TaxTMI 
TaxTMI 
1976 (4) TMI 64
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.... in the assessment of the assessee which came to Rs. 2,27,740 in the asst. yr. 1969-70 and Rs. 5,87,458 in the asst. yr. 1970-71. 3. Aggrieved by the rejection of the claim, the assessee preferred appeals to the AAC. We have to give some more facts at this stage. In the firm of M/s. Shiv Narain Karmendra Narain the assessee was a partner representing the joint family consisting of himself, his wife and minor son till 24th Oct., 1965, by a memorandum of partial partition dt.9th Nov., 1965the share along with some other properties of the family were completely divided. The claim of the partition was recognized by the ITO under s. 171 vide his order dt.26th March, 1971. As a consequence of this recognition the assessee's share was only 1/3rd, in the said half share in the said firm. The assessee put up the claim that only 1/3rd of the share should be assessed in his hands for the asst. yr. 1966-67. The ITO before whom this claim was made held as in that year that the entire share income was taxable in the assessee's hands on the view that the division of the share of profits of the firm was only obligation of income after it had accrued and that there was no diversion of income by ....
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....r distinction pointed out by the learned counsel for the assessee was that in this case the wife has not agreed to bear the losses. In our opinion this makes no difference. The facts in both the sets of appeals are substantially similar. Therefore, for the details reasons given in our order of even date in ITA No. 4402 of 1971-72, 2789 to 2791 (Del) of 1972-73 against Shri Shiv Narain Agarwal we hold that a sub-partnership came into being between the assessee and his wife and to the benefits of that sub-partnership the minor son was admitted. The income from the sub-partnership will therefore be includible in the assessee's income under s. 64(i) and (ii) of the IT Act, 1961. In the result therefore the revenue's appeals are allowed". It will be seen from this order that the Tribunal expressed the view that a sub-partnership came into existence between the assessee and his wife and to the benefits of that sub-partnership the minor son was admitted on the basis of its order in ITA Nos. 4402 of 1971-72, 2789 to 2791 (Del) of 1972-73 in the case of Shri Shiv Narain Agarwal. It has, therefore, become necessary to refer to that order also to look for the reasons that prevailed with th....
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....aymond & Co. But it was held that he was no partner in that partnership; had no demand against it; had no account in it; and that he must be satisfied with a share of the profits arising and given to Shri Chas Raymond". "Reference is made to the rights of sub-partners in s. 29 of the Indian Partnership Act, 1932. The sum and substance of all this is that if a partner agrees to share his income from the firm with another person, who is not a partner in the original firm, such an agreement constitutes that is actual a sub-partnership. It is true that a sub-partnership is also a partnership and it must comply with the provisions of s. 4 of the Indian Partnership Act, according to which partnership is the relation between persons, who have agreed to share to profits of the business carried on by all or any of them acting for all. In our opinion these provisions are complied within the present case. According to the memorandum dt.2nd April, 1963the assessee and his wife agreed to share the profit to the extent of 1/4th share of the assessee in the firm M/s. Shiv Narain Karmendra Narain,Aligarh. The shareing ratio was 50 : 50. It was further agreed that the profits shall include losse....
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....or the assessee Shri H.G. Malik, the learned Advocate, submitted that the view taken by the Tribunal in the case of the assessee for the earlier years was not correct view and in any case, it requires reconsideration in view of a direct decision given on the identical point by the Gujarat High Court in the case of Addl. CIT Gujarat, Ahmedabad vs. Chandulal C. Shah in Income-tax Reference Nos. 60/74, 114, 119, 219 and 171 of 1974 reported in 1976 Taxation Volume XLII s. III : 1976 CTR (Guj) 299 from page 47 onwards. He also relied upon several orders of the Tribunal where identical issues had been decided in its favour to one of which decisions one of us was a party. Paying great stress on the fact that partition had been accepted by the Department under s. 171 the question of coming into being a sub-partnership without there being any volition on the part of the quandum members did not arise either in fact or in law. Answering the point raised by the Departmental Representative that according to the decision of the Supreme Court in 62 ITR 323 a sub-partnership was created when there was an agreement to share the profits received from a main partnership, the learned counsel for the ....
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....re losses. It was this agreement to share losses that influenced that Bench to hold that a sub-partnership came into existence after partition of the joint family, namely, the share of the partnership of Shri Shiv Narain Karmendra Narain,Aligarh. But actually in the assessee's case there was no agreement to share the losses as is evident from the memorandum of agreement. It is argued before us that the memorandum of agreement is more in the nature of finance agreement. We will not express any opinion on this point because that is not necessary for the disposal of these appeals. Absence of an agreement to share the losses distinguishes that case from the assessee'' case. This important point had not been brought to the notice of the Bench which disposed of the appeals. Apart from this distinguishing feature the decision of the Gujarat High Court is categorical on the point. In this case the assessee was a partner in a firm called M/s. Gujarat Automobiles. Amedabad, along with others. The assessee is a Karta of a joint family. He represented the joint family in that firm as a partner. There was a partition in the joint family of the assessee as per the deed of partition. The partitio....
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.... taken by the Tribunal was correct and that the relationship that subsisted between the assessee, his wife and son was that of co-owners with regard to the assessee's share in the firm of M/s. Gujarat Automobiles and that there was no sub-partnership between the assessee and the remaining members of his family. The observation of the High Court while dealing with the question of sub-partnership may be quoted with advantage:- "It should be noted that partnership, as understood in the Partnership Act, is in its essence a relationship which results from a contract and a valid contract presupposes that parties to it are legally capable of entering into it. If the document of partition found at Ann. A is taken to be also an agreement creating a sub-partnership between the members of the family, then it must follow that all the signatories to this document entered into a contract to form a partnership. But who are these signatories? The document shows that even minors represented by their guardians have signed the deed of partition which are produced in the record. It, therefore, follows that if the document in question is held to be evidencing an agreement of sub-partnership, the min....
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....ion in law that though sharing of profits is an essential element of partnership, the mere fact that in a particular agreement there is agreement to share profits, would not render that arrangement an agreement of partnership. Again agency is equally a necessary ingredient of every partnership, but it would be fallacious to state that whenever there is an agreement creating an agency, a partnership in law is created. Further, there would be cases where both the elements namely, (i) shareing of profits and (ii) creation of agency are in existence with regard to some persons who are parties to the arrangement and yet intention to create partnership is found to be lacking because of the fact that the remaining persons were not legally capable of entering into a partnership agreement. The present case is one of the cases of that type because even if the minors have appointed their fathers as their agents to receive the share of income, from business of the firm of Gujarat Automobiles, they could not have done so under law for the purpose of forming any partnership." 9. The High Court also referred to the nature of agreement which should be borne in mind for the purpose of arriving a....