HANUMANTHAPPA R AND SON Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference under s. 66(2) of the Mysore IT Act, 1923, and relates to the assessment for the income-tax year 1949-50 of an HUF, of which one R. Hanumanthappa was the Karta and his son, Ramasetty, and grandson, Sreenivasa Murthy, were the other members. The account year of the assessee was Deepavali to Deepavali and the period relevant for assessment was November 30, 1947, to November 1, 1948.

(2.) THE assessment in the normal course was completed on December 29, 1949. But some years later, the assessment was sought to be reopened under s. 34 of the Act. At that stage, the assessee claimed exemption under sub-s. (3) of s. 25 of the Mysore IT Act, 1923. THE facts on the basis of which the claim was made briefly the following : On 2nd November, 1948, the family entered into a regular partition of all its properties and assets. One of the assets was a flourishing business which was till then being carried on by the family. THE manner in which the partition was put through was first to list separately different categories of assets belonging to the family, like cash, land, buildings, machinery, book balances, etc., and divide the assets in each of those categories into shares for allotment and to allot to each coparcener specific items. THEreafter, the three male members of the family mentional above together with one Gopamma, the widowed daughter of the Karta, entered into an ordinary partnership to carry on the same business as the family had been carrying on before the partition. THE capital contribution to the new partnership by each of the three male members was by way of transfer entries in the books carried out in the following manner: Gopamma's contribution was out of some property and money gifted to her by the other male relatives in her parental family.

(3.) ON the basis of the facts stated above, the assessee (undivided family) claimed exemption under s. 25(3) of the Act contending that the process summarised above resulted in a discontinuance of the business originally carried on by the undivided family. Both the original assessing authority as well as the appellate authority, the Asstt. CIT, rejected this claim. The CIT, under sub-s. (2) of s. 66, however, referred to this Court the following question for opinion :