Yiswanatha Sastri, J.
1. This Court by its order in C. M. P No. 3322 of 1945 directed the Appellate Tribunal to state a case raising the following question of law:
'Whether on the facts of the case the sum of Rs. 36,182/- can be assessed to income-tax under Section 4 (1) (b) (iii), Income-tax Act.'
2. It is necessary to state briefly the facts which have given rise to the question of law involved in the case. The assessee Veerappa Chettiar was the junior member of a Hindu undivided family carrying on money-lending business in Colombo, the manager of the family being his elder brother, Pethaperumal Chettiar. The two brothers separated under a partition arrangement evidenced by a registered document dated 19th June 1938. Under this partition arrangement, the elder brother, Pethaperumal Chettiar, took over the entire assets of the Colombo business consisting of its properties, out-standings and the profits that had been earned by the business till then and agreed to pay to his younger brother Veerappa Chettiar, the assessee, a sum of Rs. 2,11,842/- as and for his half share of the family properties including the Colombo business. We have looked into the partition deed itself and we do not find that any detailed calculation was made of the values of the several items of assets constituting the Colombo business; nor was any separate calculation made of the profits that had been earned by the Colombo business upto the date of partition. All that appears is that the entire business, with all its assets and outstandings, was valued at Rs. 4.23,685/-by which Veerappa Chettiar was paid Rs. 2,11,842/-as and for his half share by his elder brother who took over the business for his share. Veerappa Chettiar invested the sum of Rs. 2,11,842/- which had been allotted for his share in the firm of his elder brother at Colombo and the interest which he got therefrom has been assessed to income tax for the year 1939-1940. During the relevant accounting year ending 12-4-1910, the assessee withdrew from the Colombo firm of his elder brother, a sum of Rs. 1,00,000/- and brought it into British India. The Income-tax Officer treated a sum of Rs. 36,182/- out of this sum of Rs. 1,00000/- as the share of profits that had accrued to the assessee at the time of the partition and subjected the same to income-tax under Section 4 (1) (b) (iii), Income-tax Act as the said amount was brought over to British India. On appeal the Appellate Assistant Commissioner set aside the order of the Income-tax Officer. On a further appeal before the Tribunal the finding of the Appellate Assistant Commissioner was reversed and the sum of Rs. 36,182/- was held to be liable to tax. The Tribunal relied for its conclusion on a decision of this Court reported in Commissioner of Income tax, Madras v. An-namalai Chettiar : AIR1944Mad398 .
3. It is argued by the learned Advocate-General for the assesses that the conclusion of the Appellate Tribunal is erroneous and that the decision in Commissioner of Income tax, Madras v. Annamalai Chettiar : AIR1944Mad398 is distinguished from the present case, if not incorrect. It is contended on behalf of the revenue authorities by Mr. Rama Rao Sahib that the accounts of the joint family business prior to the date of the partition showed the receipt of profits to a considerable extent by the joint family business and that these profits must be deemed to have been divided among the two brothers at the time of the partition and that the sum of Rs. 86,182/- brought into British India by the assessee in the year of account must be presumed to be his share of profits of the joint family business allotted to him at the partition. In our opinion the contention of the learned counsel for the Commissioner of Income tax should not prevail.
4. Reliance was placed on behalf of the Revenue authority on the decision of the Judicial Committee in Commissioner of Income-tax, Madras v. Muthukaruppan Chettiar where the facts were that on the dissolution of a partnership business in Ceylon, a portion of the capital of one of the partners resident in British India and his share of the profits were remitted to and received by him in British India and it was held that the profits received in British India were assessable under Section 4 (2), Income, tax Act. This decision, in our opinion, has no application to the case of a partition of joint family properties. The position in respect of a partnership is different. Each of the partners has got a definite share of his own in the capital and profits of the business. On a dissolution of the partnership and distribution of its assets among the partners, it is possible to say how much of the assets re-presented each partner's share of the capital and how much represented his share of the profits. The interest of each partner is a definite and individual interest of his own, and as soon as the profits are declared, there is an obligation on the put of the firm to pay over to each of the partners his share of the profits. Again, in the case of a partnership the drawings of each of the partners would be debited to his account and set-off against the profits declared each year as and for his share and the balance left over, if any, would be paid to him. The account taken on the dissolution of a firm ascertains what is due to the partners for profits and what is due for capital. The sum due to a partner for undrawn profits necessarily remains a debt due by the partners to the partner who has not drawn his share and must necessarily rank before the sums due for capital can be distributed among the partners. In other words, the outgoing partner on dissolution has the right to receive not only a share of the assets but to receive payment of his share of the profits, pro-fits which were his before the dissolution and did not cease to be his on dissolution.
5. The case of an undivided Hindu family stands on an entirely different footing. In the case of a Hindu undivided family no member of the family can predicate that he has a right to any definite share in any item of the joint family property or in the income of the family estate until he gets divided from the family. Till a partition is effected the Hindu undivided family continues to be the owner of the entire property and the income derived therefrom. An undivided family may be represented by the manager, and assessed to income-tax through him. Section 3, Income-tax Act, recognises this position and treats an undivided Hindu family as a 'person' liable to assessment on the total income of the family. Section 14 (1) exempts from tax any sum which a person receives as a member of a Hindu undivided family where such sum has been paid out of the income of the family. Till a partition is effected no member can claim a definite share of the family property or its income and on a partition all that a junior member is entitled to, is a partition of the existing assets and liabilities, without any obligation on the part of the manager of the family to render an account in respect of his past transactions and dealings with the family properties, except when the manager has been guilty of fraudulent malversation or secretion of family funds. On a partition all that a member can claim is an allotment of his proper share of the family estate with reference to the existing assets and the number of coparceners and this allotment may be made in meal or in malt. One sharer may get the landed properties of the family for his share, another may get the outstandings and a third member may get the cash and movables. What is divided at a partition, is the entire family estate consisting of the original family estate with all subsequent accretions to that estate in the shape of income or profits, the whole thing constituting one composite property without allocation to capital or profits. On a partition the sole right of a member of the family is to get an allotment of his share in the assets available after discharging the family debts. For the purpose of ascertaining the assets existing at the date of the partition, it is quite immaterial whether the family possessed them by way of capital or by way of subsequent accretions in the shape of profits. The sums earned by the family as profits might be applied in discharge of capital liabilities and capital assets of the family might be applied in discharge of current liabilities of the family. What is distributed amongst the sharers at the partition is the net residue of the estate after payment of family debts and no artificial dissection of the allotments into capital and profits is necessary and in many cases would be impossible. There is no recital in the partition deed now in question that profits as such have been estimated, ascertained or divided and, as we have pointed out, the entire family assets are treated as one composite fund out of which the assessee has been allotted his half share valued at Rs. 2,11,842/-. In these circumstances, it is impossible to separate and isolate the sum of Rs. 36,182/- as a, profit as distinct from a capital asset and attribute to the assessee the receipt of this sum qua profit. There is no justification for this artificial attribution of profit to the assessee either in law or under the terms of the partition deed now in question. Indeed the allotment of money to the assessee might have been made entirely out of capital.
6. With reference to the case relied upon by the Tribunal Commissioner of Income-tax. Madras v. Annamalai Chettiar : AIR1944Mad398 , it may be stated that it was the converse of the present case. There the assessee was the person who took over the entire assets of the money-lending business including the outstandings and the profits that had accrued up to the date of partition. Thereafter, he brought into British India certain sums of money which were taxed as the accumulated profits of the business in his hands before the date of partition. It may be that the assessee in that case was not in receipt of any profits before the date of partition but it was the undivided Hindu family, of which the assessee was a member, that was in receipt of the profits and that was liable to be assessed to income tax on such profits. All that the assessee in that case did was to get the entire business with all its assets, and outstandings for his share of the family properties at the partition which took place on 28th March 1939. The profits received prior to that date were received by the family and not by the assessee. For the reasons already stated by us, it is open to question whether the allotment of the business assets at the partition was liable to be apportioned as between capital and profit unless there was any such specific provision in the deed of partition. In any case, the learned Chief Justice who was a party to the decision in Commissioner of Income-tax, Madras V. Annamalai Chettiar, I.l.R. (1945) Mad. 125 : A. I. R. 1914 Mad 398 and to the order in C. M. P. No. 3322 of 1945 directing this reference thought that the present case was distinguishable from his previous decision and it is unnecessary to discuss that case any further.
7. For the reasons already stated, we are of the opinion that the answer to the question referred to us must be in the negative and against the Commissioner of Income-tax. The assessee will be entitled to his costs of this reference which we fix at Rs. 250/-.