B.K.MEHTA, J. -
(1.) SINCE these three references raise common questions of law for our opinion, though in respect of different assessment years, namely, 1969 -70, 1970 -71 and 1971 -72, pertaining to the assessment of the same assessee, we intend to dispose of them by this common judgment.
(2.) IN order to appreciate the rival contentions urged on behalf of the revenue and the assessee in these three reference, it would be useful to set out the facts leading to these references. the assessee, Mahendrasingh Mohansingh (now deceased), in his capacity as karta of his HUF, was a partner in the firm of M/s. Mohansingh Sahebsingh. The said HUF consisted of the assessee, late Mahendrasingh, his wife, Devendra Kaur, and his son, Shailendrasingh. A partial partition was effected amongst the members of the said family on November 2, 1967, dividing the capital invested by the said family in the aforesaid firm as well as its share in the profits of the said firm equally amongst the said three members of the family. An agreement was effected on December, 7, 1967, between the assessee on the one hand and his wife, Devendra Kaur, and son, Shailendrasingh, on the other with regard to the invested capital in the said firm and the share of the family therein. Broadly stated, it was agreed by and between the parties under the said agreement that according to the partition effected between the parties on November 2, 1967, the capital and share of the family in the said firm were divided equally amongst the three members of the said family, and that each one of them had become owner to the extent of 1/2rd share in the capital and the share of the family in the firm. It was further agreed between the parties under the said agreement that Devendra Kaur and Shailendrasingh permitted the assessee to use the amounts representing their shares in the capital and the share of the family in the firm and also required the assessee to continue as a partner in the said firm for himself and as representative of Devendra Kaur and Shailendrasingh. In consideration of this permission to use the amounts representing their shares (1/3rd each) in the capital and the interest of the family in the firm, the assessee agreed and undertook to pay annually to each of the said two members 1/3rd share of the profits coming to the share of the assessee from the said partnership business subject to a minimum of Rs. 1,000 to each per annum. It was also agreed between the assessee and the said two members of his family to make an arrangement with the firm so that the said members would withdraw their 1/3rd share in the profits allotted to the assessee as stated above directly from the firm. It was, however, clarified that the assessee did not become the owner of the amounts representing 1/2rd share of Devendra Kaur and 1/3rd share of Shailendrasingh as aforesaid and he was merely granted licence to use their capital and shares in the said firm. The factum of partial partition and the agreement stated above was also recorded in the declaration made by the assessee on September 20, 1968. The aforesaid arrangement was also recorded in the deed of partnership of the firm executed on December 7, 1967, after the partial partition. In the course of the assessment for the assessment year 1968 -69, the HUF of Mahendrasingh claimed that there was a partial partition in respect of the capital invested by the family and its share in M/s. Mohansingh Sahebsingh.
The ITO, after holding necessary inquiry, by his order of January 21, 1972, found that there was a partial partition as claimed by the family and accepted it. In the course of the assessment for the assessment year under reference, that is, 1969 -70, the assessee, late Mahendrasingh, claimed that only his 1/3rd share in the firm of M/s. Mohansingh Sahebsingh was liable to be included in his total income. The share in the firm of M/s. Mohansingh Sahebsingh was computed Rs. 60,360. It was, therefore, claimed by the assessee that only Rs. 20,120, representing his 1/3rd share in the profits, was liable to be included in the assessee's total income. This claim of the assessee did not find favour with the ITO, who was of the opinion that the assessee had become a partner in the firm for himself and on behalf of his wife and son under the aforesaid partial partition and, therefore, the wife and son had also become partners in the firm and the entire profits computed at Rs. 60,360 which included the shares of the wife and son were liable to be taxed in the hands of the assessee under s. 64 of the I.T. Act, 1961.
(3.) THE assessee, therefore, carried the matter in appeal before the AAC, Ahmedabad, who, following the decision of the Supreme Court in Charandas Haridas v. CIT : 39ITR202(SC) , held that the provisions of s. 64 of the Act had no application in the facts of the present case and having regard to the agreement effected on December 7, 1967, pursuant to the partial partition between the members of the family, the assessee had merely utilised the amounts representing the shares of his wife and son in the firm and the respective amount of profits coming the their shares cannot be taxed in the hands of the assessee and should, therefore, be deleted from his income.;