TMI Blog1992 (9) TMI 134X X X X Extracts X X X X X X X X Extracts X X X X ..... Caltex Oil Bunk under the name and style of M. Veereshalingam, Caltex Dealer. The petrol bunk was situated at Jogipet, Dist. Medak. Shri Veereshalingam was assessed in the status of bigger HUF. A partial partition of the family business and movables took place on 12-11-1966. From then onwards, the eldest son Shri M. Krishnamurthy has been carrying on business separately and Shri M. Veereshalingam has been carrying on business as Caltex dealer on behalf of the smaller HUF. In view of the partial partition referred to above Manik Rao was only a minor and his mother represented him in partial partition. The partial partition took place in the family was recognised by the Income-tax Officer in assessment year 1968-69 by means of his specific order passed under section 171 of the Income-tax Act. From 6-11-1972 Shri M. Manik Rao having become a major joined the firm as partner along with his father's HUF and began helping him in the Caltex Oil bunk business. On 18-7-1975, Shri M. Veereshalingam representing his own minor HUF comprised of himself, his wife and one minor daughter and Shri M. Manik Rao comprising his own HUF joined as partners and began carrying on business from 6-12-1972. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 was claimed as deduction. Thus for 1982-83 the taxable income as having been derived from business by the assessee HUF was shown at Rs. 23,313 whereas the same was shown at Rs. 11,350 for assessment year 1983-84. The returned incomes were accepted under section 143(1) of the Income-tax Act by the Income-tax Officer for both these assessment years by his orders dated 27-3-1986. Subsequently these two assessments were taken up for scrutiny by the Commissioner of Income-tax, A.P.II, Hyderabad. A notice given by her under section 263 was furnished at pages 9 and 10 of the paper compilation. The text of the notice given as far as it is relevant for our purpose is the following : " For the assessment years 1982-83 and 1983-84 you have filed your income-tax returns on 30-3-1985. In the statements of computation of total income enclosed to the above returns for both the assessment years you have claimed deduction being 1/2 share belonging to Sri M. Manikya Rao, individual. As per the note enclosed to the assessment year 1982-83 the firm M/s. Veereshalingam carried on business as Caltex dealer till the death of your father. Upto the death of your father there was a contract between you ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordance with the provisions of law. Enhancement of the assessments already made by denying the deduction of 50 per cent of the income attributable to M. Manik Rao, by overriding title is, therefore, objected." The addition proposed for the difference in the balance-sheet for assessment years 1982-83 and 1983-84 was also opposed saying that the difference did not arise for the first time during the accounting year relevant to assessment year 1982-83 or 1983-84 but difference are coming from 1980-81 assessment year onwards. The learned Commissioner of Income-tax in her impugned orders dated 11-11-1987 for assessment years 1982-83 and 1983-84 did not agree with the objections raised in the reply submitted by the assessee to the notice under section 263 served on it. Adverting to the objections in her impugned order, the learned Commissioner (Appeals) stated that the business carried on is single and composite one. The fact that the other legal own heirs of late Shri Veereshalingam relinquished their rights in respect of capital of Rs. 48,459.80 in favour of the assessee nearly means that there has been a kind of gift nature. The original difference as well as the differences occu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f HUF. So there is no difference in the status of Shri Manikrao, as karta even after the death of his father. If Shri Manik Rao had invested some funds in the firm in his individual capacity, that is altogether a different matter and it was at the discretion of Shri Manik Rao to retain or withdraw those funds from the business of HUF. That does not create any overriding right in favour of Shri Manik Rao in the profits of the business. Shri Manik Rao is just in the position of a depositor with the business of the HUF. Every depositor does not get a share in the profits." Thus he passed his revisionary order dated 17-1-1989 by which the successor Commissioner has set aside the assessments for 1985-86 and 1986-87 and directed the Income-tax Officer to redo the same in accordance with law. These two sets of revisionary orders are now being challenged before this Tribunal in second appeals. Since the assessee is one and the same and since the points involved in all these appeals are common they can be taken up together and disposed of by a common order. 5. We have heard Shri KVS Bhaskara Rao, the learned advocate for the assessee and Shri DUVGV Raghava Rao, the learned Departmental ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors [1979] 120 ITR 644 for the proposition that an individual can join in a partnership in dual capacity as partner himself and as representing his HUF as its karta which was a valid partnership and entitled for registration. Secondly it is contended that there is overriding title in favour of Shri M. Manik Rao (Individual) for half the income of the business and, therefore 50 per cent of the income from business is rightly entitled for deduction in the assessee's hands. In support of his proposition, the assessee relied on the Bombay High Court's decision reported in CIT v. Mohinidevi Mohunta [1988] 171 ITR 557. 6. The learned Departmental Representative opposed the arguments of Shri K.V.S. Bhaskara Rao and held that neither of the two has any force and they cannot stand judicial Scrutiny. Cases cited in support of the assessee are all distinguishable and hence the ratios of those decisions do not apply. The learned Departmental Representative contended that firstly it is important to know that there cannot be a valid partnership by the assessee Shri M. Manik Rao as karta of the HUF and Shri M. Manik Rao as Individual especially in a case where there are only two alleged partne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to accept the change. In order to safeguard against such unilateral action by the dealers. we suggest that suitable circular to all dealers is sent immediately, if not already done. You may, therefore, draw up fresh dealership/distributorship agreements with Shri M. Manikrao as sole proprietor. It will be advisable to obtain ' No claim ' letters from the surviving heirs of late M. Veereshalingam." 8. After thus hearing the arguments of both the counsels and after perusing the records of the case, we are of the opinion that the assessee has no case and the arguments advanced on behalf of the assessee have no force and are to be rejected for the reasons set out below. Firstly it is contended that there can be a valid partnership deed between the assessee HUF and one of the coparceners of the assessee HUF provided he invested his individual funds in the business. We are of the view that this contention is not correct. Firstly there is no partnership deed as such in this case, before pursuing the argument that there can be a valid partnership between a karta of HUF and the karta as individual. Unless there is a valid partnership deed there is no scope even to consider this contenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bahadur Lakenath Prasad Dhandhania's case was approved. It is as follows : " On the respondent's behalf, their Lordships' attention was invited to a case, Lokenath Prasad Dhandhania v. CIT, but the facts of that case are clearly distinguishable. The partnership there (as the judgment of the High Court in that case states) was formed between the same individual acting, on the one hand. as the karta of the joint Hindu family and, on the other, as a partner in his individual capacity. He came to occupy, in the same transaction, two different capacities : one as representing the interests of the family and the other as representing his private interests. These two capacities might in certain conceivable circumstances be in conflict. The partnership in that case was, therefore, rightly disallowed." That was where there was a partnership actually entered into though by the same person in two different capacities. However, in the facts before us there is no such partnership deed at all. Therefore, we hold that applying the ratio of the Patna High Court's decision in Rai Bahadur Lokenath Prasad Dhandhania's case, there cannot be any valid partnership by the same individual in two capac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Letter at page 14 of the paper book clearly discloses that Hindustan Petroleum Corporation recognised the partnership firm which came into existence under the deed dated 18-7-1973 as it dealer by factum valiet. Further they proposed to change the dealership in the name of Shri M. Manik Rao as sole proprietor. Therefore, the argument that the dealership stands in the name of Shri Veereshalingam has no legs to stand. Further the Bombay High Court's decision in Mohinidevi Mohunta's case relied upon by the assessee cannot be of any help to the assessee. The facts of that case are quite different from the facts of the present case on hand. In that case, the assessee's late husband was a partner. When he died he left the assessee three sons and a daughter. The assessee was admitted as a partner along with G and R as the other partners. One of the sons after he attained majority also became a partner in the firm. Clause 6 of the partnership deed clearly stated that the capital requirements of the firm would be met with by the assessee as well as G and the credit balances in the capital account of the assessee's late husband which had devolved upon his legal heirs was considered to be th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned Commissioner of Income-tax who by his revisionary order for 1985-86 and 1986-87 held that every depositor of monies in a firm does not derive income from the firm by overriding of title. In Sitaldas Tirathdas's case the rule as to overriding title was stated to be as follows as per headnote of the decision : " The true test for the application of the rule of diversion of income by an overriding charge, is whether the amount sought to be deducted, in truth, never reached the assessee as his income. Obligations, no doubt, there are in every case, but it is the nature of obligation which is the decisive fact. There is a difference between an amount which a person is obliged to apply out of his income and an amount which by the nature of the obligation cannot be said to be a part of the income of the assessee. Whereby the obligation income is diverted before it reached the assessee, it is deductible ; but where the income is required to be applied to discharge an obligation after such income reached the assessee, the same consequence, in law, does not follow. It is the first kind of payment which can truly be execused and not the second. The second payment is merely an ob ..... X X X X Extracts X X X X X X X X Extracts X X X X
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