Commissioner of Income Tax vs Sobha Singh Jairam Singh (No. 1)

A.L. Bahri, J.—The Income Tax Appellate Tribunal, Amritsar, vide order dated July 27, 1985, referred questions of law for the opinion of this court in three appeals u/s 256(1) of the Income Tax Act, 1961. Question No. (1), which is as under is common in all the cases :

"(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in holding that there was a majority opinion and whether its decision is in accordance with the procedure laid down in Section 255(4) of the Income Tax Act ?"

In the Wealth-tax case, question No. (1) was framed as above with the only change in the provision of Section 24(11) of the Wealth-tax Act, 1957, which makes Section 255(4) of the Income Tax Act, 1961, applicable. Question No. (2) was framed as under in one of the appeals :

"(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in holding that there was a valid partition of the immovable property known as ''Amritsar Cotton Mills'' with effect from July 1, 1970 ?"

In the two other appeals, a similar question was framed with the addition that such income from the property of Amritsar Cotton Mills should be excluded from the assessment of the assessee or from the net wealth of the assessee.

When the matter was before the Income Tax Appellate Tribunal, the Accountant Member decided the matter in favour of the Revenue whereas the Judicial Member decided the matter in favour of the assessee. u/s 255(4). of the Income Tax Act, in such a situation, the matter was required to be referred on account of difference to one or the other members of the Tribunal. In the present case, the matter was decided by the third member of the Tribunal (the Vice President). The third member of the Tribunal agreed with the opinion expressed by the Judicial Member on the conclusion arrived at although he did not agree with the reasoning and supplemented his own reasons on the said conclusion. Section 255(4) of the Income Tax Act reads as under :

"(4) If the members of a Bench differ in opinion on any point, the point shall be decided according to the opinion of the majority, if there is a majority, but if the members are equally divided, they shall state the point or points on which they differ, and the case shall be referred by the President of the Appellate Tribunal for hearing on such point or points by one or more of the other members of the Appellate Tribunal, and such point or points shall be decided according to the opinion of the majority of the members of the Appellate Tribunal who have heard the case, including those who first heard it."

A perusal of the aforesaid provision shows that the majority decision of the Bench of the Tribunal was to prevail and in case of difference of opinion among equal number of members of the Tribunal, the matter was further required to be decided by one or the other members of the Tribunal and according to the opinion of the majority of the members of the Appellate Tribunal who heard the case, including those who first heard it, was to prevail. Thus, it is the final conclusion of majority of the members of the Tribunal which was to prevail. In this view of the matter, the majority decision in the pressent case was that of the Judicial Member and the Vice President that the income from the property of Amritsar Cotton Mills was to be considered the property of the joint undivided family and thus be excluded from the net income or wealth of the assessee. In the circumstances stated above, the decision of the Tribunal, which was a majority decision, is in accordance with the procedure laid down in Section 255(4) of the Income Tax Act and is valid. The reference is answered accordingly.

With respect to the second question, on the death of Harbhajan Singh in 1968, there was a dissolution of the partnership. The contention of learned counsel for the Revenue that since the accounts of the partnership continued to be maintained thereafter, the partnership thus continued and was not dissolved, cannot be accepted. Section 42(c) of the Partnership Act provides for the dissolution of a partnership on the death of a partner. Nothing has been brought on the record to indicate that the parties to the partnership had agreed to the contrary that, on the death of one of the partners, the firm was to continue. This would show that there would be automatic dissolution of the partnership firm on the death of one of the partners by operation of law. Thereafter, the process of winding up of the business of the partnership starts which includes mode of settlement of accounts between the partners. As has been held by the third Member of the Appellate Tribunal that, since after the death of Harbhajan Singh in 1968 the assets of the partnership firm were distributed, he was right in coming to the conclusion that there was effective dissolution of the partnership firm. In such circumstances, no deed of transfer was required to be executed or registered as held by the Supreme Court in Commissioner of Income Tax, West Bengal, Calcutta Vs. Juggilal Kamalapat, :

"The deed of relinquishment, in this case, was in respect of the individual interest of the three Singhania Brothers in the assets of the partnership firm in favour of the Kamala Town Trust, and, consequently, did not require registration, even though the assets of the partnership firm included immovable property, and was valid without registration."

On dissolution, the partners would get their respective share in the assets. Since two Hindu undivided families were partners in the said firm, on dissolution, the character of their share remained as that of the Hindu undivided family and such share was rightly to be excluded from the assessment of the assessee in the Income Tax case as well as in the wealth-tax case. Thus, in the facts and circumstances stated above, question No. (2) is also answered in favour of the assessee. This disposes of the references mentioned above.