1943 (11) TMI 14 - HC - Income Tax

Court rules Hindu Undivided Family continues; business partnership established. Costs allocated. Refund ordered.

The court held that Rai Bahadur Bansidhar Dhandhania, Dwarkaprasad Dhandhania, and Kedarnath Dhandhania must be deemed to continue as a Hindu undivided ... - Issues Involved:1. Joint or separate status of Rai Bahadur Bansidhar Dhandhania, Dwarkaprasad Dhandhania, and Kedarnath Dhandhania.2. Business status of Harchandrai Anandram as a Hindu joint family business or a partnership.Issue-wise Detailed Analysis:1. Joint or Separate Status of Rai Bahadur Bansidhar Dhandhania, Dwarkaprasad Dhandhania, and Kedarnath DhandhaniaThe primary issue was whether Rai Bahadur Bansidhar Dhandhania, Dwarkaprasad Dhandhania, and Kedarnath Dhandhania were to be considered joint or separate in law. The Income Tax Officer had to determine if the family had partitioned and if the joint family property had been divided among the members in definite portions, as required under Section 25-A of the Indian Income Tax Act, 1922.The Income Tax Officer found that there was a separation into two groups (Calcutta and Bhagalpur) but no documentary evidence supported further sub-division among the Bhagalpur group. The Assistant Commissioner affirmed this, noting that there was no physical division of the family assets among the three brothers, and the properties and businesses continued to be managed jointly.The Assistant Commissioner concluded that the Bhagalpur group remained joint in status and property, and thus, the Income Tax Officer was correct in not recognizing the partition under Section 25-A. The Commissioner also refused to interfere, agreeing that the joint family properties had not been partitioned in definite portions.The court held that the findings indicated a partial rather than a complete partition. Therefore, the family must be deemed to continue as a joint Hindu family for assessing the income from properties not partitioned in definite portions. The court answered that Rai Bahadur Bansidhar Dhandhania, Dwarkaprasad Dhandhania, and Kedarnath Dhandhania must be deemed to continue as a Hindu undivided family.2. Business Status of Harchandrai AnandramThe second issue was whether the business of Harchandrai Anandram should be considered a Hindu joint family business or a partnership. The Assistant Commissioner had found that there was no real partition among the sons of Anandram and that the partnership deed dated 1st August 1936 was a colorable document, not intended to be acted upon.The court noted that the businesses were divided between the Calcutta and Bhagalpur groups, and profits and losses were adjusted according to the shares of the different branches. However, the house properties and jote lands remained undivided among the Bhagalpur group.The Assistant Commissioner had rejected the claim under Section 25-A, stating that there was no partition in definite portions. The Commissioner supported this view, emphasizing that the joint family properties had not been partitioned among the members in definite portions.The court, however, held that the businesses were partitioned among the three branches of the family, and the partnership deed was valid. The court noted that Section 25-A does not prohibit members of an undivided Hindu family from entering into a partnership in respect of a portion of the joint property partitioned among themselves.The court concluded that the business of Harchandrai Anandram should be considered the business of Rai Bahadur Bansidhar Dhandhania, Dwarka Prasad Dhandhania, and Kedarnath Dhandhania in partnership.Conclusion:1. Rai Bahadur Bansidhar Dhandhania, Dwarkaprasad Dhandhania, and Kedarnath Dhandhania must be deemed to continue as a Hindu undivided family.2. The business of Harchandrai Anandram is to be considered the business of Rai Bahadur Bansidhar Dhandhania, Dwarka Prasad Dhandhania, and Kedarnath Dhandhania in partnership.Each party will bear their own costs, and the Commissioner will refund the sum of Rs. 100 deposited by the assessee as costs of the reference.