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TMI Blog1970 (1) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... nerships was liable to be included in their individual assessments or was, as contended by them, held by them only as representing the firm of Messrs. Valiram Sons. During the relevant assessment years the firm of Messrs. Valiram Sons was constituted on the terms and conditions contained in deed of partnership dated the 10th April, 1946. The partnership commenced from the 10th of April, 1946. The deed shows that there were, besides Rijhumal and Hiranand, eleven other partners, that Rijhumal had a four annas share, that Hiranand had a four annas share and that the individual shares of the other eleven partners aggregated to the remaining eight annas in a rupee, both in profits and losses. The document clearly shows that the capital was to be provided by Rijhumal and Hiranand as the financing partners and that the eleven other partners were mere working partners who had no obligation to bring in any capital into the partnership the deed further shows that the property of the business, included goodwill, etc., was to wholly belong to the two financing partners. Rijhumal and Hiranand entered into another partnership with two other individuals, being Laxmichand Durlabhji and Manilal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved by each of Rijhumal and Hiranand from the said three mill partnerships was sought to be included as their individual income. Rijhumal and Hiranand, however, contented that it was not liable to be so included as it belonged to Messrs, Valiram Sons, because Rijhumal and Hiranand were partners in the said three mill partnerships only as representing the firm of Messrs. Valiram Sons. There was originally an assessment by the Income-tax Officer, an appeal to the Appellate Assistant Commissioner of lncome-tax and a second appeal to the Income-tax Tribunal, but, as the latter set aside the assessment and remanded the proceedings back to the Income-tax Officer, it is unnecessary to refer to the same. After the remand, the Income-tax Officer and thereafter the Appellate Assistant Commissioner of Income-tax in appeal rejected the contention of the two assessees, Rijhuumal and Hiranand, and included those amounts in the income of each of the two assessees. It appears that in the meanwhile the assessments of each of the two assessees for the subsequent three assessment years 1949-50, 1950-51 and 1951-52 were completed. In each of these three years each of the two assessees raised identic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s income at all but were diverted to the said other partners by overriding title or that in the alternative they were allowable as deductions in computing the assessee's total income on ordinary principles of commercial accounting or under section 10(2)(xv) of the Income-tax Act or otherwise ? This High Court by its order dated 5th December, 1968, held that the said decision of the Supreme Court in Dulichand Laxminarayan v. Commissioner of Income-tax applied when a firm sought to be a partner with another individual or firm or joint family, but that the decision had no application to the present case because in the present case in the said three mill-partnerships it was not the firm who had become a partner therein, but it was the said Rijhumal and Hiranand in their individual capacities who had become partners. As the Tribunal had disposed of the appeals only on that law point, this High Court sent back this case to the Tribunal with a direction that they should draw up a further statement of case on such material as was before them then. The Tribunal has, in pursuance of that direction, submitted a supplemental statement of case. This High Court had in making the said order hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtnership creates a superior title and diverts the income from the head-partnership before it becomes the income of the individual partner and that the share of the income of the partner from the head-partnership had to be included in the assessment of the sub-partnership and not in that particular partner's personal assessment. According to that judgment the essential point to be borne in mind is that there must be a legal obligation on the partner of the head-partnership to share his profits and losses with his sub-partners in the sub-partnership firm. It is needless to say that when such an obligation exists, not only the partners in the head-partnership but also his partners in the sub-partnership will have mutual rights and obligations in respect of that partner's share of profits and losses in the head-partnership. If there are profits, his sub-partners would have a legal right to compel the partner to bring his share of profits in the sub-partnership and if there are losses the partner of the head-partnership would have a right to compel his partners in the sub-partnership to treat the losses as the losses of the sub-partnership so that his partners in the sub-partnership wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not take into consideration the entire situation or the entire evidence relating to the same. The contents of the declaration are merely one of several pieces of evidence. If the contention of the two assessees that there wag an agreement between the partners of Messrs. Valiram Sons to share the shares of profits and losses of the two assessees in the three mill-partnerships can otherwise be established, the fact that the declaration is unilateral or that it relates to only one of the three mill-partnerships would not affect the conclusion which can be otherwise reached. In the view which we take otherwise than on the declaration itself we do not think it necesary to refer to certain contentions urged by Mr. Joshi on the language and contents of certain clauses of that declaration. Mr. Joshi contended that the deed of partnership in respect of the New Prabhat Silk Mills No. 1 is dated the 25th April, 1947, but it states that the partnership came into existence from 1st March, 1946. The deed of partnership of Messrs. Valiram Sons is, however, dated the 10th April 1946, and states that the partnership commenced from the same date. He contended that, as the partnership of the New Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it is therefore that the Tribunal had used the words " must have ", because, for want of the document being on record, the Tribunal could not refer to it. We are of the opinion that as this document has not been made a part of the record we cannot refer to it, nor place any reliance upon it and we must totally ignore the same. We are of the opinion that, although there was no such evidence on the point, the Tribunal has used the words " must have " merely because of the overwhelming evidence of the subsequent conduct of the parties and will refer to that evidence later on. Mr. Joshi relied upon the judgments of the Supreme Court in Dhirajlal Girdharilal v. Commissioner of Income-tax and in Omar Salay Mohamed Sait v. Commissioner of Income-tax in support of his contention that, as the judgment of the Tribunal is based on surmises and conjectures, it is vitiated. It is true that to the limited extent mentioned earlier the Tribunal has made a surmise or conjecture, but the said judgments of the Supreme Court do not lay down a ratio that if in the course of its judgment the Tribunal makes some surmises or conjectures which are not very material and there is overwhelming evidenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have had to be carefully considered, because a contention can possibly be urged that it was the two assessees who received those profits and thereafter passed them on voluntarily to Messrs. Valiram Sons, but the accounts show that a sum of Rs. 43,296 has been brought into the general profit and loss account of Messrs. Valiram Sons as being the share of loss for the year 1949 in the partnership of the Anant Silk Mills. This particular piece of evidence is, in our opinion, very important. Unless, there was an agreement between all the thirteen partners as canvassed for by the two assessees, the other eleven partners would not have agreed that this amount of loss should be debited in the general profit and loss account of Messrs. Valiram Sons. The subsequent consistent conduct of sharing of profits coming to the share of the two assessees in the three mill-partnerships and the sharing of even this loss by all the thirteen partners of Messrs. Valiram Sons, in our opinion, goes a long way, and practically the whole way to prove by a necessary inference that the agreement canvassed for by the two assessees had, in fact, been entered into. Moreover, this is evidence of a positive nature, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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