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

2. The appellants are two assessees, Charandas Haridas and Chinubhai Haridas, whose cases are identical and in fact there was a consolidated reference by the Income-tax Appellate Tribunal, which was answered by the High Court by its judgment. The respondents are respectively the Commissioner of Income-tax, Bombay North, Kutch and Saurashtra and the Commissioner of Income-tax, Delhi, Ajmer, Rajasthan and Madhya Bharat. The two appellants represented two units of Hindu undivided families. Charandas Haridas represented his wife, three sons and himself, and Chinubhai Haridas represented his wife, son and himself. In stating the facts relative to the two families, it will not be necessary to give them separately, because the question which was answered by the High Court in the judgment under appeal arose in identical circumstances in the two families. The only difference is in the shares held respectively by the two Hindu undivided families in the managing agencies to be hereafter mentioned. We will, therefore, confine ourselves to a statement of the facts relating to Charandas Haridas only.3. Charandas Haridas was the Karta of the Hindu undivided family consisting of his wife, three sons and himself. He was a partner in six managing agency firms in six Mills. In previous years, the income received by him as partner in these managing agencies was being assessed as the income of the Hindu undivided family. On December 31, 1945, Charandas Haridas acting for his three minor sons and himself and Shantaben his wife, entered into an oral agreement for a partial partition. By that agreement Charandas Haridas gave a one pie share to his daughter, Pratima, in the managing agency commission from two of the six managing agencies held by the family. The balance together with the shares in the other managing agencies was divided into five equal shares between Charandas Haridas, his wife and sons. This agreement was to come into effect from January 1, 1946, which was the beginning of a fresh accounting year. On September 11, 1946, Charandas Haridas acting for himself and his minor sons, and Shantaben executed a memorandum of partial partition in which the above facts were recited, the document purporting to be a record of what had taken place orally earlier.4. In the assessment years 1947-1948 and 1948-1949, Charandas Haridas claimed that the income should no longer be treated as the income of the Hindu undivided family but as the separate income of the divided members. The Income-tax Officer declines to treat the income as any but of the Hindu undivided family, and assessed the income as before. An appeal to the Appellate Assistant Commissioner was unsuccessful, and the matter was taken to the Income-tax Appellate Tribunal. The Appellate Tribunal held that by the document in question, the division, if any, was of the income and not of the assets from which the income was derived, inasmuch as "the agreements of the managing agency with the managed Companies did not undergo any change whatever as a result of the alleged partition". The Appellate Tribunal, therefore, held that the arrangement to share the receipts from this source of income was not binding on the Department, if the assets themselves continued to remain joint. It further held that the document was "a farce", and did not save the family from assessment as Hindu undivided family. The Tribunal having declined to state a case under S. 66 (1) of the Indian Income-tax Act, Charandas Haridas moved the Bombay High Court, and obtained an order under S. 66 (2) of the Act. The question on which the case was stated wasthere were materials to justify the finding of the Tribunal that the income in the share of the commission agency of the Mills was the income of the Hindu undividedThe High Court stated that though the reference was very elaborately argued, it raised a very simple question of fact and all that it was required to find out was whether there were materials before the Appellate Tribunal upon which the finding of fact could be rested. The High Court held that though the finding a given by the Appellate Tribunal could not be construed at a finding that the document was not genuine, the method adopted by the family to partition the assets was insufficient to bring about the result intended by it. According to the High Court, the Appellate Tribunal was right in holding that the document was ineffective, and though the income might have been purported to be divided and might, in fact, have been so divided, the source of income still remained united as belonging to the Hindu undivided family. It accordingly answered the question in the affirmative, holding that there were materials before the Tribunal on which it could reach the conclusion that in so far as these income-bearing assets were concerned, they still belonged to the Hindu undivided family. Leave to appeal to this Court was refused by the High Court but Charandas Haridas applied to this Court and obtained special leave, and the present appeal was filed.

Court's reasoning:
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.