B.P. Jeevan Reddy, C.J. - (1.) UNDER Section 256(1) of the Income-tax Act, 1061, the Tribunal has stated the following question at the instance of Revenue : "Whether, on the facts and in the circumstances of the case, the Income tax Appellate Tribunal was legally justified in holding that what was the individual property of the respondents to begin with has been converted by them into that of their smaller Hindu undivided family's by their declaration made in the income-tax and wealth-tax returns filed for the assessment years 1958-59 to 1970-71 and accepted by the Revenue ?"
(2.) AT the instance of the assessee, the Tribunal has referred another question which reads : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee had become a partner in the partnership firm evidenced by the partnership deed dated December 30, 1956, in their individual capacity and not representing their smaller-HUFs ?" Lala Ganga Prasad Kanodia, Brij Mohan Kanodia and Devi Prasad Kanodia, three brothers, constituted a undivided Hindu family. They were carrying on business in the name and style of Sadiram Ganga Prasad. The business comprised several business/industrial units. On December 29, 1956, the three brothers decided to put to an end to the Hindu undivided family. The capital of the family in the aforesaid business on the said date was a negative figure. This negative capital was divided amongst the three brothers equally. On the same day, a new partnership firm was formed, evidenced by a deed of partnership dated December 30, 1956. This deed recited that "the capital account of the said family after taking into account profits estimated to have accrued to the said family (i.e., the bigger family) in respect of the said business up to the said date (i.e., December 29, 1956) has disclosed a net debit (deficit) which had been divided among the members of the said family on the said date." The deed further recited that with effect from December 29, 1956, the parties shall carry on the business of the business/industrial units as individuals under the original names and styles. On the basis of the above facts, a claim for partial partition was put forward before the Income-tax Officer during the assessment proceedings relating to the assessment year 1957-58. This plea was accepted by the Income-tax Officer and recorded.
(3.) THE assessee filed his returns of income for the assessment years 1958-59 to 1970-71 declaring his share income from M/s. Sadiram Ganga Prasad, a partnership, as belonging to his smaller Hindu undivided family, i.e., the Hindu undivided family comprising himself, his wife and children. This was accepted and assessments were made accordingly. During the course of audit, an objection was raised by the audit party to the effect that, according to the partnership deed, the business was being carried on by the brothers as individuals and, therefore, the income received by them should be treated as individual income and not that of the smaller Hindu undivided families represented by each of them. On the basis of this note, the assessment was reopened.;