1963 (1) TMI 53 - HC - Income Tax

Summary

Issues Involved:
1. Validity of reopening the assessment under section 34 of the Indian Income-tax Act, 1922.
2. Inclusion of income from businesses started by the junior members of the Hindu undivided family (HUF) in the total income of the assessee.

Detailed Analysis:

Issue 1: Validity of Reopening the Assessment under Section 34 of the Indian Income-tax Act, 1922

The first issue revolves around whether the assessment of the Hindu undivided family (HUF) for the assessment year 1949-50 could be reopened under section 34 of the Indian Income-tax Act, 1922. The original assessment was completed by the Raigarh State Income-tax Officer on May 31, 1949, and excluded income outside the Raigarh State. Subsequently, the Income-tax Officer received information about businesses conducted by the assessee's sons in Calcutta and Bangalore. Consequently, a notice under section 34(1)(b) was issued on March 17, 1954, and served on March 22, 1954. The assessee filed a return in April 1954, which was revised in June 1954, showing a loss but excluding the incomes of the two businesses.

The argument presented by Mr. Sinha, representing the assessee, was that the notice under section 34 was invalid because the original assessment was completed under the law prevailing in Raigarh State, and thus, the Indian Income-tax Act, 1922, could not be applied. However, the court noted that the Indian Income-tax Act was applicable in Raigarh State since July 31, 1944, as per a notification by the Raigarh Darbar. Therefore, the provisions of the Indian Income-tax Act, 1922, were in force in Raigarh State during the relevant period, making the reopening of the assessment under section 34 valid.

Issue 2: Inclusion of Income from Businesses Started by Junior Members of the HUF

The second issue concerns whether the income from the businesses started by the junior members of the HUF could be included in the total income of the assessee. The assessee claimed that the two major sons, Sumatilal and Rasiklal, separated from the family in October 1946 and that the businesses were their separate ventures. However, the Income-tax Officer rejected this claim of separation, holding that the incomes from the two businesses accrued to the undivided family and included them in the total income of the assessee.

The court examined various facts and evidence, including admissions by Bhogilal (the karta), the absence of any written documentation of separation, and the lack of account books for the relevant period. The court also noted that the original returns filed for the years 1949-50 and 1950-51 showed the status as a Hindu undivided family, including Sumatilal and Rasiklal as members. The court concluded that no partition or separation of the joint family had been proved and that the family remained joint and the businesses undivided.

The court further addressed the legal presumption that a business started with the nucleus of joint family funds belongs to the family unless proven otherwise. The court found that the assessee failed to provide sufficient evidence to rebut this presumption. Thus, the income from the businesses started by the junior members was rightly included in the total income of the HUF.

Conclusion:

The court answered both questions in the affirmative, upholding the validity of reopening the assessment under section 34 of the Indian Income-tax Act, 1922, and the inclusion of income from the businesses started by the junior members in the total income of the assessee. The assessee was ordered to pay the costs of the reference to the respondent, certified for two counsels.