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TMI Blog1953 (9) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... the family on 16th July, 1943, whereby the Banaras brocade business was divided in equal shares among the four branches and that, on the next day, the adult members of the family formed two partnerships admitting the minors to the benefits thereof, and thereafter carried on business in Banaras brocade under the respective firm names of Sohan Pathak Girdhar Pathak and G. M. Pathak & Co. The appellants claimed that the family as such ceased to carry on business in Banaras brocade after 16th July, 1943, though they continued to remain joint in status and that the profits derived by the two partnerships aforesaid after 17th July, 1943, could not be assessed as profits of the original joint family business, as the businesses carried on by the two partnerships were distinct and newly started businesses and could neither in law nor in fact be regarded as continuation of the old brocade business. In support of this claim the appellants strongly relied on the circumstance that the Income-tax Officer treated the old business as discontinued by the family after the partial partition and granted relief on that footing under Section 25(3) of the Indian Income-tax Act in the assessment to incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that business having been equally divided among the four branches forming the family. There is thus no clear finding as to how the partition of the brocade business was actually effected--whether by a division in shares, each branch holding its share in severalty and the business being carried on as before on a partnership basis, or whether by an actual distribution and allotment of specific assets and liabilities among the branches resulting in the disruption of that business." The Court accordingly by its order of 12th January, 1953, called for a further and clearer statement of the facts on the points indicated. The Tribunal has since submitted a supplementary statement of the case fully setting out the details of the partition arrangement and the constitution of the two firms by the members of the family after the partition. The statement reveals that the bulk of the capital as well as all "the stock-in-trade, the cash in hand, the cash in banks, all outstandings as on that date as also the sundry liabilities up to that day" were divided amongst each of the 14 co-parceners each branch being allotted a four-anna share as stated in the schedule filed by the assessees and anne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the partial partition and the formation of the partnerships were brought about at a time when the profits of the Banaras brocade business showed a definitely upward trend. If the main purpose of these transactions was not to evade liability to excess profits tax, the appellants were asked to explain what the purpose was, and they said that they wanted to protect the interests of the minor members whose shares in the partnership assets would not be liable for the losses, if any, of the firms, while the entire family properties would be liable for any loss incurred in the family business. This explanation was not acceptable because such protection was not thought of when the family business was earning smaller profits and also because, according to the constitution of the partnerships, while each branch was given the same 4 annas interest, the responsibility for losses falling on the branch which had no minor members would be heavier than what would be borne by the branch which had no adult members, a disparity which the purpose put forward by the appellants failed to explain. In these circumstances we agree with the High Court in holding that there was sufficient material to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for which any transaction or transactions was or were effected (whether before or after the passing of the Excess Profits Tax (Second Amendment) Act, 1941) was the avoidance or reduction of liability to excess profits tax, he may, with the previous approval of the Inspecting Assistant Commissioner, make such adjustments as respects liability to excess profits tax as he considers appropriate so as to counteract the avoidance or reduction of liability to excess profits tax which would otherwise be effected by the transaction or transactions." This provision, it is claimed, empowers the Excess Profits Tax Officer to ignore any transaction(s) the main purpose of which was the avoidance or reduction of liability to excess profits tax and to proceed on the footing that such transactions had not been effected, and, in the present case, the partial partition as well as the subsequent formation of the partnerships having been found to be transactions the main purpose of which was the avoidance or reduction of liability to excess profits tax, the officer had authority to assess the appellants' old family business in Banaras brocade on the basis of its continued existence during the releva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10A, would equally apply to the present case and must lead to the same result. Reference was made by the Attorney-General in the course of his argument to the proviso to Section 2(5) which says that "all businesses to which this Act applies carried on by the same person shall be treated as one business for the purposes of this Act." We find it difficult to appreciate the hearing of this section on the point at issue. It is clear that the proviso can operate in respect of businesses to which the Act applies and not otherwise, and it carries the matter no further. In the view we have expressed above, it is unnecessary to deal with the alternative contention based on Section 8(1) of the Act. We allow the appeals, set aside the answer made by the High Court to Question No. 1 and answer it as follows : In view of the finding of fact that the old joint family business in Banaras brocade was wound up and was no longer carried on by the joint family as such during the relevant chargeable accounting periods, the same business could not legally be treated as having continued unbroken in respect of such periods for the purpose of Section 10A of the Excess Profits Tax Act read with Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits tax, made adjustments under Section 10A by adding to the profits made by the joint Hindu family till the date of the partition, the profits made by the two firms during the rest of the chargeable accounting period. Objecting to this assessment, the assessee, after appealing unsuccessfully to the Assistant Commissioner of Excess Profits Tax, preferred an appeal to the Income-tax Appellate Tribunal, Allahabad Bench, who confirmed the order and finding of the Excess Profits Tax Officer. Thereupon the assessee applied to the Tribunal to refer the following questions to the High Court for its decision :-- "1. Whether in view of the fact that the partial partition had been accepted by the Income-tax Officer and the business was treated as having been discontinued for the purpose of assessment under the Income-tax Act, the same business could legally be treated as having continued unbroken in respect of the same chargeable accounting period for the purpose of Section 10A of the Excess Profits Tax Act read with Sections 4 and 5 of the same Act ? 2. Whether in the circumstances of the case the effect of the partial partition of the Hindu undivided family on 16th July, 1943, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nches resulting in the disruption and closing down of that business. It is regrettable that the Tribunal did not draw up a proper statement of the case setting out clearly the facts as found by it so as to enable the Court to determine the questions of law referred to them on a correct view of the true facts. The learned Judges in the Court below found great difficulty in ascertaining from the statement of the case the facts as found by the Tribunal, and expressed their strong disapproval of the manner in which the statement of the case was drawn up. They say :-- "We may mention here that we were put to a great deal of trouble by reason of the way the statement of case was drafted as well as by reason of the fact that the paper book contained nothing more than the statement of case. In paragraph 3 reference was made to paragraph 7 of the statement of case............... We are told that paragraph was a mistake for paragraph 4, or paragraph 7 of the statement of case was a mistake for paragraph 7 of the order of the Appellate Tribunal. But neither in paragraph 7 of the order of the Appellate Tribunal nor in paragraph 4 of the statement of case are the findings of the Appellate Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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