ORAL JUDGMENT

(Per : HONOURABLE MR.JUSTICE JAYANT PATEL)

1.The question referred to this Court at the instance of the assessee are as under:-

(1) Whether the Tribunal is right on facts and in law in holding that the assessee's wife and son are entitled to receive 1/3rd share each from only 75% shares in the profit of the business in the name and style of M/s.Mukund and that they have no right to receive any share from the remaining 25% share ?

(2) Whether the Tribunal is right on facts and in law in holding that the assessee is entitled to a deduction of only 50% and not 2/3rd of the total income from the business of M/s.Mukund.

2.At the instance of Revenue, following questions are referred to this Court:-

(1) Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by CIT(A) directing the A.O. to exclude 2/3rd of the profits derived from M/s.Mukund as having been accrued in favour of the assessee's wife and minor son, is on account of an over-riding title ?

(2) Whether the Appellate Tribunal is right in law and on facts in holding that the aspects of Section 64 have no application in the instant case ?

3.The short facts, which may be relevant for examining the questions are as under:-

3.1 M/s.Mukund was carrying on the business of dealers of cloth and the said business was carried by a partnership firm w.e.f. S.Y. 2033 i.e. upto 28.2.1977 and the partnership comprised of three partners namely; Shri Pravinchandra V. Thakar, Shri Kantilal P. Pandya and Shri N.N. Joshi at the initial stage. Shri N.N. Joshi retired from the firm w.e.f. 28.2.1977 and the remaining partners continued the business of partnership firm from 1.3.1977. As per the partnership deed executed on 10.3.1977 between two remaining partners, share of Shri P.V. Thakar was 75%, whereas the share of Shri K.P. Pandya was 25%.

3.2 It is an undisputed position that Shri P.V. Thakar was partner in the firm in his capacity as Karta of HUF comprising of Shri P.V. Thakar as Karta, his wife Smt. Ranjanben and his minor son Dhruman P. Thakar. The partial partition of the aforesaid HUF was made by the registered deed of partial partition dated 19.1.1978 and the said partial partition was made effective from 19.4.1977. Upon the application of HUF under Section 171 of Income Tax Act (hereinafter referred to as “IT Act”), the ITO vide order dated 17.3.1979 duly recognized such partial partition. As per the term of the partition, each member of the said family had accepted his/her share in the above referred 75% share in profit of M/s.Mukund in equal proportion and it was also agreed that Shri P.V. Thakar shall receive share as per the terms of the partnership deed executed between Shri P.V. Thakar and the other partners of the firm. In accordance with the terms of the said Memorandum of partial partition, assessee had been duly showing the share of the income from the said partnership after deducting 2/3rd share thereof as belonging to assessee's wife and minor child in view of the over-riding title created in favour of his wife and minor son by the above referred registered deed of partial partition. Such continued from the A.Y. 1978-79 to 1987-88, which was also accepted by the Assessment Officer.

4.In A.Y. 1987-88, the partnership firm of M/s.Mukund was dissolved and Shri P.V. Thakar became sole proprietor of the said business. The assessee has, in the return of income for A.Y. 1987-88 onwards shown the aforesaid income after deducting 2/3rd share as belonging to his wife and minor son on account of the above referred partial partition and resulting over-riding title. In A.Y. 1988-89, the assessee shown the income accordingly. The A.O. came to the conclusion that the entire income from the business of M/s.Mukund represents individual income of the assessee and no part of the said income belongs to either Smt. Ranjanben P.

Thakar, being wife or Dhruman P. Thakar, being minor son. He also opined that partial partition made by HUF on 19.4.1977 was a col