Case: Champaran Cane Concern Vs. State of Bihar &amp; Another

1. The Champaran Cane Concern, appellant before us, was assessed to agriculturalunder the Bihar AgriculturalAct (Bihar Act 32 of 1948), referred to as the Act in this judgment, by the AgriculturalOfficer, Motihari for three years 1356 F. 1357 F. and 1358 F. corresponding to52 respectively. It was assessed as a partnership firm for all the three years, though the assessee claimed that it was aconcern belonging to two persons, Padampat Singhania having Re.share and Lala Bishundayal Jhunjhunwala having Re.share. The concern, it was stated carried on agricultural operations in six farms consisting of a little over Ac. 2,of land out of which about Ac. 1,were purchased jointly by Padampat Singhania and Bishundayal Jhunjhunwala and Ac.were purchased in the name of a mill, namely, Motilal Padampat Sugar Mill of which the aforesaid two persons were the owners. Later on by a resolution of thethe farms were separated from the mill and the lands in their entirety were cultivated by the concern. As nothing now depends upon the distinction between the lands purchased in the name of the mill and those acquired otherwise, we shall ignore the distinction for the purpose of these cases.2. The assessee claimed that the concern was aconcern belonging to the two persons above named in the shares already indicated, and as they were residents of Uttar Pradesh at a very long distance from the farms in Champaran, they appointed on S. K. Kanodia as a common manager for facility of cultivation and management. This common manager looked after and managed the agricultural operations during the years in question. The further case of the assessee was that the lands were undivided between theand the total net profits arising out of the joint cultivation were divided between the twoOn these statements the assessee pleaded that s. 13 of the Act applied and the common manager should have been assessed in respect of the agriculturalpayable by each of the twoin respect of their shares only. This plea of the assessee was rejected by theOfficer. Appeals were then preferred against the assessments made to the Deputy Commissioner of AgriculturalThese appeals were discussed with certain modifications with which we are not now concerned. Then, three applications in revision were filed to the Board of Revenue. The Board reduced the assessment under schedule C but did not accept the plea of the assessee that the assessments should have been made under s. 13 of the Act. The assessee then moved the Board of Revenue for making a reference to the High Court on the following question of law which it stated arose out of the order of the Board :"Whether on the facts and circumstances of the case the common manager is to be assessed. under s. 13 of the Bihar AgriculturalAct (Bihar Act 32 of 1948) in respect of the agricultural income payable by each of the partnersThe High Court of Patna was then moved under s. 28(3) of the Act and, it called for a reference from the Board on a differently worded question which expressed the real issue between the parties :"Whether in the facts and circumstances of the case, the common manager should be assessed under section 13 of the Bihar Agricultural Income Tax Act in respect of the agricultural income tax payable by the persons jointly liable ?"5. The question framed by the High Court did not assume that theof the concern were partners thereof. Strangely enough when the Board submitted a statement of the case in pursuance of the order of the High Court, it again reverted to the old form of the question. The High Court, however, took the question to be the one which it had asked the Board to refer to it and on that footing answered it against the assessee. The High Court said that the question whether the assessee was aconcern or a partnership firm was a question of fact, and even otherwise, there were facts and circumstances from which it was open to the taxing authorities to come to the conclusion that the firm was a partnership firm. On this footing the High Court answered the question against the assessee.6. The assessee then moved this court for special leave and having obtained such leave has brought the present appeals to this court from the decision of the High Court dated September 29, 1959.

Reasoning:
Now, partnership or no partnership is ordinarily a question of fact, but we agree with learned counsel for the assessee that it is a mixed question of fact and law in the sense that if the authorities who have to ascertain question of fact apply a wrong principle of law in instructing themselves as to what they have to find, then their finding of fact is not conclusive because they have done it according to wrong principles (see Modern Rigg & Co. and R. B. Eskrigge & Co. v. Monks [(1923) 8 T.C. 450, 464.]). Looked at from the aforesaid standpoint, the question before the taxing authorities in the present cases was whether on the facts and circumstances established in the cases in inference of a partnership firm within the meaning of the Indian Partnership Act, 1932 followed and s. 13 was not attracted thereto. That, we take it, must be a question of law. That was the question which was referred to the High Court and the High Court answered it on the footing that the proper inference was that the assessee was a partnership firm within the meaning of the Indian Partnership Act,the cases before us there is nothing in the record to show that there was any agreement between the two proprietors to form a partnership firm. The second difference is thatdoes not necessarily involve community of profit or of loss, but partnership does. In the cases before us there is a finding that there is community of profit. A third difference is that onecan without the consent of the other, transfer his interest etc, to a stranger. A partner cannot do this. About this point there is no evidence nor any finding that the two proprietors Padampat Singhania and Bishundayal Jhunjhunwala could not transfer their interests in the concern without the consent of each other. The greatest difficulty which faces the respondent in the present cases is that it cannot point to any fact or circumstance from which it can be inferred that one proprietor was the agent, real or implied, of the other. In a partnership each partner acts for all. In aer is not as such the agent, real or implied, of the other. There is a complete absence of any fact or circumstance establishing a relation of agency between the two proprietors in the present case; nor have the taxing authorities come to any finding that there was such a relation.The High Court made a reference to the returns filed on behalf of the assessee for the three years in question as also the frame of the question which the assessee itself wished to be referred to the High Court. As to the frame of the question we have stated earlier that the Board of Revenue really made a mistake and it may even be that on behalf of the assessee the question was not properly framed. The assessees contention all along was that it was aconcern and not a partnership, but in framing the question the word partners was used. We do not think that a mistake in the framing of the question, which was later corrected by the High Court, will change the real position in law. As to the returns which were filed they were not printed in the paper book. Learned counsel for the respondent gave us copies of the returns. These returns showed that in all the three years the assessee indicated its status as aconcern and the name of the assessee was shown as the manager, Champaran Cane Concern or common manager, Champaran Cane Concern. The body of the return contained four alternatives as to whether the return was being submitted by an individual, a firm, a joint family or an association of individuals. The intention of putting four alternatives in the printed form of the return is to cut out the alternatives which do not apply. In the cases before us the alternative relating to individual, family and association of individuals were cut out and the alternative "firm" remained. The High Court seems to have thought that the retention of the word firm in the return amounted to an admission that the assessee was a partnership firm. We do not agree. In the printed form of the return there was no alternative as to aconcern and in a popular sense, aconcern may describe itself as a firm. That does not necessarily mean that it is a partnership firm within the meaning of s. 4 of the Indian Partnership Act as indicated in s. 2(k) of the Act. In our view no facts and circumstances have been found in these cases from which the taxing authorities properly instructed in law could have come to the conclusion that the assessee was a partnership firm within the meaning of s. 2(k) of the Act. On the contrary the facts and circumstances found by the taxing authorities were all consistent with the claim of the assessee that it was aconcern the common manager whereof was liable to assessment under s. 13 of the Act.A number of decisions were cited at the Bar as to the distinction betweenand partnership. We have already referred to the main differences between the two. The legal position as to this distinction seems to us to be so clear and well settled that we consider it unnecessary to refer to the case law on the subject. We do not think that any useful purpose will be served by referring to the decisions cited at the Bar.