Satish Chandra, J. - Laxmi Kant Gupta was a partner having 20 per cent share in the firm M/s. Nandoo Ram and sons. He represented his own Hindu Undivided Family in the aforesaid partnership firm. His H.U.F. consisted of himself, his wife and a minor son. On 1st April, 1966, the family members effected a partial partition in the family. The share capital of the family in the aforesaid firm, which stood at Rs. 1,27,699.29 p. was divided into three equal shares. On 11th May, 1966 the members of the H.U.F. executed memorandum of partial partition recording the aforesaid agreement and stating that each of the three members of the family will separately own his or her share in the divided capital as well as share income or loss in the aforesaid firm. The capital standing to the credit of Laxmi Kant Gupta in the books of the firm no loner remained joint but henceforth the share of each member will be his separate and absolute property with effect from 1-4-1966.
2. For the assessment year 1967-68, 1968-69 and 1969-70, Laxmi Kant Gupta claimed that he was liable to be assessed in an individual status in respect of 1/3rd share income from the firm. The Income-tax Officer repelled the submission and brought the entire 20 per cent share income to tax in the hands of Laxmi Kant Gupta. In appeal the Appellate Assistant Commissioner upheld the claim that the family had undergone partial partition in respect of the share income from the firm and so this income could not be taxed in the hands of Hindu Undivided Family as represented by Laxmi Kant Gupta. He however, construed the memorandum of partial partitions to be sub-partnership between the erstwhile members of the Hindu undivided Family thereby making the wife and minor son partners in the firm. It was held that in view of S. 64 of the Act the entire income was includable in the computation of the assessees income.
3. Sri Laxmi Kant Gupta went up to the Tribunal in appeal. The Tribunal upheld the finding that there was a partial partition in respect of the share income from the firm. It, however, held that for existence of a valid partnership it was necessary that a minor should not be included as a partner. On a reading of the memorandum the Tribunal came to the conclusion that the minor was liable for losses in respect of his share. It, therefore, came to the conclusion that the memorandum could not be construed as a valid partnership. In its opinion, after this partial partition the unit of Mr. Gupta, his wife and minor son was in substance an association of persons. S. 64 was not applicable and, therefore, the assessee, viz. Laxmi Kant Gupta was liable to be assessed in respect of only 1/3rd of the share income from the firm. The appeals were consequently allowed.
4. At the instance of the Department, however, the Tribunal has referred the following questions of law for our opinion :-
1. Whether on the facts and in the circumstances of the case on a true and direct interpretation of Memorandum of partial partition and family arrangements executed between Shri Laxmi Kant Gupta, his wife and son on 11.5.66 read with the Cash Book entries dated 30.11.1966 and 31.3.1967 in the books of the H.U.F.the relationship between the parties interest is that of partners ?
2. Whether on the facts and in the circumstances of the case the Tribunal was legally correct in holding that only 1/3rd of 20% of the share income from the firm M/s. Nandoo Ram and Sons was assessable in the hands of Shri Laxmi Kant Gupta ?'
5. Learned counsel for the Department submitted that if on a fair construction of the documents it can be inferred that the minor has not been saddled with the liability of losses to an extent more than his share of the capital, then in law he is not a fulfledged partner but her is deemed only to have been admitted to its benefits. That takes us to the memorandum, which clearly states that the share of 20 per cent in the profit and losses of the said business shall no loner be the income and losses of the joint family but shall be the income and losses of the said members in equal shares. At another place it has been stated that each member has become sole and absolute owner of his or her share in the divided capital and of his or her share of losses in the said firm. There is hence no averment to sustain the proposition that the minor was treated in any different way. There is nothing to indicate that the extent of minors share in losses was limited to his share capital, and that the major members of the family undertook to bear the excess loss. It cannot hence be said that the minor son was treated differently than the major members of the family. So even if we accept the legal aspect of the argument which we have not closely examined ourselves, the factual position is that the memorandum did not validly create a partnership between the members of the family because the minor was treated at a equal footing in respect of profit and losses of the firm.
6. The memorandum reflected the entries made in the cash book and the other books of accounts of the Hindu Undivided Family. In our opinion, the Tribunal was justified in interpretin these documents in holding that the relationship between the parties was not that of partners. It is evident that on this finding not more than 1/3rd share of the income of the firm can be assessed in the hands of Laxmi Kant Gupta, the assessee.
7. In the result, we answer both the questions in favour of the assessee and against the Department. The assessee is entitled to his costs, which we assess at Rs. 200/-.