COMMISSIONER OF WEALTH TAX Vs. PADAMPAT SINGHANIA

JUDGEMENT

(1.) AT the instance of the CWT, the Income-tax Appellate Tribunal, Allahabad, has in the cases of the assessees, Sri Padampat Singhania (HUF), Kailashpat Singhania (HUF) and Sri Laxmipat Singhania (HUF), for the assessment years 1965-66 and 1966-67, stated these three cases and has referred the following questions for the opinion of this court :

(2.) THE three assessees, hereinafter referred to as the three Singhania Brothers, representing their respective HUFs, are partners in a firm known as M/s. J. K. Hosiery Factory and the controversy in these references relates to their claim that an amount of Rs. 4,51,002 standing to the debit of each of them in the books of the firm should be accounted for and deducted in computing their respective wealth for the assessment years 1965-66 and 1966-67. Briefly stated, the facts giving rise to the aforesaid controversy are that the three Singhania Brothers along with one Sri J. P. Agar-wal had been carrying on a partnership business under the name and style of M/s. J. K. Hosiery Factory, By means of a deed dated 27th October, 1941, a company known as M/s. J. K. Cotton Spinning and Weaving Mills Ltd., created a trust known as Kamla Town Trust which purported to be a public charitable trust. THE three Singhania brothers were designated as its trustees. Subsequently, the company filed Suit No. 40 of 1945, in the Court of the Civil Judge, Kanpur, praying for the rectification of the trust deed. THE aforesaid suit was decreed on 18th August, 1945. On 15th January, 1946, the three Singhania brothers withdrew from the firm, M/s. J. K. Hosiery Factory, and assigned a sum of Rs. 1,50,000 each, the amounts standing to their credit in the books of the firm, to Kamla Town Trust. THEreafter, on 5th February, 1946, a partnership agreement was entered into between J. P. Agarwal and the trust for running the business in the name and style of M/s. J. K. Hosiery Factory with effect from 1st January, 1946. THE trust contributed a sum of Rs. 4,50,000, the amount which had been assigned to it by the three Singhania brothers, towards the capital of the partnership.

(3.) REGARDING assessees' claim that each one of them was, while computing his wealth for the assessment years 1965-66 to 1966-67, entitled to the deduction of a sum of Rs. 4,51,002, the WTO observed that as the credit balance of Kamla Town Trust, shown as partner in J, K. Hosiery Factory, in the earlier years have been treated as belonging to the three Singhania brothers themselves, the said liability had to be taken to be a fictitious liability and could not be allowed. The AAC also affirmed the decision of the WTO and repelled the claim of the assessees. The Income-tax Appellate Tribunal, however, accepted the assessees' case by making the following observations :