Decided on August 28,1958

Ramchandra Lachminarayan Respondents


Sarjoo Prosad, C.J. - (1.)THIS is a reference made at the instance of the Commissioner of Income Tax, Assam, under Section 66(2) of the Income Tax Act, 1922 (Act XI of 1922). The only point which the Tribunal has formulated for our consideration is -
"Whether on the facts and in the circumstances of the case the Tribunal was right in holding that there was a partial partition of the Hindu undivided family and a valid partnership was brought into existence thereafter and in allowing registration to the respondent on that basis under Section 26A of the Indian Income Tax Act -

(2.)THE relevant facts stated may be briefly recapitulated. A Hindu undivided family consisting, of Lachminarain Singhania, the father, and four sons governed by the Mitakshara school of Hindu law was being assessed for Income Tax as such till the assessment year 1952 -53. It appears to have had two sources of income (1) from business and (2) from Immovable properties. During the assessment year 1953 -54, the assessee claimed that a partial partition had been effected in respect of the business and that with effect from the beginning of Ramnavami 2009 Sambat (3 -4 -1952) a partnership with definite shares had been constituted between the father and the four sons, who were the coparceners of the joint family.
The assessment year commenced on the 3rd April, 1952, and the instrument of partnership on which the assessee relied came into being on 4 -4 -1952. An application under Section 26A of the Income Tax Act was, therefore, filed for registration of the partnership along with a copy of the partnership deed. The Income Tax Officer refused registration. He held that the deed required registration, because the capital of the family in the balance sheet represented the income from business as well as landed properties and a division of the capital, therefore, meant the division of the landed properties also.

He further held that the terms of the deed of partnership as contained in paragraphs 5 and 10 of the deed were contradictory. On appeal, the Appellate Assistant Commissioner held that what was divided was only the business capital including the net income from the Immovable properties and therefore, registration of the document was not necessary. He further did not find any discrepancy between the deed and the actual division of capital according to the balance sheet, as erroneously observed by the Income Tax Officer. He accordingly directed that the assessee should be granted registration on the strength of the partnership deed.

Against that order the Department preferred an appeal to the Tribunal. The Members of the Tribunal, who heard the matter, were divided in their opinion. The Judicial Member appears to have agreed with the view of the Income Tax Officer. He was of the opinion that the instrument on which the assessee relied for purposes of registration did require registration under the Registration Act and the alleged partial partition pleaded by the assessee in respect of the partnership business was a mere pretence. He, therefore, held that registration of the partnership under the law should be refused.

The Accountant Member on the contrary, held that the claim of the assessee for registration under Section 26A of the Income Tax Act could not be resisted. He found that there was a genuine partition of the business assets of the Hindu undivided family and the various coparceners did enter into a valid partnership as evidenced by the instrument of 4 -4 -1952. He further observed that the mere fact that there was a property account in the business books to which all income from the property was credited and all expenditure on property was debited, did not establish that the capital cost of the properties was included in the capital of the business.

In view of this difference of opinion between the Members of the Tribunal, the matter was referred to another Member for determination of the point whether the registration application under Section 26A should or should not be accepted. The third Member agreed with the view of the Accountant Member with the result that registration under Section 26A of the Act was allowed in favour of the assessee. In substance therefore, the majority of the Members of the Tribunal found that there was no intention at any stage to divide the Immovable properties and no such division in fact had taken place; all that the partners agreed to do was that from the date of partnership, they would divide the income from the Immovable properties in certain proportions and as it was a matter of agreement between the parties concerned, the plea of partial partition effected between the members of the coparcenary was upheld. It was further found that the partnership as such did not own the Immovable properties and on the strength of the instrument of partnership, the assessee was entitled to registration.

(3.)THE confusion as to the alleged discrepancy about the state of the accounts to which reference had been made by the Income Tax Officer and the Judicial Member of the Tribunal was also satisfactorily explained. The majority observed that even before the date of the instrument of partnership, there was a property account in the books of the Hindu undivided family. The capital cost of any of the Immovable properties owned by the family was never debited in the account books. All that was done was to show the income from each property in the property account on the credit side and the expenses of maintenance of such properties on the debit side of that account and the balance at the end of every year was transferred to the profit and loss account. In the assessment year also in view of paragraph (10) of the partnership deed, the net income of the property account was transferred to the profit and loss account of the firm. The above findings are very material and have an important bearing on the point under investigation.

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