SHAH PRABHUDAS GULABCHAND Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS reference under section 66(1) of the Indian Income -tax Act, 1922, is the result of two separate applications made respectively by Messrs. Shah Prabhudas Gulabchand, hereinafter referred to as 'the firm', being one assessee in the reference, and Chandrakant Prabhudas, being the individual assessee in the reference. The questions relate to the assessment year 1959 -60, the corresponding accounting period being Samvat year 2014. The two questions arising for decision are as follows :

(2.) THE facts appear in the statement of the case. The facts which require to be noticed are as follows : About six months prior to October 22, 1943, one Shah Prabhudas Gulabchand died intestate leaving him surviving as his only heirs and next of kin his widow, Bhikibai, and four minor sons, one of them being the assessee, Chandrakant Prabhudas. Prior to his death, Prabhudas Gulabchand carried on business in toilet, medicines, perfumery, etc., in the firm name of Shah Prabhudas Gulabchand. Upon his death, the business came by inheritance to the four minor sons of Prabhudas. This business was carried on, having regard to the minority of the four sons, by the widow Bhikibai for six months by herself. Thereafter, from Kartak Sud 1 Samvat year 2000, she carried on the very same business in partnership with one Shah Khushaldas Gangadas who was the mehtaji and the servant of the deceased Prabhudas whilst he carried on the above business on the terms and conditions recorded in a deed of partnership dated October 22, 1943, which is annexure 'A' to the statement. Under the deed of partnership, Khushaldas was a working partner with a share of 6 annas. Bhikibai owned the remaining share of 10 annas. At the date when this partnership was formed, Bhikibai brought into the partnership as the previous owner thereof in all Rs. 50,612 which are shown in the capital account of Bhikibai in the books of that partnership for Samvat year 2001 by the following two credit entries : Rs.Havala of goods stock 25,600Cash 25,012 In that year she received interest and the capital account of Bhikibai thus increased to Rs. 53,350. The loss debited to her was Rs. 3,110. Capital account in the next year was opened with the credit balance of Rs. 50.2 40.

(3.) THE first partnership firm that carried on business from October, 1943, to December, 1953, and this second partnership between Bhikibai and Chandrakant were granted registration under section 26A of the Act and the firm was being assessed as a registered partnership up to the assessment year 1958 -59. In connection with the assessment for 1959 -60, an application for renewal of registration of the second partnership under section 26A was made but was rejected by the Income -tax Officer by his order dated March 16, 1960. That order was in respect of the applicant -firm of Messrs. Shah Prabhudas Gulabchand. By a separate order of the same date, the Income -tax Officer assessed the second applicant, Chandrakant Prabhudas, in respect of the business of Messrs. Shah Prabhudas Gulabchand on the footing that this business was of the Hindu undivided family constituted of the heirs left by deceased Prabhudas. The main reason for the rejection of the application for registration under section 26A and for assessing the second applicant, Chandrakant, in the above manner was that in fact from the date of the death of Prabhudas the business of the firm of Prabhudas Gulabchand which had come by inheritance to the above undivided family had been carried on by Bhikibai for the benefit of the family. The first partnership was formed only because mehtaji Khushaldas was helpful as a working partner. The second partnership was in fact not a genuine partnership but a partnership made between the undivided family mentioned above and one of its coparceners, the second assessee, Chandrakant. In the appeals separately filed by each of the assessee -applicant the Appellate Assistant Commissioner by his separate orders made on February 6, 1961, reversed the findings made by the Income -tax Officer. The order of assessment made against Chandrakant was set aside. Directions were given for granting registration to the above firm under section 26A. Those orders made by the Appellate Assistant Commissioner were set aside by the Appellate Tribunal by separate orders made on May 8, 1962. The above questions are formulated to contest the findings made by the Appellate Tribunal.