COMMISSIONER OF INCOME TAX Vs. BUDHALAL AMULAKHDAS

JUDGEMENT

(1.) IN this case, at the instance of the Revenue, the following three questions have been referred to us for our opinion :

(2.) THE facts leading to this reference are that the assessment years under consideration are asst. yrs. 1969 70 and 1970 71, the relevant previous years being Samvat years 2024 and 2025, respectively. The assessee before us is a firm and the firm was treated as a registered firm by the ITO for the purpose of assessment for asst. year 1968 69, the corresponding previous year being Samvat year 2023. In that registered firm the partners were Budhalal Amulakhdas 37 1/2 per cent. share, Ugarchand Amulakhdas 25 per cent. share, Vinodchandra Budhalal 25 per cent. share and Navinchandra Sakarchand 12 1/2 per cent. share. Navinchandra, according to the arrangement reached amongst the partners inter se. was to have retired from the firm from Kartik Sud 1 of Samvat Year 2023. He, however, did not retire as per the agreement reached amongst the partners and hence a suit was filed, being Suit No. 1902, in the appropriate Court for declaring that Navinchandra had retired from the firm. The firm thereafter was reconstituted w.e.f. November 3, 1967, that is, from the commencement of Samvat year 2024. In the reconstituted firm the partners and their shares were as follows :

(3.) IN this reconstituted firm which was reconstituted after February 21, 1969, Budhalal Amulakhdas was representing in his individual capacity as well as in his capacity as Karta and representative of the HUF and in each of the two capacities he had 31 per cent. share. The ITO rejected the application for registration and his ground was that it was not possible for one and the same individual to be a partner in two capacities. According to the ITO the partnership was not a validly constituted partnership in law and, therefore, the firm was not entitled to registration. He, therefore, made an assessment in the status of an association of persons for both the years under reference. When the assessee firm went in appeal against the decision of the ITO, the AAC held that the firm was entitled to registration as all the conditions necessary for the purpose were satisfied. The AAC also negatived the conclusion of the ITO that since Budhalal had entered into agreement in a dual capacity he should be treated as a single person and, therefore, it was not an agreement between four parties as described in the deed and there would be three partners alone in the assessee firm and hence the assessee firm could not be refused registration. Against the decision of the AAC the matter was carried in further appeal by the Revenue to the Tribunal. The Tribunal came to the conclusion that there was nothing in law which prevented one and the same person being a partner in a dual capacity and hence refusal of registration to the firm on this ground alone was not correct. It held that the correct status of the assessee was that of a registered firm and as regards the shares of the profits falling to the share of Budhalal Amulakhdas, the Tribunal held that Budhalal Amulakhdas should be assessed separately in his capacity as individual so far as profits from the partnership firm were concerned and he should be assessed separately in his capacity as Kartaof the HUF and the share of profits in his individual capacity should be assessed in the hands of Budhalal Amulakhdas only up to the extent of 25 per cent. for one year and 31 per cent. for the other year and the share of profits to the extent of 25 per cent. in one year and 31 per cent. in the other year should be assessed in the hands of the