Avtar Krishan Gupta vs Commissioner of Income Tax

K. Shivshankar Bhat, J.—In respect of two asst. yrs. 1968-69 and 1969-70 these two references - one at the instance of the Revenue and the other at the instance of the assessed - require us to consider the following questions : Asst. yr. 1968-69 :

R. A. No. 1342 of 1975-76 :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the firm M/s Victor Cable Corpn. could raise a goodwill account in its books of account on 18th June, 1966 and evaluate the same at Rs. 4 lakhs ?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that each partner of the firm could be given credit of 1/5th share in the amount of goodwill so raised in the firm''s books ?

Whether, on the facts and in the circumstances of the case, deduction of 50% out of the profits that fall to the share of the assessed from the firm Victor Cables Corpn. correctly allowed ?"

R. A. No. 29 of 1976-77 : (at the instance of the assessed)

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that an enquiry under s. 171 by the ITO was necessary in the case of the HUF of Avtar Krishan as regards the share of profits from the firm M/s Victor Cable Corpn. ?"

Asst. yr. 1968-69 :

R. A. No. 1342 of 1975-76 :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the firm M/s Victor Cable Corpn. could raise a goodwill account in its books of account on 18th June, 1966 and evaluate the same at Rs. 4 lakhs. ?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that each partner of the firm could be given credit of 1/5th share in the amount of goodwill so raised in the firm''s books ?

Whether, on the facts and in the circumstances of the case, a deduction of 50% out of the profits that fell to the share of the assessed from the firm, was correctly allowed ?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that an enquiry under s. 171 by the ITO was necessary in the case of the HUF of Avtar Krishan as regards the share of profits from the firm M/s Victor Cable Corpn. ?"

At the outset it should be noted that there was a difference of opinion between the two members of the Tribunal who heard the matter initially and only one question was referred to the third member. The question regarding the goodwill account was never referred to the third member, even though there was a difference of opinion. In the result the question of goodwill account was never ultimately decided by the Tribunal and, Therefore, questions 1 and 2 in both the years do not arise out of the order of the Tribunal.

The assessed set up a partial partition in the large family bearing Avtar Krishan HUF. According to this, 50% of the share of Victor Cable Corpn. was allotted to the Karta in his individual capacity and the balance to others. Answer to question No. 3 in both the references actually depends upon the finding as to whether there was a partial partition and this, in turn, depends upon the answer necessary to question No. 4 in RA No. 1344/1975-76 as well as the sole question in RA No. 29/1976-77.

Having regard to the provisions of s. 171, there cannot be any doubt that the ITO should have gone into the question of the partial partition and recorded a finding. We are of the opinion that this is a statutory requirement which the Assessing Officer failed to comply with in the instant case. Therefore, the Tribunal was fully justified in remanding the matters with a direction to the assessing authority to decide the question of partial partition.

The other question regarding 50% deduction out of the profit depends upon the finding as to partial partition. Since that finding is not recorded. We decline to answer the said question. The statutory consequences of the finding under s. 171 would automatically follow even in the absence of an answer from this Court, in that regard.

In the result, the sole question referred in R. A. No. 29 of 1976-77 and the fourth question referred in R. A. No. 1344 of 1975-76 on the file of the Tribunal, are answered in the affirmative and in favor of Revenue. We decline to answer other questions. The references are answered accordingly.