SAKINABAI IBRAHIM & SONS VS COMMISSIONER OF INCOME-TAX
2001 P T D 1717
[241 I T R 71]
[Madras High Court (India)]
Before R. Jayasimha Babu and Mrs. A. Subbulakshmy, JJ
SAKINABAI IBRAHIM & SONS
Versus
COMMISSIONER. OF INCOME‑TAX
Tax Cases Nos. 1074 to 1081 of 1988 (References Nos.836 to 843 of 1988), decided on 27/07/1998.
(a) Income‑tax‑‑‑
‑‑‑‑Reassessment‑‑‑Income escaping assessment‑‑‑Failure to furnish returns‑‑ Assessment under S.148 was valid‑‑‑Indian Income Tax Act, 1961, S.147.
(b) Income‑tax‑‑‑
.... Body of individuals‑‑‑Muslim law‑‑‑Death of partner who was a Muslim‑ Widow admitted as a partner‑‑‑Subsequently, when children of the deceased attained majority, agreement executed stating that share in firm belonged to all heirs in definite and ascertained portions under their personal law‑‑‑Share in firm assessable in status of body of individuals‑‑‑Indian Income Tax Act, 1961.
One T, a Muslim, was a partner of a firm having a one‑third share therein. On his death, on April 26, 1951, a fresh partnership deed was executed and B, wife of T, was taken in as a partner in the place of her deceased husband and was given her deceased husband's one‑third share in the partnership. At the time of death of T, he had also left behind him two sons and three daughters and all the children were minors. When the sons and daughters of T attained majority on April 15, 1963, they entered into an agreement. It was stated in the agreement that the amounts in the capital and current account standing to the credit of B in the firm of A belonged always to the heirs in their definite and ascertained shares under the Muslim law; that B was entitled to a one‑eighth share and that 'the two sons were each entitled to a one‑fourth share and the three daughters were each entitled to a 7/56th share therein and that the amounts standing to the credit of Bin the books of A were paid by the firm, and that the amounts would be distributed and divided amongst all the heirs according to their shares. No returns were filed by B for the years 1972 to 1980. The Income‑tax Officer, therefore, initiated reassessment proceedings and passed orders of assessment, one in the status of. unregistered ,firm and another in the status of body of individuals. The Appellate Assistant Commissioner, in the appeal, held that the action under section 148 had been validly taken. In separate proceedings the High Court held that the assessment‑in the status of unregistered firm was untenable as the agreement between the widow and her children did not constitute a sub‑partnership. The order of the Assessing Officer on the assessment in the status of body of individuals was confirmed for all the assessment years. This was confirmed by the Tribunal. On a reference:
Held, (i) that as the assessee had not filed returns for the assessment years under consideration, the Income‑tax Officer had taken action under section 148 validly. The assessment proceedings were valid;
(ii) that under the terms of the agreement, the parties to the agreement became entitled to their shares in accordance with their personal law. The agreement had declared the rights of the parties which had already devolved on them in accordance with their personal law. The assessment made in the status of the assessee as body of individuals was in order.
Meera & Co. v. CIT (1997) 224 ITR 635 (SC) applied.
T. V. Ramanathan for the Assessee.
Mrs. Chitra Venkatraman for the Commissioner.
JUDGMENT
MRS. A. SUBBULAKSHMY, J.‑‑‑In pursuance of the directions of this Court, the Tribunal has referred the following two questions of law for
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the re7opening of the assessments was valid in law?
(2) Whether, on tile facts and in the circumstances of the case, the Tribunal was right in law in holding that the status of the assessee is only body of individuals?"
One Taharally Sarafally was a partner of Abbasbhoy Taharally & Co., having a 1/3rd share therein. On his death, on April 26, 1951, a fresh partnership deed was executed and Begum Sakina Bai, wife of Taharally Sarafally, was taken in as a partner in the place of her deceased husband and was given her deceased husband's 1/3rd share in the partnership. At the time of the death of Taharally Sarafally, he had also left behind him two sons and three daughters besides his widow and. all the children were minors. When the sons and daughters of Taharally Sarafally attained majority on April 15, 1963, they entered into an agreement with reference to the 1/3rd share of the deceased Taharally Sarafally in the firm of Abbasbhoy Taharally & Co. and it was agreed in that agreement that Begum Sakina Bai as representative of the sons as well as the daughters of the deceased Taharally Sarafally had been taken in and treated as partner in his place entitled to the share of the deceased Taharally Sarafally in the firm of Abbasbhoy Taharally. & Co., that she did so representing the heirs of Taharally Sarafally that the amounts in the capital and current accounts standing to the credit of Begum Sakina Bai in the firm of Abbasbhoy Taharally & Co., belonged always to the heirs in their definite and ascertained shares under their personal law, that Begum Sakina Bai was entitled to e a one‑eighth share and that the two sons were each entitled to a 1/4th share and the three daughters were each entitled to a 7/56ths shares therein and that the amount$ standing to the credit of Begum Sakina Bai in the books of Abbsbhoy Taharally & Co., were paid by the firm, that amount shall be distributed and divided amongst all the heirs according to their shares.
The assessment involved in. this tax case is for the years 1972 to 1980. The Income‑tax. Officer has stated that the assessee has not filed returns and se, he came to the conclusion that the share income from the firm pertaining to the assessee escaped assessment and he, therefore, initiated proceedings under section 148. The Income‑tax Officer re‑opened the assessments and made assessments one in the status of unregistered firm and another in the status of body of individuals. The Appellate Assistant Commissioner in the appeal, held that the action under section 148 has been validly taken. In a separate proceeding this Court held that the assessment in the status of unregistered firm was untenable as the agreement between the widow and her children did not constitute a sub‑partnership. The order of the Assessing Officer on the assessment in the status of body of individuals was confirmed for all the assessment years. This was confirmed by the Tribunal. On that, assessee has come forward with this reference.
Counsel for the assessee submitted that the reopening of the assessment is not valid. The Income‑tax Officer had found that the share income from the firm escaped assessment and so he initiated proceedings under section 148' and he made two assessments m the status of unregistered firm and body of individuals. The assessment made in the status of unregistered firm was set aside. The Tribunal found that the action of the Income‑tax Officer cannot be said to be opposed to the established legal principles and as the assessee has not filed return for the assessment years under consideration the Income‑tax Officer re‑opened the assessment The finding of the Tribunal is perfectly in order.
Counsel for the assessee further submitted that the Tribunal was also not right in holding that the status of the assessee is only body of individuals. He pointed out that on the death of Taharally Sarafally, his wife, Begum Sakina Bai, became a partner in respect of her husband's 1/3rd share in the partnership firm and so, the assessment cannot be made in the status of body of individuals. On the death of Taharally Sarafally, his wife, Begum Sakina Bai, became a partner in respect of her husband's 1/3rd share and safe took the share on her behalf and on behalf of her minor children. Then, when the sons and daughters of Taharally Sarafally attained majority on April 15, 1963, they entered into an agreement with referred to this 1/3rd share of the deceased Taharally Sarafally in the partnership firm. The agreement was to the effect that the mother, Begum Sakina Bai, was taken in and treated as partner in the place of her husband and she was entitled to the share of her deceased husband in the partnership firm and she did so representing the heirs of Taharally Sarafally and that the amounts in the capital and current accounts standing to the credit of Begum Sakina Bai in the firm of Abbasbhoy Taharally & Co. belonged always to the heirs in their definite and ascertained shares under the personal law, that Begurn Sakina Bai was entitled to a one‑eighth share and that the two sons were each entitled to a 1/4th share and the three daughters were each entitled to a 7/56ths share therein and that the amounts standing to the credit of Begum Sakina Bai in the books of Abbasbhoy Taharally & Co. were paid by the firm, that amount shall be distributed and divided amongst all the heirs according to their shares.
On the death of Taharally Sarafally, Begum Sakina Bai and her children became entitled to their shares under the Muslim law which governs them. Under the terms of the agreement the parties to the agreement became entitled to their shares in accordance with their personal law. The agreement has declared the rights of the parties which had already devolved on them in accordance with their personal law.
In Meera & Co. v. CIT (1997) 224 ITR 635, the Supreme Court on .the facts as set out to the head note of the Report extracted below:
"An individual who was carrying on business under the name of M & Co. died in the state, on August 25, 1962, and was survived by his mother, widow and three minor children. The mother of the deceased relinquished her interest in the assets of the deceased against a lump sum payment. The business, M & Co., was continued as a single unit in the same name by the widow, on her behalf and on behalf of the three minor children, For the assessment years 1963‑64 to 1967‑68, the widow claimed that the income from the business should be assessed in equal shares in the hands of the four legal heirs of the deceased. The Income‑tax officer held that the business was one common unit and was assessable in the status of body of individuals. The Tribunal, by a majority, confirmed his view. On a reference, the High Court held that the expression body of individuals should receive a wide interpretation to include a combination of individuals who had unity of interest and were actively engaged in the business carried on for the benefit of all of them by one of them and that, therefore, the widow and her children would constitute a body of individuals, rejecting the contention that as guardian trustee of the minor children, the mother should have been assessed as a representative assessee in accordance with the provisions of sections 160, 161 and 166 of the Income Tax Act, 1961.
Dismissing the appeals the Court held that the profits that arose out of the business were a result of the business activities carried on jointly by the mother on her own behalf and also on behalf of the minor children. It did not make any difference that the widow and the minor sons did not start the business. The business was inherited. It was carried on as before. The fact that the business had been continued by the widow on her own behalf as well as on behalf of the minor sons after buying the interest of the mother showed that there was an organised activity jointly carried on to produce income. It was a clear case of a joint business venture of a few individuals. The income of this business had been rightly assessed in the status of a body of individuals."
The law laid down in that case squarely applies to the facts of this case. Following the above decision, we hold that the assessment made in the status of the assessee as body of individuals is perfectly in order.
We answer both the questions of law against the assessee and in favour of the Revenue. No costs.
M.B.A./553/CReference answered.