingh Mohansingh [1980] 123 ITR 938). However, in that case the finding of sub-partnership between the assessee and his wife and minor son after a partial partition was, it is submitted, incorrect. The minor could not be a partner in law. On the facts of the case, the assessee should have been held to be a partner in the firm in his personal capacity and as a trustee for his wife and minor son. It was a case of diversion of income by overriding title since the partner was obliged to hand over a portion of his share of income to the two members of his family as in Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... memorandum, were made : " Whereas it is realised by the parties hereto that it is not possible to partition 1/8th, 11 per cent., 8 per cent., 20 per cent. and 8 per cent. partnership interest in Messrs. Sobha Mal Sagan Lal, Muktsar, Tekchand Moolchand, Muktsar, Messrs. Moolchand Raj Kumar, Muktsar, Tek Chand Budh Ram, Muktsar, and due to administrative and other practical difficulties, parties hereto therefore agree that the said Jagdish Rai shall continue to represent them in the said five firms and also authorise Shri Jagdish Rai, karta of the family, to invest capital belonging to the members of the Hindu undivided family obtained as a result of partition in the said firms. The only mode left to the parties hereto is to divide the partnership interest in five equal shares, (i.e., 1/8th, 11 per cent., 8 per cent., 20 per cent. and 8 per cent. share of profit) receivable from the firms. The said Jagdish Rai agrees to receive the said shares of profits or losses from the above said five firms as on behalf of the said Saraswati Devi, Subhash Chander Suresh Kumar and Ravinder Kumar and agrees to distribute and hand over their respective 1/5th share of profit or loss as stipulated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the partition. Therefore, the income of other members could not be clubbed in the hands of the assessee under section 64(1) of the Act. The aforesaid decision was applied by the learned Appellate Assistant Commissioner in the assessment year 1980-81. The Revenue being aggrieved, brought the issue in appeal before the Amritsar Bench of the Appellate Tribunal. After hearing the parties, both the learned Members proposed different orders. The learned Judicial Member was of the view that the decision of the Punjab and Haryana High Court was given on the facts found by the Tribunal that in that case there was no sub-partnership. To substantiate the above view, the learned Judicial Member quoted a portion of the decision in the case of Ram Narain [1980] 126 ITR 267 (P H). On a consideration of the memorandum of partition, the learned Judicial Member held that there was an agreement between the members to use the capital partitioned in the books by keeping it intact in the books of the firm as capital invested. He agreed with the Assessing Officer that the five members after the partial partition reached an agreement to divide the share of income earned by the assessee as a partner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to me. The learned Departmental Representative Shri J. S. Arora read out and relied upon the proposed order of the learned Judicial Member. He contended that the matter in issue was fully covered in favour of the Revenue as per the decision in the case of Chandu Lal C. Shah [1977] 107 ITR 91 (Guj). He accordingly prayed that the proposed order of the learned Judicial Member be followed. Shri Sudarshan Kapur, learned counsel for the assessee, on the other hand, supported the proposed order of the learned Accountant Member. Apart from relying upon the decisions cited in the above proposed order, Shri Kapur brought to my notice the decision of the Punjab and Haryana High Court in the case of CIT v. Narinder Kumar [1989] 177 ITR 515. The above binding decision was submitted to be on all fours and accordingly it was contended that the proposed order of the learned Accountant Member should be endorsed. I have given careful thought to the rival submissions of the parties and have examined the proposed orders of the learned Members in the light of those submissions. In the case of Narinder Kumar [1989] 177 ITR 515, their Lordships of the Punjab and Haryana High Court distinguished the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-partnership between the assessee and his wife came into being as all the three elements necessary to constitute a partnership were present. Their Lordships accordingly held that the shares of the assessee's wife and son were liable to be included in the total income of the assessee under section 64 of the Income-tax Act. The aforesaid decision as noted earlier has been heavily relied upon by the learned Judicial Member. The learned Accountant Member, however, has referred to comments of the learned authors Kanga and Palkhivala on the aforesaid decision but in my view the decision in Mahendrasingh Mohansingh's case [1980] 123 ITR 938 (Guj) has been given on its own facts and is distinguishable. This is what has been held by the jurisdictional High Court in the case of Narinder Kumar [1989] 177 ITR 515 (P H) and I bow to the aforesaid observations rather than subscribe to the views expressed by the learned authors or by the learned Accountant Member in the proposed order. Having regard to the principles laid down in the cited cases in the proposed orders, the answer to the controversy presently before me, lies in determining whether on or after the partial partition, the mem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest in such property by birth and has a right to claim a partition. (In Punjab, a son cannot claim a partition against the wishes of the father but this aspect is not material for resolving the present controversy). Under the codified law, even female members of a joint family have been given the right to claim partition and have a defined indefeasible share in the property held joint prior to the partition. The share on partition is not allotted on account of any agreement but flows from well-settled principles of Hindu law. Turning now to the facts of the present case, it is seen that on the partial partition of the Hindu undivided family, each member became entitled to receive a 1/5th share of profit or loss in the firms as stipulated. The aforesaid 1/5th share was not allotted on account of any contract as envisaged under section 5 of the Partnership Act but flowed from rights of male members acquired by birth and by the female member on account of her relationship with the male member. There was no sharing of profits/ loss of business as partners. The right to take the 1/5th share followed from well-accepted principles of Hindu law. Such right was indeterminate prior to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... each. The said earning shall be the amount credited to the account of the party of the first part in the books of the partnership as his shares in the said partnership. The parties hereto agree to make an arrangement with the firm so that the parties of the second and third parts shall be entitled to withdraw their 1/3rd share in the profits as aforesaid directly from the firm. " The aforementioned clause clearly reflects a fresh agreement or arrangement among the members which did not follow or was incidental to partition of the joint family. The provision of payment of a minimum amount of Rs. 1,000 to each member was a fresh agreement entered into among the members. The arrangement further cast additional obligation on the karta. The aforesaid arrangement was held to satisfy all the elements necessary to constitute a sub-partnership. However, as noted earlier, the facts in the case are different and no inference of formation of a sub-partnership can be drawn. The case of Mahendrasingh Mohansingh [1980] 123 ITR 938 (Guj), in my view, is not applicable to the facts before me. The facts of the present case are parallel to the cases decided by the Punjab and Haryana High Court and ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
