1956 (2) TMI 2 - SC - Income Tax

Whether Chhotelal and Bansilal were partners in the firm which was constituted on 23rd August 1940? Held that - Whether the question is considered on the principles of Hindu law or on the provisions of the Excess Profits Tax Act there was a change in the personnel of the firm on 17th October 1944 and the matter falls within section 8(1) of the Act. The order of the Excess Profits Tax Officer dated 23rd December 1946 refers in terms to the order dated 28th September 1946 passed in the proceedings for assessment of income-tax on the appellant and the deficiency of profits is worked out on the basis of the loss of Rs. 15, 771 as ascertained therein. We see no substance in this contention which must accordingly be rejected. On the facts as pleaded by the appellant Chhotelal and Bansilal could not be regarded as partners in the old firm we may add that this contention does not appear to have been put forward before the Commissioner when notice was issued to the appellant under section 20 of the Act. If any such contention had been raised it would have been open to the Commissioner to have taken action under section 19 of the Act. Appeal dismissed.

Issues Involved:
1. Change in the persons carrying on business under Section 8(1) of the Excess Profits Tax Act.
2. Apparent mistake from the record under Section 20 of the Excess Profits Tax Act.

Detailed Analysis:
1. Change in the Persons Carrying on Business:
The primary issue is whether the partition of the joint family and the reconstitution of the firm under the deed dated 17th October 1944 resulted in a change in the persons carrying on the business within the meaning of Section 8(1) of the Excess Profits Tax Act. The appellant contended that the change was more formal than substantial because the other members of the joint family, Chhotelal and Bansilal, were in substance partners of the firm initially constituted on 23rd August 1940. The court, however, disagreed, noting that when the karta of a joint Hindu family enters into a partnership, the other family members do not ipso facto become partners. The court emphasized that the registration certificate did not mention Chhotelal and Bansilal as partners, and thus, they could not be considered partners in the firm constituted on 23rd August 1940.

The court further analyzed the situation under the provisions of the Indian Excess Profits Tax Act. Section 2(17) defines a "person" to include a joint family. The court noted that the joint family ceased to exist upon partition, leading to a change in the persons carrying on the business. Consequently, the court concluded that there was a change in the personnel of the firm on 17th October 1944, falling within the scope of Section 8(1) of the Act.

2. Apparent Mistake from the Record:
The second issue concerns whether the Commissioner's order dated 15th March 1950 was justified under Section 20 of the Act, which allows rectification of "any mistake apparent from the record." The appellant argued that the record in the excess profits tax proceedings did not contain the facts regarding the firm's constitution and changes, making the rectification unjustifiable. The court disagreed, noting that the record included the registration certificates and returns made by the firm, which disclosed the names of the partners and their respective shares.

The court referenced Section 22(1) of the Act, which allows information from income-tax proceedings to be used for excess profits tax purposes. The court emphasized the interdependence of proceedings under the two Acts, noting that assessments under the Excess Profits Tax Act are based on assessments made under the Indian Income-tax Act. Consequently, the court found that the Commissioner was justified in using the records from income-tax proceedings for rectification under Section 20 of the Act.

The appellant's final contention was that the registration certificate particulars were not conclusive and that they were not estopped from proving the real partners. The court found this argument unconvincing, noting that the appellant's own pleadings did not support the claim that Chhotelal and Bansilal were partners in the old firm. The court also noted that this contention was not raised before the Commissioner during the Section 20 proceedings.

Conclusion:
The court dismissed the appeal, holding that there was a change in the persons carrying on the business within the meaning of Section 8(1) of the Excess Profits Tax Act due to the partition and reconstitution of the firm. The court also upheld the Commissioner's order under Section 20 of the Act, finding that the rectification was justified based on the records from income-tax proceedings. The appeal was dismissed with costs.

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