Decided on July 22,1994



U.S. Dhusia, Judicial Member - (1.) THESE two appeals are filed by the Revenue for the assessment years 1978 -79 and 1980 -81.
(2.) The only issue in these appeals that has been pressed, vide several grounds for both the years, is whether the share of income from the firms devolving on the wife and the minor son, Ravinder Kumar, is liable to be included in the total income of the assessee for these years or not. The facts which are noted, in this connection, are that the assessee was the karta of a joint Hindu family and he represented the joint family in five firms, whose details are given in the order of the Income -tax Officer. There was a partial partition, effected on August 9, 1973, in the joint family. As a result of the partial partition, brought about, the capital of the joint family invested in the partnership firms, in which the assessee had been a partner, representing the Hindu undivided family, was partitioned in the books of the joint family. The partition of the capital was effected only in the books of the joint family, but was not communicated to the partnership firms. Therefore, the capital sum invested on behalf of the erstwhile joint Hindu family and, after the partition, pertaining to the five members of the family amongst whom the capital was partitioned, remained intact. It was further agreed that the assessee would continue to be a partner for all the five members in the five firms and the capital now partitioned amongst the five members will remain the capital invested in those firms on their behalf. As a result of this arrangement, Jagdish Rai, the assessee, found that he was entitled to a share of profit of Rs. 6,463. Similarly, his wife, Smt Saraswati Devi, and his minor son, Ravinder Kumar, were each entitled to receive their share of profit amounting to Rs. 6,463. For the assessment year 1978 -79, the Income -tax Officer not only assessed the assessee in respect of his share of income, Rs. 6,463, but also included the shares of income devolving on Smt. Saraswati Devi and Ravinder Kumar, aggregating to Rs. 12,527. In the assessment year 1980 -81, the assessee was not only found assessable in respect of his share of income of Rs. 9,193, but also the shares of income devolving on Smt. Saraswati Devi and Ravinder Kumar, aggregating to Rs. 18,386. The assessee represented this approach, but the Income -tax Officer did not agree and he completed the assessment by including the shares of income pertaining to Smt. Saraswati Devi and the minor son, Ravinder Kumar. We would like to reproduce a part of the order of the Income -tax Officer containing his finding in this behalf below : "After partition, the members of the erstwhile family became individual and entered into agreement to share the profit or loss received by Shri Jagdish Rai in his capacity as partners in various firms equally. Thus, by this agreement, they formed a partnership, hereinafter called a sub -partnership for convenience. Thus, the share received by the assessee's wife and minor children from this sub -partnership is to be included in the income of Shri Jagdish Rai under Section 64(1)(i). The above view is supported by the decision of the Gujarat High Court in the case of CIT v. Mahendrasingh Mohansingh [1980] 123 ITR 938." The assessee took this matter in appeal before the Appellate Assistant Commissioner and pointed out to him that in a Punjab and Haryana High Court decision in the case of CIT v. Ram Narain [1980] 126 ITR 267, on almost identical facts, their Lordships did not support a finding of the sub -partnership. Moved by this plea, the Appellate Assistant Commissioner struck down the additions. The Revenue has felt aggrieved and has brought the issue in appeal before the Tribunal.
(3.) ACCORDING to the Departmental Representative, the Appellate Assistant Commissioner did not reach a finding after a proper appraisal of facts. His finding, on the face of it, is misconceived. He had not paused to consider that it was only by virtue of an agreement between the members that the share of income, received from the five firms by the assessee, as a partnership, was divided among the five members. On the other hand, learned counsel for the assessee placed heavy reliance on the aforesaid Punjab and Haryana High Court decision. ACCORDING to him, there was no sub -partnership resulting from the partial partition effected in the joint family. He also tried to distinguish the decision of the Gujarat High Court, which has been relied upon by the Income -tax Officer and which was in CIT v. Mahendrasingh Mohansingh [1980] 123 ITR 938. ACCORDING to him, in the Gujarat decision, the minors were not made liable for loss and, according to him, this was a material feature appearing in the facts of the present case, which distinguished the facts of this case from those considered by the Gujarat High Court.;

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