CHARANDAS HARIDAS AND ANOTHER vs. THE COMMISSIONER OF INCOME-TAX, BOMBAY NORTH, KUTCH, SAURASHTRA AND AHMEDABAD & ANOTHER

CIVIL APPEAL No. 108/1957Supreme Court[1960] 3 S.C.R. 29615 March 1960Bench: 3 JudgesAuthor: S.K. DAS, J.L. KAPUR, M. HIDAYATULLAH9 pages
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What were the facts?

The assessee, Charandas Haridas, was the Karta of a Hindu undivided family (HUF). He was a partner in six managing agency firms, and the income from these was assessed as HUF income. On December 31, 1945, an oral agreement for partial partition was made, effective January 1, 1946. This agreement allocated a small share to his daughter and divided the remaining managing agency commission into five equal shares among himself, his wife, and his sons. This was later recorded in a document dated September 11, 1946. For assessment years 1947-48 and 1948-49, the assessee claimed the income should be treated as individual income of the divided members, not HUF income. The Income-tax authorities rejected this, arguing the division was of income, not assets, and income accrues to the HUF. The Appellate Tribunal found the document a 'farce' and ineffective. The Bombay High Court upheld the Tribunal's finding.

What did the Supreme Court hold?

The Supreme Court held that the appeal should be allowed. The Court reasoned that while the partnership law is unaffected by the partition of the family, Hindu law permits partition, including partial partition. The Income-tax law assesses income based on the family's status. Once the family has disrupted, the income cannot be said to belong to a Hindu undivided family if there is none. The Court found that for an asset like managing agency commission, there was no other effective mode of partition available to the parties if they wished to retain the property and hold it in severalty. The Court noted that there was no suggestion that the division was a mere pretence, and the document was effective between the family members. The Court concluded that the status of the family had altered, and the Department could not treat the income as that of the HUF after the partition. Therefore, there were no materials to justify the finding that the income was that of the HUF.

What were the issues?

1. Whether there were materials to justify the Tribunal's finding that the income from the managing agency commission was the income of the Hindu undivided family (HUF)? (Question of fact and law, concerning the assessment of income under the Indian Income-tax Act). Assessee's contentions: - The partial partition agreement, though oral initially and later recorded, effectively divided the managing agency commission among the family members from January 1, 1946. - The income arising from January 1, 1946, should be treated as the separate income of the divided members, not the HUF. - The asset, in this specific context of managing agency commission, was partitioned in the only effective mode available, securing separate enjoyment. Revenue's contentions: - The partition document only divided the income, not the underlying assets from which the income was derived. - Since income-tax is payable upon accrual, the income must be considered as having accrued to the HUF as the asset remained joint. - The Appellate Tribunal correctly found the document to be a 'farce' and ineffective in changing the status of the income source.

Which sections of the Income-tax Act were involved?

Section 66(2)

AI-generated summary — verify with the full judgment below

IH fd.' B1rt4bori Union c£. E#changd of Encloues z960 Mllrch .15. 296 SUPREME COURT REPORTS [1960) as indicated above ; in that case Parliament may have to pass a law on those lines under Art. 368 and then follow it up with a law relatable to the amendeJ Art. 3 to implement the agreement. Q.

3.

Same as answers (a), (b) and (c) to Question 2. Reference answered accordingly. CHARANDAS HARIDAS AND ANOTHER v. THE COMMISSIONER OF INCOME-TAX, BOMBAY NORTH, KUTCH, SAURASHTRA AND AHMEDABAD & ANOTHER (S. K. DAB, J. L. KAPUR and M. HIDAYATULLAH, JJ.) Income-tax-Income from managing agency-Karla of Hindu undivided family becoming partner of managing agency firm-Income therefrom assessed as family income-Subsequent partition of managing agency comtnission-Claim for assessnzen-t as 1"11dividual income of divided members. C, who was the Karta of the Hindu undivided family con- sisting of his \\'ifC, three sons and himself, was a partner in six managing agency firms in six Mills, and the income received by him as partner was being assessed as that of the Hindu undivided family for the purposes of income-tax. On December 31, 1945, C, acting for his three minor sons a

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