Patna High Court
R. B. Bansidhar Dhandhania And Another vs Commissioner Of Income-Tax, Bihar And ... on 8 November, 1943
Equivalent citations: [1944]12ITR126(PATNA), AIR 1944 PATNA 137
JUDGMENT
MANOHAR LALL, J. - This is a reference by the Commissioner of Income-tax under Section 66(3) of the Indian Income-tax 1922, for the opinion of the Court on the following questions :
(1) In the facts and circumstances of the present case are Rai Bahadur Bansidhar Dhandhania, Dwarkaprasad Dhandhania and Kedarnath Dhandhania to be considered as joint or separate in law ?
(2) In the facts and circumstances of the case is the business of Harchandrai Anandram to the considered as the business of a Hindu joint family or that of the persons above named in partnership ?
It is necessary to give succinctly the facts of the case and then to collect the finding at one place because of the very unnecessarily lengthy order passed by the Assistant Commissioner of Income-tax, a perusal of which involves great labour and time and sometimes makes it difficult to distinguish whether he was stating the contention of the assessee or arriving at a finding of fact.
Harchandrai, deceased, was the father of Anandram and Gobardhan Das also dead. Anandram was the father of Dwarka Prasad, Rai Bahadur Bansidhar and Srimohan, deceased, father of Kedarnath. These will be described either as the assessee or the Bhagalpur group for the sake of convenience hereafter. Gobardhan Das, the brother of Anandram, was the father of Jwala Prasad, Hira Lal and Chotey Lal to be described hereafter as the Calcutta group. These persons belong to the well-known Bhagalpur family of Dhandhanias who carry on a number of extensive businesses in this province and in Bengal. Up to the financial year 1935-36 these persons, who were undoubtedly members of a joint Hindu family governed by the Mitakshara law, used to be assessed to income-tax as such, but when the assessment came to be made in respect of 1936-37 for the previous year ending October, 1935, it was claimed on behalf of the assessee who were described in the notice as Harchandrai Anandram the names group - that the family became separate and was now carrying on business in partnership and application was made under Section 25-A and 26-A. Under the former section the claim made was that the assessment should be made first of all in two groups as partnership concerns, that is to say, the Bhagalpur group and the Calcutta group. The Bhagalpur group, it was further claimed, had been sub-divided into three separate groups each represented by the head, that is to say, Dwarkadas, Rai Bahadur Bansidhar and Kedarnath with equal shares of 2 annas and 8 pies each. The Income-tax Officer accordingly had to consider whether the claim could be entertained within the meaning of Section 25-A.(3), and secondly whether he should register the partnership as required by Section 26-A and called upon the claimants to produce evidence in support of the claim.
The assessee produced amongst others an unregistered agreement dated the 4th February, 1936, between the Bhagalpur and the Calcutta groups, a registered deed of partition, an agreement and declaration regarding the zamindary properties of the same date. The deeds of release by the Bhagalpur group in favour of the Calcutta group in respect of certain house properties and by the Calcutta group in favour of the Bhagalpur group in respect of house properties bearing the same date, 7th May, 1936, were also produced. The deed of allotment shows a number of business which were allotted separately to the Bhagalpur and the Calcutta groups. On the 20th December 1935, the Calcutta group instituted a suit on the original side of the Calcutta High Court against the Bhagalpur group. The material allegations in the plant at page 65 are that the plaintiffs and defendants were still carrying on business in co-partnership in the name and style of Harchandrai Anandram at Bhagalpur with branches in Calcutta and elsewhere. Then the shares of the parties are mentioned, and it is pleaded that owning to several disputes and differences which have arisen between the parties the plaintiffs claim dissolution of the partnership business with its several branches and pray for the usual decree and also for the appointment of a receiver. On the 24th of December, 1935, a notice regarding dissolution of the partnership was published in the Statesman at Calcutta (page 67) which also refers to the advertisement published in the Calcutta Exchange Gazette dated the 19th December, 1935. On the 2nd January, 1936, the plaintiffs filed a petition in the Calcutta High Court praying for withdrawal of the suit on the ground that as the parties had come to an amicable settlement out of court it was not necessary to proceed with the suit. The petition was apparently granted and the suit was allowed to be withdrawn, but no order to that effect has been produced before us. The parties then entered into an unregistered deed agreement of dissolution of partnership on the 4th February 1936 (page 69) and on the 7th May, 1936, they executed a registered deed of dissolution of partnership (page 75) - (already referred to).
Before the Income-tax Officer, Rai Bahadur Bansidhar, Babu Motilal and Babu Dwarka Prasad gave their statements on oath and written declaration were made by Hira Lal, Chotey Lal and Jwala Prasad who appeared in pursuance of the notices issued under the provisions of Section 25-A of the Act. Books of account for a large number of years were produced before the Income-tax Officer.
By an order dated the 23rd March, 1939, the Income-tax Officer held that he was satisfied that there was separation of this Hindu undivided family into two groups which I have described as the Calcutta group and the Bhagalpur group. He then proceeded to consider the plea of further sub-division among the Bhagalpur group. No documentary evidence was produced before him regarding separation among the three brothers of Rai Bahadur Bansidhar, nor was any document produced to show division of the family assets movable or immovable amongst these three brothers. The claim which was made before him was that separation had taken place either in 1988 corresponding to 1931 A.D. or 1992 corresponding to 1935 A.D. The Income-tax Officer states at page 5 : "The actual date of separation and the manner of separation were not indicated in any of the documents and Rai Bahadur Bansidhar Dhandhania, for whom I have great respect, states in his recorded statement, that there was no separation by any registered deed, there was no accounting of assets and liabilities and there was no allocation among different members as the status quo remained the same and it was not considered necessary that any such accounting should be made. It is stated the since 1988 they began to keep separate accounts of their personal expenses and since that year he considers there has been legal separation. He say that he treats separation since 1988 because they have been debiting personal expenses separately and crediting profits also separately. In his proper statement the assessee did not say beyond saying that any partition of the Hindu undivided family properties was effected except that a list of house properties was made out and it was divided into two portions. Some of the houses remained in possession of Dhandhanias of Calcutta and others in the hands of Dhandhanias of Bhagalpur. There was to partition of Hindu undivided family property either in 1988 or in 1992 among the three brothers of Rai Bahadur. Being questioned as to the actual date of separation, the assessee could not say on what date the separation actually took place. It is stated that once separation took place in 1988 and then again in 1992. On questions being put by his pleader the assessee replied that real separation took place in 1988 and in 1992 there was separation of business and written agreement". The Income-tax Officer went elaborately into the account books of 1988. He found that the parties were having joint mess and worship and that there was no division of any movable or immovable properties in any definite portion; on the other hand all the houses at Bhagalpur and Zamindary and gardens were in joint possession of the assessee, and further that the business, house properties and Zamindary were all being managed jointly. He also found that there was no division of capital either in 1988 or 1992, and that the value of Zamindari properties had not been adjusted and credited in the accounts of members. He further pointed out that the agreement of declarations regarding the Zamindari property was also between the two groups and that the Bhagalpur group and to manage the property on behalf of all. He also points out that the public notification in the press and the Gazette was regarding the division between the two groups but no notification was published for the information of the public that Rai Bahadur Bansidhar, Dwarka Prasad and Kedarnath had also separated.
In the result the Income-tax Officer rejected the claim of the assessee as he held that there was no actual separation of the Hindu undivided family and he could not register the deed of partnership which in his opinion still belonged to the joint Hindu family and not to any partnership family.
Against this decision there was an appeal to the Assistant Commissioner of Income-tax who affirmed the order of the Income-tax Officer. The Commissioner, who was then approached under Section 33, by an order dated the 5th December, 1938, set aside the findings of the Income-tax Officer because he appeared to have based his conclusions on some enquiries which he made behind to back of the assessee. In the meantime the assessment came to be made for the succeeding year 1937-38 and 1938-39. The assessee put forward the same objection and claimed to be separately assessed and also asked for the registration of the new partnership. But his claim was rejected under Sections 25-A and 26 of the Act by another Income-tax Officer who came to the same conclusions adverse to the assessee except that he accepted the contention that the re was specification of shares of the three brothers of Rai Saheb Bansidhar although there was no physical division of the shares of his family. Against the assessment for the year 1937-38 no appeals were filed under Sections 25-A and 26-A; but against the assessment for the year 1938-39 two appeals were filed, one against the order under Section 25-A and the other against the order under Section 26-A passed by the Income-tax Officer on the same day, 13th January 1939. The Income-tax Officer who made the assessment in 1938-39 points out in his order at page 15 that the case of the assessee before him was that the family had separated in 1958 Sambat corresponding to 1901. A.D. and that the partition was improved upon by another partition in 1988 corresponding to 1931. A.D. superseding the former partition. After examining the evidence produced before him this officer came to the same conclusion that all that happened before 1935 A.D. was nothing beyond the first stage of partition in a Mitakshara family and that also not so particularly among the members of the Bhagalpur group, and that after December, 1936 - apparently he is thinking of the dates of partition and agreement and declaration of shares in 1936 - there followed a partition between the Calcutta group and the Bhagalpur group, a final and real partition this time. He says : "In the previous two alleged partitions As group and Gs group used to remain joint owners with specified shares, but this time there was a real and final separation. Some business concerns were allotted solely and separately to As group and some to Gs group. It was after this separation that separate assessments on Gs group called Dhandhanias of Calcutta, and on As group Dhandhanias of Bhagalpur began to be made at Calcutta and this place respectively. This partition also did not touch the internal relations between the members of As group; all of them remained joint owners of the whole lot of properties coming to their shares; unity of possession continued as before." In the result he refused the claim of the assessee under Section 25-A and refused to register their partnership under Section 26-A. The appeal against this order the previous remand by the Commissioner with regard to assessment year 1936-37 were disposed of by the Assistant Commissioner in an exceedingly lengthy order which cover 33 printed pages (pages 18-50) on 12th June, 1940.
His findings may be summarised thus (1) The ascertainment of shares of 1958 and 1988 between the A and G groups seems to be merely a preliminary process with a view to ultimate separation as was done in 1992 and it was for this reason that the members of the family never seriously took the ascertainment of shares as constituting partition until actual separation of the two groups took place and they applied for partition before the Income-tax Officer only at this last stage, and that the 1958 ascertainment of share cannot legally constitute partnership (page 47, paragraph 67); (2) By conduct of the parties it is clear that there has been no disruption among the members of the family and there was no intention to have separate status as partners; (3) The Bhagalpur group got lands at Bhagalpur town and at Mandar Hill on which the two sections of the family have built joint garden house. These were undivided properties of A group acquired and constructed after the alleged 1938 partition. These garden house are intended to be jointly occupied and the shares in these properties have not been defined; (4) House properties and garden and won lands worth Rs. 1,60,000 were allotted to A group and similarly properties of the same value were allotted to G group and although it was possible to physically divide these properties among the three sections of A group, this was not done and these properties falling to the share of A group remained undivided and even in Municipal Registers mutation of names of three sections of the family has not been taken and most of the properties in the Municipality stand in the name of Rai Bahadur Bansidhar Dhandhania. The A group has further jointly acquired and developed the house properties. (5) In no document the shares of the three sections in these house and gardens have been defined. In the deed of release executed by A group in favour of G group the house are mentioned as one undivided unit belong to Dwarka Prasad Dhandhania, Rai Bahadur Bansidhar Dhandhania and Kedarnath Dhandhania, collectively referred to as Dhandhanias of Bhagalpur. It is significant that in the document of defining shares in zamindari and jote lands these house properties and gardens are not included. In the result he held that there has been no real partition among the sons of Anandram and they are still joint with undivided status of property and business and, therefore, the Income-tax Officer was right in refusing to pass an order under Section 25-A and that there was no contractual partnership among the sons of Anandram and the Partnership dated the 1st of August 1936, is a colourable document not intended to be acted up.
The Commissioner by his order dated the 26th August, 1940, refused to interfere under Section 33 and substantially came to the same findings. It was argued before him that it was impossible to apportion the business between the three members without destroying it but he while admitting some practical difficulty in so doing, thought that it was not impossible because the various debtors, creditors, shares and securities etc. relating to the business could be apportioned. He then says that it is not understood why the various house properties, which are over a dozen, were not distinctly earmarked and allotted to different members or groups of members of the family although it was admitted before him that it could have been done. He then says "Besides according to the petitioners argument, if the businesses alone belonged to the partnership, the Hindu undivided family of Anandram evidently still existed as far as these house properties were concerned. Even assuming for a minute (though not admitting) that the alleged partition was made only of the business and not of the house properties originally owned by the Hindu undivided family of Anandram, it is may stated that Section 25-A has no application where there is only partial division of the joint family property without the division in the joint status of the members and a disruption of the family". He finally concluded at page 57 : "In the present case, even a partition by metes and bounds of the three businesses owned by the family of Anandram could have been effected by grouping smaller properties with bigger businesses and bigger properties with smaller businesses. Besides, there was no reason whatsoever not to earmark and apportion at least the 14 or 15 house properties specifically amongst the various members as was done at the time of the partition between the Bhagalpur and the Calcutta groups. I, therefore, agree with the lower authorities that the petitioners have not complied also with the second requisition of Section 25-A."
In the concluding paragraph the Commissioner observes that although every formality for showing a separation of the members of family properties has been gone through, he finds that no genuine of the Bhagalpur group hitherto assessed as undivided and that the joint family properties have not been really partitioned among the various members thereof in definite portion as required by Section 25-A of the Act as it stood before the amendment of 1939.
On the 26th August, 1940, the Commissioner refused to refer any question of law for the decision of the High Court because he thought that the questions were merely questions of fact. He passed similar orders with regard to the contention of the assessee to be allowed to be registered under Section 26-A of the Act.
After giving these somewhat lengthy quotations from the orders of the Income-tax authorities, I now proceed to consider some of the cases which would help in giving the correct answer to the question framed above.
In a recent decision of their Lordships of the Judicial Committed in Sardar Bahadur Sir Sundar Singh Majithia v. Commissioner of Income-tax, United and Central Province, Sir George Rankin, who delivered the judgment of the Board, pointed out at page 127 that the contention on the Commissioner that for the purposes of the Income-tax Act members of an undivided Hindu family cannot enter into a partnership in respect of a portion of the joint property which they have partitioned among themselves was wrong as the section contains no warrant for any such prohibition. His Lordship also held that though the joint Hindu family has come to an end it be found that its property has not been partitioned in definite portions, then the family is to be deemed to continue - that is to be an existent Hindu family on which assessment can be made on its gains of the previous year; and further that joint Hindu family can part with an item of its property to a stranger or even amongst its own members, e.g. by partition, if it takes the proper steps.
There has been a considerable diversity of judicial opinion as to whether Section 25-A requires actual division of the property and not a mere notional severence by the ascertainment of shares. In Gobardhandas T. Mangaldas v. Commissioner of Income-tax Bombay, Sind and Baluchistan, the learned Chief Justice and Kania, J., have considered this question at great length. The learned Chief Justice deals with the matter this at page 249 : Apart from authority, I should feel no doubt that Section 25-A contemplates a physical division of the property. I think that the expression definite portions indicates physical division in which a member takes a particular house in which he can go and live, or a piece of land which he can cultivate, or which he can sell or mortgage, or takes particular ornaments which he can wear or dispose of, and that the expression, definite portionsis not appropriate to describe an undivided share in property where all that particular member can claim is a portion of the income and a division of the corpus, but where he cannot claim any definite portion of the property............ in connection with property I should say that a portion means a part of the property, whereas a share indicates the interest of some individual in the property. A room may be said to be a portion of a house; it cannot be said to be a share of a house, although it may represent the share of a particular person in the house. Portion seems to me the apt word for division of property and share for division of interest, and it is significant that portion is used in Section 25-A. No doubt the expression division in definite portions will have to be construed with regard to the nature of the property concerned. A business cannot be divided into parts in the same manner as a piece of land; division may only be possible in the books. Special cases will have to be dealt with by the Income-tax Officer when they arise. If he comes to the conclusions that having regard to the nature of the property what has been done amounts to a division in definite portions, he will record his finding under sub-section (1); if he comes to the conclusion that it does not, then he will have to go on assessing the family under sub-section (3)." Kania, J., gave separate judgment to the same effect.
I do not propose to consider any other case because in my opinion the questions can be answered accurately by applying the principle of this case which was relied upon by Mr. S. M. Gupta, who appeared for the Income-tax Department, and keeping in view the weighty observations of their Lordships in Majithias case.
The findings arrived at the this case are that there has been a partition in definite portions between the two groups i.e., Calcutta and Bhagalpur, and they are being assessed separately since 1936-37. With regard to this assessee the further finding is that as to the three of four businesses allotted to them their shares have been defined in the account books and separate expenditure are being defined in the account books and separate expenditures are being debited to the shares of each of the members. I am reading from page 40 (order of the Assistant Commissioner of Income-tax) : "The Income-tax Officer in 1933-34 and 1934-35 found that profits were not credited to the family members and only in 1935-36 he found that distribution of profits up to prior accounting year 1989-90 was completed. I think the assessees explanation for late adjustment is acceptable and all adjustment of profits or losses in the various years under consideration may be taken to be bona fide adjustments and not after thoughts to conform to the story of the alleged 1988 agreement." The assessee has further shown that profits and losses were adjusted from 1988-89 to 1992-93 (page 39, lines 3 and 4). The Assistant Commissioner has devoted one paragraph (34) to consider the assessees system of noting expenses in the account books from 1988-89 and observes that personal expenses are separately incurred by each member and debited to the name of each (see page 47, line 34). The assessees have also definite shares in the zamindary properties but they have not divided the jote lands nor have they divided the 14 or 15 houses which have been allotted to them on partition from the Calcutta group.
In my opinion it must be held on the above quoted findings that the assessee is no longer a joint undivided Hindu family - the three brothers have definite shares defined by the deed of agreement and registered deed of partnership executed at the time of the separation from the Calcutta group; their shares are defined in the Collectors papers and their profits, loss, income and expenditure are debited and credited in their books of account regularly kept and believed by the Income-tax authorities. Having defined shares in the businesses they can only enjoy their shares separately in this way.
But has there been such a division or partition as is contemplated by Section 25-A of the Act ? So far as the businesses are concerned it is impossible to divide them except by sharing all the profits and losses at the close of the year or whenever the accounting comes to be made for the profit and loss of the business of the relevant years. As I have just stated it is found as a fact that the accounts of income and expenditure are kept separately. But there is also a definite finding that the house property and jote lands have not been partitioned. It must, therefore, be held that there is no complete partition but only a partial partition. But such a partial partition comes within the operation of section 25-A of the Act as observed by their Lordships in Majithias case and the Commissioners view to the contrary is wrong. The members of the assessees family in these circumstances must be deemed to continue to form a joint Hindu family for the purpose of assessing them on that portion of the income which is derivable from those properties which have not been partitioned in definite portions other than the businesses.
I would, therefore, answer the questions in these terms :
(1) Rai Bahadur Bansidhar Dhandhania, Dwarakaprasad Dhandhania and Kedarnath Dhandhania must be deemed to continue to be a Hindu undivided family. (2) The business of Harchandrai Anandram cannot be considered to be a business of the persons named above in partnership.
As the success in this court has been divided, each party will bear his own costs, but the Commissioner will refund the sum of Rs. 100 deposited by the assessee as costs of the reference.
CHATTERJI, J. - This is a reference by the Commissioner of Income-tax under Section 66(3) of the Indian Income-tax Act, 1992, as it stood before the amendments of 1939, and arises out of an appellate order of the Assistant Commissioner of Income-tax dated the 11th June 1940 refusing to make an order under Section 25-A (1) and also refusing registration of a firm under Section 26-A of the Act.
The appellate order of the Assistant Commissioner relates to assessment made in 1936-37 and 1938-39 on a Hindu undivided family consisting of two brothers Dwarka Prasad and Rai Bahadur Bansidhar Dhandhania, their deceased younger brother Srimohans son Kedar Nath and their sons and grandsons. This family represents the branch of the elder of two brothers. Anandram and Gobardhan Das who were the sons of Harchandrai. Anandram was the father of Dwarka Prasad and his two brothers. Gobardhan Dass branch is represented by his three sons Jwala Prasad, Hira Lal and Chotey Lal and their sons.
Up to 1935-36 the two branches of Anandram and Gobardhan Das consisting of their sons and grandsons, as aforesaid, were assessed as a Hindu undivided family the assessments being made in the name of Messrs. Harchandrai Anandram. During the next assessment year i.e. 1936-37 the assessees filed on the 30th July 1936 an application under Sections 25-A and 26-A claiming that though assessed as a Hindu undivided family, they were in fact separate and were carrying on business in partnership and that assessment should be made in two groups as partnership concerns, the first group consisting of Dwaraka Prasad, Rai Bahadur Bansidhar Dhandhania and Kedar Nath each having 2as. 8p. share, collectively called the Dhandhanias of Bhagalpur and the second group consisting of Jwala Prasad, Hiralal and Chotey Lal having 3as., 2as. 6p. and 2as. 6p shares respectively collectively called the Dhandhania of Calcutta. Again on the 31st October 1936 Kedar Nath Dhandhania of the first group filed an application under section 26-A paying for registration of the firm Harchandrai Anandram of Bhagalpur.
In support of their claim the assessees produced both oral and documentary evidence. The documentary evidence consists of the following among other documents :-
(1) Books of accounts, (2) Unregistered deed of agreement regarding dissolution of partnership executed on the 4th February 1936 by the aforesaid six members of the two groups, (3) Registered deed of dissolution and partition dated the 7th May 1936 executed by the same six members of the two groups.
(4) Registered deed of release of the 7th May 1936 by the Dhandhanias of Calcutta in favour of the Dhandhanias of Bhagalpur in respect of some house properties.
(5) Registered deed of partnership of the firm Harchandrai Anandram dated the 31st July 1936 executed by the Dhandhanias of Bhagalpur. Upon the evidence, and particularly in view of the registered deed of partition dated the 7th May 1936 which shows actual division of the business and house properties of the family between the two groups aforesaid, the Income-tax Officer by his order dated the 23rd March 1937 held that "there was separation of the Hindu undivided family in two groups one consisting of Dwarkadas, Bansidhar and Kedarnath, and other Jwala Prasad, Hira Lal and Chotey Lal". As the Calcutta business was allotted to the second group called the Dhandhanias of Calcutta and their head office was in Calcutta, the Income-tax Officer referred their case for assessment to the Income-tax Officer of Calcutta. This group has no concern with the case now before us.
As regards the other group called the Dhandhanias of Bhagalpur, the Income-tax Officer by the same order dated the 23rd March, 1937 held that there was no separation among them inter se and that their partnership deed dated the 31st July 1936 could not be recognised as the business belonged to their joint family and not to a firm. Accordingly he refused to make an order under Section 25-A (1) in respect of their group and also refused registration of their alleged firm. Assessment was made on them as a Hindu undivided family.
On appeal to the Assistant Commissioner this assessment was confirmed by his order dated the 7th October 1937. On an application for review under section 33, however, the Commissioner by his order dated 5th December 1938 set aside the order of the Assistant Commissioner and remanded the appeal to him for rehearing according to law, because he had made some enquiries behind the back of the assessee and his decision was apparently influenced by the result of such enquiries.
In the meantime assessments were made for the years 1937-38 and 1938-39. The assessees reiterated the same claim under section 25-A and 26-A and with the same result. There was no appeal in respect of the assessment for 1937-38, but from the order which was passed on the 13th January 1939 in respect of the next years assessment two appeals were preferred, one regarding the rejection of the claim under section 25-A and the other regarding the rejection of the claim under Section 26-A. These two appeals were heard along with the appeal relating to the assessment for the year 1936-37 which had been remanded by the Commissioner. All the three appeals were dismissed by the Assistant Commissioner by his order dated the 11th June 1940 which has given rise to this reference.
The question which have been referred to this Court under Section 66(3) are :
(1) In the facts and circumstances of the present case are Rai Bahadur Bansidhar Dhandhania, Dwarka Prasad Dhandhania and Kedarnath Dhandhania to be considered as joint or separate in law.
(2) In the facts and circumstances of the case is the business of Harchandrai Anandram to be considered as the business of a Hindu joint family or that of the persons above-named in partnership ?
The first question has reference to section 25-A and the second to section 26-A. Section 25-A, so far as it is material to the present case, runs as follows :
"25-A (1) Where, at the time of making an assessment under Section 23, it is claimed by or on behalf of any member of a Hindu family hitherto assessed as undivided that a partition had taken place among the members of such family, the Income-tax Officer shall make such inquiry thereinto as he may think fit, if he is satisfied that separation of the members of the family has taken place and that the joint family property has been partitioned among the various members or groups of members in definite portions he shall record an order to that effect :
Provided that no such order shall be recorded until notices of the inquiry have been served on all the members of the family.
* * * * * (3) Where such an order has not been passed in respect of a Hindu family hitherto assessed as undivided such family shall be deemed, for the purposes of this Act, to continue to be a Hindu undivided family."
It is clear that for the purposes of Section 25-A mere disruption of the family is not enough, but the joint family property must have all been partitioned among the various members or groups of members in definite portions. There is, however, a divergence of judicial opinion as to whether the use of the expression "definite portions" in the section implies that there should be actual division of the family property.
In a very recent case of the Bombay High Court, Gobardhandas T. Mangaldas v. Commissioner of Income-tax, Bombay Sind and Baluchistan decided by Beaumont, C.J., and Kania, J., it was held that the expression "definite portions" indicates a physical division and is not appropriate to describe an undivided share in property where all that particular member can claim is a portion of the income and a division of the corpus, but where he cannot claim any definite portion of the property. Beaumont, C.J., drew a distinction between the words portion and share and said : No doubt the words sometimes may used interchangeably, but in connection with property I should say that a portion means a part of the property, whereas a share indicates the interest of some individual in the property .... Portion seems to me the apt word for divisions of property, and share for division of interest, and it is significant that portion is used in Section 25-A. No doubt the expression division in definite portions will have to be construed with regard to the nature of the property concerned. A business cannot be divided into parts in the same manner as apiece of land; division may only possible in the books."
The same view was taken by the Lahore High Court in Saligram Ramlal v. Commissioner of Income-tax, Punjab. Addison and Sale, JJ., who decided that case said : "The principal contention before us was that Section 25-A did not contemplate an actual partition by metes and bounds of the joint family property. It seems to us that it is impossible so to hold. If actual partition had not been contemplated the clause and that the joint family property has been partitioned among the various members or groups of members in definite portions would not have been added to the section; for the clause immediately preceding it would be sufficient if the law was that actual partition of the property was not necessary."
But in a later case of the Lahore High Court, Sher Singh Nathu Ram v. Commissioner of Income-tax, Punjab, decided by three Judges, Jai Lal, Dalip Singh and Skemp, JJ., an exactly opposite view was taken. It was held that Section 25-A does not require actual partition of the family property by metes and bounds as a condition precedent to the recognition of a partition under that section. The attention of the learned Judges does not appear to have been drawn to the earlier case of Saligram Ramlal v. Commissioner of Income-tax, Punjab. In that case, however, their Lordships had to deal with the question of partition of a business. Dalip Singh, J., who delivered the judgment (Jai Lal Skemp, JJ., agreeing), said "it seems to me clear that in the case of business at any rate the only reasonable meaning of the words partitioned in definite portions must be partitioned in definite shares." The decision, therefore, may be distinguished on the facts though the proposition of law laid down was rather widely expressed. This decision was considered in the Bombay case already cited.
I am inclined to agree with the view taken in the Bombay case Gobardhandas T. Mangaldas v. Commissioner of Income-tax Bombay, Sind and Baluchistan. If mere ascertainment of shares and division of the income of the undivided property according to the ascertained shares where to be held sufficient to constitute partition in definite portions, the clear provisions of 25-A would be defeated in the case of a Dayabhaga family. In a Dayabhaga family shares of the members are always ascertained, whether the family be joint or separate. Where the family is joint, there is no division of the income of the joint family property but it is brought into the common chest and is spent for joint family purposes. The family may become separate with out the family property being actually divided; for instance, where the income of the undivided family property is divided and appropriated by the members according their respective shares. In such case the first condition laid down in Section 25-A, namely, that "a separation of the members of the family has taken place", is satisfied, but not the second, namely, that the joint family property has been partitioned in definite portions. Unless this second conditions is also satisfied, the section cannot operate. It therefore follows that the sections requires physical division. Where however, physical division is not feasible, as in the case of the business, partition in definite shares will be enough as indicated by Beaumont, C.J. Now, in the present case the Assistant Commissioner had held that "there has been no real partition among the sons of Anandram and that they are still joint and undivided in status and property and business". This is apparently a finding of fact, but whether there is evidence on which it was open to the Assistant Commissioner to come to this finding is a question of law : see Sardar Bahadur Sir Sundar Singh Majithia v. Commissioner of Income-tax, United and Central Provinces, in which their Lordships of the Privy Council, in dealing with the question whether an instrument of partnership tendered under Section 26-A was a genuine transaction or was executed by way of pretense in order to escape liability for tax, said : "To decide that an instrument is in this sense not genuine is to come to a finding of fact; whether there was evidence upon which it was open to the Income-tax authority to come to such a decision is a question of law".
The case the assessees was that in 1988 Sambat (1931) there was separation between the three branches of their group, which may be called the Bhagalpur group, as well as between the three branches of the other group, which may be cared the Calcutta group, that since then the members representing the six separate branches were carrying on businesses in partnership, that in Magh 1992 Sambat (February 1936) the partnership between them was dissolved, and there was partition of the businesses, according to the terms embodied in the registered deed of dissolution and partition dated the 7th May 1936, and that then the members of the Bhagalpur group entered into a fresh partnership the terms of which were embodied in the registered deed of partnership dated the 31st July 1936.
The assessees produced account books from 1987-88 Sambat to prove that the six branches were carrying on business in partnership in six shares i.e., 2 as 8 p., 2 as 8 p., 2 as 8 p., 3 as., 2 as 6 p. and 2 as 6 p., and that profits and losses were adjusted in accordance with these shares. The Assistant Commissioner examined these account books very carefully and came to the conclusion, "I think the assessees explanation for the late adjustment is acceptable and all adjustment of profits or losses in the various years under consideration may be taken to be bona fide adjustments and not afterthoughts to conform to the story of the alleged 1988 agreement" (see paragraph 43 of his order). He also found that "profits or losses were adjusted in the six group accounts every year up to 1992-93 (three months) and after that in three group accounts when the Dhandhanias of Bhagalpur came into possession of the Bhagalpur gaddi", (see paragraph 44 of his order). He further found that from 1988 the expenses on account of common messing of the three branches of the Bhagalapur group, who were living at Bhagalpur, and their other common expenses such as house, carriage, cows and garden were incurred jointly and shared equally by the three branches and that other personal expenses of each of these branches e.g., expenses for marriage and religious ceremonies, medical treatment, ornaments, private travelling and pilgrimage, purchase of fruits and other personal purchases, educational expenses of children etc., were debited to three separate khatas newly opened, A/c Dwarka Prasad Moti Lal (Moti Lal being the son of Dwarka Prasad), A/c Bansidhar Sheokumar (Sheokumar being the eldest son of Bansidhar) and A/c Sreemohan Kedarnath (see paragraph 34 of his order). It may be mentioned here that the members of the Calcutta group were living in Calcutta.
It appears that the original undivided family had the businesses styled (I) (1) Harchandrai Anandram, Bhagalpur, (2) Srimohan Pannalal Mills, Bhagalpur, (3) Half share in the Sri Biharji Mills, Patna, (4) Half share in the Monghyr Electric Supply Co., (5) Harchandrai Gobardhandas, Calcutta and (6) Sri Annapurna Mills, Benares. The registered deed of dissolution and partition dated the 7th May 1936 shows that the first four business were allotted to the Bhagalpur group and the last two to the Calcutta group. The deed also shows that until the dissolution and partition the members of the two groups had been carrying on the business in partnership in six shares, as already mentioned.
The family was also possessed of some zamindaries, jote lands, house properties, garden and town lands. The house properties, garden and town lands were divided between the two groups, but the zamindaries and jote lands were left joint. The fact that the zamindaries and jote lands were left joint did not affect the partition between the two groups for the for the purpose of Section 25-A because as pointed out by the Assistant Commissioner (paragraph 62 of his order), these properties did not form part off assets yielding profits taxable under the Income tax Act. Admittedly there has been no division of any of the landed properties among the members of the Bhagalpur group inter se.
The reasons given by the Assistant Commissioner for rejecting the claim under section 25-A (see paragraph 68 of his order) are mainly "the 3 sections of the family continue in the same state of joint messing and joint residence and have all the essential features of an undivided Hindu family", (2) that the house properties, gardens and town lands which were obtained by them at the partition between the two groups remained undivided, though it was possible physically to divided them and (3) that there is mere definition of shares in partnership deed dated the 31st July 1936 but no partition in definite portions, as contemplated by Section 25-A. He altogether overlooked his previous finding(see paragraphs 43 and 44 of his order) that profits and losses were adjusted every year according to the shares of the different branches of the family. There is also his finding (see paragraph 34 of his order) that the personal expenses of each of the three sections of the Bhagalpur group were debited to their respective khatas. As regards the businesses, there is nothing in the order of the Assistant Commissioner to suggest that physical division of these businesses was feasible. The Commissioner in his order passed under Section 33 says : "In the preset case, even a partition by metes and bounds of the three businesses owned by the family of Anandram could have been effect by grouping smaller properties with bigger businesses and bigger properties with smaller business." This might have been possible if the entire joint family properties had been partitioned. But there was no legal bar to their effecting a partial partition, that is to say, partition of the businesses only.
From the aforesaid findings of the Assistant Commissioner the inference legitimately follows that the businesses were divided between the members of the family in definite portions, though the family remained undivided so far as the landed properties are concerned.
The question then arises whether partial partition can be recognised for the purpose of making an order under Section 25A. In the said Privy Council case, Sir, Sundar Singh Magithia v. Commissioner of Income-tax their Lordships, with reference to section 25-A, said "On this section the contention of the Commissioner is that for the purposes of the Income-tax Act members of an undivided Hindu family cannot enter into a partnership in respect of a portion of the joint property which they have partitioned among the selves. But, in their Lordships view, Section 25A contains no warrant for any such prohibition. It has no reference at all to any case in which the Hindu undivided family remains in existence at the time of assessment. No difficulty whatever in the assessment of a Hindu undivided family is caused or was ever though to be caused - by the facts that in one year it has certain assets and certain income therefrom and that in the next year it is found to have parted with one asset and to be no longer in receipt of the same income. The same assessee has a different income in each year -that is all. It matters nothing whether the particular asset no longer possessed by the undivided family has become the separate property of a member of belongs to a stranger." Further their Lordships said : "But it (a Hindu undivided family) need not have the same assets or the same income in each year, and it can part with an item of its property to its individual members if it takes the proper steps." From these observations it does not follow that partial partition can be recognised under Section 25A. All that their Lordships say is that if there has been a partial partition, the income of the portion of the property partitioned will be excluded from the assessment on the undivided family and will be liable to be taxed separately. Section 25A in my opinion, refers to a family as one unit. If a portion only of the joint family property has been partitioned, that portion ceases to belong to the joint family, but the joint family still remains. So long as the joint family remains, no order under Section 25A can be made. This is clear from the following passage in the above quoted observations of their Lordships of the Privy Council. "It has no reference at all to any case in which the Hindu undivided family remains in existence at the time of assessment."
Though, therefore, there has been a partition of the businesses, as I have held above, the family of the assessees must be regarded as an undivided family for the purpose of Section 25A. Consequently the first question referred under Section 66 (3) must be answered as follows :-
Rai Bahadur Bansidhar Dhandhania, Dwarka Prasad Dhandhania and Kedarnath Dhandhania are to be considered as joint in law.
The second question, as I have already stated, has reference to Section 26A. The relevant portion of the sections is as follows :-
"26A. (1) Application may be made to the Income-tax Officer on behalf of any firm, constituted under an instrument of partnership specifying the individual shares of the partners, for registration for the purposes of this Act and of any other enactment for the time being in force relating to income-tax or super-tax."
The firm of which registration was sought under Section 26A was constituted under the partnership deed dated the 31st July 1936 (registered on 1st August 1936). The Assistant Commissioner has held "that there is no contractual partnership among the sons of Anand Ram and the partnership deed dated 1-8-1936 is a colourable document, not intended to be acted upon." This finding is substantially based on the supposition that the alleged partnership business belongs to the joint family. Paragraph 68 of his order opens with the following sentence : "In the present case, I hold that partition under Section 25A and therefore registration under Section 26A cannot be allowed for the following reasons." The word "therefore" which I have underlined suggests that in the opinion of the Assistant Commissioner registration under Section 26A must be refused if partition under Section 25A were to be disallowed. In clause (1) of the same paragraph he says : "But in judging the genuineness of a so called deed of partnership, the conduct of the former members of a joint Hindu family must be looked into. Their conduct viewed by an outsider is such that the alleged contractual relationship (as against coparcenary relationship) cannot be judged. There is no outside social conduct to show that the former coparcenary has dissolved." This shows that in this opinion the genuineness of the partnership deed depends upon whether the coparcenary was dissolved. In clause (8) of the same paragraph, however, he says "Further the fact regarding separation and partition of joint family members does not itself entitle an assessee to claim registration under Section 26A. It has to be seen whether the partnership deed itself is a legally correct document to be accepted for registration. I hold that the document does not satisfy that test." The question of the legality of the document is quite different from the question whether it is a colourable document. The document on the face of it specifies the names of the partners and their shares, provides for taking of accounts and distribution of profit and loss at the end of Diwali of each year and also makes some other provisions appropriate to a partnership. The Assistant Commissioner points out certain defects, the most important of which are that there is no mention of the capital invested in the new business, and that no capital accounts were started by the three partners with equal sums. But omissions of these details in the partnership deed in no way affects its validity.
As pointed out by their Lordships of the Privy Council in the above cited case, Sardar Bahadur Sir Sundar Singh Majithia v. Commissioner of Income-tax, United and central Provinces there is nothing in Section 25A to prohibit the members of an undivided Hindu family from entering into a partnership in respect of a portion of the joint property which they have partitioned among themselves. I have already held that the business were partioned among the three branches of the assessees family. The business of Harchandrai Anandram therefore does not belong to the joint family. There was no justification for the Assistant Commissioners finding that the partnership deed dated the 31st July 1936 is a colourable document. The second question referred under Section 66(3) must, therefore, be answered as follows :-
The business of Harchandrai Anandram is to be considered as the business of Rai Bahadur Dhandhania, Dwarka Prasad Dhandhania and Kedarnath Dhandhania in partnership.
As regards costs, I agree to the order proposed by my learned brother.
Reference answered accordingly.