SALUMURU POTHA RAJU Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE following question has been referred to us for decision under S. 66(2) of the IT Act by the Tribunal Hyderabad :

(2.) SALUMURU Potharaju (hereinafter referred to as "the assessee") was carrying on business in the manufacture and sale of aluminium ware at Rajahmundry. It is common ground that prior to 1st April, 1949 the business was owned by the assessee as an "individual" even though the assessment was made in the status of a Hindu undivided family. The other members of the HUF were claimed to be the assessee's wife and two daughters. He had no sons. It was claimed by the assessee that w.e.f. 1st April, 1947, the business was transferred to firm of which his wife and daughters as also the trustees of a trust known as "Salamuru Potharaju Choultry" were partners. A partnership deed was executed and registered on 4th Aug., 1947, which recited inter alia that the partnership should be for a period of five years and the shares of the partners should be as follows : a 8 annas share for the assessee ; a 3 annas share for his wife ; of one anna share for each of his daughters ; and a3 annas share for the trust. On 4th Aug., 1947, a trust deed was also executed and registered. The trust was for feeding the poor and, if funds permitted, for rendering assistance to deserving Velama students by payment of their school and college fees. The properties of the trust were to consist of one piece of immovable property valued at Rs. 500 and income of Rs. 100 per year from out of 3 annas share in the business.

(3.) THE AAC upheld the ITO's order. He observed that there was an inconsistency as to the share held by the assessee which was noted as a 8 anna share in the partnership deed whereas it was mentioned as a 11 anna share in the trust deed. On appeal the Tribunal held on the question of law that there could be valid partnership between the assessee his wife and two major daughters, and on the merits that there was no genuine partnership. The point for consideration is whether the view taken by the Tribunal that this partnership was not real is sustainable.