GHELLA DAYAL Vs. COMMISSIONER OF INCOME-TAX

JUDGEMENT

(1.) THIS is a reference made by the Income-tax Appellate Tribunal under Section 66(1) of the Indian Income-tax Act, 1922.

(2.) THE relevant facts are briefly these : THE firm of Messrs. Ghella Dayal, consisting of three partners, carried on business in and prior to Samvat Year 1995. A partnership deed, defining the shares of the individual partners, dated October 20, 1932, is in the record. That shows that Haridas Ghella Dayal had a share of six annas three pies in a rupee, Gokuldas Jivraj had a share of six annas three pies in a rupee, and Karsondas Premji, as the manager of an undivided Hindu family, was entitled to a share of three annas six pies in a rupee. THE partnership deed further recites that a shop rented in the name of Haridas Ghella Dayal from Ashad Samvat Year 1960 (over forty years ago) at the Ghadial Gaily in the Mulji Jetha Market was used by the partnership for its business in piecegoods, and the rent of the shop was to be paid by the partnership. On October 30, 1939, (Aso Vad 2, 1995) Gokuldas died. THE account year of the partnership was the Samvat Year. As this death occurred about twelve days before the close of the Samvat Year, nothing appears to have been done for those days. As from November 12, 1939, that is the beginning of the new Samvat Year 1996, a new partnership was formed. Three sons of Haridas were included as partners, and the shares of the five partners were reshuffled. Gokuldas Jivraj or his estate represented by his legal representative was not given any share in this business. A partnership deed, recording the terms of the partnership and dated December 1, 1939, was duly executed, and is part of the record. According to that Haridas got a share of five annas; his three sons-Dwarkadas, Baboobhai and Ajitsinh-got a share of two annas each, while Karsondas Premji's share was raised from three annas six pies to five annas. From the statement of case it appears that at the end of Samvat Year 1995 there were several outstanding contracts of the old firm and there was also the stock-in-trade. THEre existed also the out standings of the old firm. Before the Income-tax Officer it was pointed out on behalf of the Department that the business conducted by the reconstituted firm was in piecegoods, that the old trade name with its goodwill was used, and the management of the business before and after the change remained identical. THE business premises continued to be the same, and the assets and liabilities of the old partnership were after a period of nineteen months taken over by the reconstituted firm. THE reconstituted firm was registered under Section 26A of the Income-tax Act, 1922. 2. When the Tribunal gave its judgment, it appears to have been considerably influenced by three wrong assumptions which find place in its judgment, but which it corrected in the statement of case. First, the members were under the impression, when giving their judgment, that the three sons of the deceased partner were admitted into the new partnership. This is a vital point which must affect the deciding authority. It was later on ascertained by the Tribunal, when stating the case, that this was an error and neither the widow nor the representative of the deceased partner was given any share in and from Samvat Year 1996, but the three sons of one of the surviving partners were given two annas share each. THE second material point on which they had misguided themselves when writing the judgment was that the whole of the out standings and the stock-in-trade were taken over by the new firm on the day on which the new partnership started. This again is a very vital fact in deciding whether the business was continued, that is, whether it was the business of the new firm. When the case was stated for the opinion of the Court, it was found that the stock-in-trade and out standings were not taken over, as erroneously assumed by the Tribunal. Comparatively only a small portion of the out standings and stock were taken over and that too after the expiration of nineteen months. THE third error was only technical in describing the widow of the deceased partner as executrix. Although in the statement of case the members of the Tribunal have stated that these were immaterial inaccuracies, I do not think that is correct. We are not, however, directly concerned with these inaccuracies. When the matter proceeded before the Tribunal, on the material put before them, (although on the two material points they had misdirected themselves, as I pointed out above), they found that there was no more than a change of constitution of the firm. THEy rejected the contention that an altogether new firm had come into existence.

(3.) THE second part of the question deals with the assessment of this sum to tax under the Excess Profits Tax Act. On behalf of the) assessee it was contended that these are not the profits of the business of the assessee. THEy were profits received or recovered by the assessee-firm for and on behalf of the old firm, and in distributing the profits, for the purposes of the Income-tax Act under Section 26, the Department itself has divided this sum of Rs. 56,260 and the sum of Rs. 10,503, which was assessed to be the profits of the business of the assessee-firm itself in Samvat Year 1996 separately. THE first sum they have divided between the two surviving partners and the widow of the deceased partner. THE last sum of Rs. 10,503 they have divided between the two Surviving partners and the three new partners according to the newly arranged shares. In this connection the assessee strongly relies on the unequivocal finding of fact in the statement of case recorded by the Tribunal. In paragraph 5 they have stated as follows: In the Income-tax Appeal the Tribunal recorded the following findings of fact in its order under Section 33, dated November 4, 1943,. . . (5) THE profits on the old undertakings were divided between the two original partners and the widow of the deceased partner in her capacity as the executrix of her deceased husband. In the later part of the paragraph they have corrected the word "executrix" as meaning "administratrix". In para. 6 of the statement of case they next considered the arguments of the assessee in respect of the assessment under the Excess Profits Tax Act. THE argument was in these terms: But the point made was that the profits in dispute (Rs. 56,260) did not come in for. computation as the assessee-firm was not the owner thereof. THE Tribunal rejected it by stating: For the reasons mentioned in the Tribunal's order in. R. A. A. , No. 15-(Bombay) of 1943-44, dealing with the income-tax assessment, the Tribunal repelled this contention and found that the profits disclosed in the 'A' account were profits of the assessee's business. THE profits disclosed in the "A" account were the sum of Rs. 56,260.