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SUPREME COURT OF INDIA
4th November 1964
K. SUBBA RAO, J.C. SHAH AND S.M. SIKRI, JJ.
The Commissioner of Income-tax, Madras (In all the Appeals), Appellant
Versus
M/s. Bagyalakshmi and Co. Udamalpet (In all the Appeals), Respondent.
Civil Appeals Nos. 1099 to 1101 of 1963.
Advocates appeared
Mr. C. K. Daphtary, Attorney-General, for India (M/s. N. D. Karkhanis and R. N. Sachthey, Advocates, with him), for Appellant; M/s. S. Swaminathan and R. Gopalakrishnan, Advocates, for Respondent.
INCOME TAX - Registration of firm - Cancellation - Partnership deed not showing correct shares of partners - Effect - Hindu undivided family - Partition - Effect on partnership.
Fact of the Case:
The assessee firm was a partnership firm with 6 partners. Two of the partners, Guruswamy Naidu and Venkatasubba Naidu, were members of a Hindu undivided family. The beneficial interest in their shares in the partnership belonged to the family. The family was partitioned and the shares of Guruswamy Naidu and Venkatasubba Naidu were allotted to them and other members of the family. A new partnership deed was executed after the partition, showing the shares of Guruswamy Naidu and Venkatasubba Naidu as per the partition deed. The Income-tax Officer cancelled the registration of the partnership on the ground that the partnership deed did not show the correct shares of the partners.
Finding of the Court:
The High Court held that the partnership was genuine and that the partition in the joint Hindu family did not affect the validity or genuineness of the partnership. The Tribunal went wrong in holding that the registration of the said partnership was rightly refused.
Issues: Whether the cancellation of the registration of the partnership by the Commissioner under S. 33B was lawful.
Ratio Decidendi: A partnership is a creature of contract. A joint family is one of status and right to partition is one of its incidents. The Income-tax law gives the Income-tax Officer a power to assess the income of a person in the manner provided by the Act. Except where there is a specific provision of the Income-tax Act which derogates from any other statutory law or personal law, the provision will have to be considered in the light of the relevant branches of law. A contract of partnership has no concern with the obligation of the partners to others in respect of their shares of profit in the partnership. It only regulates the rights and liabilities of the partners. The partition of the family's beneficial interest in the partnership business has no relevance to the question of registration of the partnership under the Act.
Final Decision: The appeals were dismissed.
Judgment
SUBBA RAO, J.: These appeals raise, though not the same but a similar question on which we have given a decision in Commr. of Income-tax, Ahmedabad v. M/s. Abdul Rahim and Co., Civil Appeal No. 982 of 1963, dated 4-11-1964 : (AIR 1965 SC 1703). The assessee firm was the Managing Agents of Palani Andavar Mills Ltd., Udamlpet. It was originally constituted by a deed of partnership dated June 1, 1934. The following 6 persons were the partners :
(1) G. Venkataswami Naidu . . As. 2.
(2) G. T. Narayanaswamy Naidu . . As. 2.
(3) G. T. Krishnaswamy Naidu . . As. 2.
(4) M. A. Palaniappa Chettiar . . As. 5.
(5) R. Guruswamy Naidu . . As. 2 1/2.
(6) K. Venkatasubba Naidu . . As. 2 1/2.
By subsequent transactions the share of G. Venkataswami Naidu was transferred to his son Vidyasagar and the share of M. A. Palaniappa Chettiar was purchased by R. Guruswamy Naidu, with the result that the 5th Partner. G. Guruswamy, had 71/2 annas share in the partnership instead of 2 1/2 annas share which he held earlier. Guruswamy Naidu and Venkatasubba Naidu, the 5th and 6th partners, belonged to a Hindu undivided family and the beneficial interest of their shares belonged to that family; indeed during the previous years the joint family was assessed in respect of the income pertaining to the said shares. On August 24, 1950, the said Hindu undivided family was divided and a partition deed was executed between the members thereof. Under the deed the ten annas share held by the family was divided as follows :
(1) R. Guruswami Naidu . . As. 2.
(2) Rudrappa (Minor son of No. 1) . . As. 1.
(3) Venkaturamana (Minor son of No. 1) . . As. 1.
(4) Subba Naidu . . As. 2.
(5) Venkatasubba Naidu . . As. 1-4.
(6) Rudrappa Naidu . . As. 1-4.
(7) Jagannatha Naidu . . As. 1-4.
After the said partition, on November 30, 1950, a new partnership deed was executed between the partners of the assessee-firm. Under the said partnership deed the following shares were allotted to each of the partners:
(1) R. Guruswamy Naidu . . As. 7 1/2.
(2) R. Venkatasubba Naidu . . As. 2 1/2.
(3) G. T. Narayanaswamy Naidu . . As. 2.
(4) G. T. Krishnaswamy Naidu . . As. 2.
(5) Vidyasagar . . As. 2.
The point to be noticed is that the beneficial interest in 10 annas share originally belonged to the Hindu undivided family of which Guruswamy Naidu and Venkatasubba Naidu were members. But before and after the partition of the joint family the said two persons, namely, Guruswamy Naidu and Venkatasubba Naidu, were partners of the firm; before the partition the beneficial interest in the 10 annas share was in the undivided family, but after partition the beneficial interest in the partnership was in the divided members of the family including the said two partners. The assessee-firm presented the deed of partnership dated November 30, 1950, before the Income-tax Officer for registration for the assessment years 1952-53, 1953-54 and 1954-55 and was duly registered under S. 26-A of the Indian Income-tax Act 1922, hereinafter called the Act. In due course Guruswamy Naidu and Venkatasubba Naidu were assessed as partners of the assessee-firm on their respective shares as shown in the partnership deed. But the Income-tax Appellate Tribunal, in respect of two of the assessments made on them, accepted their contention and held that they were liable only to pay tax in respect of the shares shown in the partition deed. After the decision of the Tribunal, the Commissioner of Income-tax acting under S. 33B of the Act cancelled the registration of the partnership on the ground that the partnership deed did not show the correct shares of the partners in the partnership. On appeal, the Appellate Tribunal confirmed the order of the Commissioner in respect of the 3 assessment years. At the instance of the assessee firm the following questions of law were referred to the High Court.
(1) Whether the aforesaid order of the Commissioner under S. 33B cancelling the registration of the firm for the three years 1952-53, 1
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