COMMISSIONER OF INCOME TAX Vs. K K NATHANI

JUDGEMENT

(1.) THE Revenue has made an application under s. 256(2) of the IT Act, 1961 with the prayer that the following question of law arises out of the order of the Tribunal and the Tribunal was not justified in refusing to refer the same to this Court under s. 256(1) of the IT Act :

(2.) IN view of the order of the Tribunal dt. 31st Aug.,1978, wherein it was observed that the tax liability could be raised in the same manner as the assessment could have been made in the case of beneficiaries (erstwhile partners) directly, the IAC (Assessment-I) while giving effect to the order of the Tribunal computed the income in the hands of M/s Duduwala & Co. and worked the tax in the hands of the beneficiaries. The dispute was raised as to whether the income in hands of the beneficiaries could be said to be unearned income liable to the additional tax and also interest. The assessing authority held that the income was earned by the joint receivers and managers by carrying on business for the benefit of the beneficiaries. These profits have been earned by the person to whom they do not belong and, therefore, the income in the hands of the beneficiaries was treated as unearned income. The income in respect of the asst. yr. 1959-60 was considered as earned income and the said order of the appellate authority had become final. The Tribunal proceeded in the earlier proceedings that the income in the hands of M/s Duduwala & Co. has to be computed as business income, but the tax has to be worked out on the basis of each beneficiary's share which has to be realised from M/s Duduwala & Co. A consent decree was passed by the Calcutta High Court in the suit No. 690 of 1957 alongwith suit No. 1122/1957 in which it was ordered by the High Court that the official receiver stood discharged and the Court's order dt. 11th Dec., 1959 for the sale of the business and assets of M/s Duduwala & Co. was stayed. Ram Kumar Agarwal and Satya Narain Nathani were appointed as joint receivers and managers of the business and assets of M/s Duduwala & Co. and that business was carried on by the beneficiaries and the assessments were ordered to be made because of convenience for making the assessments and realisation of the dues. Considering these facts the appeal was allowed by the CIT(A). When the matter was challenged before the Tribunal, it was found that M/s Duduwala & Co. was the partnership firm which was carrying business of mica having Rameshwar Nathani, Ram Kumar Agarwal and charity as partners in the ratio of 12 annas, 3 annas and 1 anna respectively. Rameshwar Nathani expired on 18th Jan., 1957 leaving a widow and four sons and daughters. A suit wads filed by the sons of the deceased partner Rameshwer Nathani at Bhilwara, while the other partners filed a suit in the Calcutta High Court for a declaration that the firm be treated as dissolved and for rendition of accounts after the death of Rameshwar Nathani. On 26th June, 1957 the Calcutta High Court appointed an official receiver of the firm and directed him to carry on the business of the firm with a view to pay off its liabilities. A compromise was arrived at between the parties which was filed in the Calcutta High Court on 4th June, 1960. The compromise was accepted by the High Court and a decree was passed on the basis of the compromise by the Calcutta High Court on 15th Sept., 1960. According to the compromise, the firm M/s Duduwala & Co. was dissolved on and from 18th Jan., 1957, i.e., on the death of Rameshwar Nathani, one of the partners. It was agreed between the parties that they were entitled to the assets of the dissolved firm in five equal shares. One share was to go to Ram Kumar Agrawal and four shares were to go to four sons of the deceased partner Rameshwar Nathani Ram Kumar Agrawal and Satya Narain Nathani were appointed as joint receivers and the firm M/s Duduwala & Co. was divided in 5 equal blocks and five separate lease deeds were executed by the respective parties with the Government. The dispute was with regard to the period of business carried on by the joint receivers and managers Shri Ram Kumar Agrawal and Satya Narain Nathani for the accounting period relevant to the asst. yrs. 1960-61 to 1966-67. The order of the CIT(A) was up held by the Tribunal and the reference application submitted under s. 256(1) of the IT Act was dismissed on the ground that the matter is covered by the decision of the apex Court in the case of CIT vs. H.E.H.Mir Osman Ali Bahadur (1966) 59 ITR 666 (SC) and CIT vs. P. Krishna Warrier (1970) 75 ITR 154 (SC) wherein it was held that though the trustees had no beneficial interest in the income of the business, the income was still income chargeable under the head `profits and gains of business, profession or vocation'. IN the case of P.Krishna Warrier (supra) the apex Court held that-