TaxTMI 
TaxTMI 
1950 (5) TMI 28
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....bsp; Shyam Mohan Krishna Mohan The joint family was carrying on extensive business in Banaras brocade goods and in the year 1943-44 it had made a profit of Rs. 26,802. In 1944-45 upto 16th July, 1943, it made a profit of Rs. 64,775 which was well in excess of the amount on which excess profits tax was payable, i.e., Rs. 36,000. On the 16th July, 1943, the adult members of the family are said to have made a partial partition by dividing the Banaras brocade business, the status of the joint family remaining joint and the other property also not being divided. After this division on the 16th of July, 1943, on the 17th of July, 1943, they started two partnership firms under the name and style of (1) Sohan Pathak Girdhar Pathak, and (2) G.M. Pathak & Co. The two firms carried on the same business as the joint family was carrying on. The partners in Sohan Pathak Girdhar Pathak were said to be- Shyam Sunder, Major 2 annas share Hira Lal, " 2 " Panna Lal, " 2 " Man Mohan, Minor 4 " Gopi Nath, " 2 " Radhey Mohan, " 2 " Shri Nath, " 2 " G.M. Pathak & Co., had as its partners- Ganesh Ram, Major 2 annas sha....
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.... been accepted by the Income-tax Officer and the business was treated as having been discontinued for the purpose of assessment under the Income-tax Act, the same business could legally be treated as having continued unbroken in respect of the same chargeable accounting period for the purpose of Section 10A of the Excess Profits Tax Act read with Sections 4 and 5 of the same Act? II. Whether in the circumstances of the case, the effect of the partial partition of the Hindu undivided family on 16th March, 1943, and the formation of two different firms was a transaction within the meaning of Section 10A of the Excess Profits Tax Act? III. Whether on the facts found by the Tribunal as stated in para 7 of the statement of case, it was justified to draw the inference that the main purpose behind the partial partition was the avoidance or reduction of liability to excess profits tax?" We may mention here that we were put to a great deal of trouble by reason of the way the statement of case was drafted, as well as by reason of the fact that the paper book contained nothing more than the statement of case. In paragraph 3 reference was made to paragraph 7 of the stateme....
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.... place. The portions of their appellate order where they seem to have given any finding, of their own, on questions of fact are to be found partly in paragraph 7 and partly in paragraph 8. In paragraphs 7 and 8 they found the following facts:- (1) On 16th July, 1943, the assets of brocade business were equally divided among four groups of members forming the family. (2) On the next day these four groups formed two partnership concerns for carrying on the same brocade business. (3) This business was to be carried on by capital received from the family. (4) The four branches had equal shares in the profits. (5) If the main purpose of the partial partition of the business was to safeguard the interests of the minors, the family should have divided the shares in earlier chargeable accounting periods when a slump had set in and the profits had gone down and not in the chargeable accounting periods when the profits had gone up considerably. The grounds on which the Excess Profits Tax Officer had acted are set out in paragraph 4 of the statement of case. Even if we discard the grounds on which the Excess Profits Tax Officer had come to the c....
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....er authority to nullify any act, not being in the nature of a business deal, by which the members of the assessee family decided to break up their status. It is further urged that on the breaking up the joint family status and on the two partnerships coming into existence there was a change in the persons carrying on the business within the meaning of Section 8 and a new business must be deemed to have commenced and in such circumstances where the old business must be deemed to have come to an end and a new business to have commenced, Section 10A should not be applied. Dealing with the excess profits tax in England Lord Hanworth in Birt, Potter and Hughes, Ltd. v. Commissioners of Inland Revenue [1926] 12 Tax Cas. 976, said: "I desire to observe at the outset that we are dealing with what is known as and what was imposed as the Excess Profits Duty, its name indicating that it was a duty upon excess profits; it was designed, as we all know, to try to secure to the Revenue a portion of the profits being made in the course of the war which were said to be enhanced by the circumstances of the war and, being so enhanced, to be beyond the sum which the subject was entitled to....
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....mply because the business became the separate property of the family. Mr. Pathak has urged that it is open to a member of the joint Hindu family to sever his status either in whole or in part and the Excess Profits Tax Officer cannot force the members of a joint Hindu family to continue as members of the joint Hindu family. That is perfectly true, but, if the members of the joint Hindu family partition the property, with the main purpose of avoiding excess profits tax, the Excess Profits Tax Officer, even though he may not be able to make them reunite, can certainly ignore such a partition and adjust the liability in accordance with the provisions of Section 10A. On the finding that the partial partition was with the main purpose of evading payment of excess profits tax, we fail to see how it can be urged that Section 10A was not applicable. The argument that it is a new business does not also affect the matter. If the change was effected with the main purpose of evading payment of excess profits tax, the Excess Profits Tax Officer is entitled to ignore such a change. Mr. Pathak contended that under Section 8 whenever there is a change in the persons carrying on a business, the ....