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Commissioner of Income-tax Vs. Ram NaraIn and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtPunjab and Haryana High Court
Decided On
Case NumberIncome-tax Reference Nos. 85 to 92 of 1975
Judge
Reported in(1980)18CTR(P& H)221; [1980]126ITR267(P& H)
ActsIncome Tax Act, 1961 - Sections 171
AppellantCommissioner of Income-tax
RespondentRam NaraIn and ors.
Appellant Advocate D.N. Awasthy and; B.K. Jhingan, Advs.
Respondent Advocate S.C. Kapoor, Adv.
Excerpt:
- sections 80 (2) & 89 & punjab motor vehicles rules, 1989, rules 85 & 80: [t.s. thakur, cj, jasbir singh & surya kant, jj] appeal against orders of state or regional transport authority imitation held, a stipulation regarding the period of limitation available for invoking the remedy shall have to be strictly construed. that is because any provision by way of limitation is in the nature of a restraint on the remedy provided under the act. so viewed two inferences are clear viz., (1) sections 80 and 89 of the act read with rule 85 of the rules make it obligatory for the authorities making the order to communicate it to the applicant concerned and (2) the period of limitation for any appeal against the order is reckonable from the date of such communication of the reasons would imply..........preferred appeals to the aac. the assessees claimed that the partial partition in respect of the share income having been accepted by the ito, and each one of the members of the huf having become entitled to 1/5th part of 1/4th share in the firm, the income so derived could not be clubbed. the appeals of the assessees were accepted and it was held that by virtue of the partial partition the share everymember of the family of shri ram narain was determined and, therefore, the shares of all the members could not be clubbed in the hands of the assessee in the status of an association of persons.4. the revenue filed an appeal before the income-tax appellate tribunal, delhi bench (c) (hereinafter referred to as 'the tribunal '). it was pleaded by the revenue that when all the members of the.....
Judgment:

B.S. Dhillon, J.

1. The assessees are Shri Ram Narain and his three sons, Sarvshri Puran Mal, Jage Ram and Chander Bhan. Shri Ram Narain had formed a joint Hindu family consisting of himself, his wife and the said three sons. Shri Ram Narain became a partner in the firm, M/s. Ram Narain Chander Bhan, Rohtak Mandi, having 1/4 th share in his capacity as a karta of his HUF. The assessment years under reference are 1967-68 and 1968-69. On 15th November, 1965, there was a partial partition in the family as a result of which 1/4 th share in the said firm was divided equally between five members of the family, each having 1/5 th share. A memorandum of partition was drawn up on 8th November, 1966, according to which the capital standing to the credit of the family in the books of the said firm was also divided into five shares and thenceforward the amounts which fell to the shares of the four members other than Shri Ram Narain were treated as loans from them. Shri Ram Narain made an application for recognition of this partition under Section 171 of the I.T. Act, 1961 (hereinafter referred to as 'the Act') to the ITO. This application was made during the proceedings for the assessment year 1967-68. The ITO recognised the partial partition, vide his order dated 27th January, 1970, with effect from 8th November, 1966, when the capital was also divided.

2. The assessees filed returns for the assessment years 1967-68 and 1968-69, showing income in respect of their 1/5th part of the 1/4th share from the firm of M/s. Ram Narain Chander Bhan. Each one of the assessees claim-med that he was liable to be assessed in his individual capacity only in respect of 1/5th share of the 1/4th share of income derived from the said firm. The ITO rejected the assessee's claim and assessed each one of them in the status of an association of persons in respect of entire 1/4th share of income from the firm.

3. The assessee preferred appeals to the AAC. The assessees claimed that the partial partition in respect of the share income having been accepted by the ITO, and each one of the members of the HUF having become entitled to 1/5th part of 1/4th share in the firm, the income so derived could not be clubbed. The appeals of the assessees were accepted and it was held that by virtue of the partial partition the share everymember of the family of Shri Ram Narain was determined and, therefore, the shares of all the members could not be clubbed in the hands of the assessee in the status of an association of persons.

4. The revenue filed an appeal before the Income-tax Appellate Tribunal, Delhi Bench (C) (hereinafter referred to as 'the Tribunal '). It was pleaded by the revenue that when all the members of the assessee had agreed to share the income of the firm as a result of partial partition, there was a sub-partnership between them. Therefore, the share of Shri Ram Narain, his wife and three sons were assessable in the hands of Shri Ram Narain under Section 64 of the Act. The contentions of the revenue were repelled by the Tribunal. The Tribunal came to the conclusion that the proper status of each assessee for the purpose of assessment for both the assessment years under reference was that of an individual. The Tribunal negatived the arguments of the departmental representative that there came into existence a sub-partnership in regard to the share income of the firm. The Tribunal also held that the ITO was not competent to assess the assessee in the status of an association of persons when the returns were filed by each one of them as an individual and no notice had been given to file fresh returns as an association of persons. The Tribunal observed that Shri Ram Narain after the partial partition remained a partner of the firm in his individual capacity only.

5. On a reference application being made by the revenue, the following question of law has been referred to this court for its opinion;

' Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding 'that the correct status of each one of the assessees was that of an individual for the assessment years 1967-68 and 1968-69?'

6. After hearing the learned counsel for the parties we are of the opinion that the question of law referred to us has to be answered in the affirmative, i.e., against the revenue and in favour of the assessee. It is not disputed that the partial partition between the members of the HUF of which Shri Ram Narain was the karta, was recognised by the ITO prior to the assessment years in question. Consequently, the 1/4th share income from the firm, M/s. Ram Narain Chander Bhan, was divided equally amongst the five members of the family. The Tribunal recorded a finding of fact and so also it is mentioned in the statement of the case that the capital of the HUF, which was invested in the firm, was divided on 8th November, 1966, and the amounts falling to the shares of the family members of Shri Ram Narain were treated as loans to the firm. Shri Awasthy has challenged this finding of fact and has contended that the reading of the deeds of partition would show that the capital of the HUF was never shown as a loan in the name of the firm. This contention is without any merit. This fact has been mentioned in the statement of the case and so also a finding has been recorded by the Tribunal in its order dated 7th December, 1973. If this statement of fact was not correct, it was for the revenue to have objected to this statement of fact being incorporated in the statement of the case, but no such objection was taken at any stage. It is a fundamental principle of the law of partnership that the relation of partnership arises from contract and not from status. Nothing could be shown to us to show that the partial partition of the share of the HUF in the firm resulted in the existence of a sub-partnership. It is clear in law that as a consequence of partition between the members of the HUF, each member of the HUF gets the share in his own right. We thus do not find any reason to take a view different from the one taken by the AAC and the Tribunal.

7. The contention of Shri Awasthy, that the ITO relied on a confirmatory deed dated 14th November, 1967, to come to the conclusion that the parties could not divide the income of the said share in the said firm at the end of the succeeding accounting years of the firm in equal proportion, which document was not considered either by the AAC or by the Tribunal and, therefore, the finding of fact arrived at by both the authorities are vitiated, is again without any merit. The revenue did not place any reliance on this document either before the AAC or before the Tri bunal. If the AAC or the Tribunal had overlooked a certain piece of evidence, it was for the revenue to have raised the dispute for referring a question of law in that regard to this court. This contention is also, therefore, without any merit.

8. No other contention has been raised.

9. For the reasons recorded above, the question of law referred to us is answered in the affirmative with costs, i.e., against the revenue and in favour of the assessees.

Gokal Chand Mtttal, J.

10. I agree.


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