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TMI Blog1943 (11) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee or arriving at a finding of fact. Harchandrai, deceased, was the father of Anandram and Gobardhan Das also dead. Anandram was the father of Dwarka Prasad, Rai Bahadur Bansidhar and Srimohan, deceased, father of Kedarnath. These will be described either as the assessee or the Bhagalpur group for the sake of convenience hereafter. Gobardhan Das, the brother of Anandram, was the father of Jwala Prasad, Hira Lal and Chotey Lal to be described hereafter as the Calcutta group. These persons belong to the well-known Bhagalpur family of Dhandhanias who carry on a number of extensive businesses in this province and in Bengal. Up to the financial year 1935-36 these persons, who were undoubtedly members of a joint Hindu family governed by the Mitakshara law, used to be assessed to Income Tax as such, but when the assessment came to be made in respect of 1936-37 for the previous year ending October, 1935, it was claimed on behalf of the assessee who were described in the notice as Harchandrai Anandram the names group - that the family became separate and was now carrying on business in partnership and application was made under Section 25-A and 26-A. Under the former section th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the parties had come to an amicable settlement out of court it was not necessary to proceed with the suit. The petition was apparently granted and the suit was allowed to be withdrawn, but no order to that effect has been produced before us. The parties then entered into an unregistered deed agreement of dissolution of partnership on the 4th February 1936 (page 69) and on the 7th May, 1936, they executed a registered deed of dissolution of partnership (page 75) - (already referred to). Before the Income Tax Officer, Rai Bahadur Bansidhar, Babu Motilal and Babu Dwarka Prasad gave their statements on oath and written declaration were made by Hira Lal, Chotey Lal and Jwala Prasad who appeared in pursuance of the notices issued under the provisions of Section 25-A of the Act. Books of account for a large number of years were produced before the Income Tax Officer. By an order dated the 23rd March, 1939, the Income Tax Officer held that he was satisfied that there was separation of this Hindu undivided family into two groups which I have described as the Calcutta group and the Bhagalpur group. He then proceeded to consider the plea of further sub-division among the Bhagalpur group ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee, and further that the business, house properties and Zamindary were all being managed jointly. He also found that there was no division of capital either in 1988 or 1992, and that the value of Zamindari properties had not been adjusted and credited in the accounts of members. He further pointed out that the agreement of declarations regarding the Zamindari property was also between the two groups and that the Bhagalpur group and to manage the property on behalf of all. He also points out that the public notification in the press and the Gazette was regarding the division between the two groups but no notification was published for the information of the public that Rai Bahadur Bansidhar, Dwarka Prasad and Kedarnath had also separated. In the result the Income Tax Officer rejected the claim of the assessee as he held that there was no actual separation of the Hindu undivided family and he could not register the deed of partnership which in his opinion still belonged to the joint Hindu family and not to any partnership family. Against this decision there was an appeal to the Assistant Commissioner of Income Tax who affirmed the order of the Income Tax Officer. The Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a, and on As group Dhandhanias of Bhagalpur began to be made at Calcutta and this place respectively. This partition also did not touch the internal relations between the members of As group; all of them remained joint owners of the whole lot of properties coming to their shares; unity of possession continued as before." In the result he refused the claim of the assessee under Section 25-A and refused to register their partnership under Section 26-A. The appeal against this order the previous remand by the Commissioner with regard to assessment year 1936-37 were disposed of by the Assistant Commissioner in an exceedingly lengthy order which cover 33 printed pages (pages 18-50) on 12th June, 1940. His findings may be summarised thus (1) The ascertainment of shares of 1958 and 1988 between the A and G groups seems to be merely a preliminary process with a view to ultimate separation as was done in 1992 and it was for this reason that the members of the family never seriously took the ascertainment of shares as constituting partition until actual separation of the two groups took place and they applied for partition before the Income Tax Officer only at this last stage, and tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness between the three members without destroying it but he while admitting some practical difficulty in so doing, thought that it was not impossible because the various debtors, creditors, shares and securities etc. relating to the business could be apportioned. He then says that it is not understood why the various house properties, which are over a dozen, were not distinctly earmarked and allotted to different members or groups of members of the family although it was admitted before him that it could have been done. He then says "Besides according to the petitioners argument, if the businesses alone belonged to the partnership, the Hindu undivided family of Anandram evidently still existed as far as these house properties were concerned. Even assuming for a minute (though not admitting) that the alleged partition was made only of the business and not of the house properties originally owned by the Hindu undivided family of Anandram, it is may stated that Section 25-A has no application where there is only partial division of the joint family property without the division in the joint status of the members and a disruption of the family". He finally concluded at pag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e an existent Hindu family on which assessment can be made on its gains of the previous year; and further that joint Hindu family can part with an item of its property to a stranger or even amongst its own members, e.g. by partition, if it takes the proper steps. There has been a considerable diversity of judicial opinion as to whether Section 25-A requires actual division of the property and not a mere notional severence by the ascertainment of shares. In Gobardhandas T. Mangaldas v. Commissioner of Income Tax Bombay, Sind and Baluchistan, the learned Chief Justice and Kania, J., have considered this question at great length. The learned Chief Justice deals with the matter this at page 249 : Apart from authority, I should feel no doubt that Section 25-A contemplates a physical division of the property. I think that the expression definite portions indicates physical division in which a member takes a particular house in which he can go and live, or a piece of land which he can cultivate, or which he can sell or mortgage, or takes particular ornaments which he can wear or dispose of, and that the expression, definite portionsis not appropriate to describe an undivided share in pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1935-36 he found that distribution of profits up to prior accounting year 1989-90 was completed. I think the assessees explanation for late adjustment is acceptable and all adjustment of profits or losses in the various years under consideration may be taken to be bona fide adjustments and not after thoughts to conform to the story of the alleged 1988 agreement." The assessee has further shown that profits and losses were adjusted from 1988-89 to 1992-93 (page 39, lines 3 and 4). The Assistant Commissioner has devoted one paragraph (34) to consider the assessees system of noting expenses in the account books from 1988-89 and observes that personal expenses are separately incurred by each member and debited to the name of each (see page 47, line 34). The assessees have also definite shares in the zamindary properties but they have not divided the jote lands nor have they divided the 14 or 15 houses which have been allotted to them on partition from the Calcutta group. In my opinion it must be held on the above quoted findings that the assessee is no longer a joint undivided Hindu family - the three brothers have definite shares defined by the deed of agreement and registered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of a firm under Section 26-A of the Act. The appellate order of the Assistant Commissioner relates to assessment made in 1936-37 and 1938-39 on a Hindu undivided family consisting of two brothers Dwarka Prasad and Rai Bahadur Bansidhar Dhandhania, their deceased younger brother Srimohans son Kedar Nath and their sons and grandsons. This family represents the branch of the elder of two brothers. Anandram and Gobardhan Das who were the sons of Harchandrai. Anandram was the father of Dwarka Prasad and his two brothers. Gobardhan Dass branch is represented by his three sons Jwala Prasad, Hira Lal and Chotey Lal and their sons. Up to 1935-36 the two branches of Anandram and Gobardhan Das consisting of their sons and grandsons, as aforesaid, were assessed as a Hindu undivided family the assessments being made in the name of Messrs. Harchandrai Anandram. During the next assessment year i.e. 1936-37 the assessees filed on the 30th July 1936 an application under Sections 25-A and 26-A claiming that though assessed as a Hindu undivided family, they were in fact separate and were carrying on business in partnership and that assessment should be made in two groups as partnership concerns, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efused to make an order under Section 25-A (1) in respect of their group and also refused registration of their alleged firm. Assessment was made on them as a Hindu undivided family. On appeal to the Assistant Commissioner this assessment was confirmed by his order dated the 7th October 1937. On an application for review under section 33, however, the Commissioner by his order dated 5th December 1938 set aside the order of the Assistant Commissioner and remanded the appeal to him for rehearing according to law, because he had made some enquiries behind the back of the assessee and his decision was apparently influenced by the result of such enquiries. In the meantime assessments were made for the years 1937-38 and 1938-39. The assessees reiterated the same claim under section 25-A and 26-A and with the same result. There was no appeal in respect of the assessment for 1937-38, but from the order which was passed on the 13th January 1939 in respect of the next years assessment two appeals were preferred, one regarding the rejection of the claim under section 25-A and the other regarding the rejection of the claim under Section 26-A. These two appeals were heard along with the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s held that the expression "definite portions" indicates a physical division and is not appropriate to describe an undivided share in property where all that particular member can claim is a portion of the income and a division of the corpus, but where he cannot claim any definite portion of the property. Beaumont, C.J., drew a distinction between the words portion and share and said : No doubt the words sometimes may used interchangeably, but in connection with property I should say that a portion means a part of the property, whereas a share indicates the interest of some individual in the property .... Portion seems to me the apt word for divisions of property, and share for division of interest, and it is significant that portion is used in Section 25-A. No doubt the expression division in definite portions will have to be construed with regard to the nature of the property concerned. A business cannot be divided into parts in the same manner as apiece of land; division may only possible in the books." The same view was taken by the Lahore High Court in Saligram Ramlal v. Commissioner of Income Tax, Punjab. Addison and Sale, JJ., who decided that case said : &qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut the family property being actually divided; for instance, where the income of the undivided family property is divided and appropriated by the members according their respective shares. In such case the first condition laid down in Section 25-A, namely, that "a separation of the members of the family has taken place", is satisfied, but not the second, namely, that the joint family property has been partitioned in definite portions. Unless this second conditions is also satisfied, the section cannot operate. It therefore follows that the sections requires physical division. Where however, physical division is not feasible, as in the case of the business, partition in definite shares will be enough as indicated by Beaumont, C.J. Now, in the present case the Assistant Commissioner had held that "there has been no real partition among the sons of Anandram and that they are still joint and undivided in status and property and business". This is apparently a finding of fact, but whether there is evidence on which it was open to the Assistant Commissioner to come to this finding is a question of law : see Sardar Bahadur Sir Sundar Singh Majithia v. Commissioner of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roup, who were living at Bhagalpur, and their other common expenses such as house, carriage, cows and garden were incurred jointly and shared equally by the three branches and that other personal expenses of each of these branches e.g., expenses for marriage and religious ceremonies, medical treatment, ornaments, private travelling and pilgrimage, purchase of fruits and other personal purchases, educational expenses of children etc., were debited to three separate khatas newly opened, A/c Dwarka Prasad Moti Lal (Moti Lal being the son of Dwarka Prasad), A/c Bansidhar Sheokumar (Sheokumar being the eldest son of Bansidhar) and A/c Sreemohan Kedarnath (see paragraph 34 of his order). It may be mentioned here that the members of the Calcutta group were living in Calcutta. It appears that the original undivided family had the businesses styled (I) (1) Harchandrai Anandram, Bhagalpur, (2) Srimohan Pannalal Mills, Bhagalpur, (3) Half share in the Sri Biharji Mills, Patna, (4) Half share in the Monghyr Electric Supply Co., (5) Harchandrai Gobardhandas, Calcutta and (6) Sri Annapurna Mills, Benares. The registered deed of dissolution and partition dated the 7th May 1936 shows that the fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ger businesses and bigger properties with smaller business." This might have been possible if the entire joint family properties had been partitioned. But there was no legal bar to their effecting a partial partition, that is to say, partition of the businesses only. From the aforesaid findings of the Assistant Commissioner the inference legitimately follows that the businesses were divided between the members of the family in definite portions, though the family remained undivided so far as the landed properties are concerned. The question then arises whether partial partition can be recognised for the purpose of making an order under Section 25A. In the said Privy Council case, Sir, Sundar Singh Magithia v. Commissioner of Income Tax their Lordships, with reference to section 25-A, said "On this section the contention of the Commissioner is that for the purposes of the Income Tax Act members of an undivided Hindu family cannot enter into a partnership in respect of a portion of the joint property which they have partitioned among the selves. But, in their Lordships view, Section 25A contains no warrant for any such prohibition. It has no reference at all to any case i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... instrument of partnership specifying the individual shares of the partners, for registration for the purposes of this Act and of any other enactment for the time being in force relating to Income Tax or super-tax." The firm of which registration was sought under Section 26A was constituted under the partnership deed dated the 31st July 1936 (registered on 1st August 1936). The Assistant Commissioner has held "that there is no contractual partnership among the sons of Anand Ram and the partnership deed dated 1-8-1936 is a colourable document, not intended to be acted upon." This finding is substantially based on the supposition that the alleged partnership business belongs to the joint family. Paragraph 68 of his order opens with the following sentence : "In the present case, I hold that partition under Section 25A and therefore registration under Section 26A cannot be allowed for the following reasons." The word "therefore" which I have underlined suggests that in the opinion of the Assistant Commissioner registration under Section 26A must be refused if partition under Section 25A were to be disallowed. In clause (1) of the same paragraph he say ..... X X X X Extracts X X X X X X X X Extracts X X X X
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