Champaran Cane Concern Vs. State of
Bihar & ANR  INSC 116 (9 April 1964)
09/04/1964 DAS, S.K.
CITATION: 1963 AIR 1737 1964 SCR (2) 921
R 1985 SC 278 (4) RF 1991 SC1806 (8)
Agricultural Income Tax-Assessment-Land owned
by two persons in shares--Common Manager appointed-Partnership or co-
ownership--Test--Bihar Agricultural Income Tax Act, 1948 (Act 32 of 1948), ss.
2, 3, 13, 28 (3)-Indian Partnership Act, 1932 (Act IX of 1932), s. 2 (k), 4.
The Champaran Cane Concern, appellant,
carried on agricultural operations in lands owned by two persons. One of these
two persons had a share of four annas in a rupee and other twelve annas in a
rupee. They appointed another person as a common manager for facility of
cultivation and management. There was no partnership agreement entered into by
these two persons. In the returns submitted to the tax authorities for the
assessment years the concern was shown as a "firm".
The Agricultural Income 'Fax authorities
assessed the appellant for three years on the basis that the appellant was a
partnership firm under s. 3 of the Bihar Agricultural Income Tax Act, 1948. The
assessee claimed that it was not a partner. ship firm but a co-ownership concern
and that it could be assessed only under s. 13 of the said Act. This plea was
rejected by the Income Tax officer. Appeals were filed to the Deputy
Commissioner of Agricultural Income Tax and the same were dismissed.
Applications for revision were then filed before the Board of Revenue. The
Board did not accept the plea of the present appellant that the assessment
should have been made under s. 13 or the Act. Thereafter an application was
made to the Board, for making a reference to the High Court which was refused.
Thereupon, the High Court was moved under s. 28 (3) of the Act for a reference
by the Board and the High Court called for a reference. The High Court held
that the question whether, the assessee was a co- ownership concern or a
partnership firm was a question of fact, and that there were facts and
circumstances in the case from which it was open to the taxing authorities to
come to the conclusion that 922 the concern was a partnership firm. The High
Court answered the reference against the assessee. The present appeal was filed
by Special leave of this Court.
In the appeal before this Court substantially
the same questions were raised as before the High Court, the taxing authorities
and the Board of Revenue.
Held that the question whether a concern is a
partnership or not, is a mixed question of fact and law and if the authorities
who have to ascertain that question apply a wrong principle of law in
instructing themselves as to what they have to find, then their finding of fact
is not conclusive because they have done it under wrong principle.
Modern Rigg & Co. and R. B. Eskrigge
& Co. v. Monks (1923) 8 T. C. 450, referred to.
Held further that the appointment of a common
manager by two co-owners acting together is consistent with either view and
does not clinch the issue in favour of a partnership.
The mete fact that the profits or even losses
are distributed in accordance with the shares of the two owners does not
necessarily establish a partnership within the meaning of the Partnership Act.
One of the principal differences between a
partnership and co-owner ship is that co-ownership -is not necessarily the
result of agreement whereas partnership is. The second difference is that
co-ownership does not necessarily involve community of profit or of loss but
Another difference is that one co-owner can
without the consent of other, transfer his interest etc. to a stranger but a
partner cannot do this. Fourthly, in a partnership each partner acts for all
but a co-owner is not such an agent real or implied of the other.
A mistake by the Revenue Board in framing the
question for reference to the High Court will not change the real position in
Simply because a co-ownership concern has
described itself as a "firm" in the printed forms of return does not
necessarily mean that it is a partnership firm within the meaning of s. 4 of
the Indian Partnership Act as indicated in s. 2 (k) of the Act.
923 From the facts and circumstances of the
case it is found that the appellant is a co-ownership concern and not a
partnership. The manager is liable to assessment under s. 13 of the Act.
CIVIL APPELLATE JURISDICTION: Civil Appeals
Nos. 537, 538 and 539 of 1962.
Appeals by special leave from the judgment
and decree dated September 29, 1959, of the Patna High Court in Miscellaneous
Judicial cases Nos. 227 to 229 of 1957.
H. N. Sanyal, Solicitor-General of India and
P. K. Ohatterjee, for the appellants.
S. P. Varma, for the respondents.
1963. April 9. The Judgment of the Court was
delivered by S.K. DAS J.-The Champaran Cane Concern, appellant before us, was
assessed to agricultural income-tax under the Bihar Agricultural Income-tax Act
(Bihar Act 32 of 1948), referred to as the Act in this judgment, by the
Agricultural Income- tax officer, Motibari for three years 1356 F. 1357 F. and
1358 F. corresponding to 1948-49, 1950-51 and 1951-52 respectively. It was
assessed as a partnership firm for all the three years, though the assessee
claimed that it was a co-ownership concern belonging to two persons, Padampat
Singhania having Re. 0-4-0 share and Lala Bishundayal Jhunjhunwala having Re.
0-12-0 share. The concern, it was stated, carried on agricultural operations in
six farms con- sisting of a little over Ac. 2,000-00 of land out of which about
Ac. 1,600-00 were purchased jointly by Padampat Singhania and Bishundayal
Jhunjhunwala and Ac. 483-00 were purchased in the name of a mill, namely,
Motilal Padampat Sugar Mill of which the aforesaid two persons were the owners.
Later on by a resolution of the mill-company, the farms 924 were separated from
the mill and the lands in their entirety were cultivated by the concern. As
nothing now depends upon the distinction between the lands purchased in the
name of the mill and those acquired otherwise, we shall ignore the distinction
for the purpose of these cases.
The assessee claimed that the concern was a
co-ownership concern belonging to the two persons above named in the shares
already indicated, and as .they were residents of Uttar Pradesh at a very long
distance from the farms in Champaran, they appointed one S. K. Kanodia its
common manager for facility of cultivation and management. This common manager
lookde after and managed the agricultural operations during the years in
question. The further case of the assessee was that the lands were undivided
between the co-owners and the total net profits arising out of the joint
cultivation were divided between the two co-owners.
On these statements the assessee pleaded that
s. 13 of the Act applied and the common manager should have been assessed in
respect of the agricultural income-tax payable by each of the two co-owners in
respect of their shares only. This plea of the assessee was rejected by the
Appeals were then preferred against the
assessment,, made to the Deputy Commissioner of Agricultural Income-tax. These
appeals were dismissed with certain modifications with which we are not now
concerned. Then, three applications in revision were filed to the Board of
Revenue. The Board reduced the assessment under schedule C but did not accept
the plea of the assessee that the assessments should have been made under s. 13
of the Act. The assessee then moved the Board of Revenue for making a reference
to the High Court on the following question of law which it stated arose out of
the order of the Board :
"Whether on the facts and circumstances
of the case the common manager is to be assessed.
925 under s. 13 of the Bihar Agricultural
Income- tax Act (Bihar Act 32 of 1948) in respect of the agricultural income
payable by each of the partners;
It is to be noticed that the underlined words
in the question appeared to assume that the concern was a partnership firm. The
Board, however, refused to make a reference.
The High Court of Patna was then moved under
s. 28 (3) of the Act and, it called for a re- ference from the Board on a
differently worded question which expressed the real issue between the parties
"Whether in the facts and circumstances of the case, the common manager
should be assessed under section 13 of the Bihar Agricultural Income Tax Act in
respect of the agricultural income tax payable by the persons jointly liable
?" The question framed by the High Court did not assume that the co-owners
of the concern were partners thereof.
Strangely enough when the Board submitted a
statement of the case in pursuance of the order of the High Court, it again
reverted to the old form of the question. The High Court, however, took the
question to be the one which it had asked the' Board to refer to it and on that
footing answered it against the assessee. The High Court said that the question
whether the assessee was a co-ownership concern or a partnership firm was a
question of fact, and even otherwise, there were facts and circumstances from
which it was open to the taxing authorities to come to the conclusion that the
firm was a partner-ship firm. On this footing the High Court answered the
question against the assessee.
926 The assessee then moved this court for
special leave and having obtained such leave has brought the present appeals to
this court from the decision of the High Court dated September 29, 1959.
We may now refer to some of the provisions of
the Act which bear upon the question before us. S. 2 of the Act is the
definition section. According to the definition given in that section
"agricultural income" means inter alia any income derived from land
which is used for agricultural purposes. It was not disputed before us that the
income which the assessee in those cases derived was from land which was used
for agricultural purposes, namely, the cultivation of sugarcane etc. The
definition section further stated that tile word "firm" had the same
meaning as in the Indian Partnership Act, 1932, and the word "Person"
meant any individual, association of individuals owning or holding property for
himself or for any other or partly for his own bent-fit and partly for another
either as owner, trustee, receiver, common manager, administrator or executor
or in any capacity recognised by law and included an individual, Hindu family,
firm or company The charging section is s. 3 which says that agricultural
income-tax shall be charged for each financial year in accordance with and
subject to the provisions of the Act on the total agricultural income of the
previous year of every person.
Agricultural income-tax means the tax payable
under the Act.
It would appear from what we have stated
above that by reason of the definition of the words "firm" and
"person" the assessee if it is a partnership firm would be liable to
tax as a firm on its agricultural income by reason of the charging section,
namely, s. 3. In s. 3 of the Indian Income-tax Act, 1922 which is similar in
terms, the words "'of every firm or association of persons or the partners
of the firm" were subsequently added in 1924 and the Indian Income-tax Act
makes a distinction in the matter of assessment 921 between a registered and an
unregistered firm. We are referring to these provisions, because at one stage
it was argued on behalf of the assessee that s. 13 of the Act which we shall
presently quote applied to the present cases even if the assessee were a
partnership' firm. Appearing on behalf of the assessee, the learned Solicitor
General has, however, conceded before us that he is not in a position to argue
that s. 13 of the Act will apply even if the assessee is a partnership firm.
We may now read s. 13- "Where any person
holds land, from which agricultural income is derived, as a common manager
appointed under any law for the time being in force or under any agreement or
as receiver,, administrator or the like on behalf of persons jointly interested
in such land or in the agricultural income derived there form, the aggregate of
the sums payable as agricultural income-tax by each person on the agricultural
income derived from such land and received by him shall be assessed on such
common manager, receiver, administrator or the like, and he shall be deemed to
be the assessee in respect of the agricultural income-tax so payable by each
such person and shall be liable to pay the same".
It is quite clear from the section that where
a common manager appointed under any law or under any agreement holds land from
which agricultural income is derived, on behalf of persons jointly interested
in the land or in the agricultural income derived there from, the aggregate of
the sums payable as agricultural income-tax by each person on the agricultural.
income derived from such land and received by him shall be assessed on the
common manager in respect of the agricultural income-tax 928 so payable by each
such person and the common manager shall be liable to pay the same. We have
already stated that the learned Solicitor-General has not now argued before us
that s. 13 will apply in the case of a partnership firm. He has however very
strongly argued that s. 13 in terms will apply if the assessee in the present
cases is a co-ownership concern (as distinguished from a partnership firm) and
the common manager thereof must be assessed in respect of the aggregate of the
sums payable as agricultural income-tax by each such co-owner. Mr. S. P. Varma
appearing for the respondent-State of Bihar has indeed conceded that if the
assessee in the present cases is a co-ownership concern, then s. 13 will apply
and the question referred to the High Court must be answered in favour of the
assessee. He has however argued that the High Court was right in holding that
the assessee was a partnership firm and on that footing answering the question
against the assessee.
Thus, the entire controversy before us
narrows down to this:
on the facts and circumstances stated in the
cases, was the assessee a partnership firm or a co-ownership concern ? We shall
presently come to the distinction between these two, but we think that in a
question of this sort both form and substance must be considered. Now,
partnership or no partnership is ordinarily a question of fact, but we agree
with learned counsel for the assessee that it is a mixed question of fact and
law in the sense that if the authorities who have to ascertain question of fact
apply a wrong principle of law in instructing themselves as to what they have
to find, then their finding of fact is not conclusive because they have done it
according to wrong principles (see Morden Rigg & Co. and R. B. Eskrigge
& Co. v. Monks (1). Looked at from the aforesaid standpoint, the question
before the taxing authorities in the present cases was whether on the facts and
circumstances established in the cases an inference of a partnership firm
within (1) (1923) 8 T. C. 450,464.
929 the meaning of the Indian Partnership
Act, 1932 followed and s. 13 was not attracted thereto, That, we take it, must
be a question of law. That was the question which was referred to the High
Court and the High Court answered it on the footing that the proper inference
was that the assessee was a partnership firm within the meaning of the Indian Partnership
Act, 1932. The assessee contends that the proper inference is that the assessee
was a co-ownership concern and not a partnership firm and on that footing the
common manager is entitled to be assessed under s. 13 of the Act.
Let us first see what are the facts and
circumstances which have been established in the case. First of all, we have
the name of the assessee as the Champaran Cane Concern, a name which may apply
to a partnership firm as well as to a co-ownership concern. Secondly, the
finding of the Deputy Commissioner of Agricultural Income-tax, a finding which
is part of the statement of the case, is that the two co-owners appointed
Kanodia as the common manager for facility of management. Now, the appointment
letter showed that the two co-owners joined together in appointing Kanodia as
common manager for supervision of cultivation and for management of the
agricultural properties in the district of Champaran.
"Partnership" within the meaning of
the Indian Partnership Act of 1932 is
a relation between persons who have agreed to share the profits of a business
carried on by all or any of them acting for all. The appointment of Kanodia by
the two co-owners acting together is consistent with either view and does not
clinch the issue in favour of a partnership. The High Court appears to have
taken the appointment of Kanodia by the two co-owners as a circumstance
establishing a part- nership. The High Court has further pointed out that the
two co-owners lived in Uttar Pradesh and belonged to two different families. We
do not see 930 how that circumstance gives any indication in law of a
partnership. As to division of the profits and losses, the finding of the
Deputy Commissioner of Agricultural Income- tax was that the two proprietors
had no definite shares in the agricultural lands, by which he must have meant
that the lands of the six farms had not been partitioned amongst the two
co-owners by metes and bounds. The cultivation was made jointly on behalf of the
two co-owners by the common manager and the profits arising therefrom were
distributed to them in proportion of their respective shares of Rs. 0-4-0 and
Rs. 0-12-0. This circumstance has again been taken by the High Court as a
circumstance from which an inference of partnership necessarily follows. Again,
we do not agree with the High Court. Two co-owners may appoint a common manager
for facility of cultivation and management without entering into a partnership
and the fact that the profits or even the losses are distributed in accordance
with the shares of the two owners does not necessarily establish a partnership
within the meaning of the Partnership Act, 1932.
In Lindley on Partnership (Twelfth Edition
page 57) the main differences between co-ownership and co-partnership have been
compared. One of the principal differences is that co- ownership is not
necessarily the result of agreement, whereas partnership is. In the cases
before us there is nothing in the record to show that there was any agreement between
the two proprietors to form a partnership firm. The second difference is that
co-ownership does not necessarily involve community of profit or of loss, but
partnership does. In the cases before us there is a finding that there is
community of profit. A third difference is that one co- owner can without the
consent of the other, transfer his interest etc, to a stranger. A partner
cannot do this.
About this point there is no evidence nor any
finding that the two proprietors Padampat Singhania and Bishundayal
Jhunjhunwala could not transfer their interests in the 931 concern without the
consent of each other. The greatest difficulty which faces the respondent in
the present cases is that it cannot point to any fact or circumstance from
which it can be inferred that one proprietor was the agent, real or implied, of
the other. In a partnership each partner acts for all. In a co-ownership one
co-owner is not as such the agent, real or implied, of the other. There is a
complete absence of any fact or circumstance establishing a relation of agency
between the two proprietors in the present case; nor have the taxing
authorities come to any finding that there was such a relation.
The High Court made a reference to the
returns filed on behalf of the assessee for the three years in question as also
the frame of the question which the assessee itself wished to be referred to
the High Court. As to the frame of the question we have stated earlier that the
Board of Revenue really made a mistake and it may even be that on behalf of the
assessee the question was not properly framed.
The assessee's contention all along was that
it was a co- ownership concern and not a partnership, but in framing the
question the word partners was used. We do not think that a mistake in the
framing of the question, which was later corrected by the High Court, will
change the real position in law. As to the returns which were filed they were
not printed in the paper book. Learned counsel for the respondent gave us
copies of the returns. These returns showed that in all the three years the
assessee indicated its status as a co-ownership concern and the name of the
assessee was shown as the manager, Champaran Cane Concern or common manager,
Champaran Cane Concern. The body of the return contained four alternatives as
to whether the return was being submitted by an individual, a firm, a joint
family or an association of individuals. The intention of putting four
,alternatives in the printed form of the return is to 932 cut out the
alternatives which do not apply. In the cases before us the alternative
relating to individual, family and association of individuals were cut out and
the alternative "firm" remained. The High Court seems to have thought
that the retention of the word firm' in the return amounted to an admission
that the assessee was a partnership firm. We do not agree. In the printed form
of the return there was no alternative as to a co-ownership concern and ina
popular sense, a co-ownership concern may describe itself as a firm.
That does not necessarily mean that it is a
partnership firm within the meaning of s. 4 of the Indian Partnership Act as
indicated in s. 2 (k) of the Act. In our view no, fact$ and circumstances have
been found in these cases from which the taxing authorities properly instructed
in law could have come to the conclusion that the assessee was a partnership
firm within the meaning of s. 2 (k) of the Act. On the contrary the facts and,
circumstances found by the taxing authorities were all consistent with the
claim of the assessee that it was a co-ownership concern the common manager
whereof was liable to assessment under s. 13 of the Act.
A number of decisions were cited. at the Bar
as to the distinction between co-ownership and partnership. We have already
referred to the main differences between the two.
The legal position as to this distinction
seems to us to be so clear and well settled that we consider it unnecessary to
refer to the case law on the subject. We do not think that any useful purpose
will be served by referring to the decisions cited at the Bar.
For the reasons given above we have come to
the conclusion that the answer which the High Court gave to the question was
not correct. We accordingly allow the anneals and set aside the judgment and
orders of the High Court dated September 29, 1959, 933 and answer the question
in favour of the assessee. The assessee will be entitled to the costs