CHAKRAVARTTI, J. - This is a reference under Section 66 (1) of the Indian Income-tax Act, read with Section 21 of the Excess Profits Tax Act, by which the following question of law has been referred to this Court for its opinion :- 'Whether on the facts and circumstances of the case, there is a change in the persons carrying on the business, within the meaning of Section 8 (1) of the Excess Profits Act, 1940, with effect from 14th April, 1943, when the business, which had previously been carried on by a partnership between two Dayabhaga Hindu undivided families, was carried on by a partnership between the separated male members of the two families ?'
The facts incorporated in the question itself are (1) that a business was being carried on by a partnership composed of two partners each of which was a Hindu undivided family governed by the Dayabhaga School of Hindu law; (2) that there was a disruption of both the families and (3) that on and after such disruption the business was carried on by a partnership composed of the members of the two quondam families. In order to decide whether in those circumstances there was a 'change in the persons carrying on a business' within the meaning of Section 8 (1) of the Excess Profits Tax Act, reference to no further facts is necessary. But in order that we may not appear to be deciding an abstract question of law, I may set out the actual facts of the case as found by the Tribunal. They are as follows :-
The business concerned is one carried on in the name and style of Messrs. Khetra Mohan Sannyasi Charan Sadhukhan. It is carried on by a firm. Upto the 13th April, 1943, the firm was a partnership constituted of two partners, one of which was the Hindu undivided family, consisting of the four sons of Khetra Mohan and the other Hindu undivided family, consisting of the four sons of Sannyasi Charan. The families are governed by the Dayabhaga School of Hindu law and the sons of Khetra Mohan and Sannyasi Charan were all adults. On the 14th April, 1943, there was a disruption of both the families and thereupon the said sons of Khetra Mohan and Sannyasi Charan, eight persons in all, formed themselves into a partnership of eight members and thenceforward the business was carried on by this partnership. In short there was a partnership of two Hindu undivided families and the question is whether in those circumstances the persons carrying on the business remained the same or there was a change in the persons carrying on the business. The assessee before us is the firm composed of eight persons.
It appears that in the chargeable accounting period ending on the 13th April, 1943, there was a deficiency of profits in the business. The amount does not appear from the paper-book, but we were told that it was Rs. 84,388. In its assessments for the chargeable accounting periods ending on the 13th April, 1944, the 13th April, 1945, and the 31st March, 1946, respectively, the assessee firm claimed that it was entitled to carry forward the deficiency which had occurred prior to the 14th April, 1943, and to set if off against the profits of the subsequent chargeable accounting periods. That claim was disallowed by the Excess Profits Tax Officer on the ground that since the 14th April, 1943, the business had become a new business, carried to carry forward the deficiency of the old firm. The decision of the Excess Profits Tax Officer was upheld on appeal by the Appellate Assistant Commissioner and also by the Appellate Tribunal. Thereafter, the present reference was asked for and made.
Before us, an attempt was made on behalf of the assessee to go behind the finding of fact arrived at by the Tribunal and to induce us to hold that actually, even before the 14th April, 1943, the business was carried on by a partnership of the members of the two families and not by a partnership of the two families, as held by the Tribunal. I that was the true state of facts, no question of law would arise at all and the assessee ought to have contained a reference of a question as to whether there was any evidence before the Tribunal on which it would properly hold that before the 14th April, 1943, the partners of the firm were the two families. A question of that kind appears to have been proposed in the application for a reference, but it was not referred by the Tribunal and is not before us. It appears further that it was not till the first time in the course of a narration of 'additional facts' which were said to be necessary for the purposes of the application, and the respondent Commissioner of Excess Profits Tax naturally objected to the attempt to raise a new question. In any event, we are bound to proceed on the facts as stated in the statement of the case, on the basis of which alone the question of law referred to us had been formulated. The finding as to the constitution of the firm before the 14th April, 1943, is supported in the statement of the case by abundant materials, but it is placed beyond all doubt and controversy by the recital of the history of the firm contained in the deed of the new partnership, dated the 28th December, 1944, which the Tribunal says, was not traceable in the records at the time of the drawing up of the reference, but which the assessee produced before us. But, as I have already stated, we are not required, not is it open to us, to examine any findings of fact and I need not therefore refer further to the evidence in the case.
Turning now to the question of law referred, it has arisen because under Section 7 of the Excess Profits Tax Act a deficiency of profits occurring in any business in any chargeable accounting period can be carried forward to be set off against the profits of subsequent chargeable accounting periods of that business, but Section 8 (1) provides that if a change occurs in the persons carrying on the business, a new business shall be deemed to have commenced the result being that the privilege of carrying forward the deficiency shall cease to be available. The latter section is in the following terms :-
'8. (1) As from the date of any change in the persons carrying on a business, the business shall, subject to the provisions of this section, be deemed for all the purposes of this Act except for the purposes of determining the amount of the statutory percentage to have been discontinued, and a new business to have commenced.'
Although the provisions of this clause are subject to the provisions of the other clauses of the section, it is not necessary to consider that limitation, because there is nothing in the other clauses which bears in any manner on the question we have to determine in the present case.
It will be observed that the only question to be determined under the section is whether a change occurred in the persons carrying on the business. If a change did our, it is not necessary to enquiry further whether the change was such that its effect actually was to bring about a discontinuance of the old business and the commencement of a new one. Under the section, that shall be deemed to have followed, whether in fact it followed or not.
On the findings of the Tribunal, the persons carrying on the business upto the 13th April, 1943, were two in number and they were the two undivided families. A Hindu undivided family is a 'person' under the Excess Profits Tax Act [See Section 2(17)]. Since the 14th April, 1943, the persons carrying on the business are eight in number and they are the eight individuals who were members of the said families before their disruption. A Hindu undivided family is itself an assessable unit and is an entirely different entity, in the contemplation of the Act, from the persons composing it. It is thus unarguable that when the families break up and the old partnership between the two families were replaced by the new partnership between the members, no change in the persons carrying on the business occurred.
Nor can it be said that even when there was a so-called partnership between the two families, such partnership was, in law, a partnership between all the members. That contention was sought to be raised, but there are two answers to it, each of them conclusive. The contention would be feasible if a partnership between two Hindu joint families were not possible in law and if such a partnership entered into by the kartas of the two families meant and involved a partnership between all the members of the families concerned. But in the case of P. K. P. S. Pichappa Chettiar v. Chokalingam Pillai the Judicial Committee quoted with approval a passage from Maynes Hindu Law to the effect that when a managing member of a joint family entered into a partnership with a stranger, the other members of the family did not a partnership with a stranger, the other members of the family did not ipso facto become partners in the business, but only such of the members became partners as in fact entered into a contractual relationship with the stranger. In the present case, each family was a stranger to the other and unless the assessee would prove that all the members of the two families had individually become members of the old firm, which it has not done and which the Tribunal has not found, it is not possible for it to contend that all the eight persons were as much members of the old partnership as they are of the new. On the other hand, it appears from the statement of the case and the appellate order of the Tribunal that the assessee itself put its case on the basis that the original partnership was entered into by the kartas of the two families and that circumstance, in my view, furnishes the second answer to its present contention. In the case of Lachman Das v. Commissioner of Income-tax, Punjab, it was held by the Judicial Committee that there could be a valid partnership between the karta of a Hindu joint family, as representing the undivided family, on the one hand and a member of that family in his individual capacity on the other and the reason given was that the authorities proved that a partnership of a family with a stranger could be validly formed (see page 284 of the report in the Indian Appeals). It was further observed that though a joint Hindu family might be, in its nature, fleeting and transitory, 'it has been regarded as capable of entering, through the agency of its karta, into dealings with others' and that for the purposes of such a transaction as a contract of partnership, effected through the medium of its karta, it had been, for a long time past, 'regarded as an entity capable of being represented by its manager.' The finding of the Tribunal in the present case therefore means in the light of the case made by the assessee itself, that there was a partnership between the two families, each represented by its karta. It is true that in Pichappa Chettiars case, which was referred to in the case of Lachman Das, the question whether a Hindu family as such could enter into a partnership was left open. But sufficient was said in a former case to lay it down as the law that the members of a joint family did not automatically become partners when its karta entered into a partnership with a stranger and in the latter case to lay it down that a joint family, as represented by its karta, could enter into a partnership or at least a karta, as representing his joint family, could do so. A valid partnership entered into by a karta, as representing his joint family, is thus possible and such partnership does not extend to the members of the family. On the finding of the Tribunal, therefore, the partnership before the 14th April, 1943, was no more than a partnership between the two families, represented by their respective kartas, and the contention of the assessee that its present partners, the members of the families, were all partners before the 14th April, 1943, as well, must be rejected.
There is an impressive array of authorities under the Income-tax Act for the proposition that when a Hindu undivided family, carrying on a business, is disrupted and the separated members form themselves into a partnership to carry on the business, there is a succession of the person carrying on the business by another person within the meaning of Sections 25 (4) and 26 (2) of the Act : Kotha Govindarajulu Chettiar v. Commissioner of Income-tax, Madras; Ram Rakha Mal & Sons Ltd. v. Commissioner of Income-tax, Madras; and In re Jugal Kishore Mukhat Lal. The principle of these decisions and the reasoning by which it was arrived at would apply equally to the present question under Section 8 (1) of the Excess Profits Tax Act. If when a business carried on by a joint family is, on its disruption, taken over and carried on by a partnership constituted of the separated members, there is a succession of one person by another, equally there is such a succession when a business carried on by a partnership of two families, represented by their respective kartas is taken over and continued by a partnership of the separated members of the two families, when the families break up. If the change from the family or families to the members is a succession of one person by another, there is clearly a change in the persons carrying on the business.
The view I have expressed above is in accordance with the decision in the case of M. V. Shanmugavel Nadar & Sons v. Commissioner of Income-tax, Madras, with which I respectfully agree.
In the question referred to us, there is a mention of the fact that the families in the present case are governed by the Dayabhaga School of Hindu law. No argument based on that circumstance was addressed to us and I do not see that so far as the present question is concerned, the fact that the families are governed by the Dayabhaga and not the Mitakshara School makes any difference. The Hindu undivided family, contemplated by the Income-tax Act, is not the family of any particular school of Hindu law, but an entity referable to all schools : (Kalyanji Vithaldas v. Commissioner of Income-tax, Bengal). The same must obviously be the position under the Excess Profits Tax Act as well, since that also is an all-India Statute of general application. Besides, so far as the powers of the Karta are concerned, they are the same under both the schools, at least in regard to matters such as entering into business partnerships with strangers; and if anything, when a karta enters into such a partnership, there is less reason for saying in the case of a Dayabhaga karta that, by his act, all the members of the family become partners, because under the Dayabhaga, there is only unity of possession but no unity of ownership. Reference in this connection may be made to Maynes Hindu Law, 17th Edition, p. 369.
For the reasons given above, I am of opinion that the answer to the question referred should be in the affirmative.
The Commissioner of Excess Profits Tax, West Bengal, is entitled to the costs of this reference and will have them.
DAS GUPTA, J. - I agree.
Reference answered in the affirmative.