JUDGEMENT Appeal (No. 31 of 1940) from a judgment of the High Court (March 9, 1938). The following facts are taken from the judgment of the Judicial Committee This was an appeal by the assessees from a judgment of the High Court at Allahabad on a reference made under sub-s. 2 of s. 66 of the Indian Income-tax Act, 1922. The question referred arose out of an assessment made for the year 1932-3 on the profits of a business carried on under the style of "The Saraiyar Sugar Factory" at Saraiyar, in the district of Gorakpur in the United Provinces. The year of account was the year ending September 30, 1931, in accordance with the accounting practice of the assessees. The matter of substance in the present dispute was whether the assessment should be made on the footing that the business belonged to a Hindu undivided family or on the footing that it belonged to a firm of which the father, mother and three sons were partners on the terms of a written instrument, dated February 12, 1933. The family were Sher Gill Jats of the Amritsar district of the Punjab. It was not disputed that they formed a Hindu undivided family, but with them the general Hindu law was superseded by custom which provided special rules on many points of family law. The present appeal was brought by Sir Sundar Singh Majithia as father and head of the family, but he had since died and the sons were now the appellants. The written instrument, dated February 12, 1933, described itself as an "agreement of partnership/ and the parties to it were the father (first party), the mother (second party) and the three sons (third, fourth and fifth parties). The recitals and clauses 2, 7 and 8 were as follows —" Whereas the First "Party has set up machinery for manufacture of sugar and "extraction of essential oils in his estate in the Gorakhpur "district at village Saraiya, tappa Keotali, pargana Hewali "Gorakhpur, and sugar and essential oils are manufactured "there. And whereas under the personal law of the parties, "who are Sher Gill Jats of Amritsar district in the Punjab, "the father in his life time has a right to divide such property "as aforesaid, and to give away shares, whether the nature "of it is that of self-acquired or ancestral property. And whereas under the personal law of the parties, "who are Sher Gill Jats of Amritsar district in the Punjab, "the father in his life time has a right to divide such property "as aforesaid, and to give away shares, whether the nature "of it is that of self-acquired or ancestral property. And "whereas in exercise of the said right the First Party has "given a share of three annas in the rupee to each of his sons "the aforesaid Third Party, Fourth Party and Fifth Party, "two of whom, namely, the Third and Fourth Parties, have "worked hard in making the aforesaid business a success, and "he has given a life interest in another share of three annas "in the rupee as a special provision to his wife, namely, the "Second Party, reserving a reversion of the said share to "himself if he survives the Second Party, and if he does not "then to the Third Party, the Fourth Party and the Fifth Party (or to their personal heirs in case of their death) "in equal shares, and has kept the remaining four annas in the "rupee to himself. And whereas the Second, Third, Fourth "and Fifth Parties having been admitted and accepted as "paitners by the First Party all the parties to this deed have "already entered into a partnership to work the aforesaid "sugar and oil manufacturing machinery and to carry on the "business of manufacturing sugar and essential oils, and "to do any other business that all of them may agree to carry "on for profit.....2. That the shares of the aforesaid "Parties in the capital, the profit and the loss of the business, "are in proportion to the shares mentioned above, namely, "the share of the First Party who is the Senior Partner, is "four annas in the rupee, and of each of the other Parties, "namely, the Second Party, the Third Party, the Fourth "Party and the Fifth Party is three annas in the rupee/ "7. That the liabilities, present (if any) and future of the afore-" said business are and will be the liability of all the partners "and will be payable by them in proportion to their shares." "8. That the liabilities, present (if any) and future of the afore-" said business are and will be the liability of all the partners "and will be payable by them in proportion to their shares." "8. In future when further capital will be needed for working, "improving or extending the business it will be contributed by "all the parties in proportion to their shares." By other clauses of the agreement it was provided (inter alia) that the partnership should not be liable to be dissolved, save with the consent of all the partners, before March 1, 1945 ; and that in case of death before that date of any of the partners the fathers share should go to the sons in equal shares ; the mothers to the father, and the share of a son to his legal heirs. The father and two of the sons were to manage the business, to keep and prepare proper accounts, and to have authority to raise loans (inter alia) for making any additions or improvements to the business. They were to draw monthly allowances —Rs.2000 in the case of the father, Rs.1500 in the case of each of the two sons. In the event of a difference of opinion between the partners the father was to have two votes and a casting vote, each other partner to have one vote. Before 1932 the profits of the factory had been returned and assessed to tax as part of the income of the joint family ; but on February 13, 1933—that was, towards the end of the year of assessment with which this appeal was concerned—the partnership agreement of the previous day was submitted to the Income-tax officer together with an application that the firm should be registered under s. 26A of the Act, and that the profits of the factory should be separately assessed as income of the registered firm. The Income-tax officer, on April 18, 1933, allowed that application, and made an order of assessment accordingly, but on September 20, 1933, the Commissioner of Income-tax set aside his decision and directed that a new assessment be made. On December 16, 1933, the Income-tax officers successor made an assessment on Sir Sundar Singh which included the profits of the factory as his individual income. He refused to register the firm under s. 26A. On December 16, 1933, the Income-tax officers successor made an assessment on Sir Sundar Singh which included the profits of the factory as his individual income. He refused to register the firm under s. 26A. On appeal to the Assistant Commissioner the refusal to register the firm was upheld, but the profits of the factory were held to be assessable as income of the Hindu joint family. That order was passed on April 10, 1935. On November 21, 1935, the Commissioner, having been asked to review that decision in exercise of his powers under s. 33 of the Act, and to refer certain questions of law to the High Court, thought that it was desirable and sufficient to state a Case for the opinion of the High Court on what he called " the main question "whether a genuine firm has come into existence/ "The "whole case for the refusal of the registration from the outset "is based on the question whether or not the partnership deed "has created a genuine firm such as is entitled to registration "under s. 26A, and in the event of the assessee succeeding on "this point the registration will follow as an inevitable "corollary.1 He formulated the question of law in the following terms—"In all the circumstances of the case, "having regard to the personal law governing the assessee and "the requirements of the Transfer of Property Act (IV. of " 1882) and the Stamp Act (II. of 1899), has the deed of "partnership, dated February 12, 1933, brought into existence "a genuine firm entitled to registration under the provisions "of s. 26A of the Act ? " The High Court (Collister and Bajpai JJ.) answered the question referred in the negative. The judgment is reported at I. L. R. [ 1938] A. 638. By sub-ss. 1 and 2 of s. 25A of the Indian Income-tax Act, 1922, which were introduced into the Act by Act III .of 1928, and by sub-s. 3, which was introduced by Act XXII. of 1930 "25A. The judgment is reported at I. L. R. [ 1938] A. 638. By sub-ss. 1 and 2 of s. 25A of the Indian Income-tax Act, 1922, which were introduced into the Act by Act III .of 1928, and by sub-s. 3, which was introduced by Act XXII. of 1930 "25A. (1.) Where, at the time of making an assessment under " s. 23, it is claimed by or on behalf of any member of a Hindu "family hitherto assessed as undivided that a partition has "taken place among the members of such family, the Income-tax Officer shall make such inquiry thereinto as he may "think fit, and, if he is satisfied that a separation of the " members of the family has taken place and that the joint family "property has been partitioned among the various members "or groups of members in definite portions he shall record an "order to that effect Provided that no such order shall be "recorded until notices of the inquiry have been served on "all the members of the family. (2.) Where such an order "has been passed, the Income-tax Officer shall make an "assessmet of the total income received by or on behalf of "the joint family as such, as if no separation or partition had "taken place, and each member or group of members shall in "addition to any income-tax for which he or it may be "separately liable and notwithstanding anything contained in "sub-s. 1, of s. 14, be liable for a share of the tax on the "income so assessed according to the portion of the joint "family property allotted to him or it; and the Income-tax "Officer shall make assessment accordingly on the various "members and groups of members in accordance with the " provisions of s. 23 Provided that all the separated members "and groups of members shall be liable jointly and severally "for the tax assessed on the total income received by or on "behalf of the joint family as such. (3.) Where such an order "has not been passed in respect of a Hindu family hitherto "assessed as undivided, such family shall be deemed, for the "purposes of this Act, to continue to be a Hindu undivided "family." 1942. April 20, 21, 22. Pritt K.C. and Heyworth Talbot for the appellant. (3.) Where such an order "has not been passed in respect of a Hindu family hitherto "assessed as undivided, such family shall be deemed, for the "purposes of this Act, to continue to be a Hindu undivided "family." 1942. April 20, 21, 22. Pritt K.C. and Heyworth Talbot for the appellant. [The argument is confined to the question of the effect of s. 25A of the Income-tax Act.] There is nothing in law to prevent a joint family from partitioning a portion only of its property while retaining the status of an undivided family, or to prevent the partition of such property in unequal shares. Sect. 25A of the Act, which relates in particular to the separation of members of a family and the partition of the joint property of the family, has no application to a partition of a portion of the joint property of a family, and does not operate to bar the recognition by the Commissioner of Income-tax of a partition of a portion of the family property. If members of a Hindu undivided family have acquired separate shares in particular property as a result of a partition validly made, there are no grounds for the view that they cannot bring such shares into a partnership together, thereby constituting a firm entitled to be registered under the provisions of s. 26A of the Act. J. Millard Tucker K.C. and Wallach for the respondent. Sub-s. 3 of s. 25A provides that where a Hindu undivided family has in previous years been assessed as such in respect of property which was treated as the property of the family it must continue to be so assessed, even if there has been a partition, unless some member of the family makes a claim under sub-s. 1 and the claim is substantiated, which he cannot do if the family itself is not disrupted Kalyanji Vithaldas v. Income-tax Commissioner, Bengal (( 1936) L. R. 64 I. A. 28.); Commissioner of Income-tax v. Dewan Bahadur Dewan Krishna Kishore (( 1941) L. R, 68 I, A, 155.). Sect. 25A, sub-s. 1, will only apply if someone claims that it shall apply. No claim had been made under that section that a partition had taken place amongst the members of the undivided family, and under sub-s. 3, of s. 25A, the family must be deemed to continue to be a Hindu undivided family. Sect. 25A, sub-s. 1, will only apply if someone claims that it shall apply. No claim had been made under that section that a partition had taken place amongst the members of the undivided family, and under sub-s. 3, of s. 25A, the family must be deemed to continue to be a Hindu undivided family. The Saraiya Sugar Factory was the property of the undivided family, and the income therefrom was assessable as the income of the undivided family. [Reference was made to Biradhmal Lodha v. Commissioner of Income-tax (( 1933) I. L, R. 56 A. 504, 509.).] [No reply was required with regard to s. 25A of the Act.] June 4. The judgment of their Lordships was delivered by SIR GEORGE RANKTN who, after stating the facts set out above, continued Upon the terms of the agreement of February 12, 1933, it is to be observed that it does not itself purport to effect any partition of family property, or to be a transfer of any property, movable or immovable, by the father to the other parties immovable property can only be made by a proper deed of transfer as required by the Transfer of Property Act. Secondly, the assessees say in the alternative that the property was joint family property ; that no written instrument is necessary for a partition of joint property ; and that the transaction in this case was a partition at the hands of the father. To this the Commissioner replies that the shares allotted to the members were not the shares to which they were entitled on partition; hence "the alleged transaction "is not a partition in law” In this way, without deciding whether the factory was self-acquired or joint family property, and without coming to any findings of fact as to the fathers powers under the customary law, the Commissioner concludes that the question propounded by him should be answered in the negative. His reason is that "the sugar factory continues "to occupy the same position and status in the eyes of the "law as it had before, and the steps taken by the assessees "to bring about a change are not legally admissible." The High Court in their judgment proceed, as the Com missioner had done, hypothetically—on the hypothesis of self-acquisition, and then on the hypothesis of joint family property. The first contention of the assessees was that no immovable property had been alienated or divided by the father, the shares of the wife and sons being shares in the machinery and other movables belonging to the business, but not in the factory buildings or the land on which these stood. It was emphasized that in the partnership agreement of February 12, 1933, there is no mention of buildings—a con tention which has been repeated before the Board. Their Lordships agree with the High Court in rejecting this construction of the agreement. It contains no reference to any stipulation for a tenancy of any kind, or for leave and licence on any terms. The land and buildings and the right to use them were essential constituents of the factory, and though the agreement does not purport to be itself the transfer of any property or interest from the father to the other members, it does purport to express the terms on which the parties after such transfer had agreed to carry on business as a firm. Their Lordships think that it was an essential feature of the partnership agreement as expressed in the instrument of February 12, 1933, that the wife and sons had a share in the immovables. On this view the High Court had no difficulty in agreeing with the conclusion arrived at by the Commissioner on the hypothesis that these immovables were self-acquisitions of the father. On the hypothesis that they were joint family property, however, they were bound to disagree with his view that the alleged transaction could not be a partition because the shares were not in accordance with the parties legal rights. Indeed, this argument was not maintained before the High Court, but an argument based on s. 25A of the Act was put forward instead on the Commissioners behalf. The High Court accepted this new contention, and was thus prepared to answer the question referred in the negative on the hypothesis of joint family property as well as on that of self-acquisition by the father. The new con tention has been maintained before their Lordships and must now be examined. [Having referred to s. 25A, sub-ss. The High Court accepted this new contention, and was thus prepared to answer the question referred in the negative on the hypothesis of joint family property as well as on that of self-acquisition by the father. The new con tention has been maintained before their Lordships and must now be examined. [Having referred to s. 25A, sub-ss. 1, 2 and 3, his Lordship continued] On this section the contention of the Commissioner is that for the purposes of the Income-tax Act members of an undivided Hindu family cannot enter into a partnership in respect of a portion of the joint property which they have partitioned among themselves. But, in their Lordships view, s. 25A contains no warrant for any such prohibition. It has no reference at all to any case in which the Hindu undivided family remains in existence at the time of assessment. No difficulty whatever in the assessment of a Hindu undivided family is caused—or was ever thought to be caused—by the facts that in one year it has certain assets and certain income therefrom and that in the next year it is found to have parted with one asset and to be no longer in receipt of the same income. The same assessee has a different income in each year—that is all. It matters nothing whether the particular asset no longer possessed by the undivided family has become the separate property of a member or belongs to a stranger. Sect. 25A is directed to the difficulty which arose when an undivided family had received income in the year of account but was no longer in existence as such at the time of assessment. The difficulty was the more acute by reason of the provision— an important principle of the Act—contained in s. 14, sub-s. 1 "The tax shall not be payable by an assessee in respect of any "sum which he receives as a member of a Hindu undivided "family." Sect. 25A deals with the difficulty in two ways, which are explained by the rule, applicable to families governed by the Mitakshara, that by a mere claim of partition a division of interest may be effected among coparceners so as to disrupt the family and put an end to all right of succession by survivorship. 25A deals with the difficulty in two ways, which are explained by the rule, applicable to families governed by the Mitakshara, that by a mere claim of partition a division of interest may be effected among coparceners so as to disrupt the family and put an end to all right of succession by survivorship. It is trite law that the filing of a suit for partition may have this effect, though it may take years before the shares of the various parties are determined or partition made by metes and bounds. Meanwhile the family property will belong to the members as it does in a Dayabhaga family— in effect, as tenants in common. Sect. 25A provides that if it be found that the family property has been partitioned in definite portions, assessment may be made, notwithstanding s. 14, sub-s. 1, on each individual or group in respect of his or its share of the profits made by the undivided family, while holding all the members jointly and severally liable for the total tax. If, however, though the joint Hindu family has come to an end it be found that its property has not been partitioned in definite portions, then the family is to be deemed to continue—that is to be an existent Hindu family on which assessment can be made on its gains of the previous year. With all respect to the learned judges of the High Court, they appear to have mistaken the effect of the previous decision of that court with which they express agreement Biradhmal Lodha v. Commissioner of Income-tax (( 1933) I. L. R. 56 A. 504.). The section has nothing to say about any Hindu undivided family which continues in existence, never having been disrupted. Such a case is outside sub-s. 3 because it is not within the section at all. No sub-section is required to enable an undivided family which has never been broken up to be deemed to continue. But it need not have the same assets or the same income in each year, and it can part with an item of its property to its individual members if it takes the proper steps. The result is that the reasons given by the High Court do not justify a negative answer to the question referred. But it need not have the same assets or the same income in each year, and it can part with an item of its property to its individual members if it takes the proper steps. The result is that the reasons given by the High Court do not justify a negative answer to the question referred. If the steps taken to vest in the wife and sons an interest in the immovable assets of the business were not legally effective, e.g., for want of a registered instrument of transfer, the negative answer would, in their Lordships view, be right, since the wife and sons could not compel the father to perfect a voluntary transfer. But on the assumption that the factory land and buildings were joint family property it has not been shown that a partition at the hands of the father could not be effected without a written instrument. To answer the question of law which has been propounded by the Commissioner it is necessary to descend from the realm of hypotheses to the region of fact. The commissioner has taken pains to state some matters very fully, but he has not found the material facts as he should have done. It is necessary to know as regards (a) the business, machinery, plant and other movables, (b) the factory buildings and land, whether they were before 1931 the self-acquired property of the father, or his ancestral property, or joint family property, or whether they fall into some other and what category according to the customary law. It is necessary that the customary law of the family should be found as a fact so as to show what right, if any, the father had to partition or transfer the movable or immovable property above-mentioned, to whatever category it may be found to belong in whole or in part. The riwaj-i-am is evidence of the custom, but it is not conclusive, and a finding as to custom is required. When the rights of the members of the family have been ascertained, it will be necessary to ascertain whether in fact the father did at any time purport to give shares or interests in any of the above-mentioned property to his wife and sons. If so, at what time ? What shares did he give ? In what manner ? In what property ? If so, at what time ? What shares did he give ? In what manner ? In what property ? Did he purport to be alienating his own property or effecting a partition of family property, or how otherwise ? Again, what agreement, if any, was made before February 12, 1933, and when, as to a partnership being constituted to carry on the sugar factory, and as to the assets which it was to have as a firm ? None of these essential facts have been found and stated by the Commissioner, with the result that the question referred cannot be answered until the High Court has exercised its powers under sub-s. 4 of s. 66 of the Act. Their Lordships leave it to the discretion of the High Court to specify the particular additions and alterations which the Commissioner should be directed to make. They will humbly advise His Majesty that the judgment and decree of the High Court be discharged and the case remanded to the High Court for disposal after taking such action under sub-s. 4 of s. 66 of the Indian Income-tax Act, 1922, as the High Court may think fit in the light of this judgment. The respondent will pay the appellants costs of this appeal. The costs already incurred in the High Court will abide the order of the High Court at the final disposal of the reference.