Right of members of family to share benefit.

Balasubrahmanyan, J.

This is a case stated by the Income-tax Appellate Tribunal. It at once raises a point of partnership law and a point of Hindu Law.

2. The assessee who figures in this reference is an individual, being assessed as such on his separate income. He is the kartha of a Hindu undivided family, the other members being his wife, two sons and three daughters. The assessee was a partner in two partnership firms called ‘Cuddalore Palaycot Co. and ‘Kasthuri Palayacot Co. ‘He had 3/28th share in one firm, and a 3/17th share in the other firm. On 20th October, 1970 (sic) he executed a deed of declaration under which he impressed one-half of his partnership interests with the character of joint family property. He further declared that he would thenceforward hold one-half of his interest in the two firms only in his capacity as kartha of his joint family. He then claimed before the Income-tax Officer that the shares of profits from the two firms, namely, 3/28th and 3/17th, must be taken to consist of two halves, one-half alone to be included in his personal assessment, the other half to be considered in the hands of the joint family.

3. The Income-tax Officer rejected this claim, and continued to assess the whole of the 3/28th share from one firm and the whole of the 3/17th share from the other firm in the assessee’s individual assessment. The Officer ignored the assessee’s deed of declaration, dated 20th October, 1970 (sic). The Officer commented that the assessee’s deed of declaration had not been followed up by a bifurcation of the assessee’s capital accounts in the two partnerships.

4. On appeal, the Appellate Assistant Commissioner agreed with the Income-tax Officer.

He gave another reason for not acting upon the assessee’s deed of declaration. According to the Assistant Commissioner, a share in a partnership involved risk of loss and liability, and hence such an asset could not, under the Hindu Law, be blended with joint family property.

5. On further appeal by the assessee, the Tribunal reversed the decision of the Income-tax authorities. According to the Tribunal, the assessee’s declaration throwing into the joint family hotch-pot one-half of his partnership interests in the two firms was valid and could be, and must be, given effect to in the assessment to income-tax of the share income from the two firms.

6. The Department then obtained a reference to this Court from the order of the Tribunal on the following question of law:

"Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that half of the share of income from Messrs. Cuddalore Palayacot Co. and M|s. Kasthuri Palayacot Co., belonged to a Hindu undivided family and consequently had to be excluded from the assessment of the assessee made in the status of individual for the assessment year 1972-73."

This question, as we earlier indicated, involves a consideration of two distinct matters, one touching partnership law and the other touching Hindu Law.

7. The legal conception of a partner’s interest has become settled law in this country, especially after the pronouncement of the Supreme Court in Addanki Narayanappa v. Bhaskara Krishnappa1. The interest of a partnership firm, according to this decision, does not mean that he has any title to any specific assets of the firm as and towards his share; nor to any part or segment of the firm’s assets; nor even to any fractional share in all the firm’s assets. On the contrary, a partner’s interest in the partnership only consists in his right to a share of profits so long as the partnership is a going concern, and to a right to participate in what remains of the surplus assets of the firm on dissolution and winding up of the partnership after payment to all the creditors. Under this conception, the interest of a partner is not a mere fraction of the net assets of the partnership, but altogether a different species of property in itself, so that the sum total of all th