Sikri, J. - (1.) These appeals by special leave are directed against the judgment of the High Court of Calcutta in two cases referred to it by the Income-tax Appellate Tribunal, Calcutta Bench, under S. 66 (1) of the Indian Income Tax Act (XI of 1922) (hereinafter called the Act), one of the references (Income-tax Reference No. 20 of 1959) was made at the instance of M/s. Fatehchand Murlidhar, and the other (Income-tax Reference No. 21 of 1959) was made at the instance of Shri Murlidhar Himatsingka. In the former reference the question referred was "whether on the facts and in the circumstances of the case, the Income of Murlidhar Himatsingka for his share in the firm of Messrs Basantlal Ghanshyamdas for the assessment years 1952-53 and 1953-54 was rightly excluded from the income of the applicant firm". In the latter reference the question referred was "whether on the facts and circumstances of the case the income ol Murlidhar Himatsingka for his share in the firm of Messrs Basantlal Ghanshyamdas to, the assessment year 1955-56 was rightly included in his personal assessment for that year."
(2.) The facts and circumstances out of which these references were made are common because the real question raised by these references is whether the income of Murlidhar Himatsingka, from the firm of M/s. Basantlal Ghanshyamdas, in which he was a partner should be included in his personal assessment or in the assessment of the firm of Fatehchand Murlidhar, to which Murlidhar Himatsingka had purported to assign the profits and losses from M/s. Basantlal Ghanshyamdas. It is sufficient to take the facts from the statement of the case in Income-tax Reference No. 21 of 1959, made at the instance of Murlidhar Himatsinghka. Murlidhar Himatsingka was carrying on business in shellac jute, hessian etc. under the name and style of "Fatehchand Murlidhar" at 14/1, Clive Row and 71, Burtolla Street, Calcutta. He was also a partner in the registered firm, Messrs. Basantlal Ghanshyamdas having -/2/8 share. On December 21, 1949, a deed of partnership was executed by the said Murlidhar Himatsingka and his two sons, Madanlal Himatsingka and Radhaballav Himatsingka and a grandson named Mahabir Prasad Himatsingka. The deed recited that Murlidhar Himatsingka had become too old and infirm to look after the various businesses and that Madanlal and Radha Ballav were already practically managing the business and that they had signified their intention to become the partners of the said firm "Fatehchand Murlidhar" and had agreed to contribute capital, Rupees ten thousand, Rupees five thousand and Rupees five thousand, respectively. The parties further agreed to become and be partners in the business mentioned in the deed. Clause 5 of this deed is important for our purpose and reads as follows: "The profits and losses for the short of the said Murlidhar Himatsingka as partner in the said partnership firm of Basantlal Ghanshyamdas shall belong to the present partnership and shall be divided and borne by the parties hereto in accordance with the shares as specified, hereafter, but the capital with its assets and liabilities will belong exclusively to Murlidhar Himatsingka the party hereto of the First Part and the Parties hereto of the Second, Third and Fourth parts shall have no lien or claim upon the said share capital or assets of the party hereto of the first part in the business of the said Messrs. Basantlal Ghanshyamdas." Clause 10 provides: "The Profits and losses (if any) of the partnership including the shares of the profits and losses of the said partnership firm of Basantlal Ghanshyamdas aforesaid shall be divided and borne by and between the parties in the following manner:- Party hereto of the First Part-Six annas (Murlidhar Himatsingka). Party hereto of the Second Part-Four annas (Madanlal Himatsingka). Party hereto of the Third Part-Three annas (Radhaballav Himatsingka). Party hereto of the Fourth Part-Three annas (Mahabirprasad Himatsingka)." Clause 11 provides that "all partnership moneys and securities for money shall as and when received be paid into and deposited to the credit of the partnership account." In Cl. l3 it is provided that "the party hereto of the First Part shall have the sole control and direction of the partnership business and his opinion shall prevail if there be any dispute between the parties hereto" Clause 16 provides that "the net profits of the partnership after payment of all outgoing, interest on capital or loans and subject to the creation and maintenance of any reserve or other fund shall belong to the parties and the losses, if any, shall also be borne and paid by the parties in proportion to their shares as stated in Cl. 10 hereof."
(3.) For the assessment year 1955-56 the Income-tax Officer included the income from the share in the registered firm of Basantlal Ghanshyamdas in the individual assessment of Murlidhar Himatsingka Murlidhar Himatsingka appealed to the Appellate Assistant Commissioner. Referring to S. 23 (5) (a) of the Act, he held that as Murlidhar Himatsingka was a partner in the registered firm of Basantlal Ghanshyamdas, his share had to be assessed in his hands. He further held that the agreement was merely an arrangement which came into force after the profits were earned and not before they were earned. He held that this agreement being a subsequent disposition of profits after they had been earned, had to be disregarded.;