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TMI Blog1966 (7) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... rom contending that there has been partial partition in respect of particular movable items. The sources of income of the family were taken to be: (1) a dwelling house, (2) Government promissory notes, and (3) shares the family had in three partnerships: (a) Haridranathi Rice Mill, Mannargudi, (b) Dhanalakshmi Rice Mill, Thiruthuraipundi, and (c) Dhanalakshmi Rice Trade, Thiruthuraipundi. The assessee seeks exclusion of the income from the partnerships and the Government promissory notes as not income of the Hindu undivided family. The agreement for partition dated June 14, 1954, is shown as annexure " A " to the agreed statement of the case. It refers to the division of movable properties of the Hindu undivided family and division of outstandings receivable by and payable to the family and sets out that the rice mill business of the Hindu undivided family would thereafter be conducted as co-owners. Provision is made for a registered deed of partition dividing the family properties by metes and bounds and the agreement ends with a declaration that the father and son, the two coparceners, shall thereafter have no relation in properties but only in blood. A regular registered deed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Assistant Commissioner took the view that, in regard to these two firms, for a completed partition during the relevant period, it was necessary that in the family books the capital account should have been divided on June 14, 1954. According to him, if that had been done, then even if the father and son had not been clearly admitted independently as partners in those firms, the existence of a sub-partnership could be recognised. As the capital in the books of the Hindu undivided family had been actually divided only on April 12, 1957, the share income from the firms till that date was held as belonging to the Hindu undivided family and therefore taxable as such in the hands of the karta, even though the firms had admitted the members as partners. With reference to the Government bonds, he took the view that as they had been transferred to the sons on November 16, 1956, only, the interest that might have been received thereafter on such bonds should be excluded from the income of the Hindu undivided family. On appeal by the assessee, the Tribunal laid emphasis on the fact that the Government promissory notes had been endorsed in favour of the son who claimed them as having been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of a trade, completed partition could be brought about and definite portions allotted by mere book entries. We shall examine in the light of the above principles whether there is evidence to justify the conclusion that there was no effective partition on July 26, 1954, with reference to the Government promissory notes and the share of the family in the other two partnership firms, Haridranathi Rice Mill and Dhanalakshmi Rice Trade. We have to bear in mind that it is not the case of the revenue that the partition in the assessee's family was a pretence or sham. We take up first the Government promissory notes. These securities stood in the name of Kuppiah Mudaliar who was the karta. In the division of the capital of the family which was shown as Rs. 2,25,539-15-4, on July 26, 1954, a sum of Rs. 1,11,169 was transferred to the credit of Balasubramanian, the son, as seen from annexure D. This sum of Rs. 1,11,169 is made up, inter alia, of the Government promissory notes of the value of Rs. 55,960. Interest on these securities was credited to the account of Balasubramanian in the books of Kuppiah Mudaliar after April 13, 1954, vide annexure " F ". The only basis on which inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... analakshmi Rice Trade. As pointed out already, the Tribunal itself has excluded from the income of the family the income from Dhanalakshmi Rice Mill. The contention of the assessee is that after July 26, 1954, these income bearing assets have ceased to belong to the Hindu undivided family and even if there had been no reconstitution of the partnership firms vis-a-vis his son, the father was not a partner in the firm as karta of the undivided family. While under the income-tax law the undivided family is as such a unit of assessment, the partnership law as such does not treat the Hindu undivided family as a person who could enter into a contract of partnership. The contract of partnership may no doubt be with the head of the family; but he enters into the partnership contract as an individual. By the karta becoming a partner, the other members ipso facto do not become partners of the firm. No doubt the creditors of the firm would be entitled to proceed against the joint family assets including the shares of the other coparceners, but that is by reason of the personal law which. entitles the karta in certain circumstances to pledge the credit of the joint family to the extent of its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of rejection of the assessee's claim in regard to this firm by the Income-tax Officer is that the shares stood in the name of Kuppiah Mudaliar and the son had not been admitted as a partner. The Income-tax Officer would state that therefore the share income would be in the assessee's assessment. In our view, having regard to the nature of the assets, the members of the family having agreed to divide the assets and hold the same separately and profits received having been separately credited to the son's share, effective division has been brought about in respect of this asset. As between the father and son, it can clearly be posited that there has been a division of the assets by the agreement for partition followed up by the division of the income. In Appovier v. Rama Subba Aiyar the Privy Council observed : " 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." With reference to Dhanalakshmi Rice Trade, the Tribunal has remarked that there was no informat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alakshmi Rice Trade is concerned. In our view, once the interest of the family in the asset has been divided finally as between the father and son and profits are shared, nothing further is required. We have the fact that the partnership firm has admitted the father and son as partners and that is subsequent to their agreement for partition. This admission as partners has been recognised by the revenue from the assessment year 1955-56 by registration under section 26A as stated in paragraph 11 in the statement of the case. In the light of the principles discussed above and following the decision in Commissioner of Income-tax v. Ramakrishnier cited above, without hesitation it can be stated that there is nothing on record to hold that there was no effective partition of the family's share in this firm also. For the revenue a point was sought to be raised that the son had been allotted securities and insurance policies of the total value of Rs. 1,11,659 for his share of the capital in full settlement of his claim and that, therefore, there can be no question of division of the firms. This view was adumbrated for the department before the Income-tax Officer-vide assessment order for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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