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TMI Blog1956 (9) TMI 72X X X X Extracts X X X X X X X X Extracts X X X X ..... was the assessee upto the assessment year 1942-43. The assessee family had its head-quarters at Virudhunagar. It carried on its business at the following places : 1.Grocery and two oil mills at Virudhunagar, 2.Grocery at Tuticorin, 3.Oil mills at Madurai, and 4.Commission business in grocery at Bombay. There were three other items with which we need not now concern ourselves. The accounting year of the assessee family ended on 27th January, 1942. The four adult sons of Arunachala separated themselves fron the family and they were also divided inter se. Arunachala and his six minor sons by his second wife remained joint in status. A partition was effected with effect from the close of the accounting year on 27th January, 1942. For purposes of that partition, the members of the family were treated as forming two groups ; the four adult sons, though divided inter se, formed one group; Arunachala and his undivided minor sons formed the other group. The properties of the family were divided into two halves, each group taking one half. Arunachala's group took over the business at Virudhunagar and at Madurai; the divided adult sons took over the businesses at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... name of V.N.M.A. Ayyamperumal Nadar and Brothers and the fourth party V.N.M.A. Rajamanickam Nadar is carrying on business individually. This information has been submitted along with the return for 1942-43 and I have also separately filed a petition before you on 14th October, 1942. While this is so, whereas I should have received a return in my separate capacity, I have received a return in the character of the family. I am, therefore, returning this form. I pray that as per section 25A, separate forms may be sent to me and my sons individually. This letter dated 10th August, 1943, was apparently treated by the Income-tax Officer as an application under section 25A of the Act; and in October, 1945, the Income-tax Officer passed the required order under section 25A of the Act recognising the partition that had been effected on 27th January, 1942. One other event may be recorded at this stage. After the partition in January, 1942, Arunachala started a new line of business in paddy and rice at Kumbakonam, with one Sadagopa Pillai as his employee in charge of that business at Kumbakonam. For the chargeable accounting period from 28th January, 1942, to 7th February, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontinue as a Hindu undivided family. The learned counsel referred to Rangaswami Naidu v. Sundararajulu Naidu [1916] 31 MLJ 472. The learned Judges laid down two propositions: (1) it was not the law that the separation of one member is necessarily a separation of the remaining members, and that if the latter desired to remain or become a joint Hindu family, they can only do so by an agreement to re-unite, subject to the limitations of a Hindu regarding that status; (2) under the Hindu law, the father has power to separate one or more of his sons from himself, in which case there is no presumption of division between the father and his other sons. The second proposition will not apply to the facts of this case. It was not a case of the father, Arunachala, exercising his right to separate one or more of his sons from the family. It was a case of an adult coparcener exercising his right to become divided in status from the other members of his family. It was on the first proposition the learned counsel for the assessee relied in support of his contention that the Hindu undivided family, of which Arunachala was the karta, continued to exist even after 27th January, 1942, when four of hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s entitled to be assessed in a separate capacity, which could only mean a capacity separate from that on the basis of which he had been assessed down to the assessment year 1942-43. That Arunachala discontinued the business that he had carried on up to 27th January, 1942, and started a fresh one from 28th January, 1942, he himself made clear. Of course, discontinuance of the business and starting a business afresh may not affect the jural position of the assessee or whether the family as such that had continued down to 27th January, 1942, continued even after that date. By invoking section 25A and by successfully invoking it, Arunachala gave a clear indication of his intention to terminate the existence of the old juristic entity, the Hindu undivided family of which he had been the karta, the juristic entity for purposes of income-tax assessment. Factually, Arunachala himself sought the termination of the existence of that juristic entity, and he achieved it. If that be the position, taken in conjunction with the fact it was a new business that he commenced on 28th January, 1942, though it was the same line of business, the Departmental Authorities were fully justified in holding t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tained only for purposes of the income-tax. If the Hindu undivided family, as such a fictional legal entity, disappears, and that disappearance is caused by a positive act of that family itself-and that can be the only basis on which recognition of the cesser of the legal existence of the legal entity can be achieved under section 25A-it will no longer be permissible to invoke the principle of the personal law applicable to the assessee and claim that for purposes of income-tax, the undivided family continued to exist even after the order passed under section 25A of the Act. There is one other factor to be noticed. Section 8(1) of the Excess Profits Tax Act enacts a legal fiction, that the business carried on, after the date of any change in the persons carrying on that business, shall be deemed to be a new business. As a fact, in this case, Arunachala, as we have already pointed out above, made it clear that it was a new business that he commenced as the karta of the Hindu undivided family as it stood on 28th January, 1942, from and after 28th January, 1942. As we said, what had primarily to be decided in this case by the Departmental Authorities was, whether the assessee, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntal authorities applied the provisions of section 10A(1) of the Excess Profits Tax Act and held that these two partnerships were brought about for the main purpose of avoidance or reduction of liability to excess profits tax. A further appeal to the Tribunal failed, and the Tribunal agreed with the findings of the Departmental authorities. The question referred to this Court under section 66(2) of the Income-tax Act ran : Whether on the facts and in the circumstances of the case there is any material to justify the finding of the Tribunal that the main purpose in constituting the two firms was the avoidance or reduction of liability to excess profits tax within the meaning of section 10A of the Excess Profits Tax Act ? If there is material to sustain the conclusion of the Tribunal, that should suffice to answer the question in the affirmative and against the assessee. The quantum or sufficiency of that evidence may not be a matter for investigation in proceedings under section 66 of the Act. No doubt, the Tribunal observed that the circumstances which it noticed and the terms of the partnership clearly indicated that the partnerships were only nominal and that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich the authorities and the Tribunal could come to the conclusion, that the main purpose of forming the partnerships was the avoidance or reduction of liability to excess profits tax even with reference to the year of account itself. The Excess Profits Tax Officer pointed that the deeds of partnership were drawn up towards the end of the year of account on 10th January, 1944, at a time when the profits of the business were fairly ascertain-able. The entire finance required for the business in Madurai and Kumbakonam was contributed only by the assessee. Arunachala was incomplete control of the business at Madurai and at Kumbakonam. In fact, both were looked upon as branches of the business that Arunachala carried on, with the headquarters at Virudhunagar. All the transactions between Madurai and Kumbakonam were passed only through the accounts of the Virudhunagar Office. The books in Madurai had no folio for the Kumbakonam business and all the transactions between Madurai and Kumbakonam were recorded in the folio for Virudhunagar in the Madurai books. The assessee submitted to the assessment of income tax of the income from all the three businesses only at Virudhunagar. These ..... X X X X Extracts X X X X X X X X Extracts X X X X
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