MAHABIR PARSHAD Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) This judgment will dispose of I.T. Ref. Nos. 39 and 40 of 1976. Since a common question of law is involved in both these references, the same are being disposed of by a common judgment.

(2.) The facts as given in I.T. Ref. No. 40 of 1976, may thus be stated. The applicant assessee is an HUF. The financial year was the previous year. The assessee had been deriving share income from a partnership firm working in the names, (i) M/s. Kewal Ram Uggar Sain, and (ii) M/s. Union Metal Industries, respectively, at head office and branch office. The firm, M/s. Kewal Ram Uggar Sain, was constituted as per instrument of partnership dated 30th June, 1951. It consisted of eight partners out of whom four partners, namely, Sarvshri Kirat Chand. Mahabir Parshad, Sukhbir Parshad and Phool Chand, retired from the partnership on 19th January, 1967. At the time of their retirement, the said four partners were paid a total sum of Rs. 10,00,000. The said four outgoing partners had in the profits of the said firm shares to the extent of 3 1/2 annas; 2 annas; 1 1/2 annas and 1 anna per rupee respectively. The interest of these outgoing partners in the assets of the said partnership had not been specified to be different. No deed of dissolution was executed when these four partners went out.

(3.) However, on 20th January, 1967, a new instrument of partnership was executed. The new partnership was also to work in the name and style of the old firm and it was again to consist of eight partners amongst whom four were the surviving partners of the old firm and the other four came in as new partners. The old firm prepared its balance -sheet as on 19th January, 1967, showing an amount of Rs. 1,01,069 odd standing to the debit of the outgoing partner, Shri Kirat Chand, and certain amounts standing to the credit of the outgoing partners, Sarvshri Mahabir Parshad, Sukhbir Parshad and Phool Chand. Eight days subsequent to the execution of the new instrument of partnership, all the twelve individuals, including the four outgoing partners of the old firm, the four surviving partners of the old firm and the four incoming partners to the new firm, executed a memorandum dated 28th January, 1967.