1970 (11) TMI 18 - HC - Income Tax

Expenditure Tax Act, 1957 - liability of the assessee for the expenditure-tax - ssessee is a Hindu undivided family - smaller Hindu undivided families came into existence on partition of bigger HUF - whether expenditure incurred by the smaller HUF are liable to be included in the taxable expenditure of the bigger HUF

Issues Involved:
1. Applicability of Section 4(i) of the Expenditure-tax Act, 1957.
2. Inclusion of expenditure incurred by smaller Hindu undivided families in the taxable expenditure of the assessee-Hindu undivided family.
3. Definition and implications of "dependant" under Section 2(g)(ii) of the Expenditure-tax Act.

Detailed Analysis:

1. Applicability of Section 4(i) of the Expenditure-tax Act, 1957:
The core issue revolves around whether the expenditure incurred by the three smaller Hindu undivided families (HUFs) of Hiralal, Haridas, and Devidas can be included in the taxable expenditure of the assessee-HUF under Section 4(i) of the Expenditure-tax Act, 1957. The Expenditure-tax Officer initially included this expenditure, a decision upheld by the Appellate Assistant Commissioner but later contested by the assessee-HUF before the Tribunal. The Tribunal ruled that Section 4(i) did not apply, leading to the revenue seeking a reference on this legal question.

2. Inclusion of expenditure incurred by smaller Hindu undivided families in the taxable expenditure of the assessee-Hindu undivided family:
The Tribunal's decision was influenced by the interpretation of Section 4(i), which states that any expenditure incurred by a person other than the assessee in respect of any obligation or personal requirement of the assessee or any of his dependants should be included in the taxable expenditure if it exceeds Rs. 5,000 in any year. The Supreme Court's decision in Commissioner of Expenditure-tax v. Darshan Surendra Parekh clarified that for such expenditure to be included, it must be incurred for the collective obligation of the family or for the personal requirements of the coparceners or other members in their capacity as family members.

3. Definition and implications of "dependant" under Section 2(g)(ii) of the Expenditure-tax Act:
The definition of "dependant" under Section 2(g)(ii) includes every coparcener other than the karta and any other family member entitled to maintenance from the joint family property. The revenue's argument was that the expenditure by the smaller HUFs was related to the obligations or personal requirements of the coparceners of the assessee-HUF, thus making it includible under Section 4(i). However, the assessee-HUF contended that the expenditure was incurred by the smaller HUFs in virtue of their coparceners being members of these smaller HUFs, not the bigger assessee-HUF.

Judgment Analysis:
The court emphasized that the burden of proof lies on the revenue to establish that the conditions for the applicability of Section 4(i) are satisfied. Specifically, the revenue must demonstrate that the expenditure by the smaller HUFs was incurred for the obligations or personal requirements of the coparceners in their capacity as members of the assessee-HUF. The court noted the lack of factual findings on whether the expenditure was for the coparceners' obligations or personal requirements and whether it was in their capacity as members of the smaller or bigger HUF.

Conclusion:
The court directed the Tribunal to submit a supplemental statement of the case, clarifying whether the expenditure by the smaller HUFs was in respect of any obligation or personal requirement of the coparceners other than Hiralal and, if so, whether it was in their capacity as coparceners of the smaller HUFs or the assessee-HUF. The final decision will be made after receiving this supplemental statement.

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