Charandas Haridas & ANR Vs. The
Commissioner of Income-Tax, Bombay North, Kutch, Sauras [1960] INSC 46 (15
March 1960)
HIDAYATULLAH, M.
DAS, S.K.
KAPUR, J.L.
CITATION: 1960 AIR 910 1960 SCR (3) 296
CITATOR INFO :
E 1960 SC1147 (19) R 1965 SC1708 (5) RF 1966
SC 719 (8) F 1967 SC 383 (12) RF 1967 SC 617 (33) R 1971 SC 383 (4) D 1982 SC
760 (25) R 1983 SC 409 (10,13,15,21,22)
ACT:
Income-tax-Income from managing agency-Karta
of Hindu undivided family becoming partner of managing agency firmIncome there from,
assessed as family income-Subsequent Partition of managing commission-Claim for
assessment as individual income of divided members.
HEADNOTE:
C, who was the Karta of the Hindu undivided
family consisting of his wife, three sons and himself, was a partner in six
managing agency firms in six Mills, and the income received by him as partner
'was being assessed as that of the Hindu undivided family for the purposes of
income-tax.
On December 31, 1945, C, acting for his three
minor sons and himself, and his wife entered into an oral agreement for a
partial partition, with effect from January 1, 1946, by which C gave a certain
share to his daughter in the managing agency commission from two of the six
managing agencies held by the family and the balance together with the share*
in the other managing agencies was divided into five equal shares between C,
his wife and sons. The agreement was subsequently recorded in a document dated
September II, 1946, which recited, inter alia: " By this partition we
decided that whatever commission fell due till 31-12-45 and which is received
after 31-12-45 should be kept joint and in respect of the commission which
accrues from 1-1-46 and received after that date each of us become absolute owner
of his one-fifth share and therefore from the date, i.e., from 1-1-46 these
commissions cease to be the joint property of our family." For the
assessment years 1947-48 and 1948-49, C claimed that the income from the
managing agency firms should no longer be treated as the income of the Hindu
undivided family but as the separate income of the divided members, but the
Income-tax authorities rejected the claim on the grounds that by the document
in question the division was of the income and not of the assets from which the
income was 297 derived and since income-tax was payable at the moment of time
when income accrued, this income must be taken to have accrued to the Hindu
undivided family:
Held, that inasmuch as there was no other
effective mode of partitioning this asset and further in view of the finding
that the partition was not a pretence, the asset must be treated as divided for
purposes of income-tax law and the income was not assessable as the income of
the Hindu undivided family.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 108 of 1957.
Appeal by special leave from the judgment and
order dated February 16, 1955, of the Bombay High Court in Income-tax Reference
No. 35/x of 1954.
A.V. Viswanatha Sastri, B. K. B. Naidu and I.
N. Shroff, for the appellants.
C. K. Daphtary, Solicitor-General of India K.
N. Rajagopal Sastri and D. Gupta, for the respondents.
1960. March 15. The Judgment of the Court was
delivered by HIDAYATULLAH, J.-This is an appeal with the Hid special leave of
this Court against the judgment and order dated February 16, 1955, of the High Court of Bombay in an Incometax Reference under s. 66(2) of the Indian
Income-tax Act.
The appellants are two assessees, Charandas
Haridas and Chinubhai Haridas, whose cases are identical, and, in fact, there
was a consolidated reference by the Income-tax Appellate Tribunal, which was
answered by the High Court by its judgment. The respondents are respectively
the Commissioner of Income-tax, Bombay North, Kutch and Saurashtra and the
Commissioner of Income-tax, Delhi, Ajmer, Rajasthan and Madhya Bharat. The two
appellants represented two units of Hindu undivided families. Charandas Haridas
represented his wife, three sons and himself, and Chinubhai Haridas represented
his wife, son and himself. In stating the facts relative to the two families,
it will not be necessary to give them separately, because the question which
was answered by the High Court in the judgment under appeal arose in identical
circumstances in the two families.
The only difference is in the shares held
respectively by the two Hindu undivided families in the managing 298 agencies
to be hereafter mentioned. We will, therefore, confine ourselves to a statement
of the facts relating to Charandas Haridas only.
Charandas Haridas was the Karta of the Hindu
undivided family consisting of his wife, three sons and himself. He was a
partner in six managing agency firms in six Mills. In previous years, the
income received by him as partner in these managing agencies was being assessed
as the income of the Hindu undivided family. On December 31, 1945, Charandas
Haridas acting for his three minor sons and himself and Shantaben, his wife,
entered into an oral agreement for a partial partition. By that agreement
Charandas Haridas gave an one pie share to his daughter, Pratima, in the
managing agency commission from two of the six managing agencies held by the
family. The balance together with the shares in the other managing agencies was
divided into five equal shares between Charandas Haridas, his wife and sons.
This agreement was to come into effect from January 1, 1946, which was the
beginning of a fresh accounting year. On September 11, 1946, Charandas Haridas
acting for himself and his minor sons, and Shantaben executed a memorandum of partial
partition in which the above facts were-recited, the document purporting to be
a record of what had taken place orally earlier.
In the assessment years 1947-48 and 1948-49,
Charandas Haridas claimed that the income should no longer be treated as the
income of the Hindu undivided family but as the separate income of the divided
members. The Income-tax Officer declined to treat the income as any but of the
Hindu undivided family, and assessed the income as before. An appeal to the
Appellate Assistant Commissioner was un.successful, and the matter was taken to
the Income-tax Appellate Tribunal. The Appellate Tribunal held that by the
document in question, the division, if any, was of the income and not of the
assets from which the income was derived, inasmuch as " the agreements of
the managing agency with the managed Companies did not undergo any change
whatever as a result of the alleged partition The Appellate Tribunal, 299
therefore, held that the arrangement to share the receipts from this source of
income was not binding on the Department, if the assets themselves continued to
remain joint. It further held that the document was " a farce ", and
did not save the family from assessment as Hindu undivided family. The Tribunal
having declined to state a ease under s. 66(1) of the Indian Incometax Act,
Charandas Haridas moved the Bombay High Court, and obtained an order under s.
66(2) of the Act. The question on which the case was stated was:
" Whether there were materials to
justify the finding of the Tribunal that the income in the share of the
commission agency of the Mills was the income of the Hindu undivided family ?
" The High Court stated that though the reference was very elaborately
argued, it raised a very simple question of fact and all that it was required
to find out was whether there were materials before the Appellate Tribunal upon
which the finding of fact could be rested. The High Court held that though the
finding given by the Appellate Tribunal could not be construed as a finding that
the document was not genuine, the method adopted by the family to partition the
assets was insufficient to bring about the result intended by it.
According to the High Court, the Appellate
Tribunal war, right in holding that the document was ineffective, and though
the income might have been purported to be divided and might, in fact, have
been so divided, the source of income. still remained united as belonging to
the Hindu undivided family. It accordingly answered the question in the
affirmative, holding that there were materials before the Tribunal on which it
could reach the conclusion that in so far as these income-bearing assets were
concerned, they still belonged to the Hindu undivided family. Leave to appeal
to this Court was refused by the High Court, but Charandas Haridas applied to
this Court and obtained special leave, and the present appeal was filed.
Mr. Viswanatha Sastri appearing for Charandas
Haridas, pointed out that a Hindu undivided family cannot be a partner of a
firm Charandasa, Haridas, 300 therefore, though he represented the Hindu
undivided family, in his capacity as a partner could not insist that the other
members of the family be received as partners, or admitted to the benefits of
partnership. The only mode in which the partition could be made was to divide
the income, and this bad the necessary effect, in law, of dividing the assets,
if not for the purposes of the Partnership Act, at least for the purposes of
assessing income-tax. lie, therefore, contended that the Hindu undivided family
which had ceased to exist in so far as these assets were concerned, could not
be assessed as such after January 1, 1946, the date from which the partition
was effective. The learned Solicitor-General for the Department contended that
the argument itself involved the assumption that the assets were not, in fact,
divided, and since income-tax was payable at the moment of time when income
accrued, this income must be taken to have accrued to the Hindu undivided
family and its subsequent partition into five or six shares did not affect the
position.
Before we deal with these arguments, it is
necessary to quote the operative portion of the document, which is as follows:
" Re:-Partial partition of the Hindu
Undivided Family of Charandas Haridas of Ahmedabad.
We the undersigned Sheth Charandas Haridas by
himself and as the guardian of minors Rameshchandra Charandas, Anilkumar
Charandas and Gautamkumar Charandas and Shantaben Charandas all residing in
Shahibaug, Ahmedabad make this memorandum (Nondh) that, we have a Hindu
undivided family and Sheth Charandas Haridas manages our family's joint
property as Karta or Manager and all of us as members of the joint undivided
family are entitled to our joint undivided family as Malik. Our family received
a commission of Re. 0-1-11.
5112 from the Vijaya Mills Co., Ltd. and out
of this commission Sheth Charandas Haridas as Karta or Manager of the family
has given already a commission of one pie to Pratima, the daughter of the
family. So also out of the commission of Re. 0-2-1/2 received by the family
from the Gopal 301 Mills Co., Ltd. Sheth Charandas Haridasas Karta and Manager
has given already to Pratima one pie commission. After deducting these Re.
0-1-10. 5/12 and Re. 0-1-11 commission remained. These commissions and other
commission received from various other mills have been partitioned orally by us
on Samvat Year 2002 Magsar Vadi 12, dated 31st December, 1945. By this
partition we decided that whatever commission fell due till 31-12-45 and which
is received after 31-12-45 should be kept joint and in respect of the
commission which accrues from 1-1-46 and received after that date each of us
become absolute owner of his one-fifth share and therefore from the date,i.e.,
from 1-1-46 these commissions cease to be the joint property of our family. But
it is our desire that we should keep a memorandum for our memory of the oral
partial partition effected on Samvat Year 2002 Magsar Vadi 12, dated 31-12-45
pursuant to which we have partitioned the commissions to be received by our
family. Because of this we keep this note." The document no doubt mentions
"a commission" in respect of each of the six managing agencies, which
commission was divided by the document. The word "commission", however,
has been used in two different senses; sometimes it refers to the amount of the
managing agency commission to be received by Charandas Haridas and sometimes to
the right to that commission which Charandas Haridas bad as a partner.
The sole question is whether the source was
effectively divided for purposes of the Income-tax law, so that the assessment
could not be made upon a Hindu undivided family.
The law was stated by Mayne, and approved by
the Privy Council in Pichappa v. Chokalingam in the following words:
" Where a managing member of a joint
family enters into a partnership with a stranger the other members of the
family do not ipso facto become partners in the business so as to clothe them
with all the rights and obligations of a partner as defined by the Indian
Contract Act. In such a, case the (1) A.I.R. 1934 P.C. 192.
39 302 family as a unit does not become a
partner, but only such of its members as in fact enter into a contractual
relation with the stranger: the partnership will be governed by the Act."
Further, the Privy Council in Appovier v. Rama Subba Aiyan (1) observed:
" Nothing can express more definitely a
conversion of the tenancy, and with that conversion a change of the status of
the family quad this property. The produce is no longer to be brought to the common
chest, as representing the income of an undivided property, but the proceeds
are to be enjoyed in six distinct equal shares by the members of the family,
who are thenceforth to become entitled to those definite shares." The
Bombay High Court quoted this passage, and stated that there must be a division
of the right as well as a division of the property; and unless the division
effected a separation of the property into shares, it would remain only as a
separation of the income after its accrual and would not affect the asset as
such. In this view of the matter, the Bombay High Court held that the asset
continued to be joint in spite of the division of the income after its accrual.
In our opinion, here there are three
different branches of law to notice. There is the law of Partnership, which
takes no account of a Hindu undivided family. There is also the Hindu law,
which permits a partition of the family and also a partial partition binding
upon the family. There is then the Income-tax law, under which a particular
income may be treated as the income of the Hindu undivided family or as the
income of the separated members enjoying separate shares by partition. The fact
of a partition in the Hindu law may have no effect upon the position of the
partner, in so far as the law of Partnership is concerned, but it has full
effect upon the family in so far as the Hindu law is concerned. Just as the
fact of a Karta becoming a partner does not introduce the members of the
undivided family into the partnership, the division of the family does not
change the position of the partner Vis-a-vis the other partner or partners. The
Income(1) (1866) 11 M.I.A. 75.
303 tax law before the partition takes note,
factually, of the position of the Karta, and assesses not him qua partner but
as representing the Hindu undivided family. In doing so, the Income-tax law
looks not to the provisions of the Partnership Act, but to the provisions of
Hindu law. When once the family has disrupted, the position under the
partnership continues as before, but the position under the Hindu law changes.
There is then no Hindu undivided family as a unit of assessment in point of
fact, and the income which accrues, cannot be said to be of a Hindu undivided
family. There is nothing in the Indian Income-tax law or the law of Partnership
which prevents the members of a Hindu joint family from dividing any asset.
Such division must, of course, be effective so as to bind the members; but
Hindu law does not further require that the property must in every case be
partitioned by metes and bounds, if separate enjoyment can otherwise be secured
according to the shares of the members. For an asset of this kind, there was no
other mode of partition open to the parties if they wished to retain the
property and yet hold it not jointly but in severally, and the law does not
contemplate that a person should do the impossible. Indeed, the result would
have been the same, even if the dividing members had said in so many words that
they had partitioned the assets, because in so far as the firms were concerned,
the step would have been wholly inconsequential.
The respondent suggested that the family
could have partitioned the managing agencies 'among the members of the family
by balloting them severally; but that would not have been possible without a
dissolution of the managing agency firms and their reconstitution, which was
not altogether in the hands of Charandas Haridas. It was also suggested that
the managing agencies could have been allotted to Charandas Haridas while the
others took some other property, or a receiver could have been appointed. No
doubt, there were many modes of partition which might have been adopted; but
the question remains that if the family desired to partition these assets only
and no more, could they have acted in some other manner 304 to achieve the same
result? No answer to this question was attempted.
It is, therefore, manifest that the family
took the fullest measure possible for dividing the joint interest into separate
interests. There is no suggestion here that this division was a mere pretence;
nor has the Appellate Tribunal given such a finding. The document was fully
effective between the members of the family, and there was factually no Hindu
undivided family in respect of these particular assets. The assets at all times
stood in the name of Charandas Haridas, and looked at from the point of view of
the law of Partnership, the family had no standing. The assets still are in the
name of Charandas Haridas, and looked again from the same viewpoint, the
division has no different signification. What has altered is the status of the
family. While it was joint, the Department could treat the income as that of
the family; but after partition, the Department could not say that it was still
the income of the Hindu undivided family, when there was none. In the face of
the finding that this was a genuine document and not a sham, and that it
effectually divided the income and in the circumstances, the assets, the
question answers itself in the negative, that is to say, that there were no
materials to justify the finding that the income in the share of the commission
agency of the Mills was the income of the Hindu undivided family.
The appeal will be allowed. The respondents
will pay the costs of the two assessees here and below. There will be only one
set of costs here.
Appeal allowed.
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