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TMI Blog1975 (11) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... ndulal C. Shah, is concerned, the years of assessment of his income are 1963-64 and 1964-65 in Reference No. 60/74 and 1965-66 and 1966-67 in Reference No. 114/74. So far as the assessee, Navinchandra C. Shah, is concerned, years of assessment are 1963-64 and 1964-65 in Reference No. 119/74 and 1965-66 and 1966-67 in Reference No. 219/74. So far as the assessee, Ramanlal C. Shah is concerned, the years of assessment are 1963-64 and 1964-65 in Reference No. 171/74. The assessee, Chandulal C. Shah, had a family consisting of himself, his wife, Kusum, his major son, named Bipinchandra, and three minor sons, named Hasmukh, Jitendra and Jagat. So far as the assessee Navinchandra's family is concerned, his family consists of himself, his wife, Urmila, and his minor son, Bankim. So far as Ramanlal is concerned, his family consists of himself, his wife Madhukanta, his major son, Dilip, and his two minor sons, Yogesh and Nitin. Facts relating to the cases of all these three assessees are the same and, therefore, we shall mention the facts relating to the case of Chandulal C. Shah in order to appreciate the points at issue. As already stated, this assessee was a partner of the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heir respective shares of profits as stipulated by these presents. " For the assessment year 1963-64, the share of income from the business of the firm, which came into the hands of Chandulal was Rs. 19,295. In accordance with the terms of the partition deed, referred to above, the sum of Rs. 3,216 was paid by Chandulal to each of the members of the family, namely, himself, his wife, and his four sons. While making the assessment for the year 1963-64, the Income-tax Officer thought that there was a sub-partnership between Chandulal and his family members by virtue of the above-referred stipulations of the deed of partition and, therefore, the provisions contained in section 64(1)(i) and (ii) of the Income-tax Act, 1961, were attracted. The Income-tax Officer, therefore, included the sum of Rs. 16,079 being the 5/6ths share of Chandulal's wife and four sons and brought this amount to tax in the hands of Chandulal. The contention of Chandulal that there was no sub-partnership between him and his family members was negatived by the Income-tax Officer. The assessee, Chandulal, being aggrieved by this decision of the Income-tax Officer appealed to the Appellate Assistant Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ember of the Tribunal, to whom the matter was referred, have observed that the facts of the case show that the necessary element of mutual agency between the members of the family of each of the assessees is lacking inasmuch as the management of the shares of the family members is entrusted exclusively to the assessees, and, therefore, it is not possible to say that each of the members of a family is an agent of the other for the purpose of the management of the family's share in the business of the firm. According to the learned Members of the Tribunal, therefore, there cannot be any sub-partnership between them. In answer to this contention, the learned Advocate-General drew our attention to the decision of the Supreme Court in K. D. Kamath Co. v. Commissioner of Income-tax [1971] 82 ITR 680 (SC), wherein a view is taken that the fact that the exclusive power and control was vested in one partner, and the further circumstance that only one partner could operate the bank accounts or borrow on behalf of the firm, are not destructive of the theory of partnership provided the two essential conditions of partnership were satisfied, namely, (1) that there should be an agreement to sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... called sub-partnership. Thus, the construction of the relevant stipulations in the deed of partition, as canvassed by the revenue, leads to a situation which is patently illegal, because no minor can legally enter into a partnership agreement. Section 30 of the Partnership Act puts a specific ban against a minor to be a partner, though it allows a minor being admitted to the benefits of a partnership with the consent of all the partners. The learned Advocate-General contended that the relevant portion of the document of partnership should be construed as providing only for the admission of the minors not to the partnership itself but only to benefits of the partnership. It is difficult to comprehend on what basis such a construction, as is suitable to the revenue, can be put to this document. In fact, the relevant portion of the document does not speak of any partnership at all. It is the construction of the document as canvassed by the revenue which brings the concept of partnership into the picture and if this construction is accepted as correct, we are further asked to presume that the minors were admitted only for the purpose of sharing the profits and not the losses of the par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tnership, the mere fact that in a particular arrangement there is agreement to share profits, would not render that arrangement an agreement of partnership. Again, agency is equally a necessary ingredient of every partnership, but it would be fallacious to state that whenever there is an agreement creating an agency, a partnership in law is created. Further, there would be cases where both the elements, namely, (1) sharing of profits, and (2) creation of agency are in existence with regard to some persons who are parties to the arrangement and yet intention to create partnership is found to be lacking because of the fact that the remaining persons were not legally capable of entering into a partnership agreement. The present case is one of the cases of that type because even if the minors have appointed their fathers as their agents to receive the share of income, from the business of the firm of Gujarat Automobiles, they could not have done so under law for the purpose of forming any partnership. A further and the most important fact which should be borne in mind is the nature of the agreement which is arrived at by the parties by virtue of the above-quoted stipulations of the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any difference. It should be noted here that after the partition agreements were entered into, the Income-tax Officer has passed an order under section 171 of the Income-tax Act for the assessment year 1962-63 in the case of each of the assessees. The order passed by the Income-tax Officer under section 171 of the Act is found in the record of the case at annexure " B " and it is of 11th July, 1963. Therein the Income-tax Officer has observed as under : " The division of capital and the deposits with M/s. Gujarat Automobiles is supported by the entries passed in the books of accounts of the firm. Regarding the division of 3 annas 3 pies partnership share of the Hindu undivided family in the firm of M/s. Gujarat Automobiles it seems that there were certain practical and legal difficulties for the assessee to get the concerned coparceners admitted to the partnership by effecting necessary changes in the constitution of the firm itself. The main difficulties which the assessee experienced were : (1) other partners were not willing to make relative changes by admitting the coparceners. (2) minor coparceners could be admitted to the benefits of partnership only under the Partner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... members of their families. We find that there is absolutely no evidence to show any such sub-partnership and the stipulations on which reliance is placed by the revenue do not envisage the creation of any partnership relation between the parties concerned. The learned Advocate-General drew our attention to the fact that the members of the family of each of the assessees have agreed to retain the cash deposits, which came to their share as a result of the partition, in the firm of Gujarat Automobiles. According to the learned Advocate-General the continuance of this deposit should be treated as in consideration of the shares which were to be received by the members of the sub-partnerships from the income earned by the firm of Gujarat Automobiles. This contention is wholly unacceptable because the contention that the deposits are kept in consideration of the shares which family members of the assessees receive from the business of Gujarat Automobiles is based purely on surmises, as there is nothing in the record to show that the persons in whose names these deposits are standing are bound to keep these deposits with the firm so long as they receive benefits from the business of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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