Case: Commissioner of Income Tax, M.P Vs. Seth Govindram Sugar Mills

2. To appreciate the contention of the parties the following genealogy will be useful:After the death of Kalooram Todi, his two sons by name Govindram and Gangaprasad constituted a joint Hindu family which owned extensive property in Jaora State and a sugar mill called "Seth Govindram Sugar Mills" at Mahidpur Road in Holkar State. In the year 1942 Bachhulal filed a suit for partition against Govindram and obtained a decree therein. In due course the property was divided and a final decree was made. We are concerned in these appeals only with the Sugar Mills at Mahidpur Road. After the partition Govindram and Bachhulal jointly worked the Sugar Mills at Mahidpur Road. After the death of Govindram in 1943, Nandlal, the son of Govindram, and Bachhulal, as kartas of their respective joint families, entered into a partnership on September 28, 1943 to carry on the business of the said Sugar Mills. Nandlal died on December 9, 1945, leaving behind him the members of his branch of the joint family, namely, the three widows and the two minor sons shown in the genealogy. After the death of Nandlal, Bachhulal carried on the business of the Sugar Mills in the name of "Seth Govindram Sugar Mills". For the assessment year 1950-51, the said firm applied for registration on the basis of the agreement of partnership dated September 28, 1943. The Income-tax Officer refused to register the partnership on the ground that after the death of Nandlal the partnership was dissolved and thereafter Bachhulal and the minors could be treated only as an association of persons. On that footing he made another order assessing the income of the business of the firm as that of an association of persons. Against the said orders, two appeals - one being Appeal No. 21 of 1955-56 against the order refusing registration and the other being Appeal No. 24 of 1955-56 against the order of assessment - were filed to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner dismissed both the appeals. In the appeal against the order of assessment, the Appellate Assistant Commissioner exhaustively considered the question whether there was any partnership between the members of the two families after the death of Nandlal and came to the conclusion that in fact as well as in law such partnership did not exist. Two separate appeals being Income-tax Appeal No. 8328 of 1957-58 and Income-tax Appeal No. 8329 of 1957-58, preferred to the Income-tax Appellate Tribunal against the order of the Appellate Assistant Commissioner were dismissed. The assessee made two applications to the Tribunal for referring certain questions of law to the High Court, but they were dismissed. Thereafter, at the instance of the assessee the High Court directed the Tribunal to submit the following two questions for its decision and it accordingly didWhether on the facts and in the circumstances of the case, the status of the assessee. "Seth Govindram Sugar Mills. Mahidpur Road, Proprietor Nandlal Bachhulal Jaora", is an Association of Persons or a firm within the meaning of Section 16(1)(b) of the Income-tax Act"."(2) Whether the order of the Appellate Tribunal is illegal on account of the Tribunal having committed an error of record and having omitted to consider the relevant material in theHigh Court, for reasons given in its judgment, held on the first question that in the assessment year 1949-50 the status of the assessee was that of a firm within the meaning of S. 16(1)(b) of the Income-tax Act and on the second question it held that the Tribunal misdirected itself in law in reaching the conclusion that the parties could not be regarded as partners. The present two appeals, are preferred against the said order.

Court's reasoning:
The accounts only establish that Bachhulal was doing the business of Govindram Sugar Mills Ltd. But Banarsibais name was not found in the accounts. If she was a partner, her name should have found a place in the accounts. Not a single document has been produced on behalf of the assessee which supports the assertion that Banarsibai acted as a partner or was treated by the customers of the firm as a partner. There is not a title of evidence of conduct of Bachhulal, Banarsibai or even of third parties who had dealings with the firm to sustain the plea that Banarsibai was a partner of the firm. Indeed, the conduct of the parties was inconsistent with any such partnership between Banarsibai and Bachhulal. After the death of Nandlal Banarsibai and Shantibai applied to Jaora District Court for the appointment of guardians to look after the properties and the persons of the two minors: and on January 21, 1946, four persons other than these two widows were appointed as guardians of the minors. If Banarsibai was acting as a guardian of the minors representing the family in the business she would not have applied for the appointment of others as guardians. On October 4, 1952, a partnership deed was drawn up between Bachhulal on the one hand and the minors represented by the said four guardians on the other. If Banarsibai was the representative of the family in the business, this document would not have come into being. Banarsibai also had no place in another partnership deed which was executed on March 27, 1953, between Venkatlal represented by the aforesaid guardians and Bachhulal. The evidence, therefore, demonstrates beyond any reasonable doubt that Banarsibai was nowhere in the picture and that Bachhulal carried on the business of the Sugar Mills on behalf of the two families. Nor is there any evidence to show that from 1943 till the assessment year the guardians of the minors appointed by the District and Sessions Judge, Jaora, in 1946 representing the minors entered into a partnership with Bachhulal. The partnership deeds of 1952 and 1953 were subsequent to the order of assessment and they contain only self-serving statements and they cannot, in the absence of any evidence, sustain the plea of earlier partnership. Indeed, the guardians were only appointed for the properties situated within the jurisdiction of the District Judge, Jaora, and they could not act as guardians in respect of the properties outside the said jurisdiction. If they were acting as partners with Bachhulal their names would have been mentioned either in the accounts or in the relevant documents pertaining to the business. The conflicting version given by the assessee in regard to person or persons who actually represented the family in the partnership in itself indicates the falsity of the present version. It must, therefore, be held that the Court guardians did not enter into a partnership with Bachhulal.15. But, Venkatlal because a major on December 13, 1949, i.e., during the accounting year 1949-50. On October 17, 1951, an application for registration was received by the Income-tax Officer signed by Venkatlal and Bachhulal who are shown as partners representing their respective joint families. The return of income submitted along with the application for registration was signed by Venkatlal on August 29, 1951. After Venkatlal became a major, there was no obstacle in his representing his branch of the family in the partnership. Indeed, it was conceded in the High Court that there was a partnership from December 13, 1949, when Venkatlal attained majority. Having regard to the said circumstances and the concession. We must hold that from December 13, 1949, the business was carried on in partnership between Venkatlal, representing his branch of the family, and Bachhulal, representing his branch of the family.