RANGACHARI A R Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) BY these applications, which are consolidated for the sake of convenience, the assessee requires the Appellate Tribunal to refer to the High Court certain questions of law, which are said to arise out of the Tribunals order, dated 24th April, 1951, in I. T. A. Nos. 1874 and 1875 of 1949-50. Inasmuch as a question of law does arise out of the aforesaid order, we hereby draw up a statement of the case, agreed to by both the parties, and refer it to the High Court of Judicature at Madras under section 66(1) of the Indian Income-tax Act.

(2.) THE assessee is a partner holding 6/16th share in the well-known firm of Messrs. Chari and Ram, Colour Merchants of Madura. By three deeds dated 22nd September, 1947, annexed hereto as Exhibits A, A1 and A2 and forming part of the case, he settled 1/4th share of profits (not losses) each on his wife Vedammal, Kripabai a married daughter, and Meerabai, a minor daughter, aged 15 years, in the firm for a period of 8 years commencing from the date of execution of the deed. He figured himself as the guardian for the minor daughter. Notice of the trust deeds was given to the firm of Messrs. Chari and Ram by means of a letter dated 13th October, 1947, annexed hereto as Exhibit B and forming part of the case.

(3.) THE facts giving rise to this reference are briefly these. THE question raised arises out of the assessment proceedings for the assessment years 1947-48 and 1948-49 of the income of the assessee, A. R. Rangachari, from the profits of the firm of Messrs. Chari and Ram, in which the assessee was one of five partners. Under a deed of partnership, dated 22nd April, 1946, entered into among the partners of this firm, the assessee, A. R. Rangachari, was entitled to a 6 annas share in the partnership, the four other partners being entitled to the other 10 annas. While so, Rangachari executed on 22nd September, 1947, 3 deeds of settlement, which have been appended to the statement of the case and marked as annexures A, A-1 and A-2. Under annexure A, the assessee settled in favour of his wife, Srimathi Vedam Ammal, a "one-fourth share of the profits in the firm (but not the losses) payable to him" during a period of 8 years commencing from the date of the document. This was expressed to be out of natural love and affection, and clause 2 of this settlement deed provided "that the settlor shall not have any manner of right or interest in the said one-fourth share hereby settled and the right to receive from the firm one-fourth of the settlors share during the said period of 8 years shall exclusively vest in the beneficiary." Clause 3 empowered the beneficiary "directly to receive and collect from the firm the share of profits hereby transferred for the said period of 8 years." Clause 4 made provision for the settlor having the right to the profits from the firm on the expiry of the 8 years period. Clause 5 stated that the settlement deed was not to absolve the settlor from his obligation to maintain the beneficiary. Clause 6 provided that the settlement was not to be construed as conferring upon the beneficiary any right or interest in the partnership asset or property but the settlees right was limited to the one-fourth share of the settlor in the profits of the firm settled under the deed. Clause 8 expressly stated that the settlement deed was to be irrevocable.