Commissioner of Income Tax vs Sobha Singh Jairam Singh (No. 2)

A.L. Bahri, J.—The Income Tax Tribunal, vide order dated July 27, 1985, has referred the following question for the opinion of this court u/s 256 (1) of the Income Tax Act:

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in holding that the income from the property known as ''Amritsar Cotton Mills'' should be excluded from the assessment of the assessee for the assessment years 1976-77, 1979-80 and 1980-81 ?"

At this stage, it may be noticed that the question referred to above, relates to the assessment years 1976-77, 1979-80 and 1980-81. The assessments were made on the basis of the decision given for the assessment year 1975-76. In the cases of assessments for 1971-72 and 1975-76, the Tribunal has referred the questions of law for opinion to this court which has also been disposed of, vide a separate order. Since, in those cases, reference was made, in the present case also, the question was framed as above and referred to this court for opinion. In the partnership firm, the following were the partners with their respective shares : .

'' (1) Harbhajan Singh--five annas share representing the Hindu undivided family of Sobha Singh Harbhajan Singh.

(2) Jairam Singh--five annas share representing the Hindu undivided family of Sobha Singh Jairam Singh.

(3) Kirpal Singh--three annas share in individual capacity.

(4) Joginder Singh --three annas share in individual capacity.

In 1954, there was some change in the partnership. Mohan Singh, son of Jairam Singh, was inducted as a partner. The profit sharing ratio of Shri Jairam Singh representing his Hindu undivided family was reduced to two annas and Mohan Singh had a share of three annas. This partnership continued up to November 20, 1968, when Harbhajan Singh died. Kirpal Singh then stepped into his shoes and as karta of the Hindu undivided family, Sobha Singh Harbhajan Singh, he became entitled to a five annas share apart from a three annas share in his individual capacity. The business of Cotton Ginning Mills was discontinued on June 30, 1970. A regular dissolution deed was executed on August 31, 1973.

The claim of the assessee throughout had been that, on the death of Harbhajan Singh, there was a dissolution of the partnership and the assets were divided. In such a case, there was no question of transfer of shares to the other partners requiring any deed to be executed or registered. There was distribution of the cash amount as well as the building value. The Department did not raise any dispute regarding the distribution of the cash amount. However, regarding the share of the building, the dispute was raised. The amount of the share of the building was being included in the return of the assessee which, according to the assessee, was to be treated as that of a Hindu undivided family.

In Income Tax References Nos. 1 and 2 of 1986 ( Commissioner of Income Tax Vs. Sobha Singh Jairam Singh (No. 1), ), relating to the assessment years 1971-72 and 1975-76, decided today, it has been held that the majority decision of the Tribunal that, on dissolution, there was no change in the character of the assets of the Hindu undivided family (partner) and the same was to be excluded from the return of the asses see, was correct, and the question framed in the present case is answered in favour of the assessee for the reasons recorded therein. The reference is disposed of as above.