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Pannabai Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAndhra Pradesh High Court
Decided On
Case NumberReferred Case No. 150 of 1976
Judge
Reported in[1985]153ITR608(AP)
ActsGift Tax Act, 1958 - Sections 2; Income Tax Act, 1961 - Sections 2(31), 47(2), 139(2), 143(2), 143(3), 148, 160 and 161; Wealth Tax Act, 1957 - Sections 3, 14(2) and 17
AppellantPannabai
RespondentCommissioner of Income-tax
Appellant AdvocateNone
Respondent AdvocateM. Suryanarayana Murthy, Adv.
Excerpt:
.....and 161 of income tax act, 1961 and sections 3, 14 (2) and 17 of wealth tax act, 1957 - whether share income derived by assessee from partnership firm can be taxed fully in her hands as representing a body of persons or only 1/7th of share income to be taxed - assessee claimed that on death of her husband she stepped into shoes as partner of firm - while doing so she represented her six minor children also - tribunal held that income tax officer assessed assessee as an 'individual' but correct status would be 'body of individual' and assessment to be modified accordingly - appeal before high court - tribunal should have annulled assessment with liberty to income tax officer to assess income in status of a 'body of individual' if permitted by law - such assessment to be made issuing..........firm can be taxed fully in her hands as representing a body of persons or only 1/7th of the share income which represents her share alone in the share income. 2. the relevant facts are these : one karodimal was a partner in the firm of m/s. mysore khandasari sugar mills, mukthiargunj, hyderabad. he had 30% share in that firm. he died intestate on may 16, 1968, leaving behind him his wife and six minor children. his wife, smt. pannabai, the assessee herein, entered into a partnership agreement with the other partners to continue the business of the firm and she was allotted the same 30% share which her husband held in that firm. some other changes were also made in the constitution of the firm and that is evidenced by a new partnership deed dated may 24, 1968. in the deed, it was.....
Judgment:

Obul Reddi, C.J.

1. The question that arises for our determination is whether the share income derived by the assessee from a partnership firm can be taxed fully in her hands as representing a body of persons or only 1/7th of the share income which represents her share alone in the share income.

2. The relevant facts are these : One Karodimal was a partner in the firm of M/s. Mysore Khandasari Sugar Mills, Mukthiargunj, Hyderabad. He had 30% share in that firm. He died intestate on May 16, 1968, leaving behind him his wife and six minor children. His wife, Smt. Pannabai, the assessee herein, entered into a partnership agreement with the other partners to continue the business of the firm and she was allotted the same 30% share which her husband held in that firm. Some other changes were also made in the constitution of the firm and that is evidenced by a new partnership deed dated May 24, 1968. In the deed, it was mentioned that, after the death of Karodimal, it was decided to continue the business of the firm and that is how the fresh partnership deed came to be executed. For the assessment year 1970-71 with which we are concerned, the share income from that partnership had to be determined. She admitted 1/7th of her share in the firm on the ground that, after the death of her husband, she stepped into his shoes as a partner in the firm and, therefore, she represents her six minor children also, since all of them are the legal heirs of her deceased husband. It was also stated that the entire capital standing in the name of her husband has been left in the firm as capital in her name and that all the seven of them are entitled to 1/7th share each. It is on that ground she claimed that what was assessable in her hands was only 1/7th of the share arising from the firm. The ITO negatived her claim and assessed the entire share income in her hands treating it as income of the assessee. She then preferred an appeal and the AAC dismissed the appeal agreeing with the findings of the ITO. Then she preferred a further appeal to the Tribunal and the Tribunal, while confirming the order of the AAC, however, made the following modification :

'It is no doubt true that the Income-tax Officer assessed the assessee as an individuals, but in our opinion, the correct status would be 'a body of individuals'.'

3. In so holding that the status of the assessee would be that of a body of individuals, the Tribunal followed the decision of this court in Deccan Wine and General Stores v. CIT : [1977]106ITR111(AP) . At the instance of the assessee, the following question was referred to this court for our opinion :

'Whether, on the facts and in the circumstances of the case, the share income derived from the firm can be taxed fully in the hands of the assessee or only 1/7th of the share income representing only her share in the said share income be taxed in her individual hands ?'

4. What Mr. Madhusudan Raj appearing for the assessee contends is that s. 19 of the Hindu Succession Act prescribes the mode of succession when two or more heirs succeed together to the property of an intestate and that, when all the heirs together had succeeded, each having an equal share in the property left behind by the deceased, the Tribunal erred in not assessing the income derived from the firm to the extent of the share of each of the heirs including that of the assessee. The learned counsel has also invited our attention to the following view expressed by Palkhivala in his 'Law and Practice of Income Tax, Sixth edition, vol. I, page 825.

'Where a business is inherited by the widow and minor children of the deceased owner and the widow carries on the business of behalf of herself and of her minor children as their guardian or trustee, the business profits should be assessed on the basis of the portion of the assessable profits falling to the share of each beneficiary and at the individual rates of tax applicable separately to the total income of each beneficiary.'

5. The Tribunal felt bound by the decision of this court in Deccan Wine and General Stores v. CIT : [1977]106ITR111(AP) and directed assessment to be made treating the status of the assessee as body of individuals. According to Mr. Madhusudan Raj, the learned Judges were then dealing with the case of a proprietary concern where the widow was carrying on the business in the common interest of all the heirs for the benefit of all of them by one of them and the present case is not one where the proprietary concern devolved on the heirs, i.e., 'a body of individuals', but a case of partnership where the widow of the deceased had only 1/7th right to the 30% investment made by the deceased. This contention he puts forth on the basis of the claim made by the widow that the entire capital standing in the name of her husband had been left in the firm in the name of the assessee and that the minors were, therefore, entitled to the benefits of it to the extent of 1/7th share each in accordance with the provisions of s. 19 of the Hindu Succession Act. Having regard to the importance of the question and to the fact that a question of this nature is likely to arise quite often and in view of the opinion expressed by Palkhivala in his 'Law and Practice of Income Tax, sixth edition, Vol. I, page 825, we are inclined to refer the question referred for the decision of a Full Bench. Post the reference before a Full Bench of three judges.


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