RAMDAYAL GHANSIRAM & SONS Vs. COMMISSIONER OF INCOME

JUDGEMENT

(1.) Under section 66(1) of the Indian Income-tax Act, the following question was referred to us by the Income-tax Appellate Tribunal:

(2.) The facts which gave rise to this Reference are as follows : A Hindu undivided family of Messrs. Ramdayal Ghansiram and Sons was being assessed as such under the erstwhile Hyderabad State Income-tax Act as well as under the Indian Income-tax Act, 1922. The financial integration came into force on 1st April, 1950 and thereafter assessment was made upon this Hindu undivided family for the assessment year 1950-51, the accounting period being from 2nd November, 1948 to 21st October, 1949. In the course of the assessment proceedings for the year 1950-51, a claim under section 25-A was made that a partition had taken place among the members of the said family on 1st November, 1918 and that the joint family property had been partitioned among the various members in definite portions and that the Income-tax Officer was requested to record an order to that effect as required by section 25-A (1) of the Act. The genealogical tree of the family is as follows:

(3.) Ghansiram, the ancestor, died long ago and his son Gopikishen died sometime in 1938. Even during the life-time of Gopikishen, his second son, Bansilal, separated from the family. In spite of his separation, Gopikishen desired that as and when his other three sons Bankatlal, Hariprasad and Srinivas would effect partition among themselves and divide the family properties the should give an equal share to Onkarlal, the son of Bansilal. Just before the partition as between the three brothers, Bankatlal, Hariprasad and Srinivas and their nephew, Onkarlal, on 1st November. 1948, the family owned jewellery, gold and silver ornaments, silver utensils, etc., and many other movable household effects. It also owned a large number of immovable house properties at several places such as Mahboobgunj, Hyderabad, Parbhani. Bombay, Bhainder, etc. The family also carried on business at several places either on its own account or in partnership with others. A few days before 1st November, 1948, the members of the family agreed to sever their joint status and proceeded to divide the jewellery, gold and silver ornaments and the other household effects. The account books of the family contained a capital account, called the "?old capital account "?. It will be seen from this account that, on 13th November, 1947 it opened with a credit balance of Rs. 27,59,983. At the end of the said recounting year, that is, on 1st November, 1948, several other accounts were transferred to this account. Some of the accounts were written off and the final adjustment as on 1st November 1948 showed that the total capital of the family amounted to Rs. 26,85,163, This represented the value of the entire family property in the form of its own businesses, business carried on in partnership with others, house properties, etc. This capital of Rs. 26,85,163 was divided equally amongst Bankatlal, Hariprasad, Srinivas and Onkarlal, the share of each being Rs. 6,71,291. Before this capital was arrived at, one house at Afzal Gunj was given exclusively to Bankatlal and another house at Chota Maharaj Gunj to Hariprasad as their share in the family property and the necessary adjustment on account of their values was made in the account. The result of the said adjustment discloses an amount of Rs. 5,74,153 to the credit of Hariprasad, Rs. 5,84,153 to Srinivas and Onkarlal each, and an amount of Rs. 4,51,918 to Bankatlal. Following this severance and the division of the family capital as stated above, the three brothers. Bankatlal, Hariprasad and Srinivas, agreed to carry on the erstwhile business in partnership to the benefits of which the minor Onkarlal was to be admitted. A partnership deed was executed on 18th November, 1948 and the said partnership was registered with the Registrar of Firms. It may be noted that the houses themselves belonging to the family were divided by metes and bounds, but what happened was that they were converted into assets of the partnership entered into by them on 1st November, 1948. By reason of this, the houses ceased to be the assets of the Hindu undivided family but became the property of the partnership. The deed of partnership which was executed on 18th November, 1948 was duly registered with the Registrar of Firms. Thereafter, the three brothers, Bankatlal, Hariprasad and Srinivas and Bansilal the separated brother, acting on behalf of his minor son, Onkarlal, executed a registered deed of partition on 1st May, 1949 recording the details of the partition effected previously and referring to the partnership entered into by the three adult brothers and the minor Onkarlal who was admitted to the benefits of the partnership. After reciting that the division of movable property, such as cash, jewellery, utensils, etc., in definite shares was effected and after referring to the fact that the family was carrying on business at several places either on its own account or in partnership with others, it mentioned that there were several outs standings due to it as well as several business debts owed by it to others. Then it proceeded to state as follows:-