The division of income among the members of a Hindu undivided family can be effective to divide the assets for Income-tax purposes if the division is genuine and not a sham, and if the division effectively divides the assets in the circumstances of the case.

Judgment

HIDAYATULLAH, J. : This is an appeal with the special leave of this Court against the judgment and order dated February 16, 1955, of the High Court of Bombay in an Income-tax Reference under S. 66 (2) of the Indian Income-tax Act.

2. The appellants are two assessees, Charandas Haridas and Chinubhai Haridas, whose cases are identical and in fact there was a consolidated reference by the Income-tax Appellate Tribunal, which was answered by the High Court by its judgment. The respondents are respectively the Commissioner of Income-tax, Bombay North, Kutch and Saurashtra and the Commissioner of Income-tax, Delhi, Ajmer, Rajasthan and Madhya Bharat. The two appellants represented two units of Hindu undivided families. Charandas Haridas represented his wife, three sons and himself, and Chinubhai Haridas represented his wife, son and himself. In stating the facts relative to the two families, it will not be necessary to give them separately, because the question which was answered by the High Court in the judgment under appeal arose in identical circumstances in the two families. The only difference is in the shares held respectively by the two Hindu undivided families in the managing agencies to be hereafter mentioned. We will, therefore, confine ourselves to a statement of the facts relating to Charandas Haridas only.

3. Charandas Haridas was the Karta of the Hindu undivided family consisting of his wife, three sons and himself. He was a partner in six managing agency firms in six Mills. In previous years, the income received by him as partner in these managing agencies was being assessed as the income of the Hindu undivided family. On December 31, 1945, Charandas Haridas acting for his three minor sons and himself and Shantaben his wife, entered into an oral agreement for a partial partition. By that agreement Charandas Haridas gave a one pie share to his daughter, Pratima, in the managing agency commission from two of the six managing agencies held by the family. The balance together with the shares in the other managing agencies was divided into five equal shares between Charandas Haridas, his wife and sons. This agreement was to come into effect from January 1, 1946, which was the beginning of a fresh accounting year. On September 11, 1946, Charandas Haridas acting for himself and his minor sons, and Shantaben executed a memorandum of partial partition in which the above facts were recited, the document purporting to be a record of what had taken place orally earlier.

4. In the assessment years 1947-1948 and 1948-1949, Charandas Haridas claimed that the income should no longer be treated as the income of the Hindu undivided family but as the separate income of the divided members. The Income-tax Officer declines to treat the income as any but of the Hindu undivided family, and assessed the income as before. An appeal to the Appellate Assistant Commissioner was unsuccessful, and the matter was taken to the Income-tax Appellate Tribunal. The Appellate Tribunal held that by the document in question, the division, if any, was of the income and not of the assets from which the income was derived, inasmuch as "the agreements of the managing agency with the managed Companies did not undergo any change whatever as a result of the alleged partition". The Appellate Tribunal, therefore, held that the arrangement to share the receipts from this source of income was not binding on the Department, if the assets themselves continued to remain joint. It further held that the document was "a farce", and did not save the family from assessment as Hindu undivided family. The Tribunal having declined to state a case under S. 66 (1) of the Indian Income-tax Act, Charandas Haridas moved the Bombay High Court, and obtained an order under S. 66 (2) of the Act. The question on which the case was stated was :

"Whether there were materials to justify the finding of the Tribunal that the income in the share of the commission agency of the Mills was th