- (1.) This batch of appeals arises out of a reference made to the High Court at Allahabad by the Income-tax Appellate Tribunal, Allahabad Bench, under S. 26, Excess Profits Tax Act, hereinafter referred to as "the Act". The assessments challenged in these appeals relate to different chargeable accounting periods but the questions raised are the same in all the cases.
(2.) The appellants constitute a Hindu undivided family consisting of four branches representing the four sons of one Sohan Pathak deceased. The family carried on business at Banaras in money-lending and Banaras brocade under the name and style of Sohan Pathak and Sons. In the assessment relating to the chargeable accounting period ending on 8-10-1943, the appellants alleged that there was a partial partition among the members of the family on16-7-1943, whereby the Banaras brocade business was divided in equal shares among the four branches and that, on the next day, the adult members of the family formed two partnerships admitting the minors to the benefits thereof, and thereafter carried on business in Banaras brocade under the respective firm names of Sohan Pathak Girdhar Pathak and G. M. Pathak and Co. The appellants claimed that the family as such ceased to carry on business in Banaras brocade after 16-7-1943, though they continued to remain joint in status and that the profits derived by the two partnerships aforesaid after 17-7-1943 could not be assessed as profits of the original joint family business, as the businesses carried on by the two partnerships were distinct and newly started businesses and could neither in law nor in fact be regarded as continuation of the old brocade business. In support of this claim, the appellants strongly relied on the circumstance that the Income-tax officer treated the old business as discontinued by the family after the partial partition and granted relief on that footing under S.25(3), Income-tax Act in the assessment to income-tax of the appellants as a Hindu undivided family. The Excess Profits Tax Officer, however, rejected the claim as he was of opinion that the main purpose of the partial partition and the creation of the two partnerships was to avoid or reduce the liability of the appellants to excess profits tax, and he made adjustments under S.10-A of the Act as adding to the profits made by the appellants as a joint Hindu family till the date of the partition the profits made by the two firms during the chargeable accounting periods. The Appellate Assistant Commissioner and the Appellate Tribunal confirmed the finding and order of the Excess Profits Tax Officer, but, at the instance of the appellants, the Tribunal referred the following questions to the High Court for its decision: 1. Whether in view of the fact that the partial partition had been accepted by the Income-tax Officer and the business was treated as having been discontinued for the purpose of assessment under the Income-tax Act, the same business could legally be treated as having continued unbroken in respect of the same chargeable accounting period for the purpose of S. 10-A of the Excess Profits Tax Act read with Ss. 4 and 5 of the same Act 2. Whether in the circumstances of the case the effect of the partial partition of the Hindu undivided family on 16-7-1943, and the formation of two different firms was a transaction within the meaning of S. 10-A of the Excess Profits Tax Act 3. Whether on the facts found by the Tribunal as stated in para. 7 of the statement of the case, it was justified to draw the inference that the main purpose behind the partial partition was the avoidance or reduction of liability to Excess Profits Tax The Court answered these questions against the appellants but granted leave to appeal to this Court.
(3.) At a previous hearing of these appeals this Court was of opinion that the material facts relating to the partial partition and the formation of the partnership and the findings of the Tribunal in regard thereto had not been clearly stated by the Tribunal in the original statement of the case. The Court said: While it is true that in one place in the statement of case the Tribunal speaks of the old family brocade business as continuing without a break after the partial partition, reference is made in another place to the assets of that business having been equally divided among the four branches forming the family. There is thus no clear finding as to how the partition of the brocade business was actually effected -whether by a division in shares, each branch holding its share in severalty and the business being carried on as before on a partnership basis, or whether by an actual distribution and allotment of specific assets and liabilities among the branches resulting in the disruption of that business. The Court accordingly by its order of 12-11-1953 called for a further and clearer statement of the facts on the points indicated.;