Case: Charandas Haridas And Another Vs. The Commissioner Of Income-Tax,Bombay North, Kutch, Sauras

a unit does not become a partner, but only such of its members as in fact enter into a contractual relation with the stranger: the partnership will be governed by the Act."Further, the Privy Council in Appovier v. Rama Subba Aiyan, 11 Moo Ind App 75, observed :"Nothing can express more definitely a conversion of the tenancy, and with that conversion of the tenancy, and with that conversion a change of the status of the family quoad this property. The produce is no longer to be brought to the common chest, as representing the income of an undivided property, but the proceeds are to be enjoyed in six distinct equal shares by the members of the family, who are thenceforth to become entitled to those definite shares."The Bombay High Court quoted this passage, and stated that there must be a division of the rights as well as a division of the property; and unless the division effected a separation of the property into shares, it would remain only as a separation of the income after its accrual and would not affect the asset as such. In this view of the matter, the Bombay High Court held that the asset continued to be joint in spite of the division of the income after its accrual.10. In our opinion, here there are three different branches of law to notice. There is the law of Partnership, which takes no account of a Hindu undivided family. There is also the Hindu law, which permits a partition of the family and also a partial partition binding upon the family. There is then the Income-tax law, under which a particular income may be treated as the income of the Hindu undivided family or as the income of the separated members enjoying separate shares by partition.The fact of a partition in the Hindu law may have no effect upon the position of the partner, insofar as the law of Partnership is concerned, but it has full effect upon the family insofar as the Hindu law is concerned. Just as the fact of a Karta becoming a partner does not introduce the members of the undivided family into the partnership, the division of the family does not change the position of the partner vis-_is the other partner or partners.The Income-tax law before the partition takes note, factually, of the position of the Karta, and assesses not him qua partner but as representing the Hindu undivided family. In doing so, the Income-tax law looks not to the provisions of the Partnership Act, but to the provisions of Hindu law. When once the family has disrupted, the position under the partnership continues as before, but the position under the Hindu law changes. There is then no Hindu undivided family as a unit of assessment in point of fact, and the income which accrues, cannot be said to be of a Hindu undivided family.There is nothing in the Indian Income-tax law or the law of Partnership which prevents the members of a Hindu joint family from dividing any asset. Such division must, of course, be effective so as to bind the members; but Hindu law does not further require that the property must in every case be partitioned by metes and bounds, if separate enjoyment can otherwise be secured according to the shares of the members.For an asset of this kind, there was no other mode of partition open to the parties if they wished to retain the property and vet hold it not jointly but in severalty, and the law does not contemplate that a person should do the impossible. Indeed, the result would have been the same, even if the dividing members had said in so many words that they had partitioned the assets, because insofar as the firms were concerned, the step would have been wholly inconsequential.11. The respondent suggested that the family could have partitioned the managing agencies among the members of the family by allotting them severally; but that would not have been possible without a dissolution of the managing agency firms and their reconstitution, which was not altogether in the hands of Charandas Haridas. It was also suggested that the managing agencies could have been allotted to Charandas Haridas while the others took some other property, or a receiver could have been appointed. No doubt, there were many modes of partition which might have been adopted; but the question remains that if the family desired to partition these assets only and no more, could they have acted in some other manner to achieve the same result? No answer to this question was attempted.12. It is, therefore, manifest that the family took the fullest measure possible for dividing the joint interest into separate interests.There is no suggestion here that this division was a mere pretence; nor has the Appellate Tribunal given such a finding.The document was fully effective between the members of the family, and there was factually no Hindu undivided family in respect of these particular assets.The assets at all times stood in the name of Charandas Haridas, and looked at from the point of view of the law of Partnership, the family had no standing. The assets still are in the name of Charandas Haridas, and looked again from the same viewpoint, the division has no different signification. What has altered is the status of the family. While it was joint, the Department could treat the income as that of the family; but after partition, the Department could not say that it was still the income of the Hindu undivided family, when there was none.In the face of the finding that this was a genuine document and not a sham, and that it effectually divided the income and in the circumstances, the assets, the question answers itself in the negative, that is to say, that there were no materials to justify the finding that the income in the share of the commission agency of the Mills was the income of the Hindu undivided family.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]10. In our opinion, here there are three different branches of law to notice. There is the law of Partnership, which takes no account of a Hindu undivided family. There is also the Hindu law, which permits a partition of the family and also a partial partition binding upon the family. There is then the Income-tax law, under which a particular income may be treated as the income of the Hindu undivided family or as the income of the separated members enjoying separate shares by partition.The fact of a partition in the Hindu law may have no effect upon the position of the partner, insofar as the law of Partnership is concerned, but it has full effect upon the family insofar as the Hindu law is concerned. Just as the fact of a Karta becoming a partner does not introduce the members of the undivided family into the partnership, the division of the family does not change the position of the partner vis-_is the other partner or partners.The Income-tax law before the partition takes note, factually, of the position of the Karta, and assesses not him qua partner but as representing the Hindu undivided family. In doing so, the Income-tax law looks not to the provisions of the Partnership Act, but to the provisions of Hindu law. When once the family has disrupted, the position under the partnership continues as before, but the position under the Hindu law changes. There is then no Hindu undivided family as a unit of assessment in point of fact, and the income which accrues, cannot be said to be of a Hindu undivided family.There is nothing in the Indian Income-tax law or the law of Partnership which prevents the members of a Hindu joint family from dividing any asset. Such division must, of course, be effective so as to bind the members; but Hindu law does not further require that the property must in every case be partitioned by metes and bounds, if separate enjoyment can otherwise be secured according to the shares of the members.For an asset of this kind, there was no other mode of partition open to the parties if they wished to retain the property and vet hold it not jointly but in severalty, and the law does not contemplate that a person should do the impossible. Indeed, the result would have been the same, even if the dividing members had said in so many words that they had partitioned the assets, because insofar as the firms were concerned, the step would have been wholly inconsequential.11. The respondent suggested that the family could have partitioned the managing agencies among the members of the family by allotting them severally; but that would not have been possible without a dissolution of the managing agency firms and their reconstitution, which was not altogether in the hands of Charandas Haridas. It was also suggested that the managing agencies could have been allotted to Charandas Haridas while the others took some other property, or a receiver could have been appointed. No doubt, there were many modes of partition which might have been adopted; but the question remains that if the family desired to partition these assets only and no more, could they have acted in some other manner to achieve the same result? No answer to this question was attempted.12. It is, therefore, manifest that the family took the fullest measure possible for dividing the joint interest into separate interests.There is no suggestion here that this division was a mere pretence; nor has the Appellate Tribunal given such a finding.The document was fully effective between the members of the family, and there was factually no Hindu undivided family in respect of these particular assets.The assets at all times stood in the name of Charandas Haridas, and looked at from the point of view of the law of Partnership, the family had no standing. The assets still are in the name of Charandas Haridas, and looked again from the same viewpoint, the division has no different signification. What has altered is the status of the family. While it was joint, the Department could treat the income as that of the family; but after partition, the Department could not say that it was still the income of the Hindu undivided family, when there was none.In the face of the finding that this was a genuine document and not a sham, and that it effectually divided the income and in the circumstances, the assets, the question answers itself in the negative, that is to say, that there were no materials to justify the finding that the income in the share of the commission agency of the Mills was the income of the Hindu undivided family.