TaxTMI 
TaxTMI 
TaxTMI 
1961 (12) TMI 107
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....was originally constituted with five partners who had entered into a partnership agreement, dated 13th April, 1950. The firm owned plantations of cardamom and other agricultural and horticultural products. The names of the partners and their respective shares were as detailed below: "1. A.S. Subbaraj 7/12. 2. A. Narayanan 1/12. 3. A.S.R. Kanakaraj 1/12. 4. A.S. Suppan Chettiar 1/12. 5. K.M.S. Mallayyan Chettiar 2/12." The capital of the partnership was ₹ 4 lakhs, which was contributed mainly by A.S. Subbaraj, who was the major sharer. This partnership was accepted by the agricultural income-tax department and was registered for the assessment years 1955-56 and 1956-57. On 23rd November, 1955, a fresh partnership was entered into, the terms whereof were embodied in a written instrument. The names of the partners under this new partnership and their respective shares are as detailed below: 1. A.S. Subbaraj 7/48 2. S. Srinivasan 7/48 3. S. Baskaran 7/48 4. A. Narayanan 1/12 5. A.S.R. Kanakaraj 1/12 6. S. Kasiraj 1/48 7. S. Dorairaj 1/48 8. S. Natarajan 1/48 9. S. Mohan 1/48 10. K.M.S. Mallayyan Chettiar 1/30 11. K.S.S. Surul....
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....essly provides for the continuation and preservation of the 7/12th share in Aruna Group Estates as an undivided family asset. In the partnership deed, dated 23rd November, 1955, of which registration was sought there is definite declaration that Subbaraj and his three sons are each entitled only to a 7/48th share. The preamble to that document recites: "Whereas No. 1 A.S. Subbaraj as a member of the joint family consisting of Nos. 1 to 3 and 15 having acquired the estate known as Aruna Group Estates.......at a cost of ₹ 4,00,000......and having effected subsequently a partition of the family effects (No. 15 being minor is admitted to the benefits of the partnership)." It is quite obvious that though A.S. Subbaraj and his sons kept the 7/12th share undivided in the partition arrangement dated 14th January, 1955, they divided it at or about the time when the new partnership was constituted on 23rd November, 1955. A.S. Suppan Chettiar, partner No. 4 in the first partnership, retired from the partnership and is not a partner in the newly constituted firm. His place and his share have been taken by his four sons each taking 1/48th share. Suppan Chettiar wrote a lett....
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....sons being partners holding 1/48 share each, the Tribunal took the view that the transfer from Suppan Chettiar to his sons was a device lacking in bona fides resorted to for obtaining the benefit of a lower rate of tax or to get exemption altogether from assessment. We have now to examine the soundness of these reasons given by the Tribunal for not affording relief of registration prayed for by the partners of the firm. It will now be convenient to refer to the provision of the statute (Madras Agricultural Income-tax Act, 1955). Section 27 provides for registration of a firm. That section reads as follows: "1. Application may be made to the Agricultural Income-tax Officer on behalf of any firm, constituted under an instrument of partnership specifying the individual shares of the partners for registration for the purposes of this Act and of any other enactment for the time being in force relating to agricultural income-tax. 2. The application shall be made by such person or persons and at such times and shall contain such particulars and shall be in such form, and be verified in such manner, as may be prescribed, and it shall be dealt with by the Agricultural Income-tax O....
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....re was only a re-distribution and re-allocation of the shares of the original partners. The taxing authorities and the Appellate Tribunal did not find any difficulty in the matter of re-distribution of the 2/12 share of K.M.S. Mallayyan Chettiar. In regard to the share of A.S. Subbaraj, the view that has been taken by the subordinate tribunals is that there was no partition between him and his sons regarding the 7/12 share. We have no doubt that the plea of division between Subbaraj and his sons ought not to be repelled merely on the ground that the deed of partition kept it as a joint asset. Members of a joint family can bring about a division even without an instrument of partition. Every member of a Hindu undivided family has the indefeasible birthright of becoming divided and he can exercise that right by an unequivocal declaration of his intention to do so. This is purely a matter of volition on the part of any member and the personal law, the Hindu law, does not prescribe the time, place, manner or form for its exercise. If the members of the family sever their joint status, the severance is complete and valid, and it cannot be ignored on grounds of lack of bona fides. We are....
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....uppan Chettiar is not enough--cannot really affect the question whether the sons of Suppan Chettiar became partners of the new partnership each holding 1/48 share. The terms of the partnership deed dated 23rd November, 1955, do not indicate that the sons of Suppan Chettiar were mere dummies either for the other partners or for Suppan Chettiar, who was not eo nomine a partner. The formation and constitution of a partnership can in no way be affected by the fact that one of the partners is a benamidar for a stranger or that a partner holds his share as a manager of his joint family, or that a partner has agreed to give a portion of his share to another by constituting a sub-partnership with him. These are incidents which are outside the scope of the partnership arrangement and have no bearing on the truth or reality of the partnership as such. In the decision reported in Bagyalakshmi & Co. v. Commissioner of Income-tax [1961] 42 I.T.R. 727, which arose under section 26A of the Indian Income-tax Act, a provision in pari materia with section 27 of the Madras Agricultural Income-tax Act, it was held that a division in the family of two of the partners of a firm whereby the shares of t....
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....Officer held that the new partner was only a benamidar for V and that the bringing in of a new partner was a mere device to defeat the taxable income of V. He refused registration. On appeal, the Appellate Tribunal held that one of the partners had given a small portion of his share to his nephew without disturbing the main structure of the firm but that was not believed, and that fact could not affect the structure of the firm which continued as before and that registration ought not to have been refused. The Gujarat High Court held that the firm constituted under the new deed of partnership could be registered under section 26A of the Act. At page 20, the learned Chief Justice observed as follows: "If the deed correctly records what is agreed upon amongst all the partners, it cannot be said that the deed is in any sense incorrect and if an application for registration of the firm is made which correctly sets forth what is stated in the instrument of partnership, then it cannot be said that any of the particulars given in the application are incorrect and that the firm is not entitled to have itself registered by reason thereof. There might be arrangements, secret or otherw....