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TMI Blog1961 (1) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... profits in the ratio of 3 : 3 : 1 : 1 respectively. In September, 1953, Graham Durai, the son, and Vyraprakasam, another adult son, finally separated themselves from the family by executing deeds of release. In so far as Graham Durai was concerned, of the sum of ₹ 15,000 only, the balance of ₹ 15,000 being accounted for by the credit of that amount to his capital account referred to earlier. When the partnership was sought to be registered, the Income Tax Officer declined to grant the application, one of the grounds taken by him being, that the capital of the three new partners was not their own but only adjustments from the Hindu undivided family funds, and that the power of the kartha to give away gifts was limited. It may be mentioned that at the time of the application for registration it was represented that the father, Ayya Nadar, gave amounts of ₹ 15,000, ₹ 5,000 and ₹ 5,000 to Graham Durai and the two daughters by way of gifts. In appeal, the Assistant Commissioner also held that the father was not competent to make these gifts, that the theory of the gift was inconsistent with the release deed subsequently executed by Graham Durai, that the th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... persons operated as valid gifts by the Kartha of the family. For the present, it is sufficient to state that the sum of money represented by the transfer of capital to these persons was available with the Hindu undivided family, and the genuineness of the gifts, of course, was never in issue before the department. The subsequent partition, supported by the documents executed on September 19, 1953, clearly established that there had been a partition of the movable assets of the family even by the date when this partnership came into existence, which was on March 3, 1952, and, according to the partnership agreement, which is annexure B to the statement of the case, the business was thereafter carried on as a partnership concern. A somewhat similar case was considered by this court in Jakka Devayya and Sons v. Commissioner of Income Tax 1. There, three brothers, one of whom was a minor, who constituted a Hindu undivided family, divided the moveables and began to live separately. The immovable properties were, however, kept joint, and as regards the business of the family, it was arranged to carry it on as a partnership. The share of the three brothers was fixed at one-third each. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... severalty or in specified shares. It is not necessary that there should be physical division of the business. The decision in that case as indicated by the headnote was : The entries in the books of account dated June 29, 1946, and the two partnership deeds, constituted sufficient materials in law for a finding as to the disruption of the joint family status with respect to the business and for bringing into existence the partnership firm which was entitled to registration under section 26A. 5. It should follow from the above that when the genuineness of the partition arrangement and the subsequent partnership cannot be questioned, the mere fact that the division and the allocation of shares were purported to be effected only by entries in the books of account does not bar the certain of an effective partnership of the business. 6. We stated earlier that a final partition was effected on September 19, 1953. This document recites that the two major sons, Graham Durai Nadar and Vyraprakasa Nadar, had become separated and divided from the joint family in 1952 and 1953 and that they had executed separate release deeds in respect of their shares in the moveable properties and o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egistered deed, can only be completed by delivery of the property to the done, cannot be disputed. In Mrs. Chambers v. Kelland Huxford Chambers, a testator, the head of a big business firm who had large assets but was not in a position to make gifts in cash, purported to give to his wife certain moneys which were credited to her name in the books of the company. The question arose whether there was a declaration of a trust in respect of that sum. The learned judges decided that mere book entries did not confer on determine rights and did not establish completed gifts. It was further held that though there was perhaps evidence of an intention to create a gift there was nothing to show an intention to create a gift there was nothing to show an intention to create a gift there was nothing to show an intention to create a trust with regard to that sum. Ramanathan Chettiar v. Palaniappa Chettiar dealt with a trust and it was held that a mere credit entry in the donors account without setting aside and appropriating the sum credited was not sufficient to create a valid trust. Muthappa Chettiar v. Commissioner of Income Tax also dealt with a case where a will directed the credit of two su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he minor children of the son. Various letters or documents were executed by the father in which be affirmed the gifts. The question arose whether these gifts had been validly made. The learned judges observed : We have here entries made with the knowledge and consent of the two partners whereby a large part of the monies which stood to the credit of one of the partners was debited to his account with such consent and credited to the account of the donees with the intention of making them the creditors of the firm. Had the matter rested at that, different considerations might have arisen but such is not the position. The writings executed by [the father]... clinch the whole matter. The donees accepted the transaction of gift, the firm accepted the transaction and not only paid interest on the amounts accepted as due to the donees but also allowed the donees to withdraw moneys from time to time. In the case of any gift of such a nature, the court has to satisfy itself that there is a substitution of some other obligations for the original one and that there is the animus novandi. There is, in our opinion, ample material which satisfies the legal requirements of a completed and a v ..... X X X X Extracts X X X X X X X X Extracts X X X X
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