TMI Blog1953 (9) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... GANNADHADAS., PATANJALI SASTRI., VIVIAN BOSE JUDGMENT The Judgment of the Court was delivered by PATANJALI SASTRI, C.J.--This batch of appeals arises out of a reference made to the High Court at Allahabad by the Income-tax Appellate Tribunal, Allahabad Bench, under Section 21 of the Excess Profits Tax Act, hereinafter referred to as "the Act." The assessment challenged in these appeals relate to different chargeable accounting periods but the questions raised are the same in all the cases. The appellants constitute a Hindu undivided family consisting of four branches representing the four sons of one Sohan Pathak deceased. The family carried on business at Banaras in money-lending and Banaras brocade under the name and style of Sohan Pathak Sons. In the assessment relating to the chargeable accounting period ending on 8th October, 1943, the appellants alleged that there was a partial partition among the members of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 10A of the Excess Profits Tax Act ? 3. Whether on the facts found by the Tribunal as stated in para 7 of the statement of the case, it was justified to draw the inference that the main purpose behind the partial partition was the avoidance or reduction of liability to excess profits tax ? The Court answered these questions against the appellants but granted leave to appeal to this Court. At a previous hearing of these appeals this Court was of opinion that the material facts relating to the partial partition and the formation of the partnership and the findings of the Tribunal in regard thereto had not been clearly stated by the Tribunal in the original statement of the case. The Court said :-- "While it is true that in one place in the statement of case the Tribunal speaks of the old family brocade business as continuing without a break after the partial partition, reference is made in another place to the assets of 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 sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere regarded as still continuing, the Hindu undivided family being a "person" [Section 2(17)] distinct from the individuals composing it, and such business must, under Section 8(1), be deemed for all the purposes of the Act (except for one not material here) to have been discontinued and a new business to have been commenced, and the same consequences followed. Mr. Pathak did not argue that the partial partition and the constitution of the two partnerships were not "transactions" within the meaning of Section 10A. Nor did he insist that the acceptance of the partition and allowance of relief by the Income-tax Officer under Section 25(4) of the Income-tax Act concluded the matter for purposes of Section 10A of the Act, as appears to have been contended in the earlier stages of these proceedings. The first contention can be disposed of in a few words. It appears from the facts found by the tax authorities as well as by the Appellate Tribunal 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 liabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excludes the application of the Act to "any business the whole of the profits of which accrue or arise in a Part B State." It is thus manifest that the Act can have no application to a business which did not make any profits during the relevant chargeable accounting Period. In other words, if a business, having been discontinued, earned no profit during the chargeable accounting period in question, no excess profits tax can be charged in respect of such business, and that being the position here as respects the old joint family business in Banaras brocade, the appellants are not liable to be taxed as a Hindu undivided family in respect of that business. But, argues the learned Attorney-General, that result cannot follow by reason of Section 10A of the Act which runs as follows :-- "10A. Transactions designed to avoid or reduce liability to excess profits tax.--(1) Where the Excess Profits Tax Officer is of the opinion that the main purpose 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore such transfer, even if it was found that the transfer was effected for the main purpose of avoiding or reducing his liability to excess profits tax. In that case, the Attorney-General admitted, the officer would be running counter to the express prohibition contained in the proviso to Section 5 to which reference has been made and he did not challenge the correctness of a decision to that effect by the Bombay High Court. [Commissioner of Excess Profits Tax, Bombay City v. Moholal Maganlal]. But we fail to appreciate the distinction in principle between that case and the present, for, to both alike the Act is made inapplicable by Section 5. The reasoning of the learned Judges in the Bombay case, namely, that if the Act is inapplicable to a particular business and there would thus be no liability to excess profits tax in respect of that business, no question could arise of avoiding or reducing any liability to excess profits tax under Section 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 app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erships under the names of Sohan Pathak Girdhar Pathak and G. M. Pathak Co. and carried on business in Banaras brocade though the family continued to remain joint in status. The assessee contended that the Banaras brocade business was not carried on by the family after the partial partition and that the Excess Profits Tax Officer could not tax the family as such under Section 10A of the Act in respect of the profits derived by the two partnerships after the 17th July, 1943, as the businesses carried on by them were distinct and newly started businesses. The assessee relied also on the fact that the Income-tax Officer allowed the assessee's claim to relief under Section 25(3) of the Income-tax Act on the footing of the discontinuance of the family brocade business after the partial partition. The Excess Profits Tax Officer rejected the contention and finding that the main purpose of the partial partition was to reduce the liability of the family to excess 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. Object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brocade business was actually disrupted by the partition and ceased to continue thereafter, as the Tribunal found on the facts that the continuity of the business was not broken as a result of the partial partition and the High Court also accepted that finding which, indeed, was not challenged before that Court. While it is true that in one place in the statement of the case the Tribunal speaks of the old family brocade business as continuing without a break after the partial partition, reference is made in another place to the assets of 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 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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