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TMI Blog1973 (3) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... cept it and assessed the income from the business as a Hindu undivided family consisting of Hotchand, his son, Bherumal, and Bherumal's sons. Muli Bai had advanced her money of Rs. 13,000 as a loan in the name of her minor son, Harischand, and that was repayable to her. A return of income for this business was filed accordingly for the previous year relevant for the assessment year 1954-55, in the status of a Hindu undivided family. On March 31, 1954, a partition deed was executed. Under this partition, the business concern including its goodwill was allotted to Bherumal and his two minor sons, Harishchand and Hashmatraj. The business was valued at Rs. 8,000 and Bherumal was directed to pay Rs. 5,000 to Muli Bai, Rs. 1,500 to Hotchand and Rs. 500 to Kishoredas. Bherumal and his minor sons were to take Rs. 1,000. It is seen from the balance-sheet of the joint family as on March 31, 1954, that the liabilities of the business amounted to Rs. 28,764-14-5 while the assets were valued at only Rs. 21,995-8-10, leaving a sum of Rs. 7,209-11-1 as the excess of liabilities over the assets. One of the liabilities shown is a sum of Rs. 15,814-2-3 in the name of Harishchandra payable to Muli Ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p firm with an application under section 26A. The application was rejected for the above reasons as well as for the reasons that the application was belated. The appeals preferred to the Appellate Assistant Commissioner against the rejection of the registration of the firm under section 26A for the above two assessment years were also dismissed on the ground that the applications were belated. For the assessment years 1957-58 and 1958-59, the assessee applied for registration of the firm under section 26A, contending that there was a partition in the joint family on March 31, 1954, and the partnership came into existence on April 1, 1954, in respect of the business. In addition to producing the partnership deed dated April 1, 1954, the partition deed dated March 31, 1954, the certificate of registration issued by the Registrar of Firms and the letter of the Bank of Bikaner showing opening of a current account by the firm, the assessee also produced sales tax assessment orders on the firm for 1954-55 onwards, import quota obtained by the firm, account books of the firm showing separate capital account of partners and allocation of profits during the year and accounts for the disposa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner held that the refusal of the Income-tax Officer to register the firm was misconceived both on facts and law. He found that the closing stock of the business of the erstwhile Hindu undivided family was not handed over to the new firm but instead sold gradually by the persons to whom it was allotted, viz., Bherumal and his minor son, Harishchandra. It will not, therefore, find a place as an opening stock in the partnership firm. He also held that even assuming that there was a discrepancy between the assets and liabilities of the erstwhile Hindu undivided family and the new firm, it would not be sufficient ground for rejecting the appellant's claim for registration of the partnership firm. In this connection he also relied on the decision of this court in Meyappa Chettiar v. Commissioner of Income-tax. He referred to the evidence produced by the assessee the details of which were referred to above and came to the conclusion that there was substantial evidence showing complete partition of the family and constitution of the partnership firm. He accordingly set aside the orders of the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the assessment years 1959-60 and 1960-61 also, the applications for registration of the firm under section 26A were rejected by the Income-tax Officer following his earlier orders. The Appellate Assistant Commissioner, following his order, allowed the appeal. The Appellate Tribunal reversed the order of the Appellate Assistant Commissioner and upheld, the orders of the Income-tax Officer following its decision in respect of the assessment years 1957-58 and 1958-59. At the instance of the assessee, the Tribunal has referred under section 256(1) of the Income-tax Act, 1961, identical questions as were referred to for the years 1957-58 and 1958-59. Both the Income-tax Officer and the Appellate Tribunal proceeded on an erroneous assumption that if the partition had not been effected strictly with reference to the shares of the members in the assets and liabilities of the Hindu undivided family there could not be a partition of the Hindu undivided family in the manner contemplated by law and if there had been no such legal partition of the family, there could not be a partnership which according to them could only follow the partition of the family. Apart from the fact that this vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets and liabilities of the old business were allotted to Bherumal's share but he did not bring those assets and liabilities in the new partnership and, as noticed by the Tribunal, they were kept separate and distinct from the new partnership. We are unable to understand how this could lead to the inference that the new partnership was not a genuine one. Actually, as noticed earlier, the stock-in-trade was sold and some of the sundry debtors of the old business were paid off. One other circumstance referred to by the Tribunal as going against the genuineness of the firm is that though the partnership deed recited that Muli Bai agreed to advance Rs. 10,000 on condition that Kishoredas was taken in as a partner, the partnership accounts did not prove the advance of Rs. 10,000. We are unable to agree with the Tribunal that this fact leads to the inference that the partnership was not genuine. It may be that she agreed to give but after the partnership came into existence she did not, in fact, give. But it is seen from the order of the Tribunal itself that it is not as if she did not advance any money at all. She had been advancing smaller amounts on various dates and not as a lump s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Hindu law which prohibits the members of a Hindu undivided family while remaining joint from entering into a partnership in respect of a business which they have partitioned and the registration of the firm shall not be refused. But the question in this case is whether the business was partitioned or remained a joint family asset. If the business was partitioned, then there is nothing preventing the constitution of a partnership firm. But, the Income-tax Officer and the Tribunal were of the view that there was no genuine partnership on the ground that there was no legal or genuine partition. If the Tribunal's findings were to be accepted, the decision is not applicable to this case. The counsel for the revenue contended that the question whether there was a partition of the joint family business is essentially a question of fact and that could not be challenged on a reference under section 66 of the Indian Income-tax Act, 1922. In various decisions dealing with this matter, the legal position is put in different ways. In some cases, it is held that inference from facts stated are matters of law and can be questioned on a reference. The same remark is true as to the constru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le, but the Tribunal did not act upon it on unfounded suspicion. Further, the Income-tax Officer thought that if the division of assets and liabilities were not in accordance with the shares to which the members of the family are entitled that partition would not be in accordance with the law and that is enough to hold that there was no partition. This is clearly wrong. An unequal partition is not unknown to law. An unequal partition can never be a real partition as held in Meyyappa Cheittiar v. Commissioner of Income-tax. The Tribunal did not give a specific finding that there was no legal partition. It characterised the evidence as " lot of confusion, departure from facts and variation in figures and statements ". The Tribunal also observed that, " if the concept of the firm had to take shape, the Hindu undivided family which was in the way had to be got out. This has not been done ". On this view, it held, " there was no partnership and no genuine firm came into existence ". We have noticed in the beginning of this judgment the facts in their sequence. The facts, though complicated, are definitely not confusing or conflicting. The Tribunal was also not fully correct in law in ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to all the members of the family and make an order that the family property has been partitioned in definite portions, if he is satisfied in that behalf. The Income-tax Officer is by law required still to make the assessment of the income of the Hindu undivided family, as if no partition had taken place and then to apportion the total tax liability and to add to the separate income of the members or groups of members the tax proportionate to the portion of the joint family property allotted to such members or groups of members and to make under section 23 assessment on the members accordingly. If no claim for recording partition is made, or if a claim is made and it is disallowed or the claim is not considered by the Income-tax Officer, the assessment of the Hindu undivided family which has hitherto been assessed as undivided will continue to be made as if the Hindu undivided family has received the income and is liable to be assessed." In this case, at the time of assessment the assessee claimed that there was a partition in the joint family and the constitution of a partnership firm. The Income-tax Officer held that in view of the scheme of the Income-tax Act to assess a Hind ..... X X X X Extracts X X X X X X X X Extracts X X X X
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