PETITIONER: CHAMPARAN CANE CONCERN Vs. RESPONDENT: STATE OF BIHAR AND ANR. DATE OF JUDGMENT: 09/04/1964 BENCH: DAS, S.K. BENCH: DAS, S.K. SARKAR, A.K. HIDAYATULLAH, M. CITATION: 1963 AIR 1737 1964 SCR (2) 921 CITATOR INFO : R 1985 SC 278 (4) RF 1991 SC1806 (8) ACT: Agricultural Income Tax-Assessment-Land owned by two persons in shares--Common Manager appointed-Partnership or co- ownership--Test--Bihar Agricultural Income Tax Act, 1948 (Act 32 of 1948), ss. 2, 3, 13, 28 (3)-Indian Partnership Act, 1932 (Act IX of 1932), s. 2 (k), 4. HEADNOTE: The Champaran Cane Concern, appellant, carried on agricultural operations in lands owned by two persons. One of these two persons had a share of four annas in a rupee and other twelve annas in a rupee. They appointed another person as a common manager for facility of cultivation and management. There was no partnership agreement entered into by these two persons. In the returns submitted to the tax authorities for the assessment years the concern was shown as a "firm". The Agricultural Income 'Fax authorities assessed the appellant for three years on the basis that the appellant was a partnership firm under s. 3 of the Bihar Agricultural Income Tax Act, 1948. The assessee claimed that it was not a partner. ship firm but a co-ownership concern and that it could be assessed only under s. 13 of the said Act. This plea was rejected by the Income Tax officer. Appeals were filed to the Deputy Commissioner of Agricultural Income Tax and the same were dismissed. Applications for revision were then filed before the Board of Revenue. The Board did not accept the plea of the present appellant that the assessment should have been made under s. 13 or the Act. Thereafter an application was made to the Board, for making a reference to the High Court which was refused. Thereupon, the High Court was moved under s. 28 (3) of the Act for a reference by the Board and the High Court called for a reference. The High Court held that the question whether, the assessee was a co- ownership concern or a partnership firm was a question of fact, and that there were facts and circumstances in the case from which it was open to the taxing authorities to come to the conclusion that 922 the concern was a partnership firm. The High Court answered the reference against the assessee. The present appeal was filed by Special leave of this Court. In the appeal before this Court substantially the same questions were raised as before the High Court, the taxing authorities and the Board of Revenue. Held that the question whether a concern is a partnership or not, is a mixed question of fact and law and if the authorities who have to ascertain that question apply a wrong principle of law in instructing themselves as to what they have to find, then their finding of fact is not conclusive because they have done it under wrong principle. Modern Rigg & Co. and R. B. Eskrigge & Co. v. Monks (1923) 8 T. C. 450, referred to. Held further that the appointment of a common manager by two co-owners acting together is consistent with either view and does not clinch the issue in favour of a partnership. The mete fact that the profits or even 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. One of the principal differences between a partnership and co-ownnership is that co-ownership -is not necessarily the result of agreement whereas partnership is. The second difference is that co-ownership does not necessarily involve community of profit or of loss but partnership does. Another difference is that one co-owner can without the consent of other, transfer his interest etc. to a stranger but a partner cannot do this. Fourthly, in a partnership each partner acts for all but a co-owner is not such an agent real or implied of the other. A mistake by the Revenue Board in framing the question for reference to the High Court will not change the real position in law. Simply because a co-ownership concern has described itself as a "firm" in the printed forms of return does not necessarily mean that it is a partnership firm within the meaning of s. 4 of the Indian Partnership Act as indicated in s. 2 (k) of the Act. 923 From the facts and circumstances of the case it is found that the appellant is a co-ownership concern and not a partnership. The manager is liable to assessment under s. 13 of the Act. JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 537, 538
and 539 of 1962.
Appeals by special leave from the judgment and decree dated
September 29, 1959, of the Patna High Court in Miscellaneous
Judicial cases Nos. 227 to 229 of 1957.
H. N. Sanyal, Solicitor-General of India and P. K.
Ohatterjee, for the appellants.
S. P. Varma, for the respondents.
1963. April 9. The Judgment of the Court was delivered by
S.K. DAS J.-The Champaran Cane Concern, appellant before
us, was assessed to agricultural income-tax under the Bihar
Agricultural Income-tax Act (Bihar Act 32 of 1948), referred
to as the Act in this judgment, by the Agricultural Income-
tax officer, Motibari for three years 1356 F. 1357 F. and
1358 F. corresponding to 1948-49, 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 belonging to two persons, Padampat
Singhania having Re. 0-4-0 share and Lala Bishundayal
Jhunjhunwala having Re. 0-12-0 share. The concern, it was
stated, carried on agricultural operations in six farms con-
sisting of a 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 mill, 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
924
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.
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
Uttar Pradesh at a very long distance from the farms in
Champaran, they appointed one S. K. Kanodia its common
manager for facility of cultivation and management. This
common manager lookde after and managed the agricultural
operations during the years in question. The further case
of the assessee was 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 assessment,, 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 :
“Whether on the facts and circumstances of the
case the common manager is to be assessed.
925
under s. 13 of the Bihar Agricultural Income-
tax Act (Bihar Act 32 of 1948) in respect of
the agricultural income payable by each of 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.
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
“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 by the persons jointly
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 partner-ship firm. On this footing the High
Court answered the question against the assessee.
926
The assessee then moved this court for special leave and
having obtained such leave has brought the present appeals
to this court from the decision of the High Court dated
September 29, 1959.
We 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 alia 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 cases derived was from land
which was used for agricultural purposes, namely, the
cultivation of sugarcane etc. The definition section
further stated that tile word “firm” had the same meaning as
in the Indian Partnership Act, 1932, and the word “Person”
meant any individual, association of individuals owning or
holding property for himself or for any other or partly for
his own bent-fit and partly 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. 3 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. 3. In s. 3 of the Indian
Income-tax Act, 1922 which is similar in terms, the words
“‘of every firm or association of persons or the partners of
the firm” were subsequently added in 1924 and the Indian
Income-tax Act makes a distinction in the matter of
assessment
921
between a registered and an 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.
We may now read s. 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
income-tax so payable by each such person and
shall 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
928
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 now argued before us that
s. 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 present 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
assessee in the present cases is a co-ownership concern,
then s. 13 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.
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 assessee 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 not
conclusive because they have done it according to wrong
principles (see Morden Rigg & Co. and R. B. Eskrigge & Co.
v. Monks (1). 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
(1) (1923) 8 T. C. 450,464.
929
the meaning of the Indian Partnership Act, 1932 followed and
s. 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 inference 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.
Let us first see what are the facts and circumstances 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 of 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 management 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 part-
nership. 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
930
how that circumstance gives any indication in law of a
partnership. As to division of the profits and losses, the
finding of the Deputy Commissioner of Agricultural Income-
tax was that the two proprietors had no definite shares in
the agricultural lands, by which he must have meant that the
lands 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 respective shares of Rs. 0-4-0 and
Rs. 0-12-0. This circumstance has again been taken by the
High Court as a circumstance from which an inference of
partnership necessarily follows. Again, we do not agree
with the High Court. Two co-owners may appoint a common
manager for facility of cultivation and management without
entering into a partnership 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-ownership 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-ownership does 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 is no evidence nor any finding that
the two proprietors Padampat Singhania and Bishundayal
Jhunjhunwala could not transfer their interests in the
931
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 implied, of the other. There is
a complete absence of 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.
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 High Court. As to the frame of
the question we have stated earlier that the Board of
Revenue really made a mistake and it may even be that on
behalf of the assessee the question was not properly framed.
The assessee’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
corrected by the High Court, will change the real position
in law. As to the returns which were filed they were not
printed in the paper book. Learned counsel for the
respondent gave us copies of the returns. These returns
showed that in all the three years the assessee indicated
its status as a co-ownership concern and the name of the
assessee was shown as the manager, 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 individuals. The intention of putting
four ,alternatives in the printed form of the return is to
932
cut out the alternatives which do not apply. In the cases
before us the alternative relating to individual, family and
association of individuals were cut out and the alternative
“firm” remained. The High Court seems to 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 concern and ina popular
sense, a co-ownership concern may describe itself as a firm.
That does not necessarily mean that it is a partnership firm
within the meaning of s. 4 of the Indian Partnership Act as
indicated in s. 2 (k) of the Act. In our view no, fact$ and
circumstances have been found in these cases from which 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 and, circumstances found by the taxing
authorities were all consistent with the claim of the
assessee that it was a co-ownership concern the common
manager whereof was liable to assessment under s. 13 of the
Act.
A number of decisions were cited. at the Bar as to the
distinction between co-ownership and partnership. We have
already referred to the main differences between the two.
The 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 Bar.
For the reasons given above we have come to the conclusion
that the answer which the High Court gave to the question
was not correct. We accordingly allow the anneals and set
aside the judgment and orders of the High Court dated
September 29, 1959,
933
and answer the question in favour of the assessee. The
assessee will be entitled to the costs throughout.
Appeals allowed.