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1973 Supreme(MP) 45
IN THE HIGH COURT OF MADHYA PRADESH
P.K. Tare, C.J. and A.P. Sen, J.
Commissioner of Income-tax
Vs.
Ratanchand Darbarilal
Miscellaneous Civil Case No. 100 of 1969
Decided On: 12.04.1973
For Appellant/Petitioner/Plaintiff: P.S. Khirwadkar, Adv.
For Respondents/Defendant: D.D. Shah, Adv.
Headnote:(1) Income-tax Act, 1922 - S. 66 - question of fact and law – distinction - High Court when may interfere.
(2) Words & Phraser - question of fact and law - distinction.
The High Court has always the jurisdiction to interfere with the findings of the Tribunal if it appears that either the Tribunal has misunderstood the statutory language, because the proper construction of the s1atutory language is a matter of law, or it has arrived at a finding based on no evidence or where the finding is inconsistent with the evidence or contradictory of it, or it has acted on material partly relevant and party irrelevant or where the Tribunal draws upon its own imagination and imports facts and circumstances not apparent from the record or where no person judicially acting and properly instructed as to the relevant law could have come to the determination reached not apparent from the record and bases its conclusion on mere conjectures and surmises. [1973] 87 ITR 370 (SC); [1967] 66 ITR 462, [1957] 31 ITR 28, [1964] 53 ITR 204, [1959] 37 ITR 271, [1954] 26 ITR 736, [1942] 10 ITR 457 [PC] relied on. [Para 16]
(3) Partnership - dissolution and reconstitution - distinction.
The dissolution and reconstitution of a partnership are two different legal concepts. The dissolution puts an end to the partnership, but reconstitution keeps it subsisting, though in another form. A dissolution followed by some of the erstwhile partners taking over the assets and liabilities of the dissolved partnership and forming themselves into a partnership is not reconstitution of the original partnership. A partnership formed after dissolution is a new partnership and not a continuation of the old partnership, for it would be a contradiction in terms to say that what ceased to exist was continued. A reconstitution of a partnership necessarily implies that the firm never became extinct. What it denotes is the structural alteration of the membership of the firm, by addition of reduction of members, and the incidental redistribution of the shares of the partners. [Para 19]
(4) Partnership - Karta of a joint family which is a trading family - right to enter into partnership with stranger - rights of other members - junior members could not become members of the partnership – Income-tax Act, 1922 – S. 22-A.
It is settled law that the Karta or the adult members of a joint Hindu family, where it is a trading family, may enter into a partnership with a stranger or strangers representing the joint Hindu family. The family as a unit on that account does not became a partner, but only such members as in fact enter into a contractual relation with the stranger, and the partnership will be governed by the Act. In the management of that business, therefore, the other members of the family have no part to play. The only right that they have against the manager or the Karla or the other members who entered into partnership representing the family is to call" upon him or them to give an account of the business that they have done with the joint family funds. The Income and profits which the managing member or members have earned from such partnership would belong to the joint family and the other coparceners would have a right to share such profits with these members of the joint family as a joint family asset. ILR 26 Mad. 544 [PC] & [1965] 55 ITR 660 (SC] relied on. [1948] 16 ITR 35 [PC] & [1956] 26 ITR 521 [SC] referred to. [Para 22]
When a joint Hindu family has entered into a partnership with a stranger, through its Karta, the junior members of the family could not become parters in their individual capacity. This would cut at the very root of the notion of a Hindu undivided family. (1964) 53 ITR 341, (1970) 78 ITR 96 & (1970) 77 ITR 870 relied on. (19601 39 ITR 202 (SC) referred to. (1959) 37 ITR 271 (SC), 1973 JLJ 587, (1968) 68 ITR 107 & (1969) 74 ITR 529 distinguished. [Para 25]
Sen, J.
This order shall also govern the disposal of Misc. Civil Cases Nos. 587 and 588 of 1971 (Commissioner of Income Tax v. Ratanchand Darbarilal).
This is a reference under Section 66(1) and (2) of the Income Tax Act, 1922, at the instance of the revenue, and it pertains to the registration of the firm, M/s. Ratanchand Darbarilal of Satna, under Section 26A of the Act.
The relevant assessment year is 1958-59, the corresponding previous year of which was that ending on 28th August, 1957.
The facts, shortly stated, are few and simple. A Hindu undivided family consisting of one Murlidhar and his two sons, Ratanchand and Darbarilal, of which Murlidhar was the karta, carried on cloth business at Katni. On 1st March, 1943, there was a partition of the joint Hindu family, as a result of which the two branches of Ratanchand and Darbarilal separated from eich other. On disruption, the joint family business was converted into a partnership business. Dhanyakumar representing the branch of Darbarilal and Jaikumar representing the branch of Ratanchand agreed to carry on the business in partnership under the firm name, M/s. Ratanchand Darbarilal, Katni. Each of the two partners was to have equal shares of 50P each in profit and loss. The firm was granted registration under Section 26A of the Act for the assessment year 1945-46 to the year 1957-58. During the years to come, the business of the firm prospered. The firm acquired various properties, for which the funds were contributed by the two Hindu undivided families. In the year 1950, the firm opened a retail shop at Katni styled '.' Premier Cloth Shop ". In the year 1953-54, the firm opened a branch at Satna for carrying on wholesale business in cloth. That state of affairs continued till the assessment year 1957-58.
Up to and including the assessment year 1957-58, the shop at Satna was treated for Income Tax purposes as branch of the Katni firm. During the assessment year 1958-59, the assessee claimed that there was bifurcation of the business of the partnership. The claim was that the business carried on by the firm at Satna had been separated from the business carried on by it at the head office at Katni, by constituting two separate and distinct partnerships under the name and style of M/s. S.S. Ratanchand Darbarilal, Satna, and M/s. Ratanchand Darbarilal, Katni. The firm at Satna was brought into existence with effect from 9th September, 1956, i.e., the commencement of the Bhado year on the basis of an instrument of partnership dated 1st November, 1956, It was constituted of three partners: (1) Dhanyakumar, son of Darbarilal, (2) Jaikumar, son of Ratanchand, and (3) Abbaykumar, son of Ratanchand. The 4th, Prasannakumar, minor son of Dhanyakumar, was admitted to the benefits of the partnership. They had equal shares of 25P each. The firm at Katni was reconstituted by an instrument of partnership dated 1st April, 1957. That firm consisted of four partners having equal shares of 25P each-(1) Dhanya- kumar, son of Darbarilal, (2) Abhaykumar, son of Ratanchand, (3) Jai-kumar, son of Ratanchand, and Keshavkumar, son of Dhanyakumar. Their relationship will appear from the following genealogical table:
Murlidhar _________________|________________________ | | Ratanchand Darbarilal _____|_____ | | | Dhanyakumar Jaikumar Abhaykumar __________________________|___ | | | | Keshav- Prasanna- Sunil- Subir- kumar kumar kumar kumar
The statement of the case reveals :
"In the deed relating to Satna business, there was no reference in the recitals to the Katni business. Similarly, in the deed relating to the Katni business, there was no reference to the Satna business. In the Katni books on September 9, 1956, the account of Ratanchand Abhaykumar was debited with Rs. 10,000 and an amount of Rs. 5,000 each was credited to the accounts of Jaikumar and Abhaykumar. In the Satna books, the account of Darbarilal Dhanyakumar was debited with Rs, 8,000 and a corresponding credit of Rs. 4,000 each was given
