Decided on January 07,1935



- (1.) THIS case arises on a statement submitted to this Court by the Commissioner of Income Tax under Section 66(2), Indian Income Tax Act, XI of 1922.
(2.) Prior to 1929-30 the assessee was admittedly an undivided Hindu family consisting of Sir Bisesardas Daga who was the manager and his younger brothers, Seth Narsinghdas Daga, Seth Badridas Daga and Seth Ramnath Daga, a minor. In the course of the assessment proceedings of 1929-30 it was alleged that the joint Hindu family had constituted itself into a firm, as a result of a declaration of unequivocal intention to separate made in writing on the 10th February 1928 on a duly stamped paper followed by a registered deed of partnership dated 30-7-1928. Out of the property which consisted of villages, houses, money-lending and other business and jewellery, there had been already actual division of some immovable property and jewellery at Bikaner. The property in British India remained undivided as before but the disruption of the joint family was evidenced by splitting up the capital accounts of their business into four accounts with equal amounts in the names of four brothers. No alteration in the register of proprietary mutations was made in respect of the villages. It was alleged that the declaration as to partition had come into force from the 1st April, 1928. All the four brothers jointly applied for registration of their firm under section 2 (14) and the then Income Tax Officer, Mr. Subhedar, passed a formal order on 20-3-1930 to the effect "that the joint family had ceased to exist even though there had been no division by metes and bounds of the villages and houses, (Appendix A), and accordingly registered the instrument of partnership dated 30-7-28 on 22nd March, 1930, (Appendix B). This registration was renewed for 1930-31 and 1931-32 by Mr. Bagri who had succeeded Mr. Subhedar in those years as Income Tax Officer. The application for renewal of registration for 1932-33 was, however refused, and the Income Tax Commissioner declined to state the case under Section 66 (2) of the Income Tax Act. The assessee did not move further in the matter as he was not assessed to any income-tax in that year.
(3.) THE question again arose in respect of the assessment year 1933-34 and the Income Tax Officer by an order passed on 28-2-1934 declined registration as a result of fresh enquiries disclosing that that the assessee continued to be a Hindu joint family in spite of the declaration dated 10-2-28. An appeal made to the Assistant Commissioner of Income Tax for reviewing the adverse orders passed against him and also to draw up a statement of the case and refer for the decision of this Court. THE Commissioner of Income Tax has therefore referred the question in these terms :- "In all the circumstances of this case, having regard to the facts that there was no finding at any time to the effect that the Hindu undivided family represented by the assessee had disrupted and that joint family portions, was the income Tax Officer justified in holding that the so-called firm, of which registration under Section 26-A was sought for an refused, was only a subterfuge for the purposes of obtaining a reduction in the liability to income-tax and super tax ?" This reference raised two questions; (1) whether there was no finding at any time to the effect that the undivided family had been divided, and (2) whether the Income Tax Officer was justified in holding that the firm which had been registered for 2 years under Section 26-A and assessed as such was not a firm.;

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