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Rajmal Paharchand Vs. Commissioner of Income-tax. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtPunjab and Haryana
Decided On
Case NumberCivil Reference No. 1 of 1949
Reported in[1950]18ITR1(P& H)
AppellantRajmal Paharchand
RespondentCommissioner of Income-tax.
Cases ReferredBiradhmal Lodha v. Commissioner of Income
Excerpt:
.....any steps taken to give effect to the partition in respect of the partnership in which the family was a partner as mentioned in the deed of reference dated 31st march, 1943 ?' the income-tax officer found after reman 2 is whether section 25a requires a physical division or is satisfied only by a division in interest. that being so, i am clearly of the view that section 25a(1) requires a physical division of the property before an income-tax officer can pass an order that the joint hindu family property has been partitioned amongst the various members or groups of members in definite portions. even if the arbitrator had not conducted himself in a proper manner or had failed to ascertain the assets and liabilities or the net capital of the business, the fact remains that he partitioned..........the subject-matter of assessment ?(2) whether a reference to arbitration with a view to have the joint family property partitioned in definite portions legally amounts to a partition of the joint family property amongst the various members or groups of members in definite portions within the terms of sections (1), of the act ?'the facts so far as material are that the applicant were assessed as hindu undivided family during the year preceding 1943-44. in the course of the assessment for 1943-44, the applicant made an application under section 25a alleging that a division of the hindu undivided family assets had taken place on 31st march, 1943. they relied on the deed of reference of 31 march, 1943, which recited that so far as the family business and the partnerships in which the.....
Judgment:

HARNAM SINGH, J. - This is a reference made by the Income-tax Appellate Tribunal, Allahabad bench, under section 66(1) of the Income-tax Act. The questions referred for decision to the high court are :

'(1) Whether in the circumstances of the case and in view of the terms of section 25A of the Act, an order under section 25A should have been passed by the Income-tax Officer in respect of the assessment year 1943-44 although the partition the partition on the basis of which the order was claimed took place beyond the year of account, the income from which was the subject-matter of assessment ?

(2) Whether a reference to arbitration with a view to have the joint family property partitioned in definite portions legally amounts to a partition of the joint family property amongst the various members or groups of members in definite portions within the terms of sections (1), of the act ?'

The facts so far as material are that the applicant were assessed as Hindu undivided family during the year preceding 1943-44. In the course of the assessment for 1943-44, the applicant made an application under section 25A alleging that a division of the Hindu undivided family assets had taken place on 31st March, 1943. They relied on the deed of reference of 31 March, 1943, which recited that so far as the family business and the partnerships in which the family was a partner were concerned, necessary division in the books of account had been made on 31st March, 1943. The Income-tax Officer, however rejected the application on the ground that the applicants, books of account did not support the alleged division on 31st March, 1943. The appellate assistant commissioner upheld the order of the Income-tax Officer in view of certain admissions of the applicants contained in their previous application to the effect that the accounts were not complete and adjusted up to the date of the alleged partition. An appeal was filed before the tribunal which found that the Income-tax Officer as well as the appellate assistant commissioner had not applied their minds to determine with reference to the accounts of the partnership firms in which the family was a partner whether the alleged partition was given effect to in respect of them or not and if so when, and that the Income-tax Officer and the appellate assistant commissioner had also not attempted to find out as to when the partition came into force between the members of the family in regard to their business and remanded the case to the Income-tax Officer for a report on the following points :-

'(1) When, if at all, and in what manner was the partition of the business mentioned in the accounts of the firm ?

(2) Were any steps taken to give effect to the partition in respect of the partnership in which the family was a partner as mentioned in the deed of reference dated 31st March, 1943 ?'

The Income-tax Officer found after remand that the partition of the business did not take place on 31st March, 1943, and that no steps were taken to give effect to the partition in respect of the partnership in which the family was a partner. No objections to the findings of the Income-tax Officer reached in the remand report were taken. The Tribunal, therefore, confirmed the findings of the Income-tax Officer holding that the alleged division of the business was not made on 31st March, 1943, but on 19th November 1943, when the partition of the family assets took place under the award. The Tribunal further held that the accounting year of the applicants ended on 31st March, 1943, while the partition of the family assets took place under the award made on 19th November, 1943, and so the applicants were not entitled to an order under section 25A in respect of the assessment year in question.

The questions for determination are whether the Income-tax Officer had jurisdiction to pass an order under section 25A(1) of the Income-tax Act, although the partition on the basis of which the order was claimed took place beyond the year of account, the income from which was the subject-matter of assessment, and whether a reference to arbitration with a view to have the joint family property partitioned in definite portions legally amounts to a partition of the joint family property amongst the various members or groups of members in definite portions within section 25A(1) of the Act.

To my mind the real question to be determined under question No. 2 is whether section 25A requires a physical division or is satisfied only by a division in interest. This very point came up for examination in Gordhand as T. Mangaldas v. Commissioner of Income-tax, Bombay In that case the question referred for decision to the high court was whether on the facts of the case it had been rightly held that the joint family property of the petitioner and his sons had not been partitioned in definite portions within the meaning of section 25A(1) of the Indian Income-tax (Amendment) Act, 1922. The facts giving rise to the question were that down to 3rd July, 1939, there was a Hindu joint family consisting of the father and three sons, and on that date severance took place. The three sons all intimated an unequivocal desire to sever the joint family, and according to the law applicable to Hindu joint families under the Mitakshara system that expression of wish on the part of the sons severed the joint family and as there were only four coparceners, the necessary result was that the shares in the joint family property became divided equally between the four coparceners, who then held as tenants-in-common. But there was no physical division of the joint family property on 3rd July, 1939. On those facts Sir John Beaumont, C. J, said :-

'In my opinion, on the words of section 25A of the Income-tax Act we ought to answer the question put to us in the affirmative, because there had been no physical division of the joint family property. The authorities in India are conflicting and as I read the decision of the Privy Council, although it is not directly in point, it favours the view that a physical division of the property is required.'

KANIA, J. - now the chief justice of the federal court of India-concurred with the opinion expressed by Sir John Beaumont, C.J., in that case.

Mr. Kundan Lal Gosain, counsel for the assessee, contends that though a mere reference to arbitration does not amount to a partition of the joint family property within section 25A(1) of the Income-tax Act, 1922, a reference to arbitration with a view to have the joint family property partitioned in definite portions legally amounts to a partition of the joint family property within the said section. He cites Sher Sing Nathu Ram v. Commissioner of Income-tax, Biradhmal Lodha v. Commissioner of Income-tax and In re Sir Bisesardas Daga. All these cases were cited in support of the proposition advanced in the case in Gordhandas T. Mangaldas v. Commissioner of Income-tax, Bombay, but the Division Bench of the Bombay High Court thought that the decision of the Privy Council in Sir Sundar Singh Majithia v. Commissioner of Income-tax, U. P. and C. P., favoured the view that a physical division of the property was required within Section 25A(1) of the Income-tax Act. Now, in Sir Sundar Singh Majithia v. Commissioner of Income-tax, U. P. and C. P., their Lordships point out that section 25A is directed to the difficulty which arises when an undivided family had received income in the year of account but was no longer in existence as such at the time of assessment, and they point out that the provisions of section 14(1) must be borne in mind in considering the terms of section 25A. Then their Lordships go on :-

'Section 25A deals with the difficulty in two ways, which are explained by the rule, applicable to families governed by the Mitakshara, that by a mere claim of partition a division of interest may be effected among coparceners so as to disrupt the family and put an end to all right of succession by survivorship. It is trite law that the filing of a suit for partition may have this effect though it may take years before the shares of the various parties are determined or partition made by metes and bounds. Meanwhile the family property will belong to the members as it does in a Dayabhaga family-in effect as tenants-in-common. Section 25A provides that if it be found that the family property had been partitioned in definite portions, assessment may be made, notwithstanding section 14(1), on each individual or group in respect of his or its share of the profits made by the undivided family, while holding all the members jointly and severally liable for the total tax. If, however, though the joint Hindu family has come to an end it be found that its property has not been partitioned in definite portions, then the family is to be deemed to continue-that is to be an existent Hindu family upon which assessment can be made on its gains of the previous year.'

In the above passage the Board use the words 'partitioned in definite portions' in contradistinction with the words 'division of interest.' According to the decision of the board a division of interest may disrupt the family and put an end to all rights of succession by survivorship, and thereafter the property will belong to the members as it does in a Dayabhaga family, but a division of interest is not partition in definite portions as is required by section 25A(1) of the Income-tax Act. In my opinion the word 'portion' in section 25A means 'separated share.'

I am fortified in this view by the language used in section 25A(2) of the Income-tax Act. The relevant portion of section 25A(2) reads :-

'Where such an order has been passed under section 25A(1)..... the Income-tax Officer shall make an assessment of the total income received by or on behalf of the joint family.... as if no partition had taken place, and each member or group of members shall, in addition to any income-tax for which he or it may be separately liable and notwithstanding anything contained in sub-section (1) of section 14, be liable for a share of the tax on the income so assessed according to the portion of the joint family property allotted to him or it....'

Now, in sub-section (2) of Section 25A the words 'share' and 'portion' are used in contradistinction with each other and the partition among the various members or groups of members in definite portions contemplated in sub-section (1) of section 25A appears to be a partition in which portions of the joint Hindu family property are allotted to various members or groups of members of that family. That being so, I am clearly of the view that Section 25A(1) requires a physical division of the property before an Income-tax Officer can pass an order that the joint Hindu family property has been partitioned amongst the various members or groups of members in definite portions. The matter has been examined in detail in Gordhandas T. Mangaldas v. Commissioner of Income-tax Bombay, and I do not feel any necessity to reproduce the arguments given by Sir John Beaumont, C.J., and Kania, J. - now the chief justice of the Federal Court of India-in support of the view that they took in that case. I with very great respect follow that decision and hold that a reference to arbitration with a view to have the joint family property partitioned in definite portions does not legally amount to a partition of the joint Hindu family property amongst the various members or groups of members in definite portions within the terms of section 25A, sub-section (1), of the Act. As already mentioned, counsel cited Sher Singh Nathu Ram v. Commissioner of Income-tax, Punjab,Biradhmal Lodha v. Commissioner of Income-tax, Commissioner of income-tax, C. P. and U. P. v. Bansilal Abirchand, and Gulab Singh Johri Mal, in re (No. 1).

In Sher Singh Nathu Ram. v. Commissioner of Income-tax, Punjab, the leading judgment was delivered by Dalip Singh, J. He treated the words 'share' and 'portion' as synonymous and read section 25A as requiring only partition in definite shares. As I have already said sub-section (2) makes a distinction between 'share' and 'portion' and contemplates portions of the joint Hindu family property allotted to the various members or groups of members of that family and, in any case, Sher Singh Nathu Ram v. Commissioner of Income-tax, Punjab, was decided on 19th October, 1934, whereas the Privy Council case to which reference has been made above was decided on 23rd February, 1942.

The facts in Gulab Singh Johri Mal in re (No. 1) were that it was represented by the assessee before the Income-tax Officer that the family property was partitioned between the members of the family in definite portions on 1st March, 1937, by virtue of a private award given by one Lala Janki Nath. the Income-tax Officer was told that a few days after the above-mentioned award the parties appeared before the Magistrate on 19th March, 1937, and made a declaration to the effect that they were separate in status and estate since 1st March 1937, and had been carrying on the business of Gulab Singh Johri Mal since that date as partners with equal shares. The Income-tax Officer held an enquiry under section 25A of the Income-tax act and came to the conclusion that the alleged disruption and division of properties was a mere camouflage and not a genuine transaction. The claim was, therefore, rejected. During the assessment proceedings for the assessment year 1939-40, a fresh claim under section 25A was made and this time the Income-tax officer was told that on 17th August, 1939, a suit was instituted in the court of the Subordinate Judge, First Class, Delhi, for partition and declaration and other reliefs. Upon those facts Din Muhammad and Mehr Chand Mahajan, JJ., said :-

'The whole aspect of the case, however, changed when on 17th August, 1939, the father Banarsi Das instituted a suit against his sons Rameshwar Das and Ishwar Das for partition of the property held jointly by them. It is not disputed that matter was referred to the arbitration of B. Sumat Parshad Jain, nor can it be denied that the award made by him was, on 25th August, 1939, made a rule of the court. This being so, a conclusive evidence of disruption came into existence binding for ever the three persons concerned. They could in no circumstances wriggle out of the situation created by them nor could they plead their own fraud if he would outside relying upon the judicial proceedings refereed to above treated them as separate. These proceedings, therefore, set a seal on this disruption and consequently the Income-tax authorities were not justified in ignoring them on the grounds stated by them. Even if the arbitrator had not conducted himself in a proper manner or had failed to ascertain the assets and liabilities or the net capital of the business, the fact remains that he partitioned the business among the three coparceners and the Court gave effect to this partition. There is ample authority in support of the proposition that such conduct on the part of the coparceners conclusively establishes disruption. In the first place, as remarked by their Lordships of the Privy Council in Sir Sundar Singh Majithia v. Commissioner of Income-tax, members of an undivided Hindu family can legally enter into a partnership in respect of a portion of a joint family property which they have partitioned among themselves. Secondly, again as observed in the same judgment a page 465, it is trite law that the filing of a suit for partition may have this effect though it may take years before the shares of the various parties are determined or partition made by metes and bounds.'

Counsel contends that Din Muhammad and Mahajan, JJ., had laid down that the filing of a suit for partition had the effect contemplated in section 25A(1) of the Income-tax Act, namely, that with effect from the date of the institution of the suit the joint family property shall be deemed to have been partitioned among the various members or groups of members in definite portions. In my opinion, this is not the effect of the Privy Council decision. The passage quoted from page 465 of the report merely says that the filing of a suit for partition may have the effect contemplated in the earlier portion of that judgment, namely, that a division of interest may be effected amongst coparceners so as to disrupt the family and put an end to all right of succession by survivorship. Again, their Lordships of the Privy Council have in express terms pointed out that on such a division of interest the family property will belong to the members as it does in a Dayabhaga family and that the family is to be deemed to continue as joint Hindu family even after the division of interest unless its property has been partitioned in definite portions. That being so, I am of the view that Gulab Singh Johri Mal, In re (No. 1) goes beyond the rule laid down by their Lordships of the Privy Council.

The next case cited in support of the proposition that division of interest satisfied the requirements of section 25A(1) of the Income-tax Act is Biradhmal Lodha v. Commissioner of Income-tax. In that case the point decided was that section 25A did not apply to a partial division of joint family property. That question is not before us, but Niamatullah, J., in the course of his judgment said that a division by metes and bounds was not required for the purpose of Section 25A. The question did not really arise in that case and the case is no authority on the question we have to determine on the construction of section 25A.

Then there is the decision of the Judicial Commissioners Court at Nagpur, In re Sir. Bisesardas Daga in which the court said that they followed the view of the Allahabad high court in Biradhmal Lodha v. Commissioner of Income-tax and considered that section 25A did not demand partition by metes and bounds. In that case in the first place observations in Biradhmal Lodha v. Commissioner of Income-tax were obiter dicta and in the second place, the Commissioner of Income-tax in In re Sir. Bisesardas Daga had admitted that a division by metes and bounds was not necessary.

Further, it has to be borne in mind that when section 25A was amended the words 'that a separation has taken place' were deleted in the amended section. Now, the dropping out of the words 'that a separation has taken place' in the amended act coupled with the retention of the expression 'that the joint family property has been partitioned in definite portions' suggests that what is contemplated is a physical partition of the joint family property and not merely a severance in interest. also, the nature of the partition referred, as 'among the various members or groups of members', in sub-section (1) and the assessability 'according to the portion of the joint family property allotted' in sub-section (2), are more apt to a division by metes and bounds or a physical division rather than a notional division into shares, which takes place on a severance in status.

For all these reasons I am finally of the view that the answer to question No. 2 must be in the negative.

Coming to question No. 1, I find that the real point for determination is whether an order under section 25A should have been passed by the Income-tax Officer although the partition on the basis of which the order was claimed took place beyond the year of account the income from which was the subject matter of assessment. Considerable time was taken to explain the scope of question No. 1 as the meaning of the phrase 'in respect of the assessment year 1943-44' in lines 3 and 4 of the question reproduced in para 1 of this order were not free from doubt. counsel for the parties, however, agreed that the phrase meant no more than 'in the course of the assessment for the year 1943-44.' That being so, the point for decision is whether the Income-tax Officer is precluded from recording an order under section 25A(1), if the partition on the basis of which the order is claimed has taken place beyond the year of account the income from Which was the subject-matter of assessment.

Now, the expression' at the time of making an assessment' stated in section 25a means in the course of the process of assessment. It is not restricted to the time of making the final order determining the assessment. The power of the Income-tax Officer to pass an order under sub-section (1), therefore, arises when at the time of making an assessment under section 23, a claim is made by a member that a partition has taken place but not necessarily during the accounting year. Clearly, a partition after the close of the accounting year may be put forward and is bound to be enquired into by the Income-tax Officer. All that is necessary is that the claim of a partition having taken place is put forth at the time of making the assessment. In this view of the case, the answer to question No. 1 must be in the affirmative.

In the result, I would answer the first question in the affirmative and the second question in the negative. As the parties have partially succeeded, I would leave them to bear their own costs. Counsels fee in these proceedings is at Rs. 200.

FALSHAW, J. - I Agree

Reference answered accordingly.


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