D D KAPOOR Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) In these cases the assesses is a Hindu undivided family consisting of four brothers, D. D. Kapoor, J. D. Kapoor, K. L. Kapoor & N. K. Kapoor. In the year 1942 the four brothers entered into contract of partnership with two Dalmia brothers, namely, G. R. Dalmia & J. N. Dalmia. The deed of partnership provided that each of the four brothers would have two and a half annas share in toe profits and losses of the partnership business. The two Dalmia brothers were granted three annas share each and there was a term in the deed of partnership that the four Kapoor brothers would furnish the skill, labour and goodwill for the partnership business and the two Dalmia brothers would furnish the funds for carrying on the work. The partnership lasted from June 1942 till March 1947. The account of the partnership showed that each of the Kapoor brothers and each of the Dalmia brothers was credited with respective shares of the profit. The profits were credited to the personal account of the partners in the books of the partnership. It also appears that the partners withdraw money from their personal accounts from time to time. Paragraph 4 of the partnership deed shows the shares of the partners as follows :-

(2.) It appears that an application for registration of the firm was made to the Income-tax authorities under Section 26-A. The application was allowed and the firm was ordered to be registered for all the assessment, years. In spite of this fact the Income-tax Officer held that the income derived by the four Kapur brothers from the part-nership was not individual income but should be treated as income of the Hindu undivided family and taxed as such. The reason given by the Income-tax Officer was that the four Kapoor brothers were not partners in their individual capacity bu't they were only representing the joint Hindu family in the partnership business. An appeal was taken by the assessee to the Appellate Assistant Commissioner from the order of the Income-tax Officer. The Appellate Assistant Commissioner allowed the appeal holding that the Hindu undivided family was not liable to be tax-ed upon the income derived by the four Kapoor brothers from their shares of the partnership. Against this decision an appeal was preferred by the Income-tax Department to the Appellate Tribunal. The appeal was partially allowed by the Tribunal who took the view that the income of the eldest brother Mr. D. D. Kapoor should be treated as income of a Hindu undivided family but the income of the three other Kapoor brothers was not income of a Hindu undivided family but was individual income. The Tribunal reached this view because the Tribunal found upon examining the family accounts that the amounts withdrawn by Mr. D. D. Kapoor from the partnership business were credited to the family accounts and treated as family income. As regards the share of income due to the other three Kapoor brothers the Tribunal found upon examination of the account books that the other three brothers had utilised their shares of income, for their own purposes and no part of their income was utilised for the purpose of the family.

(3.) At the instance of the High Court the Tribunal has stated, a case upon the following question of law: