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TMI Blog1950 (5) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... e amount on which excess profits tax was payable, i.e., ₹ 36,000. On the 16th July, 1943, the adult members of the family are said to have made a partial partition by dividing the Banaras brocade business, the status of the joint family remaining joint and the other property also not being divided. After this division on the 16th of July, 1943, on the 17th of July, 1943, they started two partnership firms under the name and style of (1) Sohan Pathak Girdhar Pathak, and (2) G.M. Pathak & Co. The two firms carried on the same business as the joint family was carrying on. The partners in Sohan Pathak Girdhar Pathak were said to be- Shyam Sunder, Major 2 annas share Hira Lal, " 2 " Panna Lal, " 2 " Man Mohan, Minor 4 " Gopi Nath, " 2 " Radhey Mohan, " 2 " Shri Nath, " 2 " G.M. Pathak & Co., had as its partners- Ganesh Ram, Major 2 annas share Badri Nath, " 2 " Mahesh Ram, " 2 " Kishori Lal, " 2 " Chandra Mohan Minor 4 " Ram Mohan, " 2 " Shyam Mohan, " 2 " It would be seen that all the four branches were equally represented in the two firms, each having a share of annas 4. The reason why this partial partition was made on the 16th of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 5 of the same Act? II. Whether in the circumstances of the case, the effect of the partial partition of the Hindu undivided family on 16th March, 1943, and the formation of two different firms was a transaction within the meaning of Section 10A of the Excess Profits Tax Act? III. Whether on the facts found by the Tribunal as stated in para 7 of the statement of case, it was justified to draw the inference that the main purpose behind the partial partition was the avoidance or reduction of liability to excess profits tax?" We may mention here that we were put to a great deal of trouble by reason of the way the statement of case was drafted, as well as by reason of the fact that the paper book contained nothing more than the statement of case. In paragraph 3 reference was made to paragraph 7 of the statement of case, but paragraph 7 of the statement of case was as follows:- "The Tribunal finally held that on the facts of the case, the Excess Profits Tax Officer was right in taking action under Section 10A for the chargeable accounting period in dispute." We were told that paragraph 7 was a mistake for paragraph 4, or paragraph 7 of the statement of case w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly. (2) On the next day these four groups formed two partnership concerns for carrying on the same brocade business. (3) This business was to be carried on by capital received from the family. (4) The four branches had equal shares in the profits. (5) If the main purpose of the partial partition of the business was to safeguard the interests of the minors, the family should have divided the shares in earlier chargeable accounting periods when a slump had set in and the profits had gone down and not in the chargeable accounting periods when the profits had gone up considerably. The grounds on which the Excess Profits Tax Officer had acted are set out in paragraph 4 of the statement of case. Even if we discard the grounds on which the Excess Profits Tax Officer had come to the conclusion that the main purpose was to avoid payment of excess profits tax, it cannot be said that on the facts found by the Appellate Tribunal it was not justified in drawing the inference that the main purpose behind the partial partition was the avoidance or reduction of liability to excess profits tax. This is our reply to question No. III. As regards question No. 1 we have already held in Misc. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enced and in such circumstances where the old business must be deemed to have come to an end and a new business to have commenced, Section 10A should not be applied. Dealing with the excess profits tax in England Lord Hanworth in Birt, Potter and Hughes, Ltd. v. Commissioners of Inland Revenue [1926] 12 Tax Cas. 976, said: "I desire to observe at the outset that we are dealing with what is known as and what was imposed as the Excess Profits Duty, its name indicating that it was a duty upon excess profits; it was designed, as we all know, to try to secure to the Revenue a portion of the profits being made in the course of the war which were said to be enhanced by the circumstances of the war and, being so enhanced, to be beyond the sum which the subject was entitled to keep free of taxation, inasmuch as he ought not to be entitled to make a larger profit due to the misfortune of the nation at large in being at war." This being the object behind the statute, it was provided that any profit in excess of the normal profit in trade or business shall be paid back to the Revenue. In the same case Lord Hanworth made it clear that the difference between the excess profits tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roperty, with the main purpose of avoiding excess profits tax, the Excess Profits Tax Officer, even though he may not be able to make them reunite, can certainly ignore such a partition and adjust the liability in accordance with the provisions of Section 10A. On the finding that the partial partition was with the main purpose of evading payment of excess profits tax, we fail to see how it can be urged that Section 10A was not applicable. The argument that it is a new business does not also affect the matter. If the change was effected with the main purpose of evading payment of excess profits tax, the Excess Profits Tax Officer is entitled to ignore such a change. Mr. Pathak contended that under Section 8 whenever there is a change in the persons carrying on a business, the business is deemed to have been discontinued and a new business commenced. That since the business in this case was deemed to have been discontinued under the law, it could not be liable to excess profits tax. It must, however, be kept in view that in this case there was no actual discontinuance of the business. The discontinuance relied upon by Mr. Pathak is only a legal fiction and this legal fiction can be a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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