Skip to content


Commissioner of Income-tax Vs. Sakina Bai Ibrahim and Sons - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case Nos. 859 and 860 of 1979 (Reference Nos. 529 and 530 of 1979)
Judge
Reported in[1985]154ITR540(Mad)
ActsIncome Tax Act, 1961 - Sections 148
AppellantCommissioner of Income-tax
RespondentSakina Bai Ibrahim and Sons
Appellant AdvocateJ. Jayaraman, Adv.
Respondent AdvocateP. Srinivasa Iyengar, Adv.
Cases ReferredMunuswami Chettiar v. Narasimhalu Chettiar
Excerpt:
.....- income from such firm cannot be assessed as income from unregistered firm. - - thereunder, begum sakina bai and the sons as well as the daughters of deceased taharally sarafally on april 26, 1951, begum sakina bai had been taken in and treated as a partner in his place entitled to the share of the deceased taharally sarafally in the firm of m/s. 3. the learned counsel for the revenue contended that on the terms of the agreement dated april 15, 1963, the existence of a sub-partnership among the parties thereto had been clearly made out and, therefore, no exception could be taken to the assessment of the income in the status of an unregistered firm. such an agreement whereunder provision is made for sharing the profits earned by a partner in a firm by that partner as well as by..........one-third share therein. on his death on april 26, 1951, a fresh partnership deed was executed and begum sakina bai, wife of taharally sarafally, was take in as a partner in place of her deceased husband and was also given her deceased husband's one-third share in the partnership. at the time of the death of taharally sarafally, he had also left behind him two sons and three daughters, besides his widow and all the children were minors. though originally all the heris of the deceased taharally sarafally were agreed to be taken in as partners in his place in the firm of m/s. abbasbhoy taharally & company, ultimately begum sakina bai along was taken in as a partner, as the other heirs were all minors. when the sons and daughter of taharally sarafally attained majority, on april 15, 1963,.....
Judgment:

Ratnam, J.

1. In these tax cases, the following common question for the assessment years 1970-71 and 1971-72 has been referred by the Tribunal at the instance of the Revenue under s. 256(2) of the I.T. Act, 1961 (hereinafter referred to as 'the Act') :

'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in confirming the order of the Appellate Assistant Commissioner cancelling the assessment made on the assessee in the status of an unregistered firm ?'

2. One Taharally Sarafally was a partner of M/s. Abbasbhoy Taharally & Company, having a one-third share therein. On his death on April 26, 1951, a fresh partnership deed was executed and Begum Sakina Bai, wife of Taharally Sarafally, was take in as a partner in place of her deceased husband and was also given her deceased husband's one-third share in the partnership. At the time of the death of Taharally Sarafally, he had also left behind him two sons and three daughters, besides his widow and all the children were minors. Though originally all the heris of the deceased Taharally Sarafally were agreed to be taken in as partners in his place in the firm of M/s. Abbasbhoy Taharally & Company, ultimately Begum Sakina Bai along was taken in as a partner, as the other heirs were all minors. When the sons and daughter of Taharally sarafally attained majority, on April 15, 1963, they entered into an agreement with reference to the one-third share of the deceased Taharally Sarafally in the firm of M/s. Abbasbhoy Taharally & Company. Thereunder, Begum Sakina Bai and the sons as well as the daughters of deceased Taharally Sarafally on April 26, 1951, Begum Sakina Bai had been taken in and treated as a partner in his place entitled to the share of the deceased Taharally Sarafally in the firm of M/s. Abbasbhoy Taharally & Company, that she did so representing the heirs of Taharally Sarafally & Company belonged always to the heirs in their definite and ascertained shares under their personal law, that Begum Sakina Bai was entitled to a one-eight share and that the two sons were each entitled was entitled to a one-fourth share and the three daughters were each entitled to a 7/56th share therein and that as and when the amounts standing to the credit Begum Sakina Bai in the books of M/s. Abbasbhoy Taharally & Company were paid by the firm, that amount shall be distributed and divided amongst all the heirs according to their shares as mentioned above. For the assessment years 1970-71 and 1971-72, the ITO took the view that the affirmant created a sub-partnership between Begum Sakina Bai and her children to share the share income occurring to Begum Sakina Bai from M/s. Abbasbhoy Taharally & Company and this income should be assessed in the status of an unregistered firm and accordingly assessed the same. On appeal, the AAC found that the assessment had not been completed after a due investigation and collection of the relevant materials therefor, that the mere circumstances that pursuant to a notice under s. 148 of the Act, the assessee filed a return claiming that the share income of M/s. Abbasbhoy Taharally & Company should be assessed in the status of an unregistered firm consisting of Begum Sakina Bai and her two sons and three daughters would not justify the assessment in the name of an alleged firm, which had been presumed to exist and, therefore, the assessment orders were unsustainable. Aggrieved by that, the Revenue preferred appeals before the Tribunal contending that Begum Sakina Bai, a partner in the firm of M/s. Abbasbhoy & Company, had entered intone agreement with certain others to divide her share income with them and that established the existence of sub-partnership consisting of Begum Sakina Bai, her two sons an three daughters justifying the assessment made by the ITO. The Tribunal took the view that merely on the basis of a return filed by the assessee on a mistaken notion that assessment can be made in the status of an unregistered firm, no order could be passed to that effect, especially when there had been no material to establish a sub-partnership as such and no investigation at all whether by such an agreement a superior title was created and there was diversion of the share income from the main firm, M/s. Abbasbhoy Taharally & Company. In that view, the Tribunal sustained the orders passed by the AAC and dismissed the appeals.

3. The learned counsel for the Revenue contended that on the terms of the agreement dated April 15, 1963, the existence of a sub-partnership among the parties thereto had been clearly made out and, therefore, no exception could be taken to the assessment of the income in the status of an unregistered firm. Reliance in this connection was placed by the learned counsel upon the decisions in Murlidhar Himatsingka v. CIT : [1966]62ITR323(SC) , CIT v. Mahendrasingh Mohansingh : [1980]123ITR938(Guj) , Munuswami Chettiar v. Narasimhalu Chettiar : (1958)2MLJ233 , Addl, CIT v. Chandulal C. : [1977]107ITR91(Guj) , Shiv Narain Agarwal v. CIT : [1983]139ITR999(All) and Kamath & Co. v. CIT : [1971]82ITR680(SC) . On the other hand, the learned counsel for the assessee submitted that under the agreement dated April 15, 1963, the share income of Begum Sakina Bai in the firm of M/s. Abbasbhoy Thharally &Company; was not agreed to be dealt with and divided among the parties thereto, but that the agreement merely reiterated and declared the rights of the parties thereto which had already devolved on them, as sharers, according to the personal law governing the parties and that no new rights in favour of others, in the one-third share of Begum Sakina Bai, were created under the agreement. The learned counsel further submitted that there is no sub-partnership at all made out and no question, therefore, of an assessment in the status of an unregistered firm arose.

4. In order to appreciate these rival contentions, it would be first necessary to refer to the terms of the agreement and then consider the legal effect thereof. Annexure 'A' to the statement of the case contains the agreement entered into between Begum Sakina Bai and her two sons and three daughters on April 15, 1963. In the preamble portion of the agreement, it is stated that Taharally Sarafally was a partner of the firm, M/s. Abbasbhoy Taharally & Company, and that on his death on April 26, 1951, leaving behind him the parties to the agreement as his heirs and representatives under the Mohamedan law, all of them because entitled to their definite and ascertained shares under the Koranic law in the share of Taharally Sarafally in the firm andd the amounts due to him from the firm. The agreement proceeds to further state that the surviving partners of M/s. Abbasbhoy Taharally & Company had agreed to take in all the heirs of the deceased Taharally Sarafally as partners, but subsequently decided only to take in Begum Sakina Bai as a partner and that she was treated as a partner in the firm of M/s. Abbasbhoy Taharally & Company, as representing the share of Taharally Sarafally and that the entire amount which stood to the credit of Taharally Sarafally in the books of account of M/s. Abbasbhoy Taharally & Company was transferred to the account of Begum Sakina Bai. There is a further reference in the preamble to the shares of the parties thereto and the need to record such shares in order to avoid misunderstanding in the family in the future. In the body of the agreement, it is recited that after the death of Taharally Sarafally, Begum Sakina Bai was treated as a partner in the place of and entitled to the share of said Taharally Sarafally in the firm of M/s. Abbasbhoy Taharally & Company and that Begum Sakina Bai continued as a partner in the firm of M/s. Abbasbhoy Taharally & Company as representing the heirs of the deceased Taharally Sarafally whose interests in the firm of M/s. Abbasbhoy Taharally & Company continued with the firm as before. A further provision in the agreement is to the effect that the amounts in the capital and current accounts standing to the credit of Begum Sakina Bai in the firm of M/s. Abbasbhoy Taharally & Company belonged always to the parties to the agreement according to their defined and ascertained shares under the personal law of the parties and that as and when the amounts were paid to Begum Sakina Bai by M/s. Abbasbhoy Taharally & Company, those amounts shall be distributed and divided amongst all the parties according to their share mentioned in the agreement. A consideration of the terms of the agreement entered into between Begum Sakina Bai and her children does not establish an agreement by Begum Sakina Bai to divide her share of the profits in the firm with the other parties to the agreement. A sub-partnership is a partnership within a partnership. The vital requirement of a partnership is an agreement. If a partner agrees to share the profits derived by him or her from a firm with a stranger or even with his or her children, by reason of such an agreement, the strangers or his or her children do not become partners in the firm. Such an agreement whereunder provision is made for sharing the profits earned by a partner in a firm by that partner as well as by others, be they strangers or relations, would constitute a sub-partnership, bringing into existence the relationship of partner inter se amongst them, without in any manner affecting the partners of the firm. Essentially, therefore, a sub-partnership has its origin in and is traceable to an agreement, whereunder, one of the parties to the agreement, who is already a partner in a firm and is in receipt of a share of profits, agrees to divide or share such profits with the other parties to the agreement. Rights in a sub-partnership are thus referable to and based on contract only. It is difficult on the terms of the agreement in this case to spell out a sub-partnership as normally understood and recognises. No doubt, there is a reference to Begum Sakina Bai having taken the place of her deceased husband, Taharally Sarafally, in the firm of M/s. Abbasbhoy Taharally & Company, in which he was a partner during his lifetime. The agreement does not, however, purport to provide for the division of the share income of Begum Sakina Bai, which, in law, she is entitled to receive as a partner in the firm of M/s. Abbasbhoy Taharally & Company. On the contrary, Begum Sakina Bai is not the only person who was entitled to the share of the deceased Taharally Sarafally in the firm of M/s. Abbasbhoy Taharally & Company, as on his death, Begum Sakina Bai, her two sons and three daughters, all of them together became entitled to shares therein under the Muslim law which governs them. In other words, under the terms of the agreement, the shares to which the parties to the agreement became entitled to the share of the deceased Taharally Sarafally in the firm of M/s. Abbasbhoy Taharally & Company on his death in accordance with their personal law, were merely declared and reiterated . The rights referred to under the agreement were not created thereunder with reference to the share of Begum Sakina Bai in the firm of M/s. Abbasbhoy Taharally & Company. The agreement had merely proceeded to declare the rights of the parties which had already devolved on them in accordance with the personal law governing the parties with reference to the share of Taharallyy Sarafally on his death on April 26, 1951. Clearly, therefore, in this case, one of the essential requirement of a sub-partnership, namely, agreement to share the profits of one of the partners with others, is absent. The terms of the agreement do not spell out a partnership between Begum Sakina Bai and her children, as there is no agreement between Begum Sakina Bai and her children to share the profits received or losses suffered by Begum Sakina Bai in the firm of M/s. Abbasbhoy Taharally & Company. This clearly negatives an agreement between Begum Sakina Bai and her children to to divide the profits or losses referable to her share in the firm. We are, therefore, of the view that, on the facts and in the circumstances of this case, no sub-partnership has been made out. Inasmuch as we have considered the question referred to us on the basis of the terms of the agreement entered into between the parties, it is unnecessary to deal with the decisions relating to sub-partnership and the effect thereof relied on by the learned counsel for the Revenue.

5. On a careful consideration of the terms of the agreement dated April 15, 1963, we are of the view that the Tribunal was right in its conclusion that no assessment can be made in respect of the share income from the firm of M/s. Abbasbhoy Taharally & Company in the status of an unregistered firm. We, therefore, answer the question in the affirmative and against the Revenue. The Revenue will pay the costs of the reference to the assessee. Counsel's fee Rs. 500 (one set).


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //