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TMI Blog1957 (8) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the firm. This application also forms a part of the statement and is attached as annexure B . In the application Mahaliram Santhalia signed as one of the partners. On the strength of this application and the partnership deed referred to above, the firm Benares Steel Rolling Mills was allowed registration under section 26A. 3. Mahaliram Santhalia is a partner in another firm named Messrs. Radhakissen Santhalia. Messrs. Radhakissen Santhalia has four partners, named, Radhakissen Santhalia, Mahaliram Santhalia, Subhkaran Santhalia and Parmeswari Lal Santhalia. The Income-tax Officer making assessment of Mahaliram Santhalia, individual, added his share of profits from the Benares Steel Rolling Mills as reported by the Income-tax Officer who made assessment on the firm of Messrs. Benares Steel Rolling Mills. In appeal against the order of the Income-tax Officer in his individual assessment, Mahaliram Santhalia represented before the Appellate Assistant Commissioner that he was a partner in Benares Steel Rolling Mills not in his individual capacity but as a representative of the firm of Messrs. Radhakissen Santhalia. In support of this claim he produced an agreement dated 3rd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entire share of profits from Benares Steel Rolling Mills can be included in the individual assessment of Mahaliram Santhalia ? 6. The statement was sent to the parties for their suggestions. The Department made a suggestion with regard to the form of the question which was considered misconceived and was therefore rejected. The assessee made three suggestions, one of which was incorporated in the statement and the other two were found irrelevant and were, therefore, rejected. Reference under section 66(1) of the Indian Income-tax Act, 1922, by the Income-tax Appellate Tribunal, Calcutta Bench, in R. A. Nos. 69 to 72 of 1954-55. Sukumar Mitter and D. K. Dey, for the assessee E. R. Meyer and B. L. Pal, for the Commissioner JUDGMENT CHAKRAVARTTI, C.J.--On the 16th of May, 1947, an application was made on behalf of a firm called the Benares Steel Rolling Mills for its registration in connection with its assessment for the income-tax year 1944-45. The applicants were four persons, one of whom was Mahaliram Santhalia and each was said to own a one-fourth share in the firm. In support of the application a deed of partnership, executed on the 24th of December, 194 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opposite. In his order relating to the assessment year 1944-45 Mr. K.N. Bose said that he had already held in an appeal preferred by the firm of Radhakissen Santhalia in respect of its own assessment that the share of the income of the Benares Steel Rolling Mills paid to Mahaliram Santhalia should be taken as the profit of that firm and consequently he held that that income should be excluded from Mahaliram's personal assessment. In his order for the assessment year 1947-48, Mr. Bose stated a further fact. He again referred to his finding recorded in an appeal by the firm of Radhakissen Santhalia that the one-fourth share of the income of the Benares Steel Rolling Mills actually belonged to that firm, but he also stated that the books of the firm of Radhakissen Santhalia had since been shown to him and they showed that the capital contributed to the Benares Steel Rolling Mills had come from the funds of Radhakissen Santhalia. Mr. Bose's conclusion was that Mahaliram Santhalia had no interest in the firm of Benares Steel Rolling Mills as an individual and accordingly he directed that the income should be excluded from his assessment and included in the assessment of Radhakis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llate Tribunal, they gave their reasons in their order relating to the assessment year 1944-45. It appears that an agreement between the partners of Radhakissen Santhalia dated the 3rd of April, 1944, was produced before them and that agreement was found to contain a provision to the effect that the income from the Benares Steel Rolling Mills belonged to all the partners of the firm. The Tribunal, however, did not find that Mahaliram Santhalia was a partner of the Benares Steel Rolling Mills only as a representative of the firm of Radhakissen Santhalia, which was a firm of four partners, including Mahaliram, but they said that even if it was a fact that Mahaliram Santhalia was a partner of the Benares Steel Rolling Mills only as a representative of the firm of Radhakissen Santhalia, this fact not having been disclosed in the assessment of the Benares Steel Rolling Mills, was no longer open to Mahaliram. They added that the contention of the assessee really amounted to saying that all the partners of the firm of Radhakissen Santhalia were interested in the one-fourth share standing in the name of Mahaliram Santhalia ; but if that was so, their individual shares not having been speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat, in the events which had happened, Mahaliram Santhalia was precluded from contending in his personal assessment that he was a partner of the firm of Benares Steel Rolling Mills only as a representative of the firm of Radhakissen Santhalia. The question actually referred, however, is slightly wider and the reason may be that besides holding against the assessee on the basis that he was estopped from advancing the contention he was seeking to advance, the Tribunal also gave some reasons in support of the assessment on the merits. Those reasons, I have been compelled to say, are not easy to follow, but they do provide some justification for the comparatively broad form of the question. It might be useful to pause here a moment and see what the question really means. It asks whether the entire share of profits from the Benares Steel Rolling Mills could be included in the individual assessment of Mahaliram Santhalia. It is clear that the form of the question reflects the contention which was put forward by the assessee before the Income-tax authorities. His contention was that the income from the Benares Steel Rolling Mills should be taken as the income of the firm of Radhakiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtners regarding the partnership or the accounts and transactions thereof, etc., the same shall be referred to the arbitration of a single arbitrator. Unless the partners were regarded as individuals and as members of the firm in their personal capacity, the deed could not possibly speak of legal representatives of any of the deceased partners. The import of the deed is, to my mind, absolutely plain, but I need not proceed on my own construction of the deed. By the application they made under section 26A of the Act, the partners, including Mahaliram Santhalia, themselves indicated what their own construction of that deed was, because each of them made the application in his personal capacity on the footing that he was a partner as an individual. That was the basis upon which registration of the firm was prayed for and that was the basis upon which registration was allowed. The consequence of allowing registration on the representation thus made, could only be the consequence laid down in section 23(5)(a) of the Act. That section provides that in the case of a registered firm, the sum payable by the firm itself shall not be determined but the total income of each partner of the fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kissen Santhalia, being itself a firm, could not possibly be a partner of the Benares Steel Rolling Mills. The contention of the assessee, therefore, was not only that the Income- tax authorities should accept something as a fact, although quite the contrary was represented by the assessee himself, but also that they should accept a position which was plainly opposed to law. In my view, the contention of the assessee carries its own refutation and was rightly rejected. I think also that the second proviso to section 30(1) of the Income- tax Act is not altogether without some bearing oil the present question. That proviso reads as follows: Provided further that where the partners of a firm are individually assessable on their shares in the total income of the firm, any such partner may appeal to the Appellate Assistant Commissioner against any order of an Income-tax Officer determining the amount of the total income or the loss of the firm or the apportionment thereof between the several partners, but in respect of matters which are determined by such order may not appeal against the assessment of his own total income. We are concerned only with the apportio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Benares Steel Rolling Mills was, in the first instance, rightly brought into the present assessment of Mahaliram Santhalia. What he contended was that after the share of the income had thus been brought into the personal account of Mahaliram Santhalia, he, at that stage, was entitled to contend that the income, prima facie belonging to him, was not really his income at all, because under the terms of the deed of partnership of the firm of Radhakissen Santhalia, it was to be taken as the income of the firm. Mr. Mitra submitted that he would put his contention in two branches. He would contend, in the first instance, that by reason of the terms of the agreement between the partners of Radhakissen Santhalia, the share of the income of the Benares Steel Rolling Mills, paid to Mahaliram Santhalia, did not and could not become his income at all, but was diverted to the firm of Radhakissen Santhalia before it could become such income. In the alternative, the amount, liable to be included in the taxable income of Mahaliram Santhalia out of the share of the income of the Benares Steel Rolling Mills paid to him, would be only the amount which would be his share in that income under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... think his difficulty is not less with respect to the remaining years. Turning now to the second branch of Mr. Mitra's argument, I find it quite impossible to see how the share of the income from the Benares Steel Rolling Mills which was or might be payable to the three other partners of Radhakissen Santhalia under an agreement between them and Mahaliram Santhalia could be said to be an expenditure made by Mahaliram for the purpose of earning his own share of that income. Mr. Mitra contended that the agreement was binding on Mahaliram Santhalia and, therefore, the remaining partners would have to be paid their shares according to their interest in the firm. But, as I have already explained, the agreement was one which was entered into by Mahaliram Santhalia voluntarily and, therefore, although payment under the agreement might be in a sense a compulsory payment, the agreement itself was not one which had been forced upon Mahaliram Santhalia or at any rate there is nothing before us to show that unless Mahaliram Santhalia agreed to enter into that agreement, he would not be able to become a partner of the Benares Steel Rolling Mills at all and that he had to concede shares of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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