JUDGEMENT

Appeal (No. 31 of 1940) from a judgment of the High Court (March 9, 1938).

The following facts are taken from the judgment of the Judicial Committee This was an appeal by the assessees from a judgment of the High Court at Allahabad on a reference made under sub-s. 2 of s. 66 of the Indian Income-tax Act, 1922. The question referred arose out of an assessment made for the year 1932-3 on the profits of a business carried on under the style of "The Saraiyar Sugar Factory" at Saraiyar, in the district of Gorakpur in the United Provinces. The year of account was the year ending September 30, 1931, in accordance with the accounting practice of the assessees. The matter of substance in the present dispute was whether the assessment should be made on the footing that the business belonged to a Hindu undivided family or on the footing that it belonged to a firm of which the

father, mother and three sons were partners on the terms of a written instrument, dated February 12, 1933. The family were Sher Gill Jats of the Amritsar district of the Punjab. It was not disputed that they formed a Hindu undivided family, but with them the general Hindu law was superseded by custom which provided special rules on many points of family law. The present appeal was brought by Sir Sundar Singh Majithia as father and head of the family, but he had since died and the sons were now the appellants.

The written instrument, dated February 12, 1933, described itself as an "agreement of partnership/ and the parties to it were the father (first party), the mother (second party) and the three sons (third, fourth and fifth parties). The recitals and clauses 2, 7 and 8 were as follows —" Whereas the First "Party has set up machinery for manufacture of sugar and "extraction of essential oils in his estate in the Gorakhpur "district at village Saraiya, tappa Keotali, pargana Hewali "Gorakhpur, and sugar and essential oils are manufactured "there. And whereas under the personal law of the parties, "who are Sher Gill Jats of Amritsar district in the Punjab, "the father in his life time has a right to divide such property "as aforesaid, and to give away shares, whether the nature "of it is that of self-acquired or ancestral property. And "whereas in exercise of the said right the First Party has "given a share of three annas in the rupee to each of his sons "the aforesaid Third Party, Fourth Party and Fifth Party, "two of whom, namely, the Third and Fourth Parties, have "worked hard in making the aforesaid business a success, and "he has given a life interest in another share of three annas "in the rupee as a special provision to his wife, namely, the "Second Party, reserving a reversion of the said share to "himself if he survives the Second Party, and if he does not "then to the Third Party, the Fourth Party and the Fifth Party (or to their personal heirs in case of their death) "in equal shares, and has kept the remaining four annas in the "rupee to himself. And whereas the Second, Third, Fourth "and Fifth Parties having been admitted and accepted as "paitners by the First Party all the parties to this deed have "already entered into a partnership to work the aforesaid "sugar and oil manufacturing machinery and to carry on the "business of manufacturing sugar and essential oils, and "to do any other business that all of them may agree to carry "on for profit.....2. That the shares of the aforesaid

"Parties in the capital, the profit and the loss of the business, "are in proportion to the shares mentioned above, namely, "the share of the First Party who is the Senior Partner, is "four annas in the rupee, and of each of the other Parties, "namely, the Second Party, the Third Party, the Fourth "Party and the Fifth Party is three annas in the rupee/ "7. That the liabilities, present (if any) and future of the afore-" said business are and will be the liability of all the partners "and will be payable by them in proportion to their shares." "8. In future when