1983 (3) TMI 40 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Tribunal was legally correct in holding that the property purchased in the name of Ayodhya Prasad was actually purchased by the HUF.
2. Whether the burden of proof lies on the assessee to prove that the property was not purchased from undisclosed sources of the HUF.

Detailed Analysis:

Issue 1: Legality of Tribunal's Decision on Property Purchase by HUF
The primary issue revolves around whether the Tribunal was legally correct in holding that the property purchased in the name of Ayodhya Prasad was actually purchased by the HUF. The Income Tax Officer (ITO) reopened the assessment for the year 1972-73, suspecting that the house purchased on November 16, 1971, in Ayodhya Prasad's name, was funded by undisclosed income of the HUF. The assessee contended that Ayodhya Prasad had independent income from agricultural property and money-lending business, supported by an affidavit from his son. However, the Tribunal dismissed the affidavit as it contained arguments rather than facts and found the HUF's income insufficient to justify the purchase. The Tribunal also noted that the income from the house was shown as HUF income in the return, which became final.

The judgment highlights that the Tribunal omitted relevant evidence by ignoring the affidavit, which was believed by the Assistant Appellate Commissioner (AAC). The Tribunal's conclusion that the house was purchased by the HUF was based on insufficient income from the cloth business and the erroneous assumption that the house's income being shown as HUF income reflected its ownership status at the time of purchase.

Issue 2: Burden of Proof on Assessee
The second issue pertains to whether the burden of proof lies on the assessee to disprove that the property was purchased from undisclosed sources of the HUF. The Tribunal held that the onus was on the HUF to explain the source of funds for the property purchase. This decision was challenged on the grounds that the property could have been thrown into the common hotchpotch, becoming HUF property without requiring HUF funds for its purchase.

The judgment by H.N. Seth J. emphasized that the Tribunal's reasoning was flawed. It noted that the action of the assessee in showing the income from the property in the return could be seen as an admission that the property belonged to the HUF but not necessarily that it was purchased from HUF funds. The Tribunal did not consider whether Ayodhya Prasad had the means to purchase the property from his own sources, which was a critical oversight.

The judgment referenced the Supreme Court's ruling in Mehta Parikh and Co. v. CIT and CIT v. Daulat Ram Rawatmull, underscoring that conclusions of fact must have a direct nexus with the facts found. The judgment concluded that the Tribunal's findings lacked sufficient nexus to presume that the house was purchased from HUF funds.

Conclusion:
The judgment directed the Income-tax Appellate Tribunal to submit a statement of the case on the following question of law: "Whether, on the facts and circumstances of the case, the Tribunal was legally justified in holding that the property purchased in the name of Sri Ayodhya Prasad had actually been purchased from out of the funds belonging to the Hindu undivided family and that the burden to explain the source from which the said fund was acquired lay upon the assessee-Hindu undivided family?"

The assessee was entitled to costs, and the case was to be listed before an appropriate Bench for further proceedings.