# CHARANDAS HARIDAS AND ANOTHER v. THE COMMISSIONER OF INCOME-TAX

- **Citation:** [1960] 3 S.C.R. 296
- **Court:** Supreme Court of India
- **Decided:** 1960
- **Bench:** S. K. Dab, J. L. Kapur, M. Hidayatullah
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/charandas-haridas-and-another-v-the-commissioner-of-income-tax-1589
- **Pages:** 9

## Headnote

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 consisting 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 and himself, and his wif~ entered
into an oral agreement for a partial partition, \Vi'.th effect fron1
January 1, 1946, by which C gave a certain share to his daughter
in the managing agency commission from two of the six managing
agencies held by the family and the balance together with the
shares in the other managing agencies was divided into five equal
shares between C, his wife and sons.
The agreement was subsequently recorded in a document <lated September II, 1946, which
recited, inter alia: "By this partition we decided that \Vhatever
commission fell due till 31-12-45 and which is received after
31-12-45 should be kept joint and in r:espect of the commission
which accrues from 1-1-46 and received after that date each of
us become absolute owner of his one-fifth share and therefore
from the date, i.e., from 1-1-46 these commissions cease to be the
joint property of our family."
For the assessment years 1947-48
and 1948-49, C claimed that the incoine from the managing
agency firms should no longer be treated as the income of the
Hindu undivided family but as the separate income of the divided
members, )Jut the Income-tax authorities rejected the claim on the
grounds that by the document in question the division was of
th• inrome and not of the assets from which the income wa
IO..·-·
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3 S.C.R. SUPREME COURT REPORTS
297
derived and since income-tax was payable at the moment of time
I96o
when income accrued, this income must be taken to have accrued
to the ~indu undivided family:
Charandas Haridas
Held, that inasmuch as there was no other effective mode
v.
of partitioning this asset and further in view of tlie finding that Commissioner 01
Incom•-tax
the partition was not a pretence, the asset must be treated as
divided for purposes of income-tax law and the income was not
assessable as the income of the Hindu undivided family.
CIVIL APPELI,ATE JURISDICTION: Civil Appeal No.
108of1957.
Appeal by special leave from the judgment and
order dated February 16, 1955, of the Bombay High
Court in Income-tax Reference No. 35/x of 1954.
A. V. Viswanatha Sastri, B. K. B. Naidu and I. N.
Shroff, for the appellants.
0. K. Daphtary, Solicitor-General of I_ndia K. N.
Rajagopal Sastri and D. Gupta, for the respondents.
1960. March 15. The Judgment of the Court was
delivered by
HIDAYATULLAH, J.-This is an appeal with the Hidayalullah J.
special leave of this Court against the judgment and
order dated February 16, 1955, of the High Court of
Bombay in an I!J.come-tax Reference under s. 66(2) of
the Indian,Income-tax Act.
The appellants are two assessees, Charandas Haridas and Chinubhai Haridas, whose cases are identical,
and, in fact, there was a consolidated reference by the
Income-tax Appellate Tribunal, which was answered
by the High Court by its judgment. The respondents
are respectively the ·Commissioner of Income-tax,
Bombay North, Kutch and Saurashtra and the Commissioner of Income-tax, Delhi, Ajmer, Rajasthan and
Madhya Bharat. The two appellants represented
two units of Hindu undivided families.
Charandas
Haridas represented his wife, three sons and himself,
and Chinubhai Haridas represented his wife, son ~nd
himself. In stating the facts relative to the two
families, it will not be necessary to give them separately, because the question which was answered by
the High Court in the judgment under appeal arose in
i

## Text

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B1rt4bori Union
c£. E#changd of
Encloues
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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 consisting 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 and himself, and his wif~ entered
into an oral agreement for a partial partition, \Vi'.th effect fron1
January 1, 1946, by which C gave a certain share to his daughter
in the managing agency commission from two of the six managing
agencies held by the family and the balance together with the
shares in the other managing agencies was divided into five equal
shares between C, his wife and sons.
The agreement was subsequently recorded in a document <lated September II, 1946, which
recited, inter alia: "By this partition we decided that \Vhatever
commission fell due till 31-12-45 and which is received after
31-12-45 should be kept joint and in r:espect of the commission
which accrues from 1-1-46 and received after that date each of
us become absolute owner of his one-fifth share and therefore
from the date, i.e., from 1-1-46 these commissions cease to be the
joint property of our family."
For the assessment years 1947-48
and 1948-49, C claimed that the incoine from the managing
agency firms should no longer be treated as the income of the
Hindu undivided family but as the separate income of the divided
members, )Jut the Income-tax authorities rejected the claim on the
grounds that by the document in question the division was of
th• inrome and not of the assets from which the income wa
IO..·-·
'
-
...
4-
' -
3 S.C.R. SUPREME COURT REPORTS
297
derived and since income-tax was payable at the moment of time
I96o
when income accrued, this income must be taken to have accrued
to the ~indu undivided family:
Charandas Haridas
Held, that inasmuch as there was no other effective mode
v.
of partitioning this asset and further in view of tlie finding that Commissioner 01
Incom•-tax
the partition was not a pretence, the asset must be treated as
divided for purposes of income-tax law and the income was not
assessable as the income of the Hindu undivided family.
CIVIL APPELI,ATE JURISDICTION: Civil Appeal No.
108of1957.
Appeal by special leave from the judgment and
order dated February 16, 1955, of the Bombay High
Court in Income-tax Reference No. 35/x of 1954.
A. V. Viswanatha Sastri, B. K. B. Naidu and I. N.
Shroff, for the appellants.
0. K. Daphtary, Solicitor-General of I_ndia K. N.
Rajagopal Sastri and D. Gupta, for the respondents.
1960. March 15. The Judgment of the Court was
delivered by
HIDAYATULLAH, J.-This is an appeal with the Hidayalullah J.
special leave of this Court against the judgment and
order dated February 16, 1955, of the High Court of
Bombay in an I!J.come-tax Reference under s. 66(2) of
the Indian,Income-tax Act.
The appellants are two assessees, Charandas Haridas and Chinubhai Haridas, whose cases are identical,
and, in fact, there was a consolidated reference by the
Income-tax Appellate Tribunal, which was answered
by the High Court by its judgment. The respondents
are respectively the ·Commissioner of Income-tax,
Bombay North, Kutch and Saurashtra and the Commissioner of Income-tax, Delhi, Ajmer, Rajasthan and
Madhya Bharat. The two appellants represented
two units of Hindu undivided families.
Charandas
Haridas represented his wife, three sons and himself,
and Chinubhai Haridas represented his wife, son ~nd
himself. In stating the facts relative to the two
families, it will not be necessary to give them separately, because the question which was answered by
the High Court in the judgment under appeal arose in
identical circumstances in the two families.
The only
difference 's in the shares held respectively by the
;
two Hindu undivided families in the managing
298
SUPREME COURT REPORTS
[19~0]
x96o
agencies to be hereafter mentioned. We will, therefore,
Ch
d-H .d confine ourselves to a statement of the facts relating
"'"" :~ "" as to Charandas Haridas only.
·
Commissioner of
Charandas Haridas was the Karta of the Hindu unIncom•-•••
divided family consisting of his wife, three sons and
himself.
He was a partner in six managing agei,cy
Hiday•tullah f. firms in six Mills.
In previous years, the income
received by him as partner in these managing agencies
was being assessed as the income of the Hindu undivided family. On December 31, 1945, Charandas
Haridas acting for his three minor sons and himself
and Shantaben, his wife, entered into au oral agreement for a partial partition. By that agreement
Charandas Haridas gave an one pie share to his
daughter, Pratima, in the managing agency commission from two of the six managing agencies held by
the family.
The balance together with the shares in
the other managing agencies was divided into five
equal shares between Charandas Haridas, his wife and
sons.
This agreement was to come into effect from
January 1, l946, which was the beginning of a fresh
accounting year. On September 11, 1946, Charandas
Haridas acting .for himself and his minor sons, and
Shantaben executed a memorandum of partial partitfon in which the above facts were recited, the document purporting to be a record of what had taken
place orally earlier.
In the assessment years 194 7-48 and 1948-49,
Charandas Haridas claimed that the income should
no longer be treated as the income of the Hindu undivided family but as the separate income of the
divided members. The Income-tax Officer declined
to treat the income as any but of the Hindu undivided
family, and assessed the income as before.
An appeal
to the Appellate Assistant Commissioner was unsuccessful, and the matter was taken to the Incometax Appellate Tribunal. The Appellate Tribunal held
that by the document in question, the division, if any,
was of the income and not of the assets from which
the income was derived, inasmuch as "the agreements
of the managing agency with the managed ·Companies
did not undergo any change whatever as a result of
the alleged partition".
The Appellate Tribunal,
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3 S.C.R.
SUPREME COURT REPORTS
299
therefore,· held that the arrangement to share the
r96o
receipts from this source of income was not binding c•
d-H ·a
'f
h
l
.
. ,.aran as
an as
on the Department, i the assets t emse ves contmued
v.
to remain joint. It further held that the _document Commissioner of
was " a farce ", and did not save the family from
Income-tax
assessment as Hindu undivided family. The Tribunal
having declined to state a case under s. 66(1) of the Hidayatullah J.
Indian Income-tax Act, Charandas Haridas moved the
Bombay High Court, and obtained· an order under
s. 66(2) of the Act. The question on which the case
was stated was :
" Whether there were materials to justify the
finding of the Tribunal that the income in the share
of the commission agency of the Mills was the income of the Hindu undivided family ? "
'The High Court stated that though the reference
was very elaborately argued, it raised a very simple
question .of fa.ct and all that it was required to find
out was whether there were materials before the
Appellate Tribunal upon which the, finding of fact
could be rested. The High Court held that though
the finding given by the Appellate Tribunal could not
be construed as a finding that the document was not
genuine, the method adopted by the family to p,artition the assets was insufficient to bring about the
result intended by it.
According to the High Court,
the Appellate Tribunal was right in holding that the
document was ineffective, and though the income
_
might have been purported to be divided and might, ·
in fact, have been so divided, the source of income
still remained united as belonging to the Hindu undivided family. It accordingly answered the question
in the affirmative, holding that there were materials
before the Tribunal on which it could reach the conclusion that in so far as these income-bearing assets
were concerned, they still belonged to the Hindu undivided family. Leave to appeal to this Court was
refused by the High Court, but Charandas Haridas
applied to this Court and obtained special leave, and
the present appeal was filed.
Mr. Viswanatha Sastri appearing for Charandas
l{aridas, pointed out that a Hindu undivided family
cannot be a partner of a firm.
Charandasr Haridas,
300
8UPRE.\1E COURT REPORTS
[1960]
r960
. fherefore, though he represented the Hindu undivided
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.
family, in his capacity as a partner could not insist
Cha.ondas 11"''das that the other members of the family be received as
Commi;;ion" of partners, or admitted to the benefits of partnership.
Income-tax
The only mode in which the partition could be made
was to divide the income, and this had the necessary
Hidayatullah J. effect, in law, of dividing the assets, if not for the
purposes of the Partnership Act, at least for the
purposes of assessing income-tax. He, therefore, contended that the Hindu undivided family which had
ce:tsed to exist in so far as these assets were concerned, could not be assessed as such after January 1,
1946, the date from which the partition was effective.
The learned Solicitor-General for the Department contended that the argument itself involved the assumption that the assets were not, in fact, divided, and
since income-tax was payable at the moment of time
when income accrued, this income must be taken to
have accrued to the Hindu undivided family and its
subsequent partition into five or six shares did not
affect the position.
Before we deal with these arguments, it is necessary
to quote the operative portion of the document, which
is as follows :
"Re :-Partial partition of the Hindu Undivided
Family of Charandas Haridas of Ahmedabad.
We the undersigned Sheth Charandas Haridas by
himself and as the guardian of minors Rameshchandra Charandas, Anilkumar Charandas and
Gautamkumar Charandas and Shantaben Charandas
all residing in Shahibaug, Ahmedabad make this
memorandum (Nondh) that, we have a Hindu undivided family and Sheth Charandas Haridas manages our family's joint property as Karta or Manager
and all of us as members of the joint undivided
family are entitled to our joint undivided family
as Malik. Our family received a commission of
Re. 0-1-11. 5/12 from the Vijaya Mills Co., Ltd. and
out of this commission Sheth Charandas Haridas as
Karta or Manager of the 1family has given already
a commission of one pie to Pratima, the daughter
of the family.
So also out of the commission of
Re. 0-2-l received by the family from the Gopal
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3 S.C.R.
SUPREME COURT REPORTS
301
Mills Co., Ltd. Sheth Charandas Haridas as Karta.
r96o
and Manager has given already to Pratima one piec,
nd-H
·~ ·
· ·
Af
d d
·
0h
R
0 l 10 5/12 ,iara as
arii.as
comm1ss10n.
ter e uctmg t ese
e. - -
.
v.
and Ite. 0-1-11! commission remained. These comCommissioner of
missions and other· commission received from various
Income-tax
other mills have been partitioned orally by us on
Sam vat Year 2002 Magsar Vadi 12, dated 31st Hiaayatullah ].
December, 1945. By this partition we decided that
whatever commission fell due till 31-12-45 and
which is received after 31-12-45 should be kept joint
and in respect of the commission which accrues
from 1-1-46 a.nd received after that date each of us
become absolute owner of his one-fifth share and
therefore from the date, i.e., from 1-1-46 these commissions cease to be the joint property of our family.
But it is our desire that we should keep a memorandum for our memory of the oral partial partition
effected on Sam vat Year 2002 Magsar Vadi 12, dated
31-12-45 pursuant to which we have partitioned the
commissions to be received by our family. Because
. of this we keep this note."
The document no doubt mentions "a commission"
in respect of each of the six managing agencies, which
commission was divided by the document. The word
"commission'', however, has been used in two different
senses; sometimes it refers to the amount of the
managing agency COffemission to be received by
Charandas Haridas and sometimes to the right to that
commission which Charandas Haridas had as a partner.
The sole question is whether the source was effectively
divided for purposes of the Income-tax law, so that
the assessment could not be made upon a Hindu
undivided family.
The law was stated by Mayne, and approved by the
Privy Council in Pichappa v. Ohokalingam (1 ), in the
following words :
"Where a managing member of a joint family
enters into a partnership with a stranger the other
members of the family do not ipso facto become
partners in the business so as to clothe them with
all the rights and obligations of a partner as defined
by the Indian Contract Act. In such a case the
(t) A.I.R. 1934 P.C. 192,
39
I
Charandas [iarida~
v.
Co1n1nissioner of
I nco111e~tax
Hitl....:yatuJJah J.
302
SUPREMT<J COURT REPOR1'S
[1960]
family as a unit. does not qccome a partner, but
only such of its members as in fact enter into a
contractual relation with the stranger: the partnership will be governed by the Act."
Further, t.he Privy Council in Appovier v. Rarna Subba
A iyan (1) observed :
"Nothing can express more definitely a conversion of the tenancy, and with that conv<:'rsion a
change of the status of the family quoad this property. The produce is no longer to ho brought to
the common chest, as representing the income of an
undivided property, but the proceeds are to be
enjoyed in six distinct equal shares by .the members
of the family, who are thenceforth to become entitled to those definite shares."
The .Bombay High Court quoted this passage, and
stated that there must be a division of the right as
well as a division of the property; and unless the division effected a separation of the property into shares,
it would remain only as a separation of the income
after its accrual and would not affect the asset as such.
In this view of the matter, the Bombay High Court
held that the asset continued to be joint in spite of the
division of the income after its accrual.
In our opinion, here there are three different branches
of law to notice. There is the law of Partnership,
which takes no account of a Hindu undivided family_
There is also the Hindu law, which permits a partition
of the family and also a partial partition binding upon
the family. There is then the Income-tax law, under
which a particular income may be treated as the
income of the Hindn undivided family or as the income
of the separated members enjoying separate shares by
partition. The fact of a partition in the Hindu law
may have no effect upon the position of the partner,
in so far as the law of Partnership is concerned, but it
has foll effect upon the family in so far as the Hindu
law is concerned. J nst as the fact of a Karta becoming a partner does not introduce the members of the
undivided family into the partnership, the division of
the family does not change the position of the partner
vis-a-vis the other partner or partners. The lncome-
(1) (I%6) II M.l.A. 75•
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3 S.C.R SUPREME COURT REPORTS
303
tax law before the partition takes note, factually, of
19fo
the position of the Karta, and assesses not him qua
-
· b
.
l
H' d
d' 'd d Charandas Haridas
partner
ut as representmg t 1e
m u un 1v1 e
family. In doing so, the Income-tax law looks not to Commi:Sfoner of
the provisions of the Partnership Act., but to the
Income-tax
provisions of Hindu law.
When once the family has
disrupt(ld, the position under the partnership continues Hidayatitllah f.
as before, but the position under the Hindu law changes.
There is then no Hindu undivided family as a
unit of assessment in point. of fact, and the income
which accrues, cannot be said .to be of a Hindu undivided family There is nothing in the Indian Incometax Jaw or the law of Partnership which prevents the
members of a Hindu joint family from dividing any
asset. Such division must, of course, be effective so
as to bind the members; but Hindu law does not
further require that the property must in every case
be partitioned by metes and bounds, if separate enjoyment can otherwise be secured according to the shares
of the members. For an aso:et of this kind, there was
no other mode of partition open to the parties if they
wished to retain the property and yet hold it not
jointly but in severalty, and the law does not con- -
template that a person should <Jo the impossible. Indeed, the result would have been the same, even if
the dividing members had said in so many words
tha.t they had partitioned the assets, because in so far
as the firms were concerned, the step would have been
wholly inconsequential.
The respondent suggested that the family could
have partitioned the managing agencies among the
members of the family by alloting them severally; but
that would not have been possible without a dissolution of the managing agency firms and their reconstitution, which was not altogether in the hands of
Charandas Haridas. It was also suggested that the
managing agencies could have been aUotted to Charandas Haridas while the others took some other property,
or a receiver could have been appointed. No doubt,
there were many modes of partition which might
have been adopted; but the question remains that if
the family desired to partition these assets only and
no more, could they have acted in some other manner
304
SUPREME COURT REPORTS
[1960)
1;60
to achieve the same result? No answer to this question was attempted.
Charanda0 Harida, It is, therefore, manifest that the family took the
v.
fullest measure possible for dividing the joint interest
Commissioner of
Income-tax
into separate interests. There is no suggestion here
that this division was a mere pretence; nor has the
Wdayatullah J. Appellate Tribunal given such a finding.
Tile document was fully .effective between the members of the
family, and there was factually no Hindu undivided
family in respect of these particular assets. The assets
at all times stood in the name of Charandas Haridas,
and looked at from the point of view of the law of
Partnership, the family had no standing. The assets
still are in the name of Charandas Haridas, and looked
again from the same viewpoint, the division has no
different signification.
What has altered is the status
of the family.
While it was joint, the Department
could treat the income as that of the family; but after
partition, the Department could not say that it was
still the income of the Hindu undivided family, when
there was none. In the face of the finding that this
was a genuine document and not a sham, and that it
effectually divided the income and in the circumstances,
the assets, the question answers itself in the negative,
that is to say, that there were no materials to justify
the finding that the income in the share of the commission agency of the Mills was the income of the
Hindu undivided family.
The appeal will be allowed. The respondents will
pay the costs of the two assessees here and below.
There will be only one set of costs here.
Appeal allowed.
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