income-tax Officer Vs. G. Sharma BaruA. - Court Judgment

Excerpt:
- - he held that the house property income was clearly assessable in the hands of shri phani sharma and shri g. according to this ito, the facts of the case clearly indicated that the property was " the aac observed that the properties have been given to the minors out of natural love and affection through the device of the partnership deed. in this appeal also, it is reiterated that the authorities below erred in holding that the grandsons of the assessee did not acquire any right to the property in the absence of registered deed to that effect although the property has been received on dissolution of the firm contrary to the provisions of section 47 as well as the transfer of property act. 10. as far as the main issue is concerned, both the sides refer to various papers placed..... per egbert singh, accountant member - the first appeal is by the revenue and the other two appeals are by the different assessee. all these relate to the common order of the aac by which he has given certain directions to the ito. since the facts and the back ground of the case are identical, and the points involved also are some what inter-linked, we consolidate the appeals for disposal by this common order.2. for the sake of brevity and clarity, we will discuss the facts of the case as brought out in the assessment order in the case of shri g. sharma barua for 1982-83. the ito made the assessment under section 143(3) in the status of individual. the income assessed included interest on deposits, bank interest and also income from property. he mentioned that the assessment of shri.....

Judgment:

Per Egbert Singh, Accountant Member - The first appeal is by the revenue and the other two appeals are by the different assessee. All these relate to the common order of the AAC by which he has given certain directions to the ITO. Since the facts and the back ground of the case are identical, and the points involved also are some what inter-linked, we consolidate the appeals for disposal by this common order.

2. For the sake of brevity and clarity, we will discuss the facts of the case as brought out in the assessment order in the case of Shri G. Sharma Barua for 1982-83. The ITO made the assessment under section 143(3) in the status of individual. The income assessed included interest on deposits, bank interest and also income from property. He mentioned that the assessment of Shri Chinmoy Sharma, minor son of Shri Phani Sharma, the ITO, E-Ward, determined the amount of House property income at Rs. 36,940 assessable in the hands of the assessee under section 64. The ITO who completed the assessment of Shri G. Sharma Barua, the ITO, B-Ward, Gauhati, who gave opportunity to the assessee to state as to why the income derived by the minor should not be included. The assessee filed a written statement and submitted that the income exclusively belonged to the assessees two grand sons in their individual rights as the entire interest thereof was aquired by the minors out of their own sources w.e.f., 1-2-81 and that such income was assessed in their hands respectively. It was submitted also that nothing has been gifted by the assessee, Shri G. Sharma Barua to the grand sons as could be apparent from the records. It was argued, therefore, that in the circumstances, section 64(1) was not applicable and the clubbing of the income in the assessment of the assessed did not arise. Now, we may refer to the assessment order and findings given by the ITO, E-Ward, in the case of Shri Chinmoy Sharma, minor who was represented by his father, Shri Phani Sharma. This assessment was also made in the status of individual under section 143(3). The ITO, E-Ward, mentioned that return was filed showing income of Rs. 29,250. That ITO mentioned that this assessee was a minor and the return was filed by his father Shri Phani Sharma in which the property income was shown apart from interest. The ITO asked that assessee to clarify the position. The assessee submitted that the land on which the house property stands, belonged to Shri Phani Sharma, father of the minor and the investment in the house property was made by Shri G. Sharma Barua, grand father of the minor. He noted that on 2-1-1980, a partnership firm M/s. G. Sharma Barua was constituted with Shri Phani Sharma and his father Shri G. Sharma Barua as partners. He found that the assessee-minor and his another minor brother were admitted to the benefits of the partnership. The land mentioned above was covered by Dag No. 104 (old) and 410 (new) situated at Bamunimaidan, Gauhati, standing in the name of Shri Phani Sharma was brought in the partnership business as capital of Shri Phani Sharma. It was further stated that the investment in the construction was made by Shri G. Sharma Barua and the same was contributed by him towards the capital of the firm. The ITO also found that thereafter on 1-2-1981 i.e., only after 13 months of the formation of the partnership the firm M/s. G. Sharma Barua was dissolved as a result of which the entire property together with land was allotted to the assessee and his minor brother.

3. The ITO, E-Ward, mentioned, therefore, that the land in question still stands in the name of Shri Phani Sharma and in the municipal records the buildings stands in the name of Shri G. Sharma Barua, grand father of the minor. The ITO therefore, concluded that it was clear that the creation of the partnership was nothing but a device to transfer the property to a minor otherwise than for adequate consideration. He held that the house property income was clearly assessable in the hands of Shri Phani Sharma and Shri G. Sharma Barua in proportion to their capital contribution to the firm. He noted that the capital of Shri G. Sharma Barua and Shri Phani Sharma was Rs. 1,06,108 and Rs. 34,660 respectively. He accordingly concluded that the property income was assessable in the hands of these two majors at the ratio of 106 : 35 respectively. The ITO also observed that the assessment in the hand of the assessee minor was completed as a protective measure.

4. Now we shall come back to the assessment order and the findings in the case of Shri G. Sharma Barua as passed by the ITO, B-Ward, who made a reference to the assessment of the minor as made by the ITO, E-Ward,. This ITO also did not accept the contention and the arguments of the assessee Shri G. Sharma Barua. According to the ITO the building was standing in the name of the assessee as per Municipal records and "transferred" to the grandson was made through the device of partnership deed which was not bona fide as the firm was constituted just for this purpose and not for carrying on the business. He also noticed that there was no registered deed transferring the property to the grandson who did not acquire any right in the property as such. The ITO concluded that the property income was assessable in the hands of the assessee i.e. Shri G. Sharma Barua who was the rightful owner till the bona fide transfer is made by a registered deed. Reference was made to the decision as in CIT v. Bhurangya Coal Co. : [1958]34ITR802(SC) . The ITO also held that mere assessment in the hands of the grandson did not estop the department for assessing the income in the hands of the assessee i.e. Shri G. Sharma Barua, relying on the decision Jamunaprasad Kanhaiyalal v. CIT : [1981]130ITR244(SC) . The ITO also observed that in income-tax matters principle of are judicata would not apply. According to this ITO, the facts of the case clearly indicated that the property was "transferred" indirectly by the assessee to the g person, may not by way of gift and, therefore, the income shown by the minor from this property produceded and computed the income as done in the assessment order at Rs. 36,940.

5. Thereafter the assessee took up the matter before the AAC who disposed of the appeals preferred by the Shri G. Sharma Barua. The AAC also disposed of the appeal filed in the case of minor Shri Chinmoy Sharma in the light of his decision given in the case of grandfather.

6. Before the AAC Shri G. Sharma Barua protested against the action of the ITO and contended that the grandson had received the property on dissolution of the firm and as such the ITO erred in assessing the income in the hands of the assessee under section 64(1). It was submitted that the partnership was evidenced by the intrument of partnership and was allowed registration under the Act and that as per deed of partnership of the contribution towards the firms capital was made in the prescribed manner i.e., the house property was contributed by Shri G. Sharma Barua, the land on which the building was raised was contributed by Shri Phani Sharma and as far as the minors were concerned the grandsons have agreed to contribute the capital in the name of the minors to the extent of Rs. 1,00,000 each. It was pointed out to the AAC that the minors have been admitted only to the benefit of the partnership and no loss or liability was allotted to them. Reference was made to the different causes of the partnership deed in which it was provided that their share shall be held in trust for the benefits of the firm and its partners by the persons in whose name title thereof stands till the mutation was made in the name of both the partners. It was pointed out that by a deed of dissolution the immovable properties were allotted to the minors as wqual co-owners of the property and the credit balance of the partners has also been given as interest bearing loan to the minors. It was pointed out also that the father and the natural guardian of the minor would have to pay and satisfy all the debts and liabilities existing at the time of dissolution of the partnership. According to the assessees learned counsel, through the deed of dissolution the minors had become owners in equal shares relating to the immovable property and by virtue of such ownership the income of such property should be assessed only in the hands of the minor co-owners. It was also contended that the transactions relating to transfer of beneficial ownership took place through the arrangement of the partnership and at this stage there was no element of gift or transfer for inadequate consideration so as to attract section 64. It was urged, therefore, that inclusion of the minor as mentioned above was not justified. The AAC expressed the view that the transaction was quite alright up to after the stage of formation of the partnership, registration of the same etc. The AAC, however, noted that in the allotment of the assets and liabilities some doubts have arisen. He pointed out that none of the assets and liabilities of the firm have been apportioned to the partners, namely, Shri G. Sharma Barua and Shri Phani Sharma. According to the AAC, the minors have only been admitted to the benefits of partnership and they were not partners as such and that their capital were also contributed by the guardians. The AAC, therefore, inferred that the minors in such a situation obviously have no entitlement to share as partners on dissolution of the firm. He also observed that there was no adequate consideration for allotment of the immovable properties to the minors on dissolution. He also observed that there was no adequate consideration for allotment of the immovable properties to the minors on dissolution. He found the contention of the assessee that the capital contributed by the guardian on behalf of the minors constitutes adequate consideration, was not at all tenable and cannot be accepted. The AAC observed that such an allotment has not gone to the minors as partners, and the transfer was without any consideration. The AAC observed that the properties have been given to the minors out of natural love and affection through the device of the partnership deed. He also found that no mutation took place in favour of the firm as stipulated by clause 5 of the partnership deed, nor had the properties been mutated in favour of the minors after the dissolution. He, therefore, concluded that the ownership of land continues with Shri Phani Sharma and the owndership of the building was with Shri G. Sharma Barua. He was of the view that section 64 was attracted. The AAC, however, modified the order of the ITO in holding that H. P. income would now be assessable in the hands of the Shri G. Sharma Barua and Shri Phani Sharma in the ration of 106 : 35 respectively. He, therefore, directed the ITO, B-Ward, to give effect to the order in the case of Shri G. Sharma Barua.

7. In the appeal of Shri Chinmoy Sharma, minor, the AAC in view of his decision in the case of the grandfather gave similar direction and dismissed the appeal by that minor assessee. Hence, these appeals are preferred by the assessee and the department to agitate their respective views.

8. In the appeal by the revenue, the contention of the revenue is that the AAC erred in directing the ITO to assessee the property income both in the hands of the Shri G. Sharma Barua and Shri Phani Sharma in the ratio of 106 : 35 whereas in the appeal of Shri Chinmoy Sharma the contrentions are that the two minors i.e. Shri Chinmoy Sharma and his brother Shri Tonmoy Sharma were the legal and beneficial owners of the property after the dissolution of the firm and that the income from the house property was assessable in their hands in equal proportion. It is also contended that the AAC went wrong in upholding the protective assessment made by the ITO. In the appeal of Shri Chinmoy Sharma ground No. 4 is not pressed regarding disallowance of Municipal tax.

9. In the appeal by Shri G. Sharma Barua, the contention is that the AAC erred in upholding the finding of the ITO as mentioned earlier. It is the appeal by this assessee that the authorities below went wrong in stating that the partnership firm which was constituted just for transfer of property without any adequate consideration and the carry on any business and that the observation was on the basis of suspicion against the facts. In this appeal also, it is reiterated that the authorities below erred in holding that the grandsons of the assessee did not acquire any right to the property in the absence of registered deed to that effect although the property has been received on dissolution of the firm contrary to the provisions of section 47 as well as the Transfer of Property Act. This assessee, therefore, submits that the authorities below erred in including the income of the minor under section 64. In this appeal, the assessee has also raised the point regarding charging of interest under sections 139(8) and 217(1A) which we can presently deal with. It is seen that the point of appeal regarding charge of interest could not be said to have arisen out of the impugned order of the AAC. The contention of the assessee is that the AAC erred in considering this point although the same was taken up in ground No. 5 in the memorandum of appeal before the AAC. In the circumstances, we deem fit as far as this point of charging of interest is concerned, the matter should be restored to the file of the AAC for fresh disposal and to dispose of the ground No. 5 in accordance with law and after giving both the sides an opportunity of being heard.

10. As far as the main issue is concerned, both the sides refer to various papers placed in the paper-book, like lease deed, deed of dissolution and other papers to emphasise their view points. On behalf of the assessee, the learned counsel submits that the partnership firm was a genuine one and has come into existence properly in the light and terms of the partnership deed, and it is also submitted that the firm as such was registered which registration was not cancelled either for the earlier years. It is submitted that the matter was wrongly viewed by the authorities below without proper appreciating the business purpose of the partnership deed. It is also reiterated that no item of the property was transferred of sought to be transferred by the grandfather to the minor grandsons and that the arrangement has been arranged only to avoid stamp duty which was of considerable sum. It is also reiterated that there is no question of gift either whether actual or fictional. It is urged that from the balance sheet it could be seen that the properties contributed by the partners as a capital had becomes assessee of the firm and in dissolution of firm the assets were distributed to the partners and in such an occasion it cannot be said that the assets particularly landed properties have not been transferred to the respective partners on parties have not been transferred to the respective partners on this proposition, the assessees learned counsel refers to a decision of the Honble Supreme Court in the case of CIT v. Juggilal Kamlapat : [1967]63ITR292(SC) in which on facts of that case it was held that a deed evidencing transfer of an interest of a partner in a partnership assets, does not requires registration even though the partnership assets comprised of movable as well as immovable property. It is submitted, therefore, that the authorities below erred in holding a contrary view. In course of his arguments, the assessees learned counsel refers to the various papers to the paper-book in order to stress the point and high-lighted the arguments to support the claim that since the firm was property and legally constituted and registered and in respect of the assets distributed by the minors and no registration is necessary and the assets have become the properties of the minors concerned and income therefrom was assessable in the hands of the minors and cannot be clubbed under section 64. It is repeated before us that there was no gift or any element of gift to the minors by any one their own right. It is argued at length that having regard to the facts and circumstances of the case and the materials available on record, it could be seen that the claim of the assessee in the present case have wrongly been rejected by the authorities below.

11. On the other hand, the learned Departmental Representative resists the various submissions made on the behalf of the assessees. It is urged that the authorities below have brought ample materials on record after making proper enquiry in order to show that the whole exercise was only a device to avoid income-tax, capital gain etc. in addition to Stamp Duty and that the properties have been transferred to the minors without any consideration at all. It is submitted that it cannot be said that the capital contribution stipulated to be contributed by the minors, were, in fact to be made by the guardian of the minors. On behalf of the revenue, reference is made to another decision of the Honble Supreme Court in the case of Sunil Siddharthbhai v. CIT : [1985]156ITR509(SC) in order to emphasise that the ITO was entitled to consider all the relevant material in this regard whether the partnership was formed between the assessee and the other people and whether the asset was disposed of by the partnership soon after the formation of the partnership firm itself and the other connected activities. It is pointed out that there is no material whatsoever to contradict the findings, observation or conclusion of the ITO in the present case and that the AAC had also highlighted in the impugned order.

12. The learned Departmental Representative goes on to submit that the making book entries the immovable properties belonged to Shri G. C. Sharma Barua or to Shri Phani Sharma, would not automatically get transfer to the minors and such book entries cannot effect any conscience, release or partition of immovable properties. For this proposition, reference is made to a decision of the Honble Madras High Court in the case of CIT v. Dadha & Co. : [1983]142ITR792(Mad) . The learned Departmental Representative goes on to the argue that apart has challenged the directions given by the AAC to assessee the income from the house property on a particular ration in the hands of the Shri G. Sharma Barua and in the hands of the Shri Phani Sharma. It is submitted that the ITO in the assessment of Shri G. Sharma Barua has rightly invoked the provisions of the section 64 and in clubbing the entire income in the assessment. It is submitted, therefore, that in view of the peculiar background of the case of and the deliberate action of the parties, the orders of assessment were rightly framed by the ITO and the same required to the restored and maintained.

13. We have heard both the sides at length and we have gone through the orders of the authorities below carefully, for our consideration along with the various papers placed before us. it is seen from the different papers placed in the paper-book that the land was owned by Shri Phani Sharma, son of the assessee Shri G. Sharma Barua, which was taken on lease by Shri G. Sharma Barua from the said son on lease rent of Rs. 350 per month payable yearly by the said father to the son and the lease was stipulated to last for 25 years with a further right of renewal for another 25 years at the option of the lease i.e. the father. The lease deed was dated 9-3-1976. In this lease deed it was stipulated that the lessor has given delivery, possession of the said land from 1-7-1973 and that the lease that is Shri G. Sharma Barua had erected and constructed pucca building thereon. In the circumstances, we fall to see how the said property would or was available with Shri Phani Sharma for the purpose of contributing the same property which has been leased out as mentioned above, as contribution as his capital to the partnership firm as claimed. It may be mentioned here that the said lease deed was not canceled by the lessor and in fact the lease was in subsistence as there is nothing to the contrary. That apart, there is nothing to show that there was any other agreement between the lessor and the lessee in respect of this land for re-calling the said lease so as to infer that the land in question stood reverted to the lessor so as to tenable the lessor to contribute the same land or interest therein as his capital contribution to the partnership. The interest in the land or the occupancy rights over the said land contained to subsist and remain with Shri G. Sharma Barua. Shri Phani Sharma on the materials available could be said to be entitled only to the lease rent of Rs. 350 per month.

14. That apart, as could be seen from the materials placed before us that the partnership firm was claimed to have been constituted by Shri G. Sharma Barua and his son Shri Phani Sharma and the two minors were merely admitted to the benefits of partnership as also found by the AAC. In such a situation, it cannot be said that the minors who have been admitted to the benefits of partnership are full-fledged partners as such so as to entitle them to receive or claim any properties whether movable or immovable of the firm at time of dissolution.

15. As mentioned by the ITO it is immaterial that the firm was allowed registration in its own assessment and that fact would not estop the departments from taking a different view after investigating the correct facts and other circumstances of the case as warranted.

16. Amongst other things, it has been contended on behalf of the assessee that the authorities below failed to appreciate the fact that the partnership deed was floated for the purpose of doing business on different lines including acquisition of land reasoning building thereon, doing contract work etc. as mentioned in the preamble of the partnership deed. But in the instant case, it is apparent that there was no business activity not any intention to carry on the business activity by the firm as such. On the contrary, within a short span of its existence a deed of dissolution was drawn up with certain stipulations as mentioned in the dissolution deed. In a slightly different situation in the case of Sultan Bros. (P.) Ltd. : [1964]51ITR353(SC) the Honble Supreme Court observed that although the object of that assessee was to acquire land and buildings and to turn into account by letting and selling them, the activity contemplated did not itself turn the lease into a business deal. It was also held that as the assessee never carried on any business in the premises let out and there was nothing to show that it intended to carry on a hotel business in the building, the letting of the building did not amount to carry on of the business and the income could not be assessed under section 10. Of course, it was observed in this judgment that whether a particular letting is business has to be decided in the circumstances of each case. In the instant case before us, on the land taken on the lease by Shri G. Sharma Barua from Shri Phani Sharma a building was erected by Shri G. Sharma Barua. There was no indication or and no materials were available from which we could infer that these assets i.e. the land and building were the commercial assets as such. On the materials available before us, we do not find any substance in the submissions made on behalf of the assessee. Of course, as submitted by the assessees learned counsel that on dissolution of a firm registration is not necessary in respect of the landed properties purported to have been transferred to the respective partners, in view of the ruling of the Honble Supreme Court. But again as obsevered by the Honble Supreme Court, the department is entitled to look into the various circumstances and materials on record and in fact the ITO would have to scrutinies the transaction for in the task of determining whether the transaction is a sham or an illusory transaction or a device or ruse, the ITO is entitled to penetrate the veil covering it and ascertain the truth-Sunil Siddharthbhais case (supra). Thus, in our opinion, though the firm M/s. G. Sharma Barua was allowed registration in its own assessments proceedings, the same would not stand in the way to decide the matter on the basis of the materials and in view of the overall circumstances having regard to the purpose of the transaction alleged to have been done by the parties concerned. In fact, owning property and collecting of rent etc. cannot be said to constitute business activity. For this proposition, we may refer to the decision of the Honble Andhra Pradesh High Court in the case of CIT v. Phatiamal & Sons 1985 Tax LR 898.

17. As mentioned by the ITO and from the materials available it is seen that within the period of 13 months of the constitution of the firm, the firm was liquidated. No material has been placed before us as to why the firm had to be dissolved within a short gap of time. In the case of K. Govindarajulu : [1988]173ITR112(Mad) it was held by the Honble Madras High Court that time gap between the date of the gift of the lands and the sale of such lands were relevant. As the land was gifted in 1954 by the husband to the wife sold the property in 1959 and derived interest from the sale proceeds. It was held that interest from the deposits was not includible under section 64. As indicated before us the time gap between the two transactions in the present case was for a short duration only.

18. Thus, having regard to the various points involved and after considering the rival submissions made before us, and keeping in view the materials borough on record as mentioned by us in the different paragraphs mentioned earlier, we are of the option that the assessees in the form of land which was purported to have been contribution by Shri Phani Sharma to the partnership firm was no longer available with Shri Phani Sharma at the time of execution of the deed of partnership as at that point of time the land was under a lease granted by Shri Phani Sharma to Shri G. Shrama Baura for a period of 25 years. There was no indication that there was any default of lease rent by the lessee. In fact, the lessor had delivered the possession of the premises to the leases who construction the building thereon. Thus for all intents and purpose the asset in the form of land taken on lease and the occupancy right accompanying with it together with super-structure raised thereon belonged to Shri G. Sharma Barua as the same were invested from his own sources. In fact, in matters of taxation each year is independent, on the circumstances of each case and, therefore, the fact that the firm M/s. G. Sharma Barua was registered would not preclude the ITO assessing Shri G. Sharma Barua to lift the veil covering the transaction to ascertain the truth. In our opinion, the transaction of constituting a partnership or contributing of capital by the partners and the desolating of the firm within a short time and that too the very landed properties were allocated to the minors who are in fact not full-fledged partners but were admitted only for the benefits of the partnership reflect that the whole exercise was for not only avoiding Stamp Duty as pointed out before us at the time of hearing, but also to avoid income- tax. The assessees contention as mentioned earlier is also that there was adequate consideration as contribution of Rs. 1,00,000 in the name of the minors as stipulated in the deed was to be contributed by the guardian of the minor and that at the time of dissolution the immovable properties were given to the minors an the capital accounts standing in their names amongst other things, are to be allocated to the other two major partners who have agreed to keep the money as loan to the minor on interest payment. From these various circumstances, there is only one irresistible conclusion that the entire property, i.e. the house construction together with occupancy right over the land and other interest were transferred to the minors through the medium of the partnership by Shri G. Sharma Barua. The transaction was without any adequate consideration. The ITO has pointed out that the ownered over the building i. e, immovable property continues to be in the name of Shri G. Sharma Barue and the AAC has given a finding that mutation was not effected either at the time of the contribution of the property into the partnership as alleged and even after the claim that the dissolution of the firm took place and the assets have gone to the minors. In the circumstances, we cannot sustain the claim of minor assessee that they are the legal and beneficial owner of the property after dissolution of the firm. House property income or notional income thereof can only be assessed in the hands of the legal and real owner. We have given our above opinion that the formation of the partnership for the object mentioned therein was only to transfer the assets to the minor children. In these circumstances the property income can only be assessed in the hands of Shri G. Sharma Barua, who continues to be the owner of the properties as the buildings was created from his own sources on the land which he himself taken on renewable long lease from Shri Phani Sharma.

19. There are other aspects of the matter which has engaged our attention to the issues involved and as argued by both the sides before us. As pointed out by the AAC and as stressed by the assessees learned counsel all was well up to the stage of formation of the partnership, etc. In the instant case, the partners have sought to introduce landed properties as capital contribution to the firm. This transaction by itself tantamounts to transfer although the partners concerned did not receive any consideration. In this connection, we may refer to the decision of the Honble Supreme Court in the cases of Sunil Sidharthabhai (supra), which was applied by the Honble Supreme Court in the case of Dhirajben R. Amin v. CIT : [1988]174ITR307(SC) . In other words, Shri G. Sharma Barus by his contribution to landed properties as discussed by us above had transferred those assets to the partnership and he had received no consideration for the same. As repeatedly mentioned earlier, the two minors grandsons have been only admitted to the benefits of the partnership. By this action of the parties, it cannot be said that the minors have been made partners of the partnership as otherwise it would violate the relevant provisions of the Indian Partnership Act and the Indian Contract Act. For such proposition, we may refer to various decisions, namely, in the case of CIT v. Jagadish Jakati & Co. : [1979]119ITR19(KAR) and also in the case of CIT v. Md. Khalid Faquih & Co. : [1963]47ITR383(Bom) in which the defenition of the term partner under the Income-tax Act, 1922 has been dealt with and it was held that the partner cannot be read to mean that in every case where a minor has been admitted as a full partner, the deed is to be carded as valid because under that law a minor can only be admitted to the benefits of partnership which was designed to confer equal benefits upon the minor by treating him as a partner. but it does not render a minor a competent and full partner. The Honble Supreme Court has also expressed a similar view in the cases of CIT v. Dwarkadas Khetan & Co. : [1961]41ITR528(SC) . In another case of Sri Ramamohan Motor Service v. CIT : [1973]89ITR274(SC) the Honble supreme Court on the facts and in the context of that case had, inter alia, held that the partnership deed which was constituted was void in view of section 30 of the Partnership Act as one of the partners concerned, was a minor.

20. In the case of CIT v. Kesarimal Hirachand : [1971]81ITR693(AP) the Honble Andhra Pradesh High Court, amongst other things, held that the minors could only be admitted to the benefits of partnership with the consent of the major partners who alone could determine and dissolve the partnership and as the minor was not a partner, he cannot determine or dissolve the partnership. A similar view was expressed by the Honble Supreme Court in the case of CIT v. Shah Mohandas Sadhuram : [1965]57ITR415(SC) and also in the case of Shah Jethaji Phulchand : [1965]57ITR588(SC) . The Honble Gauhati High Court also in the case of Mahabir Prasad Kishanlal & Co. v. CIT on the facts of that case held that a minor cannot be a competent party to an agreement enforceable in law under the Indian Contract Act and that the Indian Partnership Act provides that if all the partners agree then a minor can be admitted to the benefits of partnership but even then a minor can never be a full- fledged partner. That being the position in law, in view of the authorities mentioned above, the minors in the instant case Shri Chinmoy Sharma and Shri Tonmoy Sharma who have been admitted to the benefits of partnership cannot be treated on considered as full-fledged partners of the firm. In our opinion, only the full-fledged partners are entitled to obtain and receive different assets on dissolution of the firm after certain liabilities and other obligations have been paid off. But in the instant case, the immovable properties have been allocated only to the minors concerned whereas only the credit balance in the firm have been allotted to the major partners and sum balances were stated to have been treated as interest bearing loans to the partners, through their guardian. That apart, the minor through their father and natural guardian have been made to pay and satisfy or cause to be paid and satisfied all assets and other liabilities existing on the date of dissolution of the partnership firm since dissolved (Clause 7 of the dissolution deed) which indicated that these minors though through their guarding have been made a full-fledged partners so as to entitle them to receive certain immovable properties of the partnership and also to pay off liabilities etc. In our opinion, the minors cannot be saddled with such liabilities.

21. As mentioned earlier, it has been pointed out by the assessee learned counsel that Rs. 1,00,000 each would be contributed by the minors through their guardian i.e. Shri Phani Sharma. As per clause 5(d) of the partnership deed in which it was also mentioned that as much amounts would be receivable by the minors from Shri G. Sharma Baura to whom advances have been made against construction of the properties and as have been accounted for in the capital by effecting necessary entries in the accounts. From the capital account of Shri G. Sharma Barua appearing at page 42 of the paper-book his accounts were credited with the value of two storeyed building in addition to certain cash credits. The assets, on the other hand, have been shown as transferred to both the minors of Rs. 1,00,000 each. In the accounts of the two minors the opening entry was the amount of Rs. 1,00,000 received by transfer from G. Sharma Barua, as mentioned earlier. In other words, from these material available, it could be seen that the capital contribution of Rs. 1,00,000 states to have been made in the name of the minors by their father Shri Phani Sharma was actually contributed by Shri G. Sharma Barua, the grandfather, i.e. the assessee. Thus, the landed properties on the basis of our findings above, including the rights on the land and the super-structure thereon have been transferred by Shri G. Sharma Barue to the partnership firm within out any consideration, and in turn on dissolution of the partnership firm the same assets stood transferred to the minors without any consideration.

22. In view of our opinion and conclusion, we are of the opinion that the AAC has erred in allocating the income from the property as assessable in the hands of Shri G. Sharma Barua and Shri Phani Sharma in the ratio of 106 : 35, as in fact Shri Phani Sharma could not have contributed the land which have already leased out by him earlier. The alleged contribution of the land by Shri Phani Sharma was a sham transaction.

23. In this view of the matter, the order of the AAC on the point regarding proportionate allotment of income is set aside. The entire income would stand assessable and includible in the assessments of Shri G. Sharma Barua.

24. In view of the conclusion in the substantive assessment in the hands of Shri G. Sharma Barua, the assessment made by the ITO in respect of the Income dealt with in this order, in the hands of Shri Chinomy Sharma on protective basis and as sustained by the AAC stands modified.

25. In the result, the appeals by the assessee are dismissed and the appeal by the revenue is allowed in full.