CHAMPARAN CANE CONCERN versus STATE OF BIHAR AND ANR.

S. K. DAS .J.-The Champaran Cane Concern, appellant before us, was assessed to agricultural income-tax under the Bihar Agricultural Incometax Act (Bihar Act 32 of 1948), referred to as the Act in this judgment, by the Agricultural Incometax Officer, Motihari for three vears 1356 F. 1357 F. and 1358 F. corresponding to i948·49, 1950-51 and 1951-52 respectively. It was assessed as a partnership firm for all the three years, though the assessee claimed that it was a co-ownership concern belong· ing to two persons, Padampat Sinl(hania having Re. 0·4-0 share and Lala Bishundayal .Jhunjhunwala having Re.- 0-19.-0 share. The concern, it was stated, carried on agricultural operations in six farms consisting of little over Ac. 2,000-00 of land out of which about Ac. 1,600-00 were purchased jointly by Padampat Singhania and Bishundayal Jhunjhunwala and Ac. 483-00 were purchased in the name of a mi\J, namely, Motilal Padampat Sugar Mill of which the aforesaid two persons were the owners. Later on. by a resolution of the mill-company, the farms were separated from the mill and the lands in their entirety were cultivated by the concern. As nothing now depends upon the distinction between the lands purchased in the name of the mill and those acquired otherwise, we shall ignore the distinction for the purpose of these cases.

pp. 923–924

The assessee claimed that the concern was a co-ownership concern belonging to the two persons above named in the shares already indicated, and as they were residents of U ttar Pradesh at a very long distance from the farms in Champaran, thr>y appointed one S. K. Kanodi;; common mauager for facility of cultivation ;1nd management. ·This common manager lookde <1.fter and managed the a~ricultural operations during the years in question. The further case of the assessee ».is that the lands were undivided between the co-owners and the total net profits arising out of the joint cultivation were divided between the two co-owners. On these statements the assessee pleaded that s. 13 of the Act applied and the common manager should have been assessed in respect of the agricultural income-tax payable by each of the two co-owners in respect of their shares only. This plea of the assessee was rejected by the Income-tax Officer. Appeals were then preferred against the assessments made to the Deputy Commissioner of Agricultural Income-tax. These appeals were dismissed with certain modifications with which we are not now concerned. Then, three applications in revision were filed to the Board of Revenue. The Board reduced the assessment under schedule C but did not accept the plea of the assessee that the assessments should have been made under s. 13 of the Act. The assessee then moved the Board of Revenue for making a reference to the High Court on the following question of law which it stated arose out of the order of the Board :

p. 924

"Whether on the facts and circumstances of the case the common manager is to be assesseq. under s. 13 of the Bihar Agricultural Income-tax Act (Bihar Act 32 of 1948) in respect of the agricultural income payable by

pp. 924–925

e,ach 'Jf the partners ?" It is to be noticed that the underlined words in the question appeared to assume that the concern was a partnership firm. The Board, however, refused to make a reference.

p. 925

The High Court of Patna was then moved under s. 28 (3) of the Act and, it called for a re· ference from the Board on a differently worded question which expressed the real issue between the parties :

p. 925

"Whether in the facts and circumstances of the case, the common manager should be assessed under section 13 of the Bihar Agricultural Income Tax Act in respect of the agricultural income tax payable b.y the persons jointly

p. 925

liable ?" The question framed by the High Court did not assume that the co-owners of the concern were partners thereof. Strangely enough when the Board submitted a statement of the case in pursuance of the order of the High Court, it again reverted to the old form of the question. The High Court, however, took the question to be the one which it had asked the Board to refer to it and on that footing answered it against the assessee. The High Court said that the question whether the assessee was a co-ownership concern or a partnership firm was a question of fact, and even otherwise, there were facts and circumstances from which it was open to the taxing authorities to come to the conclusion that the firm was a partnership firm. On this footing the High Court answered the question against the assessee.

p. 925

The assessee then moved this court for special leave and having obtained such leave has brnught the present arpc.,Js this coun from tltc dec~,1on of the High <;.;011rt dated September 2LI, I !J5t!.

p. 926

'.Ve may now refer to some of the provisions of the Act which bear upon the question before us. S. 2 of the Act is the definition section. According to the definition given in that section ''agricultural income" means inter 11/in any income derived from land which is used for agricultural purposes. It was not disputed before us that the income which the assessee in those c~scs derived was from land which was used· for agricultural purposes. namely, the cultivation of sugarcaoc · etc. The ddinition section further stated that the word "firm" had the same meaning as in the Indian l'artnership Act, I \J:l:!, a·nd the word "person" meant any individual, association of individuals owning or holding property for himself or for any other or partly for his own· ben1 Jit and partlv for another either as owner, trustee, receiver, common manager; administrator or executor or in any capacity recognised by law and included an individual, Hindu family, firm or company. The charging section is s. :l which says that agricultural income·tax shall be charged for each financial year in accordance with and subject to the provisions of the Act on the total agricultural income of the previous year of every person. Agricultural income-tax means the tax payable under the Act. It would appear from what we have stated above that by reason of the definition of the words "firm" and "person" the assessee if it is a partnership firm would be liable to tax as a firm on its agricultural income by reason of the charging section, namely, s. ;{. Ins. 3 of the Indian Income-tax Act, 1922 which is similar in terms, the words "of every firm or associa· tion of persons or the partners of the firm" were sub· scquently added in 1924 and the Indian Income-tax Act makes a distinction in the matter of assessment between a registered and . ari unregistered firm. We are referring to these provisions, because at one stage it was argued on behalf of the assessee that s. 13 of the Act which we shall presently quote applied to the present cases even if the assessee were a partnership firm. Appearing on behalf of the assessee, the learned Solicitor General has, however, conceded before us -that he is not in a position to argue that s. 13 of the Act will apply even if the assessee is a partnership . firm.

pp. 926–927

We may now reads. 13- "Where any person holds land, from which agricultural income is derived, as a common manager appointed under any law for the time being in force or under any . agreement or as receiver, administrator or the like on behalf of persons jointly interested in such land or in the agricultural income derived thereform, .the aggregate of the sums payable as agricultural income-tax by each person on the agricultural income derived from such land and received by him shall be assessed on such common manager, receiver, administrator · or the like, and he shall be deemed to be the assessee in respect of the agricultural incometax so payable by each such person and shall

p. 927

be liable to pay the same". It is quite clear from the section that where a common manager appointed under any law or under any agreement holds land from which agricultural income is derived, on behalf of persons jointly interested in the land or in the agricultural income derived therefrom, the aggregate of the sums payable as agricultural income- tax by each person on the agricultural income derived from · such land .and received by him shall be assessed on the common manager in. respect of the agricultural income-tax so payable by each such person and the common manager shall be liable to pay the same. We have. already stated that the learned Solicitor General has not noy, argued before us thats. 13 will apply in the case of a partnership firm. He has however very strongly argued that s. 13 in terms will apply if the assessee in the pre5ent cases is a co-ownership concern (as distinguished from a partnership firm) and the common manager thereof must be assessed in respect of the aggregate of the sums payable as agricultural income-tax by each such co·owner. Mr. S. P. Varma appearing for the respondent-State of Bihar has • indeed conceded that if the assessec in the present cases is a co-ownership concern, thens. I:~ will.apply and the question referred to the High Court must be answered in favour of the assessee. He has however argued that the High Court was right in holding that the assessee was a partnership firm and on that footing answering the question against the assessee.

pp. 927–928

Thus, the entire controversy before us narrows down to this: on the facts and circumstances stated in the cases, was the assessee a partnership firm or a co-ownership concern ? We shall presently come to the distinction between these two, but we think that in a question of this sort both form and substance must be considered. Now, partnership or no partnership is ordinarily a question of fact, but we agree with learned counsel for the asscssee that it is a mixed question of fact and. law in the sense that if the authorities who have to ascertain question of fact apply a wrong principle of law in instructing themselves as to what they have to find, then their finding of fact is uot conclusi\'e because they have done it accordinl[ to wrong principles (see Morden Rigg & Co. and JI. JJ. Eskriglje & Co. v. Jlfonks ('). Looked at from the aforesaid standpoint, the question before the taxing authorities in the present cases was whether on the facts and circumstances established in the cases an inference of a partnership firm within the meaning of the Indian Partnership Act, 1932 followed ands. 13 was not attracted thereto, That, we take it, must be a question of law. That was the question which was referred to the High Court and the High Court answered it on the footing that the proper inference was that the assessee was a partnership firm within the meaning of the Indian Partnership Act, 1932. The assessee contends that the· proper iriference is that the assessee was a co· ownership concern and not a .partnership firm and on that footing the common manager is entitled to be assessed under s. 13 of the Act.

pp. 928–929

Let us first see what are the facts and circum· stances ·which have been established in the .case. First of all, we have the name of the assessee as the Champaran Cane Concern, a name which may apply to a partnership firm as well as to a co-ownership concern. Secondly, the finding of the Deputy Commissioner 9f Agricultural Income-tax, a finding which is part of the statement of the case, is that the two co-owners appointed Kanodia as the common manager for facility of management. Now, the appointment letter showed that the two co-owners joined together in appointing Kanodia as common manager for supervision of cultivation and for managemer1t of the agricultural properties in the district of Champaran; "Partnership" within the meaning of the Indian Partnership Act of 1932 is a relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. The appointment of Kanodia by the two co-owners acting together is consistent with either view and does not clinch the issue in favour of a partnership. The High Court appears to have taken the appointment of Kanodia by the two co-owners as a circumstance establishing a partnership. The High Court has further pointed out that the two co-owners lived in Uttar Pradesh and belonged to two different families. We do not see how that circumstance gives any indication in law of a partnership. As to division of the profits and losses, the finding of the Deputy Comrrussioner of Agricultural lncomr·tax waoi that the two proprietors had no definite shares in the agricultural lands, by which he must have meant that the lanru of the six farms had not been partitioned amongst the two co-owners by metes and bounds. The cultivation was made jointly on behalf of the two co-owners by the common manager and the profits arising therefrom were distributed to them in proportion of their res. pective shares of Rs. 0-4-0 and Rs. 0-12-0. This circumstance has again been taken by the High Court as a circum~tancc from which an inference of partnership necessarily follows. Again, we do not agree with the High Court. 'J.'wo co-owners may appoint a common· manager for facility of cultivation and management without entering into a part· ncrship and the fact that the profits or even the losses are distributed in accordance with the shares of the two owners does not necessarily establish a partnership within the meaning of the Partnership Act, 1932. In Lindley on Partnership (Twelfth Edition page 57) the main differences between co-o\mership and co-partnership have been compared. One of the principal differences is that co·ownership is not necessarily the result of agreement, whereas partnership is. In the cases before us there is nothing in the record to show that there was any agreement between the two proprietors to form a partnership firm. The second difference is that co-ownenhip dors not necessarily involve community of profit or of loss, but partnership does. In the cases before us there is a finding that there is community of profit. A third difference is that one co-owner can without the consent of the other, transfer his interest etc, to a stranger. A partner cannot do this. About this point there i~ no evidence nor any finding that the two proprietors Padampat Singhania and Bishundayal .JhunJhunwala could not transfer their int~rests in lqt; concern without the consent of each other. The greatest difficulty which faces the respondent in the present cases is that it cannot point to any fact or circumstance from which it can be inferred that one proprietor was the agent, real or implied, of the other. In a partnership each partner acts for all. In a co-ownership one co-owner is not as such the agent, real or imflied, of the other. There is a complete absence o any fact or circumstance establishing a relation of agency between the two proprietors in the present case; nor have the taxing authorities come to any finding that there was such a relation.

pp. 929–931

The High Court made a reference to the returns filed on, behalf of the assessee for the three years in question as also the frame of the question which the assessee itself wished to be referred to the Bigh Court! As to the frame of the question we have statef' e:µ-lier that the Board of Revenue really ml!-de a iy1stake and it may even be that on behalf of the ~sessee the question was not properly framed. The ~sess~e's contention all along was that it was a co-ownership concern and not a partnership, but in framing the question the word 'partners' was used. We' do not think that a mistake in the framing of the question, which was later c6rrected by the High Court, will change the real .position in law. As to the returns which were filed /they were n6t printed in the paper book. Learned counsel for the respondent gave us copies of the returns. These returns showed that in all the three ye·ars -j:he assessee indicated its status as a co-ownership concern and the name of the assessee was shown as the' man"age[, Champaran Cane Concern or common manager, Champaran Cane Concern. The body of the return contained four alternatives as to whether the return was being submitted by an individual, a· firm, a joint family or an association of ivdi:vidual~. The intention of putting four 11lternatives in; ~he rrinte d forin of the return is tq cut..o.ut the.alternatives which do not apply. In the ..caseir.hefm:~ -us the alternative relating to iridividual, fJlmily and asso.ciation of individuals were cut out .and the -alternative "firm" remained. The High Court seems 10 have thought that the retention .of the word '.firm' in the return amounted to an admission .that .the · assessee was a partnership firm. We do not -agree. In the printed form of the return.there was no alternative as to a co·ownership .conpern:and in a popular sense, a co·owriership concern m~y describe itself as a firm. That do"es not necessarily mean that it is a partnership firm within the meaning of s. 4 of the Indian Partnership Act as.indicated ins. 2 (k) of the Act. In our view no .facts.and circumstances have been found .in these cases fr.om whfoh the taxing authorities properly instructed in laW°'Could have come to the conclusion that. the. assessee was a partnership firm within the meaning .of s. 2 (k) of the Act. On the contrary the facts :;1nd circumstances found oy the taxing authorities were iall consistent with the claim of the assessee that it was a co-ownership concern the .common man~ger whereof was liable to assessment undet s. 1.3.of the Act.

pp. 931–932

A nl.llllber of decisions were .cited .at the Bar as;.to the distinction between co·ownership and partnership. W.e have already referred to the main differences between the two. Th'" legal position as to this.distinction.seems to us to be so clear and well settled that.we consider it unnecessary to refer to the case law on the subject. We do not think that any useful .purpose will be served by referring to the decisions cited at the Bat.

p. 932

For the Teasons given above we ,_have come to the conclusion that the answer which the High Court g;Lve to. the question ·was not cqrrect. We accordingly allow the appeals and set aside the judgment and orders of the High Court date~ September 29, 1959, ________ and answer the question . in favour of the assessee. The assessee will be entitled to the costs throughout.

pp. 932–933

Appeals allowed. ADDAGADA RAGH.\VAMMA AND ANR.

p. 933

"· ADDAGADA CHENCHAMMA AND ANR.

p. 933

(K. SuBBA RAo, and

p. 933

J. R. JJ.)

p. 933

Hindu Law-Partition-Adoption-Burden of proof and onu• of proof-Di•tinction-S.paration-Elements necessa'71 to make it effective-Declaration and knowledge-Doctrine. of relation back if affect vested right-Concurrent findings of fact, if and when can be interfered with'-Oertifir,ate granted under Art. 133-Scope and limit-Constitution of India, Art. 133 .

p. 933

The appellants and the respondents trace their interest and rights through their genealogy to one Veeranna who died in 1906. One of his sons Pitchayya, predeceased him in 1905 and it is alleged that sometime before his death Pitchayya took Venkayya, the son of his brother Chimpirayya, in adoption. It is further alleged that a partition of the joint family properties.between Veeranna and his four sons took place. Venl>ayya died in 1938 having a •on Subbarao. Chimpirayya died in 1945 having executed a will whereun<ler he gave his properties in equal shares to Subbarao and Kamalamma, the daughter of.his predeceased daughter. He also directed Raghavamma, the wife of his brother Pitchayya, to take possession of' the entire property belonging to him, manage it and to hand over the same to his two grand children when they attained majo-· .rity. Chimpirayya excluded his daughter-in-law Chenchamma from management as well inheritance. But Raghavamma allowed Chenchamma to take possession of the property. Subbarao died in 1949. In 1950, Raghavamma filed a.suit for possession of the property impleading Chenchamma the first defendant, Kamalamma as the second defendant and Runn~yya as· the tJiird defendant.

p. 933