HIRALAL JAGANNATH PRASAD Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a case stated under Section 66(1) of the Indian Income Tax Act, 1922, (hereinafter referred to as the Act). The question referred is:

(2.) THE material facts are these: THE assessee Messrs. Hiralal Jagannath Prasad of Banaras, a Hindu undivided family concern, was carrying on business at Banaras, inter alia, in Kirana and money lending. A partial partition qua the aforesaid business was effected on the 17th of July 1948 and, on the following day namely, 18th July, 1948. the members of the erstwhile Hindu undivided family formed themselves into a partnership for the purpose of carrying on the aforesaid business. An instrument of partnership was duly drawn up on 31st July, 1948 which was made operative from 18th July, 1948. According to the deed of partnership, which was in Hindi and an English translation whereof was annexed as annexure 'A' to the Statement of the Case, the firm consisted of six major partners. THE opening paragraph of the deed mentions that the partnership deed is between the aforesaid six parties. THE first party is Hira Lal. It is his son Ram Prasad who was admitted to the benefits of the partnership. THE minor is not mentioned as one of the parties to the partnership deed. It is only in Clause (3) of the deed that Ram Prasad is mentioned. That clause reads:

(3.) IT may be notificed that in Section 2 (6-B) of the Act it is provided that "firm", "partner" and "partnership" shall have the same meaning as the Indian Partnership Act, 1932, provided that the expression "partner" includes any person who being a minor has been admitted to the benefits of partnership, Section 4 of the Indian Partnership ship Act defines "partnership" as "between persons who have agreed to share the profits of a business carried by all or any of them acting for all." Under the charging Section 3 of the Act, a firm is made unit of assessment. Firms are then divided for purposes of the Act into registered and unregistered firms. An unregistered firm is taxed as a unit and so is a registered firm. But, under the provisions of Section 23(5) of the Act when the assessment comes to be made of a registered firm, though income tax payable by the firm itself is determined, after the amendment by Section 14 of the Finance Act, 1956. with effect from 1st April, 1956, nevertheless, under Sub-clause (ii) of Section 23 (5)(a) of the Act "the total income of each partner of the firm, including therein his share of its income, profits and gains of the previous year, shall be assessed and the sum payable by him on the basis of such assessment shall be determined, Provided that if such share of any partner is a loss it shall be set off against his other income or carried forward and set off in accordance with the provisions of Section 24.