1. The questions referred to us by the Income-tax Appellate Tribunal are as under :
' (1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in treating the assessee as Hindu undivided family and not as an individual ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal ought to have held that the assessee should have been assessed in the status of an individual and the income of the minor should have been included in the income of the assessee under section 64 of the Income-tax Act, 1961 ?'
2. This matter was before us on August 31, 1984, and subsequently on September 10, 1984. On August 31, 1984, we had remanded the matter to the Tribunal for a fresh statement of case, as we were of the opinion that the reference could not be proceeded with without the two deeds of partition being on record, both dated March 22, 1968. After August 31, 1984, the Department had produced copies of the two partition deeds which were in Marathi. These were tendered and taken on the record on September 10, 1984. The Department also indicated that the Inspector at Pune had contacted the assessee and that the assessee was not desirous of appearing in the reference. We accordingly cancelled our earlier order dated August 31, 1984, and the reference was stood over till September 24, 1984, that is, today. In the meantime, the Commissioner was directed to supply office (English) translation of the two Marathi partition deeds. This has been done.
3. The facts as found may be stated a under :
During the year of account, a partition took place in the larger Hindu undivided family of P. L. Khedkar on March 22, 1968. On the same day, a second partition took place in the family of N. P. Khedkar. This was between the assessee, his wife and his two minor sons. These two partitions were effected by two partition deeds and the copies of the same in Marathi together with their office (English) translation have been produced for our perusal. It would appear that thereafter N. P. Khedkar and his father, P. L. Khedkar, formed a partnership, to the benefits of which the two minor sons of N. P. Khedkar were admitted. The question being considered by the Income-tax Officer was regarding the inflexibility of the shares of profits coming to the share of the minor sons in the assessee's income. The Income-tax Officer negatived the claim of the assessee and held that the status of the assessee was that of an individual. In appeal, the Appellate Assistant Commissioner, accepted the contention of the assessee and held that he constituted a Hindu undivided family with his two unmarried daughters. The Appellate Assistant Commissioner relied upon the decision of the Supreme Court in N. V. Narendranath v. CWT : 74ITR190(SC) . The Department carried the matter to the Income-tax Appellate Tribunal. The Tribunal held in favour of the assessee and dismissed the Department's contention, observing as follows : 'Looked at either from the angle of the theory of potentiality or from the angle of the right of a daughter to an interest in the joint family property, which was, however, crystallised into a right to maintenance, the assessee in the instant case constitutes a Hindu undivided family with his two unmarried daughters and his wife though the wife was allotted a separate share on the said partition of the smaller Hindu undivided family of which the assessee was the karta.'
4. Aggrieved by the said decision of the Tribunal, the Department sought a reference and has come to the High Court.
5. It is rather unfortunate that right from the Income-tax Officer to the Tribunal, the authorities have not paid proper attention to the two partition deeds. These are most material and ought to have been properly construed in order to ascertain the status of the assessee. If the first partition deed is properly perused, it would be more than clear that what was being partitioned was only the 'cloth business' which was carried on at house No. 182, Bazar Peth, at Post Khed in the trade name Prahlad Laxman Khedkar. The first partition deed clearly shows that the larger Hindu undivided family had properties other than the said cloth business. The said partition deed pertaining to the larger Hindu undivided family of Prahlad Laxman Khedkar indicates that in 1955, agricultural lands had been partitioned and the partition given effect to by making necessary entries in the Government records. Thereafter, according to the recitals of the said deed, one of the sons, namely, Shriram, had separated and gone out of the family. The said Shriram had taken an amount of Rs. 17,000 in lieu of his share in cloth business, house at Bazar Peth, Khed, gold, jewellery and all other movable and immovable assets of the Hindu undivided family. Thereafter, properties of the larger Hindu undivided family are indicated on page 3 of the partition deed (pertaining to the larger Hindu undivided family). They include a house named 'Tapascharya' at Bazar Peth, Khed, gold, jewellery, furniture and other household articles. The partition deed goes on to say that the parties, P. L. Khedkar and N. P. Khedkar, had decided to partition only the assets and liabilities relating to cloth business run in the name of P. L. Khedkar, which would suggest that as far as the other properties are concerned, namely, the house at Bazar Peth, Khed, gold, jewellery, furniture and other household articles, the status of the joint family would continue and the Hindu undivided family would own the said properties and if there was any income, actual or notional, flowing from the said properties, the larger Hindu undivided family would continue to be assessable in respect of the said income. As far as the cloth business is concerned, the same was valued together with its goodwill at Rs. 1,42,000 and. P. L. Khedkar and N. P. Khedkar received Rs. 71,000 in equal proportion. Thus N. P. Khedkar obtained Rs. 71,000 under the partition deed pertaining to the larger Hindu undivided family.
6. If this is perused and properly construed, this would amount to a partition only in respect of the cloth business and it would appear to us that as a matter of law, the cloth business thereafter stood partitioned between the two branches of the larger Hindu undivided family with one moiety going to the branch of P. L. Khedkar and another to the branch of N. P. Khedkar. As the branch of P. L. Khedkar would presumably have only the said individual as its sole remaining member, we do not wish to express any opinion as to in what status he was required to be assessed thereafter with regard to (his share in) the cloth business. However, it is very clear that in respect of the house and the other movable properties mentioned in the partition deed, the larger Hindu undivided family, namely, of P. L. Khedkar, still remained in law as the owner of the said properties, and if the said properties (excluding the cloth business) had any income, the said income would be assessable in the hands of the larger Hindu undivided family.
7. We now turn to the second partition deed and that is between Narayan Prahlad Khedkar and Laxmibai Narayan Khedkar and their two minor sons, Sharad and Shirish. Both the sons have, in the matter of the partition, been represented by their father, the said Narayan. The partition deed very clearly pertains only to the amount of Rs. 71,000 received by Narayan as the head of his branch under the earlier partition of the larger Hindu undivided family which, as we have already indicated, was a partial partition in respect of the cloth business only. The deed pertaining to the partition of Narayan's branch records that the four persons had decided to effect a partition of the amount of Rs. 71,000 amongst the four of them and that consent to this course of action had been given on behalf of the minors by their father, Narayan. The deed goes on to record that on such partition, the joint ownership of Rs. 71,000 had come to an end and it further goes on to state that the necessary entries to that effect had been made in the books of the cloth business. This would seem to indicate that in the books of the said cloth business carried on in the name of P. L. Khedkar, the amount of Rs. 71,000 is distributed amongst the four persons and the one-fourth share is shown credited to each of them. At this stage, if the original assessment order passed by the Income-tax Officer is perused, it shows that N. P. Khedkar had income from property and income from interest in addition to the share of profits from P. L. Khedkar. As by the second deed of partition pertaining to the smaller family of N. P. Khedkar, partition had taken place only in respectof the amount of Rs. 71,000, the status of the family of N. P. Khedkar, including the wife and the two minor sons, would not come to an end by reason of the second partition (except in respect of the amount of Rs. 71,000) and the property and interest income would clearly be attributable to the said Hindu undivided family (of N. P. Khedkar).
8. In his return, the assessee declared his status as Hindu undivided family and showed the property income, interest income and his share of profits from the partnership as being part of the said Hindu undivided family. The Income-tax Officer did not apply his mind properly to this aspect of the matter and, in his opinion, all these were required to be assessed as the income of an individual. This was presumably because the Income-tax Officer addressed himself only to the limited contention being advanced before him by the chartered accountant.
9. In our opinion, it is unnecessary to go into the various legal authorities cited before the Tribunal, since it is quite clear to us that there was no full partition in the family of N. P. Khedkar by the second deed of partition dated March 22, 1968, nor did the second partition sever the status of the Hindu undivided family. There was merely a partition in respect of the amount of Rs. 71,000 among the four coparceners, namely, N. P. Khedkar, his wife, Laxmibai, and two minor sons. Thus, there was a Hindu undivided family still continuing to exist which owned certain properties. However, the amount of Rs. 71,000 was divided among the four coparceners and these coparceners would each be entitled to one-fourth equal share in the amount in their individual capacity.
10. We have already held that where the father is a partner in the firm in his status as karta of a Hindu undivided family, then the wife's share as partner in the said firm cannot be clubbed with the income of the husband, since the husband would be a member of the firm not in his individual capacity but in his representative capacity as the karta of the Hindu undivided family. The same principle has to be applied to this case, but we are slightly unsure because of the failure of the Income-tax Officer and the other authorities below to ascertain the full facts. The fact, however, remains and this, in our opinion, is sufficient for us to answer the question referred to us that there was a Hindu undivided family of N. P. Khedkar, though perhaps not of the type he had claimed, namely, of himself and his two minor daughters. Indeed, if the partition deeds had been properly scrutinised, the authorities below, including the Tribunal, would have found that this was a case of partial partition and both the Hindu undivided families continued to exist in law. If N. P. Khedkar could be regarded as being a partner in the cloth business as the karta representing his branch, then the income of the two minor sons cannot be clubbed with his individual income under section 64 of the Income-tax Act, 1961. This is the ratio we have laid down in our decision in Income-tax Reference No. 71 of 1975, decided by us on September 6, 1984 [CIT v. S. K. Thakkar : 154ITR303(Bom) ].
11. In this view of the matter and on the footing indicated above and not exactly on the footing which appealed to the Tribunal, we answer the two questions as under :
' (1) The assessee was required to be assessed in the status of a Hindu undivided family inasmuch as there was no full partition nor cessation of the joint family status by the second partition deed dated March 22, 1968.
(2) On the footing that the Hindu undivided family was being assessed and there was a Hindu undivided family which could be assessed, the income of the minors could not be included in the income of the assessee.'
12. Parties, however, will bear their own costs of the reference.