Mody, Actg. C.J.
1. Originally there were two reference, one concerning Rijhumal Valiram and the other concerning Hiranand Valiram. Each of the two references conceded the income-tax assessment years 1948-49 to 1951-52. Facts and rival contentions concerning each of the four years in the matter of both the reference were identical or at least closely similar and the two reference were therefore, ordered to be consolidated. Rijhumal and Hiranand were partners in certain three mill partnership in each of which partnership each of them had a four annas share. Both of them were also partners in a fourth partnership the same being Messrs. Valiram Sons, in which there were thirteen partners, Rijhumal and Hiranand each having a four annas share therein. The main question which has arisen in whether the share of profits received by each of them from the three mill partnerships was liable to be included in their individual assessments or was, as contended by them, held by them only as representing the firm of Messrs. Valiram Sons.
2. During the relevant assessment years the firm of Messrs. Valiram sons was constituted on the terms and conditions contained in the deed of partnership dated the 10th April, 1946. The partnership commenced from the 10th of April, 1946. The deed shows that their were, besides Rijhumal and Hiranand, eleven other partners, that Rijhumal had a four annas share, that Hiranand had a four annas share and the there individual shares of the other eleven partners aggregated to the remaining eight annas in a rupee, both in profits and losses. The document clearly shows that the capital was to be provided by Rijhumal and Hiranand as the financing partners and that the eleven other partners were mere working partners who had no obligation to bring in any capital into the partnership. The deed further shows that the property of the business, including goodwill, etc. was to wholly belong to the two financing partners.
3. Rijhumal and Hiranand entered into another partnership with two other individuals, begin Laxmichand Durlabhji and Manilal Durlabhji. During all the relevant years that partnership was governed by a deed of partnership dated the 25th April, 1947. The deed shows that the partnership commenced from 1st March, 1946, and that the business of the partnership was carried on in the name and style of 'New Prabhat Silk Mills', which later on came to be known as 'New Prabhat Silk Mills No. 1.'
4. Rijhumal and Hiranand made a joint declaration in the form of an affidavit dated the 19th August, 1947. The declaration concerned several properties all of which are not relevant to the present reference, but by paragraph 5 thereof it was declared by them that they had entered into partnership with the said Laxmichand Durlabhji and manilal Durlabhji under the name and style of New Prabhat Silk Mills and had been carrying not he business of the said partnership upon the terms and conditions contained in the said deed of partnership dated 25th April, 1947 and that they had in the said partnership an eight annas share in the profits which they by the said declaration, declared were holding for the benefit of themselves and the other partners in the firm of Messrs. Valiram Sons and that they and their other partners in M/s. Valiram sons had interest in the said eight annas share in the proportion of their respective shares in the said partnership of Messrs. Valiram Sons.
5. On the 17th of April, 1948, Rijhumal and Hiranand entered into another partnership with the said Laxmichand and Manilal to carry on another business viz., that of New Prabhat Silk Mills No. 2. The terms and conditions of this partnership are practically the same as those contained in the deed of partnership relating to the New Prabhat Silk Mills No. 1.
6. On 7th April, 1949, Rijhumal and Hiranand enter into a third partnership with the said Laxmichand and Manilal to carry on the business of Messrs. Anant Silk Mills on the terms and conditions contained in a deed of partnership of the date. The terms and conditions of this partnership also are similar to those contained in the said deed of partnership relating to the New Prabhat Silk Mills No. 1.
7. All the above, four partnership are partnerships registered for the purposes of income-tax.
8. In their respective individual assessments to income-tax for the assessment year 1948-49, the accounting period being 1st April, 1947, to 16th December, 1948, the share of profits received by each of Rijhumal and Hiranand from the said three mill partnerships was sought to be included as their individual income. Rijhumal and Hiranand, however, contended that it was not liable to be so included as it belonged to Messrs. Valiram sons, because Rijhumal and Hiranand were partners in the said three mill partnership only as representing their firm of Messrs. Valiram Sons. There was originally an assessment by the Income-tax Officer, an appeal to the Appellate Assistant Commissioner of Income-tax and a second appeal to the Income-tax Tribunal but as the latter set aside the assessment and remanded the proceedings back to the Income-tax Officer, it is unnecessary to refer to the same. After the remand, the Income-tax Officer and there - after the Appellate assistant commissioner of Income-tax in appeal rejected the contention of the two assessee. Rijhumal and Hiranand, and included these amounts in the income of each of the two assessees.
9. It appears that in the meanwhile the assessments of each of the two assessee for the subsequent three assessment years 1949-50 1950-51 and 1951-52 were completed. In each of these three years each of the two assessees raised identical contentions as in the case of the assessment year 1948-49, but the contentions were rejected and the income earned by each of the two assessees as his share of profits in the said three mill partnership was included in the income of each of the two assessees as an individual.
10. Each of the said two assesses thereafter filed four appeals before the Income-tax Tribunal and all the eight appeals were disposed of by the Income-tax Tribunal by its order dated the 10th of October, 1956. The Tribunal relied upon the judgment of the Supreme Court, in Dulichand Laxminarayan v. Commissioner of Income-tax where it was held that firm is not a person annas such is not entitled to enter into a partnership with another firm or Hindu undivided family or individual. Placing reliance on that decision, the Tribunal held :
'Even though the assessee did enter into partnership on behalf of Valiram sons he was not competent to do so. The said silk mills has not recognised the other partners of Valiram Sons as partners in the said partnership and consequently, the assessee must be held to be a partner in his individual and consequently, the assessee must be held to be a partner in his individual capacity. If it was merely a question of ascertaining, the intention as to whether the assessee intended to be a partner in the New Prabhat Silk Mills in his personal capacity or in his representative capacity, much could have been said in favour of the assessee. But in view of the legal position as expounded by the Supreme Court in Dulichand Laxminarayan v. Commissioner of Income-tax, it is no longer necessary to go into this question of fact.'
11. This High Court thereafter directed a reference to be made in respect of each of the said two assessees for all the said four assessment years and the reference when made were consolidated. The question referred are two and are as follows :
'1. Whether the Tribunal was justified in assessing the entire share of the assessee in the New Prabhat Silk Mils Nos. 1 and 2 and the Anant silk Mills, as the income of the assessee, instead of regarding it as the income of Valiram Sons and assessing only the share which the assessee received as a partner of Valiram Sons
2. Whether in any event, the Tribunal ought to have held that the portions of the share of profits from New Prabhat Silk Mills Nos. 1 and 2 and the Anant Silk Mills which went to the other partners of Valiram Sons did not represent the assessee's income at all but were diverted to the said other partners by overriding title or that in the alternative they were allowable as deductions in computing the assessee's total income on ordinary principles of commercial accounting or under section 10(2)(xv) of the Income-tax Act or otherwise ?'
12. This High Court by its order dated 5th December, 1968, held that the said decision of the Supreme Court in Dulichand Laxminarayan v. Commissioner of Income-tax applied when a firm sought to be a partner with another individual or firm or joint family, but that the decision had not application to the present case because in the present case in the said three mill-partnership it was not the firm who had become a partner therein, but it was the said Rijhumal and Hiranand in their individual capacities who had became partners. As the Tribunal had disposed of the appeals only on the law point, this High Court sent back this case to the Tribunal with a direction that they should draw up a further statement of case on each material as was before them then. The Tribunal has in pursuance of the direction submitted a supplements statement of case. This High Court had in making the said order held the judgment of the Supreme Court in the said case of Dulichand had no application to the facts of the case and Mr. Joshi, the learned counsel for the respondent, has not disputed that proposition before us.
13. In the further statement of case the Tribunal has again drawn attention to this privacies judgment wherein it was stated that if it was merely a question of ascertaining the intention as to whether the assessee intended to be a partner in the mill-partnerships in his personal capacity or in his representative capacity, much could have been said in favour of the assessee and added that the evidence not that point was so overwhelming in favour of the assessee's contention the they did not think that the contrary view taken by the income-tax authorities on that question could stand a moment's scrutiny. It further says that form the inception the idea was that the two assessees, Rijhumal and Hiranand should join the firm of New Prabhat Silk Mills No. 1 as partners representing Messrs. Valiram Sons and the whole conduct of the parties was harmonious with that intention. The further statement of case concludes with a finding that the conduct of the parties in regard to the shares received from the three mill-partnership showed that the shares it he said three mill-partnerships were held by the two assessees on behalf of the firm of Messrs. Valiram Sons.
14. The judgment of the Supreme Court in Murlidhar Himatsingka v. Commissioner of Income-tax is an authority for the proposition that when a partner of a firm which may be called the head-partnership enters into an agreement of sub-partnership with other partners and there is an over riding of obligation on him to share the profits or losses with the partners of his sub-partnership, the partner's right to receive the profits and pay the loses coming to his share in the head partnership became on asset of the sub-partnership. That judgment holds that in such an event a sub-partner had definite enforceable rights to claim a share in the profits accrued to or received by the partner in the head-partnership and that when a sub-partnership was entered into, the partners changed this character vis-a-vis the other partners and the income-tax authorities although the other partners in the head-partnership were not affected by the change that may have taken place, because in the case of a sub-partnership the sub-partnership creates a superior title and diverts the income from the head-partnership before it becomes the income of the individual partners and that the share of the income of the partner from the head-partnership had to the included in the assessment of the sub-partnership and not in that particular partner's personal assessment. According to that judgment the essential point to be borne in mind is that there must be a legal obligation on the partner of the head-partnership to share his profits and losses with his sub-partners in the sub-partners firm. It is needless to say that when such an obligation exists, not only the partners in the head-partnership but also his partners in the sub-partnership will have mutual rights and obligations in respect of the partner's share of profits and losses in the head-partnership. If there are profits his sub-partners would have a legal right to compel the partner to bring his share of profits in the sub-partnership and if there are losses the partner of the head-partnership would have a right to compel his partners in the sub-partnership to treat the losses as the losses of the sub-partnership so that his partners in the sub-partnership will have to hear their share of the same.
15. Mr. Joshi, the learned counsel for the respondent, pointed out that in the three mill-partnership Rijhumal and Hiranand were individually partners but that the firm of Messrs. Valiram Sons was as such not a partner. He then pointed out that the two assessees then voluntarily shared what they earned as their share of profit for the said three mill-partnership with their other eleven partners in the firm of Messrs. Valiram Sons, although there was no obligation on them to do so. He pointed out that the said joint declaration of the two assessees dated 19th August, 1947, is a unilateral declaration made by the two assessees and that therefore, the two assessees could, if they so choose, refuse to hand over their shares in the said three mill-partnership to Messrs. Valiram Sons or the other eleven partners of Messrs. Valiram Sons might refuse to share the losses coming to the share of the two assessees in the said three mill-partnership. Mr. Joshi emphasised that here is nothing which created mutual rights and mutual obligations between the two assessees and their other eleven partners in Messrs. Valiram Sons and that therefore their unilateral declaration is merely an expression of an intention without incurring any obligation to share the profits and losses between two assessees on the one hand and their said other eleven partners on the other. He further contended that even the said declaration concerns only the said partnership of New Prabhat Mills No. 1 but does not even mention the other two mill-partnership. He pointed out that as a matter of fact the other two mill-partnerships came in to existence after the date of the said declaration and that there is nothing to show that the two assessees had even and intention similar to that expressed by them in their said declaration dated 19th August, 1947, in connection with the partnership of New Prabhat Mills No. 1. He contended that therefore there were no mutual rights and mutual obligations as between the two assesses on the one hand and the other eleven partners of Messrs. Valiram Sons on the other which could be mutually exercised or enforced and that therefore the ratio of the judgment of the Supreme Court in Murlidhar Himatsingka v. Commissioner of Income-tax does not apply. This contention of Mr. Joshi, however, emphasised only one aspect and does not take into consideration the entire situation or the entire evidence relating to the same. The contents of the declaration are merely one of several pieces of evidence. If the contention of the two assessees that there was an agreement between the partners of Messrs. Valiram sons to share the shares of profits and losses of the two assesses in the three mill-partnerships can otherwise be established, the fact that the declaration is unilateral or that it relates to only one of the three mill-partnerships would not affect the conclusion which can be other wise reached. In the view which we take otherwise than on the declaration itself we do not think it necessary to refer to certain contentions urged by Mr. Joshi on the language and contents of certain clauses of that declaration.
16. Mr. Joshi contended that the deed of partnership in respect of the New Prabhat Silk Mills No. 1 is dated the 25th April, 1947, but it states that the partnership came into existence from 1st March, 1946. The deed of partnership of Messrs. Valiram Sons is, however, dated the 10th April, 1946, and states that the partnership commenced from the same date. He contended that, as the partnership of the New Prabhat Silk Mills No. 1 commenced even prior to that time when the partnership of Messrs. Valiram Sons came into existence, it must be concluded that in the partnership of the New Prabhat Silk Mills No. 1, the two assessees became partners in their individual capacities and at that date there could not be any question of their having become such partners as representing the firm of Messrs. Valiram Sons which was not even in existence at that date. That contention was urged before the Tribunal and in dealing with that contention the Tribunal states that it did not think that this circumstance went against the Tribunal's finding that the intention of the parties was that the two assessees who became partners in the New Prabhat Silk Mills No. 1 in their representative capacity because 'as is usual in such cases, the matter must have been under discussion and an oral agreement must have been reached before formally executing the partnership deeds' and the fact that there was a small time lag between the start of the one firm and the other did not, in view of the subsequent conduct of the parties, militate against the inference that the two assessees were to represent the firm of Messrs. Valiram Sons in joining the partnership of the New Prabhat Silk Mills No. 1 Mr. Joshi contended that the use of the words 'must have' shows that the matter was discussed or that an oral agreement was reached before formally executing the partnership deed is based on mere conjectures and surmises without there being any evidence in support thereof. When Mr. Joshi was urging this contention, Mr. Kolah, the learned counsel for the applicants, interrupted and stated that the firm of Messrs. Valiram Sons was in existence since 1935 and that there were two or three partnership deeds before the said deed of partnership of Messrs. Valiram Sons dated 10th April, 1946. He actually wanted to rely upon a partnership deed of 1944. It was his contention that, although that partnership deed of 1944 had been produced before the income-tax authorities in relation to the assessment of that firm for the years previous to the assessment year 1948-49 and the income-tax authorities were aware of it, had not been made a part of the record so far as the proceedings with which we are concerned and that this document was produced before the Tribunal, but it had not been made a part of the record and that it is therefore that the Tribunal had used the words 'must have', because, for want of the document being on record, the Tribunal could not refer to it. We are of the opinion that as this document has not been made a part of the record we cannot refer to it, nor place any reliance upon it and we must totally ignore the same. We are of the opinion that, although there was no such evidence on the point, the Tribunal has used the words 'must have' merely because of the overwhelming evidence of the subsequent conduct of the parties and will refer to that evidence later on.
17. Mr. Joshi relied upon the judgments of the Supreme Court in Dhirajlal Girdharilal v. Commissioner of Income-tax and in Omar Salay Mohamed Sait v. Commissioner of Income-tax, in support of his contention that, as the judgment of the Tribunal is based on surmises and conjectures, it is vitiated. It is true that to the limited extent mentioned earlier the Tribunal has made a surmise or conjecture, but the said judgments of the Supreme Court do not lay down a ratio that if in the course of its judgment the Tribunal makes some surmises or conjectures which are not very material and there is overwhelming evidence to support its finding of fact, the finding of the Tribunal would be vitiated. Mr. Joshi also pointed out that the said partnership deed of the New Prabhat Silk Mills No. 1, does not been contain a statement to the effect that the two assessees had joined the said mill-partnership in a representative capacity or that the shares of the two assessees in that mill-partnership were to be treated as a part of the business and assets of Messrs. Valiram Sons. Now it is true that the partnership deed of Messrs. Valiram Sons dies not contain any such statement. But this factor again has to be weighed with the other evidence on the record. We must, therefore, consider the entire evidence on the record.
18. What the two assesses contend is that there was an agreement between all the thirteen partners of Messrs. Valiram Sons, that in the three mill-partnerships the two assessees were to represent Messrs. Valiram Sons and the shares of profits and losses of the said three mill-partnerships were to be treated to be the profits or losses as the case may be of Messrs. Valiram Sons. Now, the factors against the two assessees are that that agreement does not appear not only as an independent agreement, but it does not find a place even in the subsequent partnership deed relating to the said three mill-partnerships. It is also true that the said joint declaration suffers from two shortcomings, the first being that it is not a bilateral document in the form of an agreement between the two assessees on the one hand and the eleven other partners on the other, all as partners of Messrs. Valiram Sons, and the second being that there is not even such unilateral declaration in respect of the two later mill-partnerships. On the other hand, there are certain factors which support the agreement canvassed for by the two assessees. Copies of the account of the three partnerships in the books of account of Messrs. Valiram Sons are on the record and the Tribunal has relied upon them. These accounts show that the shares of profits as also the shares of losses of the two assessees in the said three mill-partnerships have gone into the general profit and loss account of Messrs. Valiram Sons and in that manner shared by all the thirteen partners of Messrs. Valiram Sons. Sharing of profits only, by itself, would have had to be carefully considered, because a contention can possibly be urged that it was the two assessees who received those profits and thereafter passed them on voluntarily to Messrs. Valiram Sons, but the accounts show that a sum of Rs. 43,296 has been brought into the general profit and loss account of Messrs. Valiram Sons as being the share of loss for the year 1949 in the partnership of the Anant Silk Mills. This particular piece of evidence is, in our opinion, very important. Unless, there was an agreement between all the thirteen partners as canvassed for by the two assessees, the other eleven partners would not have agreed that this amount of loss should be debited in the general profit and loss account of Messrs. Valiram Sons. The subsequent consistent conduct of sharing of profits coming to the share of the two assessees in the three mill-partnerships and the sharing of even this loss by all the thirteen partners of Messrs. Valiram Sons, in our opinion, goes a long way, and practically the whole way to prove by a necessary inference that the agreement canvassed for by the two assessees had, in fact, been entered into. Moreover, this is evidence of a positive nature, whereas the evidence relied upon against the agreement is, in a sense, of a negative nature. The latter evidence is negative because what is sought to be relied upon is the absence of a reference to the agreement in the three subsequent mill-partnerships and the nature of the said joint declaration. The Tribunal was, therefore, right when it said that this evidence is overwhelming to support the contention of the two assessees that there was such an agreement.
19. We, therefore, answer question No. 1 in the affirmative (sic).
20. As regards question No. 2, it is really a question which would arise in the alternative to question No. 1 and only in the event of question No. 1 being answered in the negative. Inasmuch as we have answered question No. 1 in the affirmative, question No. 2 does not survive for being considered or answered and we, therefore, do not consider or answer the same.
21. The respondent to pay the applicant's costs