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Atmaram Bhogilal Vs. Commissioner of Income-tax, Bombay North - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 19 of 1951
Judge
Reported in[1952]22ITR305(Bom)
ActsIncome-tax Act, 1922 - Sections 26A
AppellantAtmaram Bhogilal
RespondentCommissioner of Income-tax, Bombay North
Appellant AdvocatePalkhiwalla, Adv.
Respondent AdvocateG.N. Joshi, Adv.
Excerpt:
.....of partnership. the reason why he was not satisfied is that in law such a firm could not be constituted because jaswantlal had not ceased to be member of the joint hindu family......that the deed would not bring about a severance of status and that even after the execution of the deed jaswantlal did not cease to be a member of the joint hindu family. mr. joshi says that it is left to the discretion of the income-tax officer whether to register the deed of partnership or not to register it. that is true, but his discretion is fettered by the rules framed under section 26a and when we turn to the relevant rule, which is rule 4, there is an obligation upon him to register a partnership deed if he is satisfied that there is, or was, a firm in existence constituted as shown in the instrument of partnership and that the application has been properly made. there is no dispute in this case that the application to register the deed of partnership was properly made. the only.....
Judgment:

Chagla, C.J.

1. The question that arises on this reference is really a very simple one and can admit of only one answer. It appears that there was a joint and undivided Hindu family consisting of one Bhogilal and his three sons, Jaswantlal and two others. A deed, which was called a deed of separation and release, was executed on the May 4, 1942, and the parties to the deed were Jaswantlal on the one hand and his other co-parceners on the other. On this date Jaswantlal was a major, 24 years old. It is unnecessary to go into the details of the deed but the substance and effect of the provisions of the deed was that Jaswantlal was to receive Rs. 30,000 as his share in the joint family properties and he was to go out of the family. This sum of Rs. 30,000 was to be tied down in the manner provided in the deed. Jaswantlal was not entitled to the use of this amount for ten years and a committee of managers was appointed under the said deed which was to manage and administer that fund. After the deed was executed a partnership was entered into between Jaswantlal and the members of the joint and undivided family. In respect of this partnership a deed of partnership was executed on the October 3, 1944. This partnership deed was attempted to be registered under Section 26A but the Income-tax Officer refused to register it. The matter ultimately went in appeal to the Tribunal and the Tribunal upheld the decision of the Income-tax Officer on two grounds, viz., that there was no alienation and payment of assets of the Hindu undivided family in favour of Jaswantlal and that Jaswantlal had not been shown to have separated from the Hindu undivided family. On these findings the Tribunal further held that Jaswantlal not having separated from the Hindu undivided family, he could not enter into a partnership as a separated member with his father as representing the Hindu undivided family, as was purported to be done under the partner deed.

2. Now it is clear from the statement of the case submitted to us that there is no finding that either the deed of separation dated May 4, 1942, or the partnership deed dated October 3, 1944, did not represent genuine and bona fide transactions. It does not seem to have been anybody's case that these documents merely represented colourable transactions and in fact there was no separation by the deed of May 4, 1942, or in fact there was no partnership effected by the deed of October 3, 1944. What was contended by the Department before the Tribunal (and which connection was accepted by the Tribunal) was that on a true construction of the deed of May 4, 1942, Jaswantlal did not in law become separated from the joint family and even after the deed was executed he continued to be a coparcener, and, therefore, he could not, in law, enter into a partnership with his father as representing the undivided Hindu family. Therefore, what we have to consider on this reference is the terms of the deed of separation and to decided whether in law a separation was effected or not. Now it is an elementary proposition of Hindu law that any member of a joint and undivided Hindu family can separate from the family on his envincing his unequibocal intention to separate. All that the law requires is an intention; and on the intention being disclosed a severance of status is brought about. In order to bring about a severance it is unnecessary that the member separating should necessarily take with him any share of the joint family properties. You may have two cases; there may be a case of partial partition where one or more members of the family may separate and may have a partition and take away their share of the family property, other members continuing to remain joint and keeping the rest of the family property; or you may have another case where a member may separate from the family and may not want any share of the family property at all. I see no reason at all why in the latter case as effective a severance cannot be brought about as in the former. After all there is no obligation on the separating member of the family to take his share of the family properties. It may be that when you have a case where a member of a joint family who has admittedly a share in the family properties separates without taking any share then doubt may be cast upon the genuineness of the transaction and it may be suggested that the transaction was a colourable transaction and that in fact there was no severance. But, with all the doubt that may be cast upon such a transaction itself, there is nothing to prevent a member of the joint Hindu family from separating from his family without taking any share in the family properties. In the order of the Tribunal they have throughout assumed that there must be an alienation of the joint family assets and payments of the share of the assets of Jaswantlal before it can be stated that there was a separation and they came to the conclusion that Jaswantlal had not separated from the family at all. Here we are not at all concerned with the case of a partial partition; in this case we are concerned with severance of status and if Jaswantlal ceased to be member of the family in law there was nothing to prevent him from entering into a partnership with his erstwhile colleagues of the joint Hindu family, as represented by Bhogilal. As I stated before, we are expressing no opinion except that there was a separation and that Jaswantlal ceased to be a member of the joint family. Jaswantlal, who was a major, and who had executed a deed, states in clear and unmistakable terms that after he has received the sum of Rs. 30,000 in the manner provided in the deed he ceased to be a member of the joint family and he has not any further interest in the family properties. There could not be a clearer or more unequivocal expression of intention to separate. If the intention of Jaswnatlal to separate was there and if he himself does not challenge the deed, and if no one else suggests that the deed was not a genuine transaction it is difficult to understand how the Tribunal can come to the conclusion that the deed would not bring about a severance of status and that even after the execution of the deed Jaswantlal did not cease to be a member of the joint Hindu family. Mr. Joshi says that it is left to the discretion of the Income-tax Officer whether to register the deed of partnership or not to register it. That is true, but his discretion is fettered by the rules framed under Section 26A and when we turn to the relevant rule, which is Rule 4, there is an obligation upon him to register a partnership deed if he is satisfied that there is, or was, a firm in existence constituted as shown in the instrument of partnership and that the application has been properly made. There is no dispute in this case that the application to register the deed of partnership was properly made. The only ground why the Income-tax Officer refused to register the partnership was that he was not satisfied that there was a firm in existence constituted as shown in the instrument of partnership. The reason why he was not satisfied is that in law such a firm could not be constituted because Jaswantlal had not ceased to be member of the joint Hindu family. As that was his reason, as it appears from the statement of the case, it is open to us to examine that reason and if we think that that reason is not sound in law we must come to the conclusion that there was an obligation on him to register the deed of partnership. The result, therefore, is that we answer the question submitted to us in the affirmative. The Commissioner to pay the costs of the reference.

3. Reference answered in the affirmative.


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