1983 (9) TMI 122 - AT - Income Tax

Issues Involved:
1. Initiation of reassessment proceedings under Section 147(a) of the Income-tax Act, 1961.
2. Inclusion of Rs. 3,70,000 as income in the individual capacity of late Shri M.L. Jalan.
3. Determination of whether the guarantee commission was assessable in the hands of late Shri M.L. Jalan as an individual or as karta of the Hindu Undivided Family (HUF).

Issue-wise Detailed Analysis:

1. Initiation of Reassessment Proceedings under Section 147(a):
The validity of the reassessment proceedings was challenged by the assessee. The Income Tax Officer (ITO) had information from the State Bank of India indicating that Shri M.L. Jalan furnished his guarantee in his personal capacity. The Tribunal upheld the reopening of the assessment, stating that the ITO had sufficient material to form a tentative belief that the income had escaped assessment. The Tribunal emphasized that the sufficiency of evidence was not the criterion at the stage of reopening, but rather the existence of material that might have a live nexus with the formation of belief.

2. Inclusion of Rs. 3,70,000 as Income in the Individual Capacity of Late Shri M.L. Jalan:
The ITO included the guarantee commission of Rs. 3,70,000 in the individual assessment of late Shri M.L. Jalan, based on the information from the State Bank of India. The Commissioner (Appeals) confirmed this inclusion, stating that the guarantee was given by Shri M.L. Jalan in his personal capacity. The Tribunal, however, found that the Commissioner (Appeals) had ignored crucial evidence indicating that the guarantee commission was earned by Shri M.L. Jalan in his capacity as karta of the HUF. The Tribunal noted that the agreement for the guarantee commission was made between India Jute Co. Ltd. and Shri M.L. Jalan after 1-4-1969, and not based on the original guarantee given in 1956. The Tribunal concluded that the income from the guarantee commission was assessable in the hands of the HUF and not in the individual capacity of Shri M.L. Jalan.

3. Determination of Whether the Guarantee Commission was Assessable in the Hands of Late Shri M.L. Jalan as an Individual or as Karta of the HUF:
The Tribunal analyzed the evidence, including the correspondence between Shri M.L. Jalan and India Jute Co. Ltd., and the letters from the State Bank of India. The Tribunal found that the guarantee commission was paid to Shri M.L. Jalan in his capacity as karta of the HUF, as indicated by the company's resolution and the subsequent communication from Shri M.L. Jalan requesting the payment to be made to the HUF. The Tribunal also noted that the State Bank of India's letter dated 19-11-1975 did not conclusively establish that the guarantee was given in a personal capacity, as it also mentioned that the guarantee was continued because Shri M.L. Jalan was the karta of the HUF. The Tribunal concluded that the guarantee commission was assessable in the hands of the HUF.

Separate Judgment by Judicial Member:
The Judicial Member disagreed with the conclusion that the guarantee commission was assessable in the hands of the HUF. He emphasized that the guarantee was given by Shri M.L. Jalan in his personal capacity, as confirmed by the State Bank of India's letter dated 19-11-1975. He argued that the subsequent letter from the bank changing the capacity to HUF was not credible and that the initial guarantee was purely personal. The Judicial Member upheld the inclusion of the guarantee commission in the individual assessment of Shri M.L. Jalan.

Third Member Decision:
The Third Member, upon reviewing the facts and evidence, sided with the Accountant Member. He concluded that the guarantee commission was assessable as the income of the HUF, based on the agreement between India Jute Co. Ltd. and Shri M.L. Jalan, the conduct of the parties, and the overall evidence indicating that the guarantee was given in the capacity of karta of the HUF.

Final Decision:
The Tribunal, by majority view, allowed the appeal, holding that the guarantee commission of Rs. 3,70,000 was assessable in the hands of the HUF and not in the individual capacity of late Shri M.L. Jalan.

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