9911796707
TMI Blog1966 (7) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... d into on June 14, 1954. The assessment orders involved in the references are for the assessment years 1955-56, 1956-57 and 1957-58. An order under section 25A(1) has been refused, but that does not preclude the assessee from contending that there has been partial partition in respect of particular movable items. The sources of income of the family were taken to be: (1) a dwelling house, (2) Government promissory notes, and (3) shares the family had in three partnerships: (a) Haridranathi Rice Mill, Mannargudi, (b) Dhanalakshmi Rice Mill, Thiruthuraipundi, and (c) Dhanalakshmi Rice Trade, Thiruthuraipundi. The assessee seeks exclusion of the income from the partnerships and the Government promissory notes as not income of the Hindu undivided family. The agreement for partition dated June 14, 1954, is shown as annexure " A " to the agreed statement of the case. It refers to the division of movable properties of the Hindu undivided family and division of outstandings receivable by and payable to the family and sets out that the rice mill business of the Hindu undivided family would thereafter be conducted as co-owners. Provision is made for a registered deed of partition dividing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the assessment year 1955-56. But the capital accounts relating to the investments of the family in the three firms were divided only on April 12, 1957, with effect from December 31, 1956, in the family books. The Appellate Assistant Commissioner took the view that, in regard to these two firms, for a completed partition during the relevant period, it was necessary that in the family books the capital account should have been divided on June 14, 1954. According to him, if that had been done, then even if the father and son had not been clearly admitted independently as partners in those firms, the existence of a sub-partnership could be recognised. As the capital in the books of the Hindu undivided family had been actually divided only on April 12, 1957, the share income from the firms till that date was held as belonging to the Hindu undivided family and therefore taxable as such in the hands of the karta, even though the firms had admitted the members as partners. With reference to the Government bonds, he took the view that as they had been transferred to the sons on November 16, 1956, only, the interest that might have been received thereafter on such bonds should be exclude ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtition of such an asset. Physical division on partial partition in respect of an item of joint family property could be insisted upon only where such division is practicable. Otherwise an allotment of shares should suffice. In the case of a trade, completed partition could be brought about and definite portions allotted by mere book entries. We shall examine in the light of the above principles whether there is evidence to justify the conclusion that there was no effective partition on July 26, 1954, with reference to the Government promissory notes and the share of the family in the other two partnership firms, Haridranathi Rice Mill and Dhanalakshmi Rice Trade. We have to bear in mind that it is not the case of the revenue that the partition in the assessee's family was a pretence or sham. We take up first the Government promissory notes. These securities stood in the name of Kuppiah Mudaliar who was the karta. In the division of the capital of the family which was shown as Rs. 2,25,539-15-4, on July 26, 1954, a sum of Rs. 1,11,169 was transferred to the credit of Balasubramanian, the son, as seen from annexure D. This sum of Rs. 1,11,169 is made up, inter alia, of the Governm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ownership and enjoyment have been severed on the allotment. We shall now take up for consideration the character of the income from the interest which the family had in the two partnership concerns, Haridranathi Rice Mill and Dhanalakshmi Rice Trade. As pointed out already, the Tribunal itself has excluded from the income of the family the income from Dhanalakshmi Rice Mill. The contention of the assessee is that after July 26, 1954, these income bearing assets have ceased to belong to the Hindu undivided family and even if there had been no reconstitution of the partnership firms vis-a-vis his son, the father was not a partner in the firm as karta of the undivided family. While under the income-tax law the undivided family is as such a unit of assessment, the partnership law as such does not treat the Hindu undivided family as a person who could enter into a contract of partnership. The contract of partnership may no doubt be with the head of the family; but he enters into the partnership contract as an individual. By the karta becoming a partner, the other members ipso facto do not become partners of the firm. No doubt the creditors of the firm would be entitled to proceed agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital adjustments were made only on April 12, 1957, as effective from December 31, 1956. But the agreement of partition specifically states that the father and son shall conduct the rice mill business thereafter as co-owners. The basis of rejection of the assessee's claim in regard to this firm by the Income-tax Officer is that the shares stood in the name of Kuppiah Mudaliar and the son had not been admitted as a partner. The Income-tax Officer would state that therefore the share income would be in the assessee's assessment. In our view, having regard to the nature of the assets, the members of the family having agreed to divide the assets and hold the same separately and profits received having been separately credited to the son's share, effective division has been brought about in respect of this asset. As between the father and son, it can clearly be posited that there has been a division of the assets by the agreement for partition followed up by the division of the income. In Appovier v. Rama Subba Aiyar the Privy Council observed : " The produce is no longer to be brought to the common chest, as representing the income of an undivided property, but the proceeds are to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as partners are not enough. What he required was that in the family books the capital account should have been divided on June 14, 1954, itself. As pointed out already, this requirement the Tribunal has not looked for so far as Dhanalakshmi Rice Trade is concerned. In our view, once the interest of the family in the asset has been divided finally as between the father and son and profits are shared, nothing further is required. We have the fact that the partnership firm has admitted the father and son as partners and that is subsequent to their agreement for partition. This admission as partners has been recognised by the revenue from the assessment year 1955-56 by registration under section 26A as stated in paragraph 11 in the statement of the case. In the light of the principles discussed above and following the decision in Commissioner of Income-tax v. Ramakrishnier cited above, without hesitation it can be stated that there is nothing on record to hold that there was no effective partition of the family's share in this firm also. For the revenue a point was sought to be raised that the son had been allotted securities and insurance policies of the total value of Rs. 1,11,659 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
