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TMI Blog1962 (10) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 26A relating to the assessment year 1958-59, whereas the other application made by the karta of the Hindu undivided family of Pitamberdas Bhikhabhai arises out of the assessment made upon it for the same assessment year. The material account year in each case is Samvat year 2013 (November 3, 1956, to October 23, 1957). 3. It will be seen from the consolidated order of the Tribunal, marked annexure A and which forms part of the case, that the material facts as well as the contentions arising out of them finally crystallised only at the stage of hearing of the appeals by the Tribunal. Hence, no useful purpose will be served by referring at length to the proceedings that took place before the Income-tax Officer and the Appellate Assistant Commissioner. Having regard to the questions sought to be referred to the High Court now, the material facts are these. There is a business of kirana, tea and grains, that is carried on under the name and style of Messrs. Pitamberdas Bhikhabhai and Co. It was claimed that the said business belonged to a firm, called by the name, Messrs. Pitamberdas Bhikhabhai and Co., or simply Messrs. Pitamberdas Bhikhabhai. The partnership deed relatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the Hindu undivided family consisting of Pitamberdas, his seven sons and several other members of the family. 4. On November 3, 1956, Pitamberdas purported to enter into partnership in respect of that business with his two major sons, Ramanlal and Jayantilal, and this partnership between the three is sought to be evidenced by the deed made on November 18, 1956 (annexure B ). Shares of the three partners, Pitamberdas, Ramanlal and Jayantilal, as set out therein are , , respectively. It was on the basis of this deed that Messrs. Pitamberdas Bhikhabhai and Co. claimed registration for the assessment year 1958-59, the relevant account year being S.Y. 2013 (November 3, 1956, to October 23, 1957). This claim for registration was rejected by the Income-tax Officer as well as by the Appellate Assistant Commissioner and hence the matter was brought in appeal to the Tribunal. A contention, as formulated before the Tribunal, was that a valid partnership was formed amongst Ramanlal and Jayantilal in their individual capacity and Pitamberdas in his representative capacity as karta of the Hindu undivided family in respect of the said business in kirana, tea and grains. In support of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be brought to tax in the hands of the Hindu undivided family of Pitamberdas. The reasoning for this view will be found in paragraph 14 of the Tribunal's order (annexure A ). 6. On these facts, Messrs. Pitamberdas Bhikhabhai and Co. (which claims to be a firm) requires the Tribunal to refer to the High Court the following two questions: (1) Whether on the facts and in the circumstances of the case there could be a valid partnership between Pitamberdas Bhikhabhai as representing a Hindu undivided family and his two adult sons, two of the members of the said Hindu undivided family in their respective individual capacities as working partners? (2) Whether on the facts and in the circumstances of the case the partnership of Messrs. Pitamberdas Bhikhabhai and Co. should be registered under section 26A of the Income-tax Act for assessment year 1958-59? Shri Pitamberdas Bhikhabhai, the karta, requires it to refer to the High Court the following question: Whether on the facts and in the circumstances of the case only half share in the profits of the partnership business of Messrs. Pitamberdas Bhikhabhai and Co. is assessable in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Kanga Girdharlal, for the Commissioner JUDGMENT K.T. DESAI C.J.--This is a reference under section 66(1) of the Indian Income-tax Act, 1922, at the instance of Messrs. Pitamberdas Bhikhabhai Co., applicants in R.A. No. 1154 of 1960-61 and Shri Pitamberdas Bhikhabhai, applicant in R.A. No. 1155 of 1960-61. At the request of the aforesaid assessees, these two references have been consolidated. These two references related to the assessment year 1958-59, the accounting year being Samvat year 2013, corresponding to the period 3rd November, 1956, to 23rd October, 1957. One Bhikhabhai Gokaldas was the head male member and karta of a joint and undivided Hindu family consisting of himself and his three sons Pitamberdas, Amritlal and Jekisandas. The joint family carried on business in kirana, tea and grains. On 16th November, 1939, Pitamberdas and Amritlal separated from the joint family and, on separation, became entitled to the entire business owned by the joint family as aforesaid, subject to the liabilities of that business. Thereafter, Pitamberdas and Amritlal continued that business in partnership. On 5th May, 1943, a deed of partnership was entered into between Pita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... srs. Pitamberdas Bhikhabhai and Co., and that Pitamberdas, Ramanlal and Jayantilal would be entitled to shares of eight annas, four annas and four annas respectively in the profits or losses of the partnership. An application was made by Pitamberdas Bhikhabhai and Co. under section 26A of the Indian Income-tax Act, 1922, for the registration of the firm. The Income-tax Officer rejected the claim for registration. He took the view that the business of the firm of Pitamberdas Bhikhabhai and Co. belonged to the Hindu undivided family of Pitamberdas Bhikhabhai and he brought to tax the whole of the income from that business in the hands of the Hindu undivided family. The matter was carried in appeal to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner took the view that there was no firm which could be granted registration. He came to the conclusion that the business of Pitamberdas Bhikhabhai and Co. belonged to an association of persons consisting of the Hindu undivided family of Pitamberdas and its coparceners Ramanlal and Jayantilal in their individual capacity and he accordingly set aside the assessment made upon the Hindu undivided family. The departmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o him absolutely and that no other person had any share or interest therein. This stand taken by him in the deed of partnership was obviously wrong. The business did not belong to Pitamberdas absolutely as his separate self-acquired property, but was an asset of the Hindu undivided family of Pitamberdas, his wife and his sons and daughters. Even the sums of ₹ 10,000 purported to have been gifted by Pitamberdas to Ramanlal and Jayantilal belonged to the said Hindu undivided family. The controversy thus boils down to the narrow question whether in respect of a business belonging to a Hindu undivided family, the coparceners can be taken as partners in the business in their individual capacity with specific shares. The question is covered by certain observations of the Supreme Court to which we shall presently refer. But before we do so, we will examine one decision of the Privy Council on which considerable reliance was placed by Mr. S.P. Mehta on behalf of the assessees. That decision is the one given by the Privy Council in Lachhman Das v. Commissioner of Income-tax [1948] 16 I.T.R. 35, 40 (P.C.). In that case the Privy Council dealing with the contention that there could b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s no sound reason in their Lordships' view to withhold such opportunity from a coparcener in respect of his separate and individual property. The decision cannot, in our opinion, help the assessees for the business in which Ramanlal and Jayantilal were sought to be admitted as partners was joint family business and Ramanlal and Jayantilal were sought to be given shares in the business in their individual capacity to the detriment of the joint family, without their bringing into the business any separate property held by them in their individual capacity and unconnected with the family funds. The decision which concluded the matter against the assessee is the decision of the Supreme Court in Firm Bhagat Ram Mohanlal v. Commissioner of Excess Profits Tax [1956] 29 I.T.R. 521; [1956] S.C.R. 143. That case arose under the provisions of the Excess Profits Tax Act, 1940. Dealing with a contention similar to the one raised in the present case, Venkatarama Ayyar J., delivering the judgment of the Supreme Court, observed at page 526 as follows: But even apart from this, it is difficult to visualise the situation, which the appellant contends for, of a Hindu join ..... X X X X Extracts X X X X X X X X Extracts X X X X
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