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TMI Blog1982 (3) TMI 137X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 22-024/PQ-2685/DLI (2). Right from the assessment year 1964-65, Shri K.C. Khanna is earning income as a broker in wholesale cloth business. However, for the period from1-4-1974to31-3-1976, i.e., for the assessment years 1975-76 and 1976-77, Shri K.C. Khanna, besides earning commission in his brokerage business also started a wholesale cloth business. His turnover for the assessment year 1975-76 as a wholesale cloth merchant was Rs. 3,23,107 and for the assessment years 1976-77 it was Rs. 7,02,101. In the assessment year 1976-77, the total returned income both from brokerage as well as from cloth business of Shri K.C. Khanna was Rs. 38,460, Shri K.C. Khanna had no business premises of his own and he had carried on the wholesale cloth business in a rented premises. It is the case of the assessee that he closed down his wholesale cloth business on31-3-1976by stopping any further purchases and sales, which used to be on credit basis. It is the case of the assessee that from1-4-1976, the family of Shri K. C. Khanna started the wholesale business in cloth. The family had no business premises of its own nor any telephone facility. Its purchases and sales were all on credit basis. On15- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vidual assessments of Shri K.C. Khanna for 1977-78, 1978-79 and 1979-80 were already completed. The assessments of the HUF were completed on protective basis. The Commissioner gave a notice dated 26-11-1981 proposing either to enhance the income of Shri K.C. Khanna for each of the assessment years 1977-78, 1978-79 and 1979-80 or to set aside his individual assessments for those three assessment years under section 263 of the Income-tax Act, 1961 ("the Act"). The assessee filed his objections on4-12-1981before the Commissioner. A copy of the objections are now furnished at pages 3 to 10 of the paper compilation. The learned Commissioner, after hearing the assessee and his objections, held that the business of the HUF, K.C. Khanna Sons, had not been inherited. No ancestral funds were available and, therefore, the property is not acquired with the aid of ancestral funds and for this reason also it cannot be considered as a joint family property. He further held that it is not a case where the business is being carried on through the joint efforts by the members of the family because the business in question is being carried on by the efforts of Shri K.C. Khanna, individually. Theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee was that his individual business was closed on31-3-1976and the HUF's business started on1-4-1976. Both the above businesses are different entities. Under section 2(3), the joint family is one of the specified entities assessable under the Income-tax Act. When that is so, it is erroneous on the part of the Commissioner to presume that K.C. Khanna Sons cannot carry on its business unless Shri K.C. Khanna makes a declaration and impresses the business carried on by him with the character of the HUF. As against this, the learned departmental representative relies upon the Commissioner's order and steadfastly maintains that the impugned order is quite correct, legal, just and, hence, there are no grounds to interfere with that order. 5. We have considered these rival contentions and all the ramifications. The primary question to be decided is whether it is the HUF or the individual who carried on the business as a wholesale cloth merchant from 1-4-1976 onwards, for all the three assessment years under consideration. It is not the case of the department that the business premises in which Shri K.C. Khanna carried on his wholesale cloth business was the same premises where his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecame the individual property of Tilak Kumar and Smt. Urmila. The loans were subsequently repaid by them. This further supports the finding given by the Tribunal that the money with which the shares were purchased amounted to loans and, therefore, shares in the hands of Tilak Kumar and Smt. Urmila were their individual property and not the property of the HUF. It follows that the income obtained by them had the same character being the individual property of Tilak Kumar and Smt. Urmila and not the property of the HUF. This is our answer to Question No. 3." 6. Following the above decision and also the decision of the Hon'ble Supreme Court in N.V. Narendranath v. CWT [1969] 74 ITR 190, we hold that simply because Shri K.C. Khanna and Smt. Pushpa Rani lent amounts to the HUF and realised interest on their loans does not make them, the real owners of the wholesale cloth business carried on by the HUF. It is significant that both of them derived interest on their loans. At page 12 of the paper book for the assessment year 1977-78, Shri K.C. Khanna received Rs. 3,800 towards interest and, at page 13, during the assessment year 1978-79 he received interest of Rs. 8,341.88. The very fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an equally start a business. The main point to be seen is as to who conducted the business ? Is it the individual or the HUF headed by him ? The preponderance of evidence on record makes us to hold that it is the HUF who conducted the business and not Shri K.C. Khanna as an individual. 7. Therefore, we are of the opinion that the income derived from out of the wholesale business was already rightly assessed in the hands of the HUF by the ITO, Distt. I(3),Delhi, for the assessment years 1977-78, 1978-79. In our opinion, the orders of the learned Commissioner were quite unsustainable and erroneous in law and, therefore, we set aside the same and restore the assessment of the ITO, Distt. I(3),New Delhi, for the assessment years 1977-78 and 1978-79 dated26-2-1980and25-3-1981. A copy of the assessment order finalised by the ITO, Distt. I(3), New Delhi, for the assessment year 1979-80 is not put in the paper compilation and so we are not giving the date of the assessment order for the assessment year 1979-80 which is confirmed. However, we should be taken to have held that the assessment order of the ITO, Distt. I(3), New Delhi, for the assessment year 1979-80 made against the HUF, wha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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