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TMI Blog1990 (7) TMI 191X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 per cent. The capital initially contributed by various partners was indicated in para 5 of the said deed. A. Y. Khare, the appellant herein, had contributed Rs. 7000 and A. Y. Khare had contributed Rs. 14,000. This partnership was assessed upto the asst. yr. 1969-70. On 1st July, 1969 there was a partial partition of the HUF of Y. A. Khare, Karta, his son Anant Y. Khare and his wife Sumati Yashwant Khare. In terms of such partial partition the 14 per cent share of Y.A. Khare was divided between himself, his son and his wife equally. His son A.Y. Khare received on such partition share of 4.67 per cent which was stated to be received by his smaller HUF which consisted of himself and his wife. An order recognising this partition was passed by the ITO Assessment XI, Nagpur, on 8th Jan., 1975 for the asst. yr. 1970-71 and 1971-72. The share of Y.A. Khare representing himself and the two partitioned members of his family, namely, A.Y. Khare (HUF) and Smt. Sumati Y. Khare was increased to 24 per cent w.e.f 1st Oct., 1971. A.Y. Khare in his individual capacity continued to have 7 per cent share in the firm. Thus from 1st Oct., 1971 the shares fo the three members of the Khare family toge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a share of Anant y. Khare and the capital contributed by him was shown at Rs. 1,16,000. A memorandum of understanding was drawn on 1st July, 1979. This memorandum of understanding was between Anant Y. Khare and his mother Smt. Sumati Y. Khare. It recorded all the facts as enumerated above and stated, inter alia, in the preamble portion as under: "And whereas consequent to the induction of M/s Khare & Tarkunde Private Limited in the said Partnership firm by virtue of Deed of Partnership dt. 5th July, 1978, Shri A.Y. Khare for and on behalf of the said co-claimants became entitled to 29 per cent of the right, title and interest in the partnership firm M/s Khare and Tarkunde". The memorandum of understanding in effect laid down the interest in the partnership firm represented by A.Y. Khare and the late Y.A. Khare from time to time, in cl. 1 as under: "1. It has been agreed and understood by the parties hereto and hereby recorded that the interest in the partnership firm M/s Khare and Tarkunde represented by Mr. A.Y. Khare and late Shri Y.A. Khare from time to time has been and is as under: Date of partnership Deed Interest in partnership and represented by Co-claimants of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essments of Sumati Y. Khare have been completed by the ITO, Circle I(4) and WTO, Circle I(3) on the basis of the partial partition of the HUF of Y.A. Khare in 1969 and the fact that the co-claiments were represented by Y.A. Khare first and thereafter by A.Y. Khare in the firm was also accepted in the assessment of Mrs. Sumati Y. Khare in the firm was also accepted in the assessment of Mrs. Sumati Y. Khare in the asst. yr. 1979-80. According to Shri Dewani the capital shown against the name of A.Y. Khare in the firm as it was constituted on 13th Dec., 1977, after the death of Shri Y.A. Khare which stood at Rs. 1,08,500 as indicated in para 6 of that partnership (reproduced herein above) in two debts, capital of Rs. 84,000 belonging to late Y.A. Khare which in term belonged to the members of the partitioned family. cls. 5 and 6 of the partition deed dt. 1st July, 1969 read as under: "(5)That the joint family as such, has ceased to exist so far as the interest in the said partnership firm of M/s Khare & Tarkunde is concerned w.e.f. the date of this memorandum and necessary request will be made to the said partnership firm of M/s Khare & Tarkunde to record the division of the capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the claim for separate assessments on the ground of an over-riding title created by the memorandum of understanding was not accepted either by the assessing authority or the first appellate authority mainly on the ground that there was neither a pre-existing legal obligation nor a sub-partnership. The CIT(A) in para 5 rejected the claim of the appellant for the asst. yr. 1981-82 in the following words: "5. The appellant's claim for excluding a portion of the share of profit arising to him under an agreement of partnership deed can be considered only if there is either a sub-partnership or there are circumstances indicating diversion by over-riding title. (Murlidhar Himmat Singka and Another vs. CIT (1966) 62 ITR 323 (SC) : Bejoysingh Dudhuria vs. CIT (1933) 1 ITR 135 (PC). The true test is whether the amount sought to be deducted in truth never reached the assessee as his income. (CIT vs. Sitaldas Tirathdas (1961) 41 ITR 367 (SC). Here the facts indicated neither a pre-existing legal obligation nor a sub-partnership". In the circumstances, I have to hold that the IAC was justified in bringing to tax in the appellant's hand the entire share of profit of the appellant as determin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1981-82 was substantive and for the asst. yr. 1982-83 was protective. 7. We have carefully considered the submissions made by both the parties. In the course of proceedings we called upon Shri Dewani to produce the original paper of the memorandum of understanding which has been so produced and examined. A Xerox copy of the same has been filed. The memorandum of understanding dt. 1st July, 1979 is a stamped document and the stamp paper was purchased on 23rd Oct., 1978 and the document was drawn on 1st July, 1979. We have no reason to hold that this document is not genuine or does not constitute contemporaneous record. We find that the appellant in a letter addressed to the IAC of Income-tax, Range III, on 25th Feb., 1984 has stated, inter alia, as under: "I am a partner in the firm M/s Khare and Tarkunde as individual as well as the Karta of my HUF........." "After the death of Shri Y.A. Khare, we have entered into family arrangement and accordingly we have divided the share of profit in the firm of M/s Khare and Tarkunde". Thus the fact of the family arrangement was brought to the notice of the IAC as early as on 25th Feb., 1984. The CIT(A) himself, in his order for the asst. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.Y. Khare (Indl.), but from the asst. yr. 1979-80 31 per cent share is assessed in the hands of A.Y. Khare (Indl.) and from the asst. yr. 1980-81 onwards 29 per cent share has been taken in the hands of the A.Y. Khare (Indl.). We have now to decide whether the memorandum of understanding entered into on 1st July, 1979 has the effect of providing an overriding title on the shares earned by A.Y. Khare in the partnership which share as per the latest document of partnership is shown as 29 per cent. 8. The concept of real income was discussed by the Bombay High Court in the case of Ratilal B. Daftari vs. CIT. In that case the Bombay High Court held that in the case of assessment of a registered firm what was to be considered was not the income allocated to his share by employing the machinery of s. 23(5)(a) but his real income; and that real income was what remained after deducting the amounts which might be said to have been diverted and never constituted his real income and such amounts would have to be excluded to ascertain his real income. In that case there was an agreement between the assessee and 4 others on the same day on which the deed of registered partnership was executed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the family had disrupted, the position under the partnership continued as before, but the position under the Hindu law changed. The decision, in our opinion, would appear to support the stand of the appellant on the present facts of the case. A similar situation arose in the case of CIT vs. M.D. Kanoria. In that case also the Karta of an HUF consisting of himself, his wife and two minor sons was a partner in the firm for and on behalf of the family. There was a partial partition of the assets of the family invested in the firms, and the memoranda attached to the partition deeds contained agreements between the members that the assessee was to remain a partner in the firms but the profits falling to the share of the assessee were to be the profits of the members of the family "severally in their own respective individual right and interest" in the proportion stated in the memoranda. In the present case also there was a partial partition and the members of the family on such partial partition were to receive the share earned by Y.A. Khare severally. The facts there in the case before the Bombay High Court were similar to the facts of the present case. The Bombay High Court held that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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