CENTRAL TALKIES CIRCUIT MATUNGA Vs. IN RE

JUDGEMENT

(1.) THE assessees are a firm carrying on business in the name of Central Talkies Circuit, Matunga, and down to the partnership deed of July 14, 1937 the partners were : V. II. Desai with 3 annas share. (he is described as the original sub-proprietor), his wife with 3 annas share, his minor son with 2 annas and his major son 2 annas and two outside partners. As from April 1, 1937 an amendment was introduced into the Income-tax Act by the addition of Section 16(3) under which the share of a wife or minor son in a partnership has to be included in the income of an assessee. Having that provision in mind, a partnership deed of July 14, 1937 was executed under which the mother of V. H. Desai was substituted for his wife and minor son, and she was given 4 1/2 annas. That is to say, the 5 annas which had previously been divided between the wife and the minor son, were distributed as to 1/2 anna for V. H. Desai and 4 1/2 annas for the mother, who thus became entitled to the largest share in the firm. It is, of course, not disputed that the object of the alteration was to avoid the effect of Section 16(3) of the Income-tax Act.

(2.) ON an application to register the firm, the Income-tax Officer refused registration on the ground that the partnership deed produced was one prepared only to avoid what he calls proper taxation owing to the operation of the new Section 16(3) of the Act. That is not a good ground for refusing to register. I do not like the expression proper taxation. Taxation is either legal as falling within the terms of the taxing Act, or non-existent. As has been pointed out many times by this and other Courts, any one is entitled so to conduct his affairs within the law as to avoid incidence of taxation, and if a man finds that he well suffer less in taxation by carrying on business in partnership with his mother rather than his wife, he is entitled to select his mother. But the partnership must be a genuine partnership. The Assistant Commissioner, no doubt, appreciated that the Income-tax Officer had not put his case on the right ground, and he called for the books of the alleged partnership and came to the conclusion that there was no genuine partnership, and with that conclusion the Commissioner agrees. He relies on the fact that a large cash balance of nearly a lakh and a half existed in this partnership in 1937, which made it unnecessary to secure a new financing partner, that it is not proved that the mother has in fact brought it in any capital, nor is it proved that she had any capital to bring in. I think he might also have relied on other evidence of a negative character, namely, that there was no evidence that the mother knew anything about the business, or has assisted in the conduct of the business in any way. The contention of the assessees is that the evidence produced before the Assistant Commissioner was not such as could possibly justify him in refusing to register the firm.

(3.) IN my opinion, therefore, the question raised must be answered in the affirmative. The assessees to pay costs.