LexSOHAN PATHAK AND SONS versus COMMISSIONER OF INCOME-TAX, U.P.
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1953 Sep. 23. 158 SUPREME COURT REPORTS [1954] SOHAN PATHAK AND SONS v. COMMISSIONER OF INCOME-TAX, U.P. [PATANJALI SASTRI C. J., MuKHERJEA, VIVIAN BosE, GHULAM HASAN and JAGANNADHADAS JJ.] Excess Profits Ta.r Act (XV of 1940), ss. 4, 5, JO.A-Hindu undivided family-Partial partition dividing assets and liabilities of business among mern,bers-Members carrying on bnsiness as partners-Validity of partition-Artificial transaction for reducing liability to excess profits tax. A Hindu undivided family carried on business in money lend· ing and brocade. On the 16th July, 1943, there was a partial partition amongst the members by which the brocade business was divided and its assets and liabilities were partitioned in equal shares between the members of the family. On the next day the adult members of the family formed two partnerships admitting minors to the benefit thereof, and carried on the broc.ade business under two separate firm names though they continued to remain joint in status. The Income-tax Officer accepted the partial parti- tion and treated the brocade business of the family as having been discontinued, but the Excess Profits Tax Officer held that as the inain purpose of the partial partition was avoidance of tax, it was an artificial transaction, and, treating the business as unbroken, made adjustments under s. 10-A of the Excess Profits Tax Act, by adding to the profits made by the assessees as a joint family till the date of the partition, the profits made by the two firms after partition during the chargeable accounting period : Held, (i) under ss. 4 and 5 of 1the Excess Profits Tax Act, the Act can have no application to a business which did not make any profits during the relevant chargeable accounting period, and, as the old joint family business in brocade was discontinued and earned no profit during the chargeable accounting period in question, the appellants were not liable to be taxed as a Hindu undivided family in respect of that business; (ii) that the issue whether the Excess Profits Tax Act applies to a particular business must be determined solely with reference to s. 5 of the Act, and s. 10-A must be construed as applicable only to cases where, the business being found to be one to which the Act applies, a transaction of the kind referred to in 'the section has been effected ; and in view of the finding that the old joint family business in brocade was wound up and was no longer carried on by the joint family as such during the relevant chargeable accounting veriods, the same business Gould not be 'r . • ..... • s.c.:R. SUPREME COURT REPORTS ' ' 159 legally treated as having continued unbroken in respect of such 1953 periods for the purpose of s. 10-A of the Excess Profits Tax Act read with ss. 4 and 5 of the same Act. Sohan Pathak and Sons CIVIL APPELLATE JURISDICTION: Civil Appeals v. Nos. 4 7 to 50 of 1952. Oommiasioner of 1 f h Income-ttw, Appea s rom t e Judgment and Decree dated the U.P. 11th May, 1950, of the High Court of Judicature at Allahabad (Malik C. J. and Bhargava J.) in Miscel- laneous Case No. 134 of 1949 connected with Mis- cellaneous Case No. 197 of 1948. G. S. Pathak (G. 0. Mathur, with him) for the appellant. M. 0. Setalvad, Attorney-General for India, (G. N· Joshi, with him) for the respondent. 1953. September 23. The Judgment of the Court was delivered by PATANJALI SASTRI C. J.-This batch of appeals arises out of a reference made to the High Court at Allahabad by the Income-tax Appellate Tribunal, Allahabad Bench, under section 26 of the Excess Profits Tax Act, hereinafter referred to as " the Act." The assessments challenged in these appeals relate to dif- ferent chargeable accounting periods but the questions raised are the same in all the cases. The appellants constitute a Hindu undivided family consisting of four branches representing the four sons of one Sohan Pathak deceased. The family carried on business at Banaras in money-lending and Banaras brocade under the name and style of Sohan Pathak & Sons. In the assessment relating to the chargeable accounting period ending on October 8, 1943, the appellants alleged that there was a partial partition among the members of the family on July 16, 1943, whereby the Banaras brocade business was divided in equal shares among the four branches and that, on the next day, the adult members of the family formed two partnerships
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