TaxTMI 
TaxTMI 
1981 (7) TMI 116
X X X X Extracts X X X X
X X X X Extracts X X X X
....O (Bench 'A'), in regard to the matter in issue in these appeals. These appeals were, therefore, referred on 6-12-1979 by that Bench to the President, Appellate Tribunal, under section 255(3) of the Income-tax Act, 1961 ("the Act"), to constitute a Special Bench. These appeals have come up for hearing before us in pursuance of the direction of the President constituting the Special Bench. 3. Up to and inclusive of the assessment year 1972-73, Shri Sunku Subbalakshmaiah was assessed in the status of a HUF. This family consisted of the following members: 1. Sunku Subbalakshmaiah Karta 2. Viswanatha Gupta Minor son 16 years  ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the business with the place of the business and other sundries of the business for the purpose of carrying on the business. Shri Sunku Subbalakshmaiah also made a declaration in writing on 26-4-1972 setting out the details of the above partial partition and also declaring that he had taken over the whole of the family business himself and that further he had agreed to surrender the one-third share of the annual profits of these businesses due to each son and to his smaller family. For the years under appeal, viz., 1973-74 and 1974-75, the assessee in the status of a smaller HUF had filed returns of income before the ITO. For the assessment year 1973-74, the assessee claimed deduction of an amount of Rs. 24,181 paid to the two divided minor coparceners out of the income returned. For the assessment year 1974-75, the assessee claimed similar deduction for a sum of Rs. 27,022 and also for the sum of Rs. 8,848, being the interest paid in respect of the amounts standing to the above minor coparceners' credit which was obtained as a result of the aforesaid partial partition. The ITO, however, did not accept the assessee's claim. He observed that in his opinion the arrangement that was b....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... following common grounds : 1. The AAC's order is erroneous in law as well as on the facts of the case. 2. The AAC is not justified in treating the status as that of HUF when in fact an AOP has come into existence. 3. The amounts credited to the minor have been rightly disallowed and added to the total income and the AAC is not justified in deleting them. 4. Any other ground that may be urged at the time of hearing. 4. The learned departmental representative, Shri M.A. Khan, contended before us that the correct status of the assessee was a body of individuals and that the same is supported by the decision of the Andhra Pradesh High Court in Deccan Wine & General Stores. He submitted that the AAC was not justified in treating the assessee as a HUF whereas in fact an association of persons had come into existence. He heavily relied upon the order of the Appellate Tribunal in IT Appeal No. 1628 (Hyd.) of 1973-74 dated 29-12-1975. On behalf of the assessee reliance was placed on the order of the AAC and also on the order of the Appellate Tribunal Hyderabad Bench 'A' in IT Appeal Nos. 1040 and 1041 (Hyd.) of 1976-77 dated 31-12-1977 and also several other orders of the Tr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssued by the ITO under section 139(2) of the Act. The said decision would not, therefore, support the assessee's claim that the ITO is not competent to change the status in cases where returns were filed voluntarily as in the case before us. In the case of N.V. Narendranath v. CWT [1969] 74 ITR 190 (SC), the assessee filed returns for the assessment years 1957-58, 1958-59 and 1959-60 in the status of HUF. The assessee's family daring the material time consisted of himself, his wife and his two minor daughters and there was no other male member. The WTO did not accept the contention of the assessee and assessed him as an individual. On appeal, the AAC agreed with the WTO that the assessee must be assessed as an individual. On further appeal, the Appellate Tribunal held that the assessee should be assessed in the status of a HUF. The revenue took up the matter in reference to the Andhra Pradesh High Court. The Andhra Pradesh High Court held that the assessee in the absence of any other male coparcener should be assessed as an individual and not as a HUF. On appeal by the assessee to the Supreme Court, the Supreme Court held that the correct status of the assessee was that of a HUF as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(2) and observed that a common purpose or a common tie, actual or potential capacity to hold properties or disposable income would be the minimum requirement of such a body of individuals. The Madras High Court went on to observe that an AOP may consist of non-individuals also but a BOI has to consist only of individuals or human beings, The Punjab and Haryana High Court in the case of Meera & Co. v. CIT [1979] 120 ITR 564 had applied the ratio of the ruling of the Andhra Pradesh High Court in Deccan Wine & General Stores and that of the Gujarat High Court in Harivadan Tribhovandas. The Orissa High Court in the case of Sri Ladukishore Das v. State of Orissa [1973] 87 ITR 555 held that after the partition of a HUF by metes and bounds, the erstwhile coparceners who became exclusive owners of separate parcels of land would not constitute an association of individuals merely because they live together in joint mess and one of the coparceners looks after the cultivation of the entire property. The Andhra Pradesh High Court in Deccan Wine & General Stores considered the definition of "BOI". Since the revenue has relied heavily on this decision it is necessary for us to consider the ratio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....1972. 3. Family business as such in the name of Sunku Cotton Traders, Prop.: Sunku Subbalakshmaiah, Tadpatri, with effect from 1-1-1972. 4. Family business as such in the name of Sunku Subbaskshmaiah and Sons, Tadpatri, with effect from 1-4-1972. The assessee filed necessary questionnaire forms and produced the books of accounts of the various sets in which partition entries have been effected. I have scrutinised the same and I am satisfied that there was a partial partition as discussed above with effect from the dates mentioned against the assets, and accordingly I recognise the same. Sd./P.V. Subramanyam Income-tax Officer, B-Ward Anantapur" After this partition Shri Sunku Subbalakshmaiah took over the business of the bigger family with the place of business and other sundries to himself to carry on the said business. This was recorded in the written declaration made by Shri Sunku Subbalakshmaiah on 26-4-1972. It is necessary to set out the said declaration : "This deed of declaration made this 26th day of April, 1972 by Sunku Subbalakshmaiah son of Ramalakshmaiah aged 42 years residing at Tadpatri, Anantpur district, witnesseth as follows: WHEREAS I am t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....p; (Minor) Rs. 2,000 Shri Padmaja alias Lakshmi Padmaja (Minor) Rs. 2,000 The above amounts were credited to their respective accounts and debited to family capital account. After making the above allotments to the family female members, the following capital of the family in both the books was partitioned equally between the coparceners of the family as detailed below: Name of the family books Capital partitioned Rs. Date of partition Amount allotted Rs. Name of the allottee Rs. 1. Sunku Cotton Traders, Prop: Shri Subbalakshmaiah, Tadpatri 42,000.00 1-1-1972 14,000.00 14,000.00-Sunku Subbalakshmaiah (smaller HUF) Shri Viswanatha Gupta (minor) 14,000.00-Shri Badrinath Gupta (minor) 2. Sunku Subbalakshmaiah & Sons 30,696.84 1-4-19....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that myself and my sons are separate as far as the above are concerned. I further declare that the fact of this partition is being made known to the public as far as possible. S/d S.S. Laxmaiah The contents of the above declaration having been read over and explained to the deponent and he having accepted the same as correct, signed before me today the 26th day of April, 1972. Sd/- XXX Designation Honorary Magistrate Dated 26-4-1972.". A plain reading of the above declaration shows that Shri Sunku Subbalakshmaiah took over the whole of the family business to himself and he carried on the business himself. Shri S. Subbalakshmaiah had agreed to pay his sons one-third share of the annual profits of the businesses due to each son for retaining their share of capital in the business. In the face of the above declaration, it is difficult to hold that there was unity of interest and one or more of the members produced or help to produce income for the benefit of all as laid down by the Andhra Pradesh High Court in Deccan Wine & General Stores. The business was in fact carried on by Shri Sunku Subbalakshmaiah himself and there was no undertaking to carrying on the busines....
X X X X Extracts X X X X
X X X X Extracts X X X X
....orded under document dated 31-1-1971, which stipulated that a first charge was created against the business stocks and other assets of the business taken over by the karta for the payment of profits to the minor sons. Further there were two other declarations incorporating the same dated 2-8-1971 and 17-8-1971. Having referred to these documents, the Tribunal in paragraph 5 of its order had found that there was only an actual division of the capital in the business between the karta and his three sons, that the minors definitely had interest in the business apart from merely getting a share in the share capital of the business, and that right was given up by the minors by virtue of the specific agreement in order that they might be getting their share of profits out of business to be carried on by their father exclusively. From the declaration in the instant case, however, it is clear that there was a complete division of the family business which was taken over exclusively by Shri Sunku Subbalakshmaiah. In this case there was no first charge created against the business stocks and other assets of the business taken over by the karta for the payment of profits to the minor sons as ....