1936 (5) TMI 36 - HC - Income Tax

Summary

Issues Involved:
1. Whether the family is to be considered joint or separated in law.
2. Validity and genuineness of the partnership deed under Section 26A of the Income Tax Act.
3. Necessity of an application under Section 25A of the Income Tax Act.
4. Assessment of evidence provided to prove the division of joint family property.

Issue-wise Detailed Analysis:

1. Whether the family is to be considered joint or separated in law:
The primary question submitted for consideration was whether the family should be considered joint or separated in law. This determination is substantially a question of fact. The family of Lachhiram had been assessed as a joint Hindu family up to 1931. In 1931, three members of the family executed a deed of partnership and applied to be registered as a firm under Section 26A of the Income Tax Act. The Income Tax Officer decided that the alleged partnership was fictitious and that the family remained a joint Hindu family.

2. Validity and genuineness of the partnership deed under Section 26A of the Income Tax Act:
The Income Tax Officer relied on inquiries from outsiders, the fact that the parties were still living together, and the absence of Lachhiram's endorsement on the partnership deed. The Officer concluded that the partnership transaction was not genuine. The applicant contended that the apparent state of facts should be taken as real in the absence of evidence to the contrary. However, the court held that the Income Tax Officer had to be satisfied that a partnership had come into existence and would be assessed in substitution for the Hindu joint family. The Officer was not satisfied with the transaction, leading to the conclusion that it was not genuine.

3. Necessity of an application under Section 25A of the Income Tax Act:
The court noted that it was necessary for the applicant to make an application under Section 25A of the Income Tax Act to establish that the joint family property had been partitioned among the various members in definite proportions. The absence of such an application meant that the Income Tax Officer had to inquire whether the joint Hindu family property had been divided. The Officer concluded that the partnership transaction was not genuine due to the lack of evidence proving the division of the joint family property.

4. Assessment of evidence provided to prove the division of joint family property:
The applicant presented a deed of relinquishment and an account in the bahi to prove the division of the joint family property. The deed of relinquishment was not considered a document of title, and it did not purport to be a partition deed. The account in the bahi showed the division of accumulated profits but was not sufficient evidence to prove the division of the joint family property. The court held that the Income Tax Officer was not obliged to act on this evidence and was entitled to conclude that the property had not been divided as alleged.

Conclusion:
The court concluded that the family is to be considered joint. The application under Section 26A was dismissed with costs. The court emphasized that the Income Tax Officer was entitled to rely on the evidence presented and was not required to accept the partnership transaction as genuine without sufficient proof of the division of the joint family property. The reference was answered in favor of considering the family as joint.