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1942 Supreme(SC) 12
PRIVY COUNCIL [ON APPEAL FROM THEEAST INDIES]
LORD THANKERTON, LORD ROMER, LORD CLAUSON, SIR GEORGE RANKIN, AND SIR MADHAVAN NAIR.
SARDAR BAHADUR SIR SUNDER SINGH MAJITHIA - Appellant
Versus
COMMISSIONER OF INCOME-TAX, UNITED AND CENTRAL PROVINCES - Respondents
On appeal from the High Court at Allahabad.
Decided On : June. 4. 1942.
Solicitors for appellant :Charles Russell & Co. Solicitors for respondent: Solicitor, India Office.
Section 25A of the Indian Income-tax Act, 1922, does not prohibit members of a continuing Hindu undivided family from partitioning a portion of joint property to form a partnership, as the section only addresses assessment complexities arising from the total disruption of the family.
Headnote:(A) Indian Income-tax Act, 1922 - Sections 25A, 26A, 14 and 66 - Hindu Undivided Family - Partnership - Partition of joint property - Section 25A does not prohibit members of a Hindu undivided family that continues to exist from partitioning a portion of its property or bringing such shares into a partnership. The section is intended to address assessment difficulties when a family is disrupted before assessment, not to prevent an existing family from alienating specific assets to its members. (Paras 15-18)
(B) Transfer of Property Act, 1882 and Stamp Act, 1899 - If the transfer of immovable property is required by law to be made by a registered instrument, the absence of such an instrument may render the transfer ineffective, unless the property is joint family property and a partition can be effected without a written instrument. (Paras 12-13)
Facts of the case:
A business previously assessed as the income of a Hindu undivided family was later claimed to be a partnership firm based on a written agreement between the father, mother, and sons. The tax authorities refused registration of the firm, contending that under the relevant tax laws, the family must be deemed to continue as an undivided family unless a full partition was substantiated and the family disrupted.
Findings of Court:
The court found that the tax provision regarding the partition of Hindu families does not bar the recognition of a partition of only a portion of the family property. It further held that the tax authorities failed to establish the necessary factual findings regarding the nature of the property (whether self-acquired or ancestral) and the applicable customary laws governing the father's power to partition or transfer such property.
Issues: Whether Section 25A of the Indian Income-tax Act, 1922, prevents members of a Hindu undivided family from forming a partnership using a partitioned portion of joint family property, and whether the partnership deed in question created a genuine firm.
Ratio Decidendi: Section 25A is designed to resolve assessment issues when a family is disrupted; it does not apply to a family that remains undivided but parts with a specific asset. An undivided family can partition a portion of its property without disrupting its overall status. However, the validity of such a partition depends on the nature of the property and the customary laws applicable to the family.
Result: Judgment and decree of the High Court discharged and the case remanded to the High Court for further factual determination.
Legal Category Hierarchy
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tax law
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income tax
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assessment
- hindu undivided family
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assessment
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income tax
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family law
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hindu law
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joint family property
- partition
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joint family property
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hindu law
-
commercial law
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partnership
- formation and registration
-
partnership
-
property law
-
transfer of property
- immovable property
-
transfer of property
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
