Partition by family books: partnership profits tied to a divided family capital interest are assessable to individual members, not the HUF.

Entries in family account books evidencing division of a family capital interest in a firm can constitute competent evidence of a partial partition where the asset is not susceptible to metes and bounds division; absence of corresponding entries in the firm's books does not negate such partition. The continuing appearance of the father as partner did not imply representation of an undivided family interest but of individually entitled members. Accordingly, partnership profits attributable to the capital interest divided on 12 April 1957 are assessable in the hands of the individual divided members, not the joint family.

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Issues: (i) Whether, on the facts and in the circumstances of the case, the share of profits from K. G. Ramakrishnier and Co. is assessable in the hands of the Hindu undivided family or in the hands of the individual members of the Hindu undivided family?

Analysis: The Court examined the family accounts and the entries showing that on 12 April 1957 the family's capital interest in the firm valued at Rs. 4,28,977 was divided into three one third shares and credited to separate capital accounts of the father and two sons, with subsequent ledger folios reflecting individual withdrawals and credits. The Court accepted that where an asset not susceptible to division by metes and bounds (such as a family interest in a firm) is divided, proper entries in the family books are competent evidence of a partial partition. The absence of corresponding entries in the partner firm's books did not negate the partition, because partition among family members does not automatically alter the firm's constitution or require that non partners be recorded as partners in the firm's books. The father's continuing appearance as partner in the firm after the partition did not mean he acted in his capacity as karta for the undivided family; rather he represented the individually entitled members in a different capacity. The Tribunal's finding that the income derived from the partnership after 12 April 1957 belonged to the divided members and not to the joint family was supported by the documentary evidence of division in the family ledgers and the subsequent conduct of the parties.

Conclusion: The share of profits from K. G. Ramakrishnier and Co. insofar as it related to the capital interest divided on 12 April 1957 is assessable in the hands of the individual members (the divided members) and not in the hands of the Hindu undivided family; the reference is answered against the department and in favour of the assessee.

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