Pathak, C.J. -
(1.) THE following question of law has been referred for decision under Section 256(1) of the Income-tax Act, 1961, by the Income-tax Appellate Tribunal:
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessments could not be made in the status of a firm as claimed by the assessee and in setting aside the orders made by the Income-tax Officer and directing him to make assessments afresh in the correct status ?"
(2.) THE facts of the case may be briefly stated. THE relevant assessment years are 1961-62 and 1962-63. Pulchand Sarawgi has two sons, namely Ratanlal and Dulichand. Up to 1959-60 the return was filed by Pulchand in the status of Hindu undivided family wherein the three members were shown constituting the family with Pulchand Jain, the father, as the karta of the same. According to the assessee, M/s. Pulchand Ratanlal, Ratanlal Jain, one of the two sons of Pulchand Jain Sarawgi, was given in adoption to one, Balchand Barjotia, on June 16, 1954, and the said adoption was reduced into writing by a registered deed of adoption on the same date. In the returns filed up to the assessment year 1959-60, how ever, the assessee treated the said Ratanlal Jain as a son of Phulchand Jain and a member of the joint family along with the other brother and the father. THE assessee claimed that subsequently there was an agreement between Phulchand and Ratanlal, that is, father and the son, who was given away in adoption, to run the business in partnership with effect from March 29, 1958, relevant to the assessment year 1959-60. THE deed of partnership was drawn up on April 19, 1962. No profits were, however, divided between the two alleged partners in the assessment year 1959-60. But in 1960-61, the profits were divided between the two partners. It is also found from the record and not contradicted that the profits were divided between the partners in the relevant assessment years 1961-62 and 1962-63. On these facts the assessee filed its return for the assessment year 1960-61 showing its status as a firm. THE Income-tax Officer in his assessment order for the year 1960-61, however, found that Ratanlal managed the business and Phulchand, father of Ratanlal, gave Ratanlal in adoption to one Balchand Barjotia long ago. On that basis the Income-tax Officer determined the status of the assessee, M/s. Phulchand Ratanlal, proprietor Ratanlal Jain, as "individual" and, accordingly, the assessment for the year 1960-61 was made on February 28, 1961. THE assessee accepted that assessment order and it must have paid the assessed tax for the assessment year 1960-61. In 1961-62 the assessee, M/s. Phulchand Ratanlal, filed a return showing its status as "firm". THE Income-tax Officer, however, in his assessment order for the year 1961-62 passed on September 4, 1963, observed that in the return the status was shown as "firm" but in the absence of any change of ownership in the business he took the status as "individual" as before, which necessarily means, as in the assessment year 1960-61. Similarly, the assessee filed return for 1962-63 showing its status as "firm" but the Income-tax Officer by his assessment order dated September 4, 1963, assessed the assessee treating its status as "individual" as in the previous year. THE assessee preferred appeals before the Appellate Assistant Commissioner in respect of both the assessment years. THE Appellate Assistant Commissioner found that the Income-tax Officer correctly determined the status of the assessee as an individual. THE assessee then preferred second appeals before the Income-tax Appellate Tribunal. THE Tribunal also held in its composite order dated November 24, 1966, that it was not possible to recognise the status as claimed by the assessee as a firm (partnership firm). THE Tribunal further found that the rejection of the claim of the assessee that its status was "firm" did not necessarily mean that the status of the assessee was "individual" as held by the Income-tax Officer as well as the Appellate Assistant Commissioner.
The Tribunal then in its order referred to Section 171(1) of the Income-tax Act and observed as follows :
"Under Section 171(1) of the Income-tax Act, 1961, a Hindu family hitherto assessed as undivided shall be deemed for the purposes of this Act to continue to be a Hindu undivided family except where and in so far as a finding of partition has been given under this section in respect of the Hindu undivided family. On the facts presented before us, there is no evidence that after the year 1959-60, there was any partition in the Hindu undivided family of Phulchand Ratanlal to warrant the assessment in the status of an individual. In our opinion, therefore, the Income-tax Officer was not justified in changing the status of assessment. The assessments made by the Income-tax Officer in the status of an individual are, therefore, set aside. The Income-tax Officer may now proceed to make assessments for the relevant years in correct status."
The operative portion of the judgment of the Tribunal merely says that, since the assessee has not been able to establish its status as a firm (partnership firm), there was no justification for the Income-tax Officer to treat the status of the assessee as an individual and, therefore, the assessment made on the basis of individual status was set aside and the Income-tax Officer was directed to make assessments for the relevant years in the correct status, that is to say, as Hindu undivided family, because the assessee claimed its status as a firm which was rejected by the Income-tax Officer who treated the assessee as an individual. The Tribunal also found that the assessee's claim of the status of firm was not made out and the Income-tax Officer was wrong in holding its status as an individual and, therefore, the Tribunal referred to Section 171(1) of the Income-tax Act and directed the Income-tax Officer to make assessments in the correct status of the assessee.
(3.) IN the above premises the above question of law has been referred. The question that arose before the Tribunal for determination is whether the assessee may be treated as "firm", as claimed in the returns of income submitted for the assessment years 1961-62 and 1962-63.
It is common case that a partnership firm may be formed even without a written document. Section 4 of the Indian Partnership Act defines "Partnership" as follows:
'Partnership' is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all."