Judgment

RANGANATH MISRA, J.:- These are assessees appeals by special leave from the common decision of the Madhya Pradesh High Court on the three references made to it under Section 66 of the Income-tax Act, 1922 (Act for short). The year of assessment is 1958-59 corresponding to the accounting year ending with August 28, 1957, One Muralidhar had two sons, Ratanchand and Darbarilal. Ratanchand had two sons, Jaykumar and Abhaykumar, while Darbarilal had one son by name Dhanyakumar. Dhanyakumar in his turn had four sons, namely, Keshavkumar, Prasannakumar, Sunilkumar and Sudhirkumar. Branches of Ratanchand and Darbarilal had long separated. On March 1, 1943, a firm by name M/s. Ratanchand Darbarilal was constituted at Katni with Dhanyakumar and Jaykumar as its partners and these two represented their respective families. The firm carried on business in textile goods and in due course acquired substantial properties out of contributions made by the two Hindu Undivided Families. In 1950, a separate retail shop by name Premier Cloth Stores was opened at Katni by the firm. Similarly, in 1953-54, a branch was opened at Satna for handling cloth business. On November 1, 1956, under a partnership deed, the Satna business was taken over by a firm consisting of three partners, namely, Dhanyakumar, Jaykumar and Abhaykumar and the partnership was deemed to have begun from September 9, 1956. Prasannakumar was admitted to the benefits of the partnership as he was then a minor and the firm business at Satna was run in the, name of Savai Singhai Ratanchand Darbarilal. On April 1, 1957, under, a separate deed the business at Katni both the main as also the branch - was taken over by a firm of four partners, viz., Dhanyakumar, Jaykumar, Abhaykumar and Keshav Kumar. In the partnership deeds of Satna and Katni there was no reference to the business at the other place.

2. Separate applications for registration of the two firms in the assessment year 1958-59 were made. The Income Tax Officer rejected both. In rejecting the application of the firm at Satna with which we are concerned in these appeals, he took the view that the business at Satna was only a branch of the main business at Katni. Against the order of the Income Tax Officer under S. 26A of the Act, the Assessee appealed to the Appellate Assistant Commissioner he upheld the refusal by the Income Tax Officer by holding that some of the members of the two Hindu Undivided Families had been introduced as partners without effecting partial partition of the two families. He also made reference to the capital account which stood in the name of the Hindu Undivided Family and had not been divided. He found that there was a capital account in the name of the Hindu Undivided Family and there were no relevant entries showing partial partition. In regard to the Katni business he also found a similar set of facts. According to him since the members of the firm had previously been assessed in the status of Hindu Undivided Family without effecting a partition some of the members of such Family could not form themselves into partnership firms. The assessee appealed to the Tribunal and maintained that the firm at Satna was genuine and the Satna business was totally separate from the business run at Katni from before; there was no need in law for partial partition of the family before some of the members of the family constituted themselves into a partnership firm. The Tribunal examined the rival contentions at length and came to hold that the Satna business had separate entity and there was sustainable objection against the claim for registration. The tribunal found, inter alia :

"The assessees have effectively separated the business of Stana from the business of Katni and there is no justification whatsoever for treating the two businesses as one single whole. The aspects emphasized by the Income Tax authorities are not such as to justify the clubbing of the two units. There was nothing to stop the Stana Bra