This is an application under Section 66 (3) of the Indian Income-tax Act.
The Commissioner of Income-tax refused to state a case, The applicants case us that Chhedi Lal and Sons. On the 22nd July, 1934, he executed his last will, under which he gave a half share to his two sons Rikhi Lar and Shyam Sundar, and the other half to his three grandsons, Nand Kishore, Jamuna Prasad and Laxmi Narain, sons of his third son Barati Lal. In 1935 Chhedi Lal died and the legatees became owners of the business. These legatees did not take the property as members of a joint Hindu family but as legatees did not take the property as members of a joint Hindu family but as legatees in specific shares. They continued the business which is still going on. The assessment relates to the income of this business. Till 1937 these legatees did not take any steps to get the business registered under the Income-tax Act. On the 13th January. 1939, they applied for registration of the business under Section 26A of the Act. In February 1939 they had themselves registered under the Companies Act. On the 6th February 1939, an agreement between the alleged partners was filed, and that is the very date when the Income-tax Officer refused registration. Section 26 (1) of the Act makes it clear that the deed must be filed before the making of the assessment, and this it is argued was done.
In our opinion the case is concluded by the provisions of Section 25A of the Income-tax Act read with Section 5 of the Indian Partnership Act. sec. 25A, clause (1), says,
'Where, at the time of making an assessment under Section 23, it is claimed by or on behalf of any member of a Hindu family hitherto assessed as undivided that a partition has taken place among the members of such family, the Income-tax Officer shall make such inquiry thereinto as he may think fit and, if he is satisfied that the joint family property has been partitioned among the various members or groups of members in definite portions he shall record an order to that effect.' Clause (3) runs,
Where such an order has not been passed in respect of a Hindu family hitherto assessed as undivided, such family shall be deemed, for the purposes of this Act, to continue to be a Hindu undivided family.'
In the present case it is admitted that the members of the family are joint in status, but it is claimed that the business was the self-acquired and private property of Chhedi Lal and that he bequeathed it in separate shares to the different members of he joint family, leaving out his son, Barati Lal, who was to receive only maintenance. This contention scarcely seems to be justified on the facts. The designation of the business as Chhedi Lal and Sons seems to indicate that it was a joint family business. But quite apart from this the business has permitted itself to be assessed as a joint family business ever since Chhedi Lals death until the present application for registration. Under clause (3) of Section 25A it must be deemed to continue as a joint family business until an order under Section 25 (1) has been made. Before that can be made there must be a claim by or on behalf of the members of the family that a partition has taken place among them. No such claim was made. The claim made was quite different. It was even during the years when the business was assessed as a joint family business, it was really separate and had been so from the time of their father. No claim that partition has taken place has been made. The presumption raised by clause (3) of Section 25A therefore still remains in force and can only be rebutted by the members getting an order under Sec, clause (1).
The applicants learned Counsel argues that because his clients sent in no return and were therefore assessed ex parte under Sec. 23, Sec. 25-A will not apply and he cities Gopi Nath Naik v. Commissioner of Income-tax, U. P., in support of this proposition. This however, is not what was laid in the above judgment. It relates to inquiries made behind the back of the assessee during the assessment or during the hearing of any proceedings under the Income-tax Act, of which he is a party. In the present case the assessee has full notice of what was being done since the business was assessed for more than one year as a joint family business.
It has furhter been argued that by filing the agreement of partnership on the 6th February 1939, they in fact made a claim that the business was partitioned because no such agreement of partnership can be made unless the partition has been made. This is not so however. Their claim is based on the alleged self-acquired character of the property by Chhedi Lal and not upon any partiton, It follows that since the business must be deemed to be a joint family business under clause (3) of Section 25-A section 5 of the Indian Partnership Act comes into operation and renders this agreement invalid. Section 5 says, 'The relation of partnership arise from contract and not from status; and in particular, the members of a Hindu undivided family carrying on a family business as such are not partners in such business.' It is admitted that the owners of this business are member of joint undivided Hindu family and the business must be deemed under clause (3) to continue to be a joint family business. The Commissioner of Income-tax was therefore justified in refusing to state a case for the consideration of this Court.
We reject this application with costs and fix the fee of the learned Counsel for the Income-tax Department at Rs. 75 with Rs. 3-12 for his clerk.