AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
1961 (12) TMI 107
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....runa Group Estates, Bodinaickanur, is the name of a firm and the firm 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 Rs. 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. Do....
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...., the share that belongs to my family in this property will be divided between myself and such of my male issue as exist at that time." It is to be noted that this partition deed expressly 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 Rs. 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....
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....ed in particular shares among his sons, is not bona fide and, consequently, has to be rejected for the purpose of assessment." In regard to the claim of Suppan Chettiar's four 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....
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....a genuine partnership, and was registered as such by the Agricultural Income-tax Officer for the two previous years preceding 1957-58. In the new partnership, which was sought to be registered there 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, p....
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....ubstitution of the new partner or partners, a new partnership springs into existence. The absence of any valid document of transfer from Suppan Chettiar to his sons--we do not say that the letter of Suppan 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 Indi....
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....nas belonging to V was split up into 7 annas for V and two annas for his nephew, A, who joined the firm as a partner. An application was made for registration of the newly constituted firm. The Income-tax 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....