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1966 Supreme(All) 161
Allahbad High Court
S.C.MANCHANDA,M.H.BEG
Bharat Oil Industries, Kanpur - Appellant
Versus
Commissioner, Income-tax U. P. - Respondent
Decided On : 10/03/1966
K.N. Seth, for Applicant; Standing Counsel, for Opposite Party.
Headnote:
INCOME TAX - Registration of firm - Whether the assessee firm was entitled to registration under S. 26-A of the Act - Held, yes.
Fact of the Case:
The assessee firm, M/s. Radha Kishan Sita Ram, was started in 1919 by two brothers, Radha Kishan and Sita Ram, with borrowed capital and without the aid of joint family nucleus. The firm was assessed for the first time in the assessment year 1931-32. The assessments for the assessment years 1931-32 to 1935-36 did not show the status in which the firm was assessed. The next two assessments for the years 1936-37 and 1937-38 were made under S. 23(4) of the Act in the status of a Hindu undivided family. Thereafter, the assessee himself showed the status as Hindu undivided family and the assessments were also made in that status right upto the assessment year 1942-43. In the course of the assessment proceedings for the year 1942-43, the assessee claimed a partition under S. 25A of the Act with effect from the 15th of April 1941. The assessee's claim under section 25A was accepted by the Income Tax Officer. Thereafter, the two brothers, Radha Kishan and Sita Ram, entered into a partnership and continued the business in the same name and style. For the assessment year 1943-44, the very income-tax officer who had passed the order under S.25A granted registration to the new firm of Radha Kishan Sita Ram, and what is more, assessed the share income therefrom in the hands of Radha Kishan and Sita Ram in their status as individual and not as representing their smaller Hindu undivided families. The share income continued to be be assessed in the hands of Sita Ram from 1943-44 to 1957-58 in his status as an individual. The firm of Radha Kishan Sita Ram was also carrying on an oil crushing business under the name and style of Bharat Oil Industries. This it decided to close down. Sita Ram it appears was desirous of carrying on the oil crushing business, and, therefore, on the 11th of June 1956, he decided to form a new firm by taking in two of his sons as partners and also to admit to the benefit of partnership the two of the minor grandsons of the said Radha Kishan. In order that his two sons should also contribute some capital, Sita Ram withdrew Rs. 10,000 from his capital account and gifted Rs. 5,000 to each of his two sons, Prem Narain and Hridey Narain and executed a deed of partnership on the 13th of June 1956 for carrying on the oil mill business in the name and style of Bharal Oil Industries. The said Bharat Oil Industries applied for registration for the assessment year 1958-59 and for renewal for 1959-60. As there was no partition between Sita Ram and his two sons. Prem Narain and Hridey Narain, the Income-tax Officer issued notice to the assessee to show cause why the application for registration should not be rejected.
Finding of the Court:
The Tribunal erred in holding that the assessee firm was not entitled to registration under S. 26-A of the Act. The Tribunal failed to consider the fact that the assessee firm was started with borrowed capital and without the aid of joint family nucleus. The Tribunal also failed to consider the fact that the assessee firm had been assessed in the status of a Hindu undivided family for a period of time due to an error on the part of the Income Tax Officer. The Tribunal also failed to consider the fact that the assessee had been assessed in the status of an individual for a period of over 12 years after the order under S. 25A was passed.
Issues: Whether the assessee firm was entitled to registration under S. 26-A of the Act?
Ratio Decidendi: The assessee firm was entitled to registration under S. 26-A of the Act because: * The assessee firm was started with borrowed capital and without the aid of joint family nucleus. * The assessee firm had been assessed in the status of a Hindu undivided family for a period of time due to an error on the part of the Income Tax Officer. * The assessee had been assessed in the status of an individual for a period of over 12 years after the order under S. 25A was passed.
Final Decision: The question referred is answered in the affirmative and in favour of the assessee.
MANCHANDA, J . :- This is a consolidated case stated under S. 66(1) of the Income-tax Act (hereinafter referred to as the Act) in respect of assessment years 1958-59 and 1959-60. The question referred is :
"Whether on the facts and in the circumstances of the case the assessee firm was entitled to registration under S. 26-A of the Act?"
2. The material facts are these. The common ancestor was one Chandu Lal who died in the year 1918 leaving only two surviving sons Radha Kishan and Sita Ram. The Appellate Assistant Commissioner found that he had died insolvent. No contrary finding of fact was given by the Appellate Tribunal. After the demise of Chandu Lal, his sons, Radha Kishan and Sita Ram, started a business in 1919. In the name and style of M/s. Radha Kishan Sita Ram. This firm was assessed for the first time in the assessment year 1931-32. The assessments for the assessment years 1931-32 to 1935-36 did not show the status in which the firm was assessed. The next two assessments for the years 1936-37 and 1937-38 were made under S. 23(4) of the Act in the status of a Hindu undivided family.
It is, however, not clear as to how such status came to be determined. Thereafter, the assessee himself showed the status as Hindu undivided family and the assessments were also made in that status right upto the assessment year 1942-43. In the course of the assessment proceedings for the year 1942-43, the assessee claimed a partition under S. 25A of the Act with effect from the 15th of April 1941. The assessee's claim under section 25A was accepted by the Income Tax Officer. The order under S. 25A has neither been made a part of the case nor the contents thereof have been mentioned in the statement of the case.
It is not clear as to why such an order under S. 25-A was sought and whether it was really a partition, between the two brothers as joint owners of the business, or it was a real partition by metes and bounds of all assets of the Hindu undivided family. It is not known whether there were any other assets apart from the business. If the business was the only asset then no division by metes and bounds was required. Be that as it may, the order under S. 25A was passed on the 15th March 1943. Thereafter, the two brothers, Radha Kishan and Sita Ram, entered into a partnership and continued the business in the same name and style. For the assessment year 1943-44, the very income-tax officer who had passed the order under S.25A granted registration to the new firm of Radha Kishan Sita Ram, and what is more, assessed the share income therefrom in the hands of Radha Kishan and Sita Ram in their status as individual and not as representing their smaller Hindu undivided families.
The share income continued to be be assessed in the hands of Sita Ram from 1943-44 to 1957-58 in his status as an individual. The firm of Radha Kishan Sita Ram was also carrying on an oil crushing business under the name and style of Bharat Oil Industries. This it decided to close down. Sita Ram it appears was desirous of carrying on the oil crushing business, and, therefore, on the 11th of June 1956, he decided to form a new firm by taking in two of his sons as partners and also to admit to the benefit of partnership the two of the minor grandsons of the said Radha Kishan. In order that his two sons should also contribute some capital, Sita Ram withdrew Rs. 10,000 from his capital account and gifted Rs. 5,000 to each of his two sons, Prem Narain and Hridey Narain and executed a deed of partnership on the 13th of June 1956 for carrying on the oil mill business in the name and style of Bharal Oil Industries.
3. The said Bharat Oil Industries applied for registration for the assessment year 1958-59 and for renewal for 1959-60. As there was no partition between Sita Ram and his two sons. Prem Narain and Hridey Narain, the Income-tax Officer issued notice to the assessee to show cause why the application for registration should not be rejected. The assessee submitted
