GANPATRAI SAGARMAL Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) This reference relates to the assessment of a partnership firm of M/s. Ganpatrai Sagarmal for the assessment year 1958-59, for which the previous year was Diwali year 2013-14 Diwali. The assessed-firm was originally started by two partners, viz., Sagarmal and Rameshwarlal, who carried on business under a deed of partnership dated 10th January, 1946. By a deed dated 6th November, 1949, the two partners transferred their firm's business to an entity consisting of themselves and others. Thereafter the business was carried on by them and others, referred to as donees or trustees. Sagarmal had six annas share in the said business. He died on the 15th April, 1955, leaving a will dated 29th November, 1954. After his death, a fresh document of partnership was executed on 13th January, 1956, by Rameshwarlal, his mother, Smt. Mahadevi, and his wife, Smt. Gayatri Devi, representing their minor son, Kanhaiyalal. For the assessment year under reference, an assessment was originally made on an association of persons. That assessment order, a copy of which was handed Over to us and which is not disputed by the Revenue, described the status of the assessee as an association of persons and the name of the assessee as follows : "Rameshwarlal Lohariwalla & Others, Trustees to the Estate of Ganpatrai Sagarmal, 12, Armenian Street, Calcutta."

(2.) The ITO, who passed the said assessment order on the 11th December, 1959, observed that the profits of that year had been divided amongst the settlors and beneficiaries and no profits had been allocated to the charity fund. Thereafter, he computed the total income at Rs. 1,11,160 and observed, inter alia, as follows : "No demand is raised in this case as the beneficiaries will be assessed directly under Section 41(2) of the I.T. Act. The allocation of the total income amongst the beneficiaries is made as under : Name Business Interest Dividend Net Dividend Gross Rs. Rs. Rs. Rs. 1. RameshwarlalLohariwalla 25,244 20 456 4 9997 177 2. Smt. Mahadevi 12,622 7 131 2 499 3 588 3. Kanaiyalal Lohariwalla 2,622 18 732 2 499 3 588

(3.) It appears that thereafter there was a dispute in connection with some other years of assessment which came up for consideration before this court and the decision is reported in the case of Ganpatrai Sagarmal (Trustees) for Charity Fund v. CIT [1963] 47 ITR 625, where, after setting out the relevant clauses of the alleged trust deed, the Division Bench of this court observed that in order to constitute a gift to charity the ownership of the property must be transferred to the trustees unless the settlor alone was the trustee. The Division Bench found in that case that the settlors were not the sole trustees and there was no transfer of property. The document, according to the Division Bench, only showed that at some date in the past, the two partners had agreed that the entire properties of the business should be transferred to themselves and others as trustees but the deed did not record that such transfer was ever effectuated. The Division Bench went on to observe that it was not enough under Section 4(3)(i) of the Indian I.T. Act, 1922, that the income from the property was held for charitable or religious purposes but the property itself should be held under a trust or other similar obligation for religious or charitable purposes. It was further observed that one-fourth of the profits of the business of the firm was not exempt from tax under Section 4(3)(i) and as the property remained the property of the settlor, Section 16(1)(c) of the 1922 Act applied and the entire income from the business was chargeable in their hands, that by the document the partners had merely indicated their intention to set apart one-fourth of the income for charitable purposes and that the proviso to Section 16(1)(c) did not apply as there was no provision for retransfer of income directly or indirectly by the settlors. Following the said decision, it was held that the assessment on that trust or an assessment on the beneficiaries, qua beneficiaries under Section 41(2) of the Indian I.T. Act, 1922, could no longer subsist. The ITO, therefore, under Section 148 of the I.T. Act, 1961, took steps for reopening the assessment on the assessee-firm for the assessment year 1958-59. By his order passed under Section 143(3) of the Act read with Section 148 of the Act, he made an assessment on the assessee in the status of an "unregistered firm" on a total income of Rs. 1,10,160. The ITO observed in his order, inter alia, as follows :