P.D. Mulye, J.
1. The Income-tax Appellate Tribunal, Indore Bench, Indore, at the instance of the assesses, has referred the following questions of law for the opinion of this court, under Section 256(1) of the Income-tax Act, 1961 :
'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that no partial partition of the Hindu undivided family could be legally tenable ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that no genuine firm came into existence and, therefore, the assessee was not entitled to registration ?'
2. The facts giving rise to this petition may be stated, in brief, thus : The assessee, Tulsidas Kundanmal, being a joint Hindu undivided family was assessed in the status of a Hindu undivided family. The assessment years in question are 1973-74, 1975 76 and 1976-77. One Shri Kundanmal was the karta of the said Hindu undivided family A Besides the said karta, the other members of the Hindu undivided family are karta's wife, one major son, Shri Arjundas, and five minor sons. The total strength of the Hindu undivided family thus came to eight. Shri Kundanmal, the karta of the Hindu undivided family, separated himself from the Hindu undivided family on November 1, 1971, by a deed of partial partition dated November 1, 1971, after getting Rs. 5,000 as his share. The Income-tax Officer considered the said partition as curious, unusual and very strange. According to him, a partition may be possible between the karta and his sons but there cannot be a conceivable partition where the wife of the karta gets separated from him and goes alone with the sons as in the instant case. He thought that it is difficult to consider the situation, where the karta himself separates from the Hindu undivided family. The Income-tax Officer, therefore, felt that the old tree falls along with the branches and leaves. The root of the tree is uprooted. The Income-tax Officer, in these circumstances, negatived the assessee's claim of partial partition.
3. The assessee went up in appeal before the Appellate Assistant Commissioner who held that the Income-tax Officer was not, justified in refusing partial partition of the Hindu undivided family. Thereafter, the matter was taken up before the Tribunal by the Revenue which set aside the order of the Appellate Assistant Commissioner and maintained that of the Income-tax Officer.
4. After Shri Kundanmal had relinquished his share by the deed of partial partition from the Hindu undivided family, he formed a partnership firm along with his son, Arjundas, in the name of Kundanmal V. Khatri which came into existence in 1976-77. The registration of the said firm was refused by the Income-tax Officer on the ground that it was not a genuine firm which order was also upheld by the Tribunal. Hence this reference.
5. Learned counsel for the assessee submitted that Section 171 of the Income-tax Act permitted partial partition up to December 31, 1978, as would be clear from Sub-section (9) of Section 171 of the Income-tax Act, 1961. He, therefore, submitted that under the Hindu law, there was no bar for Shri Kundanmal as karta of the Hindu undivided family to relinquish his share and that thereafter his major son, Arjundas, became the karta of the Hindu undivided family who also filed returns of the Hindu undivided family under his signature after 1971. He, therefore, submitted that merely because the wife of Shri Kundanmal chose to remain with her sons and not with her husband would not in any way make the partial partition illegal or not genuine because admittedly the wife was not given any share in that partition. On the contrary, the deed of partitionspecifically mentions that hereafter the joint family would continue to carry on the same business. He, therefore, submitted that the Tribunal was not justified in holding that there was no legal partial partition or that the partnership firm which subsequently came into existence was not genuine. He placed reliance on the decision in Bhagwati Prasad Sah v. Dulhin Rameshwari Kuer, : 2SCR603 wherein it has been held that (at page 74) :
'Except in the case of reunion, the mere fact that separated coparceners choose to live together or act jointly for purposes of business or trade or in their dealings with properties, would not give them the status of coparceners under the Mitakshara law.'
6. He also placed reliance on the decision in Chaudhuri Raghubans Narain Singh v. State of U.P. : AIR1972SC2096 wherein it has been held that (head note) :
'Relinquishment of his rights by one of the members in the property does not result in a general partition in the family.'
7. Similarly he also placed reliance on the Supreme Court decision in Apoorva Shantilal Shah v. CIT : 141ITR558(SC) wherein it has been held that (head note) :
'The father in exercise of his superior right or of his right as patria potestas is entitled to bring about a complete disruption of the joint family and to effect a complete partition of joint family properties of a Hindu joint family consisting of himself and his minor sons even against the wishes of the minor sons. This right which a father enjoys is always expected to be exercised in the best interest of the members of the family and more particularly of his minor sons. It is also now recognised that partial partition of joint family properties is permissible. There is no reason why the father who can bring about a complete partition of the joint family properties between himself and his minor sons, will not be entitled to effect a partial partition of joint family properties between himself and his minor sons, if the father in the interest of the joint family and its members feels that a partial partition of the properties will be in the best interest of the joint family and its members including the minor sons ......
It is not open to the income-tax authorities to consider a partial partition to be invalid on the ground that shares have not been equally divided and to refuse to recognise the same .....
It is undoubtedly open to the Income-tax Officer before recognising the partition, to come to a conclusion on proper scrutiny whether the partition is genuine or not. If the Income-tax Officer on enquiry comes to a finding that the partition is sham or fictitious, he will be perfectly within his right to refuse to recognise the same.'
8. On the same point, he also placed reliance on the decisions in Joint Family of Udayan Chinubhai v. CIT : 63ITR416(SC) M.V.S. KathirveluNadar v. Commr. of Agrl. I.T. : 68ITR786(Mad) ; and Hari Raj Swamp v. State of UP. : 77ITR853(All) .
9. Learned counsel, therefore, contended that there was no material before the Income-tax Officer or Tribunal to come to a conclusion that the partial partition was not genuine or legal. He, therefore, submitted that under the Hindu law, there was no legal bar even if the wife remained with her sons instead of remaining with her husband and her residence alone would not be a deciding factor to come to a conclusion that the said partial partition is not, genuine or legal. He further submitted that the partial partition effected in 1971 has been acted upon and the eldest son, Arjundas, has been submitting returns of the Hindu undivided family, Tulsidas Kundanrnal under his signature. Therefore, there is nothing to doubt that after the relinquishment of Kundanmal, the Hindu undivided family ceased to exist. He, therefore, submitted that, the Tribunal has not properly considered the provisions of the Hindu law and consequently the first question referred to this court for its opinion should be answered in favour of the assessee and against the Department.
10. So far as the second question is concerned, he submitted that Kundanmal entered into partnership with his son, Arjundas, in 1976-77 arid there is nothing on record to indicate that this partnership is not genuine or bogus or a benami one and in support of his submission on this point, he placed reliance on the decision in Ramchand Nawalrai v. CIT : 130ITR826(MP) wherein it has been held that (head note) :
'The karta of a Hindu undivided family can enter into a partnership with a member of the Hindu undivided family who contributes his individual property.
A coparcener has freedom of contract like a stranger in respect of his individual property not acquired with the aid of or by any detriment to the Hindu undivided family property and, like a stranger, he can enter into a partnership with the karta by contributing his separate property. Just as a coparcener is free to use his individual property, he is free to use his skill and labour. He can enter into a contract in respect of his skill and labour with a third person. He may even enter into a partnership with a third person by only contributing his skill and labour. In the same manner, a coparcener can enter into a partnership with the karta of his Hindu undivided family by contributing his skill and labour instead of his separate property.
If a coparcener becomes a working partner in a partnership with the karta and gets a share in the profits in consideration of the skill and labour contributed by him, his share in the profits would be his separate property for, the profits coming to his share would be directly related to his skill and labour and not to the investments of the Hindu undivided family funds in the business.'
11. He, therefore, urged that in the absence of any material to doubt the genuineness of the said partnership firm, the Tribunal was not justified in refusing to register the said firm under the Income-tax Act.
12. As against this, learned counsel for the Revenue submitted that the decision of the question referred to entirely rests on questions of fact which have been considered by the Income-tax Officer as well as the Tribunal and consequently no interference therewith is called for and in support of his submission, he placed reliance on the decisions in E. A. K T. Sundararaj v. CIT : 95ITR454(Mad) and Mukhi Mulchand Sitaldas v. CIT : 115ITR227(MP) . But, in our opinion, these decisions are distinguishable on facts as in those cases, there was evidence regarding questions of material and relevant facts to negative or doubt the bona fides of the partnership firm which is not the case here as the material on record does not create any doubt regarding the existence of a genuine and bona fide partnership firm.
13. Learned counsel for the Revenue further submitted that the Tribunal has not expressed any opinion regarding question No. 2 which is referred to this court for its opinion. It is no doubt true that the Tribunal is silent on this point but it is not in dispute that the decision on question No. 2 depends on the decision on question No. 1. If question No. 1 has to be answered in favour of the assessee and against the Department, the answer to question No. 2 has also to be similarly in favour of the assessee and against the Department.
14. Thus, after hearing learned counsel and after going through the case law, the position under the Hindu law regarding partition being quite clear, we are of the opinion that the reference has to be answered in favour of the assessee and against the Department in respect of both the questions. Our answer to questions Nos. 1 and No. 2, therefore, is in favour of the assessee and against the Department. The reference is answered accordingly. No order as to costs.