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PETITIONER: KSHETRA MOHAN-SANNYASICHARAN SADHUKHAN

       Vs.

RESPONDENT: COMMISSIONER OF EXCESS PROFITS TAX,WEST BANGAL

DATE OF JUDGMENT: 20/10/1953

BENCH: DAS, SUDHI RANJAN BENCH: DAS, SUDHI RANJAN SASTRI, M. PATANJALI (CJ) BOSE, VIVIAN HASAN, GHULAM BHAGWATI, NATWARLAL H.

CITATION:  1953 AIR  516            1954 SCR  268  CITATOR INFO :  R          1960 SC1147  (9)  R          1966 SC  24  (11)  RF         1970 SC1343  (14)  R          1972 SC2315  (13)

ACT:       Excess   Profits  Tax  Act  (XV  of  1940),  s.   8(1)-  Partnership, between kartas of two Hindu undivided families-  Death of kartas-Partnership continued by sons-Nature of such  pertnership-Separation  of  members of  each  branch-Whether  effects  change  in constitution of  firm-Carry  forward  of  deficiencies.

HEADNOTE:    Though  a partnership entered into by the kartas of  two Hindu  undivided  families  is popularly  described  as  one between two Hindu undivided families, in the eye of the  law it  is a part nership between the two kartas, and the  other members of the family do not ipso facto become partners.  It is  open  to the in dividual members of  a  Hindu  undivided family  to  enter  into a partnership  with  the  individual members of another Hindu undivided family but in such a case it  cannot  be  called  a  partnership  between  two   Hindu undivided families. (1) (1937] 5 I.T.R. 202. (2) [1939]7 I,T.R. 195. (3) [1952] 22 I.T.R. 108. 269     Two separated brothers governed by the Dayabhaga school of  Hindu  law,  as kartas  of  their  respective  families. started a business in partnership and carried it on for some years.  In 1932 one of them died and his four sons who  were undivided   amongst   themselves  were   admitted   to   the partnership.   The other brother also died in  1934  leaving four  sons,  and  the son$ of the  two  brothers  thereafter continued  the  partnership,  the  members  of  each  branch constituting   a   separate  joint   family   a,,;   amongst themselves.  On the 13th April, 1943, there was a  severance of both the families inter se, and the business was  carried

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on  by  the  eight sons who constituted  themselves  into  a partnership with effect from the 14th April.  The  Appellate Tribunal  found  that  prior to the 14th  April.  1943.  the partnership was one between two Hindu undivided families and from  that  date  the  partnership  was  one  between  eight individual members. of two disrupted families:     Held,  (i)  that,  as  the  finding  of  the  Appellate Tribunal was one of fact it was not open to the assessees to contend  that the partnership before the 14th  April,  1943, was  also a partnership of eight individuals; (ii)  that  on the facts as found by the Appeuate Tribunal there was on the 14th  April, 1943, a change in the persons carrying  on  the business  within  the  meaning of section 8  of  the  Excess Profits Tax Act, and the deficiencies which occurted  before 14th April cannot be deducted from the excess profits of the succeeding chargeable accounting periods.

JUDGMENT:      CIVIL APPELLATE JURISDICTION : Civil Appeal No. 173  of 1952.     Appeal  from  Judgment and Order dated the 20th  day  of June,  1951,  of the High Court of  Judicature  at  Calcutta (Chakravartti and S. R. Das Gupta JJ.) in Income-tax  Refer- ence  No. 64 of 1950, arising out of the Common Order  dated the  25th day of July, 1949, of the Court of Income-tax  Ap- pellate Tribunal in E.P.T.A. Nos. 550, 551 and 552 of  1948- 49.     N.C.  Chatterjee  (A.   K.  Dutt,  with  him)  for   the appellant.     C.K.  Daphtary,  Solicitor-General  for  India  (G.   N. Joshi, with him) for the respondent.    1953.  October 20 The Judgment of the Court was delivered by      DAS  J.--This is an appeal from the judgment and  order pronounced  on  the  20th  June, 1951, by  a  Bench  of  the Calcutta  High Court on a reference made by  the  Income-lax Appellate Tribunal under section 66((1) of the Income-tax 270 Act  read  with  section 21 of the Excess  Profits  Tax  Act whereby  the  High  Court answered in  the  affirmative  the following question: -     "Whether  on  the facts and circumstances of  this  case ,there  is a change in the persons carrying on the  business within the meaning of section 8(1) of the Excess Profits Tax Act, 1940, with effect from 14th April, 1943, when the busi- ness,  which had previously been carried on  in  partnership between two Dayabhaga Hindu undivided families, was  carried on  by a partnership between the separated male  members  of the two families?"     The  controversy arose at the time of the assessment  of the   appellant  firm  to  excess  profits  tax  for   three chargeable accounting periods, namely, 14th April, 1943,  to 13th April, 1944, 14th April, 1944, to 13th April, 1945, and 14th April, 1945, to 31st March, 1946.  During the aforesaid chargeable accounting periods the status of the assessee was that  of a firm registered under section 26-A of the  Indian Income-tax Act.  In the chargeable accounting period  ending 13th  April,  1944,  there was no profit in  excess  of  the standard  profit but there was a deficiency of  Rs.  12,804. The  assessee claimed that the total deficiencies  amounting to over Rs. 84,000 carried forward from previous years up to the  chargeable accounting period ending 13th  April,  1943, should  be added to the sum of Rs. 12,804 and the  aggregate

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amount  should  be carried forward under section  7  of  the Excess  Profits  Tax Act.  The Excess  Profits  Tax  Officer rejected this contention on the ground that there had been a change  in the persons carrying on the business and the  old business  should be deemed to have been discontinued  and  a new business to have commenced within the meaning of section 8  of the Excess Profits Tax Act and carried over  only  Rs. 12,804.   In  the chargeable accounting period  ending  13th April,  1945,  there  was a profit of Rs.  88,652  over  the standard  profit and the Excess Profits Tax Officer  allowed only  Rs.  12,804  as the  deficiency  brought  forward  and assessed  the  firm for the nett excess of Rs.  75,848.   He rejected the contention of the assessee that the  deficiency which accrued before 14th March, 1943, should also be de-                             271 ducted from the excess profits of this chargeable accounting period.   In  the chargeable accounting period  ending  31st March 1946, no deduction whatever was allowed on account  of the  deficiency  that  was said to have accrued  up  to  the chargeable accounting period ending 13th April, 1943.       There  were three separate appeals by the assessee  to the  Appellate  Assistant  Commissioner  against  the  three orders  of  the Excess Profits Tax Officer.   The  Appellate Assistant   Commissioner  confirmed  the   assessments   and dismissed  the appeals.  Further.appeals were taken  to  the Income-tax Appellate Tribunal.  By an order made on the 25th July,  1949, the Appellate Tribunal dismissed all the  three appeals.  Thereupon three applications were made before  the Appellate Tribunal under section 66(1) of the Indian Income- tax Act read with section 21 of the Excess Profits Tax  Act. The Appellate Tribunal thereupon drew up a statement of case and submitted for the opinion of the High Court the question referred  to  above.   The High  Court,  in  agreement  with Appellate   Tribunal,   answered   the   question   in   the affirmative.   Hence the present appeal under a  certificate -ranted  by  the  High Court under section  66-A(2)  of  the Indian Income-tax Act.      According to learned counsel who appears in support  of this  appeal  Kshetra Mohan Sadhukhan  and  Sannyasi  Charan Sadhukhan  who were two brothers governed by  the  Dayabhaga School  of  Hindu law separated from each other  many  years ago.   The  two  separated  brothers,  as  kartas  of  their respective families, started a business in partnership under the  name and style of Kshetra Mohan Sadhukhan and  Sannyasi Charan  Sadhukhan, each having an eight-annas share  in  the profit and loss thereof.  Sannyasi charan Sadhukhan died  in 1932 and his sons were admitted into the partnership and the business  was continued by Kshetra Mohan Sadhukhan  and  the sons of Sannyasi Charan Sadhukhan.  Kshetra Mohan  Sadhukhan died  in 1934 and on and from 17th June, 1934, the  sons  of Kshetra  Mohan  Sadhukhan and the sons  of  Sannyasi  Charan Sadhukhan  continued the business in partnership.   Although this business was        272 carried  on  in partnership, the member of  each  branch  as between  themselves constituted a separate  Hindu  undivided family  right up to the 13th April, 1943, when there was  a, severance of both the families inter se.  The business, how- ever,  carried  on  by the members of the  two  branches  in Partnership  continued.   A deed of partnership is  said  to have  been executed between the eight partners on  the  19th September, 1943, and eventually another deed of  partnership was executed on the 28th December, 1944.  Learned  counsel’s contention is that the firm was originally a partnership  of two Hindu undivided families represented by their respective

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kartas Kshetra Mohan Sadhukhan and Sannyasi Charan Sadhukhan and  that  on  and from the 17th June,  1934,  the  sons  of Kshetra,  Mohan  Sadhukhan and the sons of  Sannyasi  Charan Sadhukhan  individually became partners in the firm and  the firm  has remained so constituted at all material times  and that there has been no change in the persons carrying on the business  within  the  meaning of section 8  of  the  Excess Profits Tax Act.  It appears to us that this is an  entirely new  case  which  is not now open to  the  assessee  to  put forward.     In  the course of the assessment the Excess Profits  Tax Officer  found  that  previous  to  14th  April,  1943,  the business  was  carried on by two Hindu  undivided  families, that  on 13th April, 1943, both the families were  disrupted and  since then the individual members of the  two  families began  carrying on the business after forming a  partnership concern and accordingly these new partners were not the same persons  as  the persons who carried on the business  up  to 13th April, 1943.  The case made by the assessee before  the Appellate  Assistant Commissioner was that the business  was carried  on by the two Hindu undivided families right up  to 13th  April, 1943; when there was a disruption of  both  the families  inter  se  and  that  after  that  day  the  eight individual members formed themselves into a partnership  and carried on the business.  Before the Appellate Tribunal also the  same  case was made, namely, that up  to  13th,  April, 1943,  the  business  was  a  partnership  concern  of  ’two Dayabhaga Hindu                             273 undivided  families,  namely, the family  of  Kshetra  Mohan Sadhukhan  consisting  of four adult male  members  and  the family of Sannyasi Charan Sadhukhan also consisting of four’ adult  male  members and that from 14th  April,  1943,  the, eight  members  of the two families  constituted  themselves into a partnership and carried on the business as such,  al- though the contention of the assessee at one stage was  that though the original partnership was entered into by the  two kartas  of the two families, in effect the  partnership  was between  the adult members of the two families even  at  the inception.  However, in its application under section  66(1) an  attempt  was  made for the first  time  to  suggest  yet another  case,  namely that prior to 13th April,  1943,  the business  was carried on in partnership by two  associations of persons and not by two Hindu undivided families, implying that  before  that date the business was carried on  by  the eight  individual members of the two families.  It  was  not suggested  at  any  time before that at first  there  was  a partnership  of  two kartas and then a  partnership  of  the eight  sons  of the two kartas on and from  the  17th  June, 1934,  and  that such partnership of  eight  continued  ever since then.     Learned  counsel for the assessee maintains  that  there has not been any variance in the case made by his client in- asmuch  as  the partnership which, according  to  him,  was, being  carried on by and between the individual  members  of one Hindu undivided family, namely, the four sons of Kshetra Mohan Sadhukhan and the individual members of another  Hindu undivided  family, namely, the four sons of Sannyasi  Charan Sadhukhan  may  well have been described  as  a  partnership between  two  Hindu undivided families.  A  Hindu  undivided family  is no doubt included in the expression  "person"  as defined  in  the  Indian Income-tax Act as well  as  in  the Excess  Profits Tax Act but it is not a juristic person  for all purposes.  The affairs of the Hindu undivided family are looked  after and managed by its karta.  When two kartas  of

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two  Hindu  undivided  families  enter  into  a  partnership agreement  the  partnership is popularly  described  as  one between the two Hindu undivided families but in the LB(D)2SCI 274 eye  of the law it is a partnership between the  two  kartas and  the  other members of the families do  lot  ipso  facto become partners.  There is, however, nothing to prevent  the individual  members  of  one  Hindu  undivided  family  from entering  into a partnership with the individual members  of another  Hindu undivided family and in such a case it  is  a partnership between the individual members and it is  wholly inappropriate to describe such a partnership as one  between two  Hindu  undivided  families.  We need  not  pursue  this matter  further, for in the case now before us there  is  no evidence  whatever to prove that all the members of the  two families had individually become partners in the business at any  time  before the 14th April, 1943.   The  documents  to which  reference will presently be made do not  support  the case  now  sought  to be made by  learned  counsel  for  the assessee.     Section  26-A permits an application to be made  to  the 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 the Indian Income-tax Act.  Sub-section (2) of that  section provides  that the application shall be made by such  person or persons and shall be in such form and be verified in such manner  as may be prescribed.  Rule 2 of the Indian  Income- tax Rules requires that such application shall be signed  by all  the  partners  personally.  Rule  3  enjoins  that  the application shall be made in the form annexed to that  rule. In  appears that on the 19th October, 1943,  an  application was  made on behalf of Kshetra Mohan Sadhukhan and sons  and Bijan  Kumar Sadhukhan and brothers for the renewal  of  the registration  of the firm under section 26-A of  the  Indian Income-tax  Act for the assessment for the  Income-tax  year 1942-43.   It  was alleged in - that  application  that  the constitution  of the firm and the individual shares  of  the partners  as  specified  in the  instrument  of  partnership remained unaltered.  In the schedule to the application were set  out the required particulars.  The last  column  showed that in the balance of profits or loss the share of  Kshetra Mohan  Sadhukhan  and sons was Rs. 4,370 and that  of  Bijan Kumar Sadhukhan and brothers                             275 was also Rs. 4,370.  The instrument of partnership dated the 19th September, 1943, referred to in the application appears to  be  one made between Gosta Behari  Sadhukhan  and  Bros. called  the first party and Bijan Kumar Sadhukhan and  Bros. called  the  second party.  Clause 6 of that  deed  provided that(  the profits of the partnership should belong to  "the partners  equally, i.e., eight-annas share each".  Clause  7 of  the  deed referred to "either partner" and clause  8  to "either   of  the  partners".   These  expressions   clearly indicate that the partners were two only, and an equal share of eight annas also indicates the same.  It further  appears that on the 28th December, 1944, another deed of partnership was  drawn  up.   In  this deed  there  are  eight  parties. Learned  counsel for the appellant relies on the first  four recitals  as  clearly indicating that even before  the  13th April,  1943,  the  eight  individual  members  of  the  two families   carried   on  business  in   partnership.    This construction  of those clauses is clearly inconsistent  with the  fifth  recital  which says that on  and  from  the  1st

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Baisak,  1350 B.S. i.e. 14th April, 1943, the said firm  was reconstituted as constituted of eight partners.  If the firm was  before  1st  Baisak, 1350 B.S.,  constituted  of  eight partners  then there could be no occasion for reciting  that "the   firm  was  reconstituted  as  constituted  of   eight partners".   Further, the statement of case drawn up by  the Appellate  Tribunal,  which  is  binding  on  the  assessee, clearly indicates that up to 13th April, 1943, the  business was a partnership concern carried on by two Dayabhaga  Hindu undivided families and that it was after that date that  the eight  members  of the two families  constituted  themselves into  a partnership.  The returns in the firm’s files up  to 1943-44 also show only two partners-Kshetra Mohan  Sadhukhan and sons and Sannyasi Charan Sadhukhan and sons-each  having an  eight  annas  share.   It is  from  1944-45  that  eight partners   are   being  shown.   As  already   stated,   the application  dated  the 19th October, 1943,  also  indicates that the parties themselves considered that the business was carried  on  by  two partners  Further,  the  very  question referred by the.  Appellate Tribu L/B(D)2SCI(a) 276 nal  implies,  as  pointed out by the  High  Court,  that  a business  was  carried on by a partnership composed  of  two partners  each of which was a Hindu undivided  family,  that there was a, disruption of both the families and that on and after  such  disruption  the business was carried  on  by  a partnership centered into by and between the separated  male members  of the two families.  We also agree with  the  High Court that if the case of the assessee was that even  before 14th  April, 1943, there was a partnership of eight  persons and if that case was accepted by the Appellate Tribunal then no question of law could have arisen on those facts.  It  is only  because the fact found was that prior to  13th  April, 1943,  the business was carried on by a partnership  of  two Hindu   undivided  families  which  prima  facie   means   a partnership  between  two  Kartas  representing  two   Hindu undivided families and that from 14th April, 1943, it became a  business  of eight individual members  of  two  disrupted families  that the question of law could arise.  If,  as  we hold, the assessee is not entitled to go behind the facts so found by the Appellate Tribunal in the statement of the case and as is implicit in the question itself, then there can be no  doubt  that  there  had been a  change  in  the  persons carrying on the business within the meaning of section 8  of the  Excess  Profits  Tax Act and it  has  not  been  argued otherwise.   In our opinion, therefore, the answer given  by the High Court to the referred question was correct.     In  this  view  of the matter it  is  not  necessary  to consider whether the fact of Nandodulal, the youngest son of Sannyasi Charan, being a minor before 13th April, 1943,  and of  his attaining majority on 18th July, 1943, as stated  by the  learned counsel -for the assessee will bring  the  case within  the meaning of section 8 of the Excess  Profits  Tax Act.      For  the reasons stated above this appeal is  dismissed with costs.                                 Appeal dismissed. Agent for the appellant : H. N. Sen. Agent  for the respondent : G. H. Rajadhiaksha.                             277