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TMI Blog1963 (1) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... he Income-tax Officer of the said Raigarh State. The facts and law discussed hereafter invest this reference with a little more than a mere passing and historical interest. On the basis of the same facts and law in the two applications giving rise to this reference, two questions are referred: (1) Whether, on the facts and in the circumstances of the case, the assessment of the assessee-Hindu undivided family for the assessment year 1949-50 could be re-opened under section 34 of the Indian Income-tax Act? (2) Whether, on the facts and in the circumstances of the case, the income from the business started by the junior members of the assesseeHindu undivided family could be included in the total income of the assessee? The facts briefly are: The assessee is Sri Hirachand Vastaram, a Hindu undivided family, carrying on business at Kharsia, then in the State, popularly called Native State of Raigarh. The assessee had income in the business and was resident and ordinarily resident in the said Indian State. The assessment year in question is 1949-50 and the relevant accounting year ended on Diwali, 1948. Bhogilal was the karta of the said family who had six sons. Sumati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prietor thereof. The Income-tax Officer however rejected the story of separation or partition and held that the incomes from the said two businesses accrued to the undivided family and, therefore, included the same in the total income of the assessee. It might be mentioned that only income from Mehta Pictures was estimated at a sum of ₹ 1,77,000 but no income was assessed on Dreamland Pictures at Bangalore. The said figure of ₹ 1,77,000 was taken on the basis of the figure as computed for making assessment on Mehta Pictures. As no evidence was produced, the assessment was completed by the Income-tax Officer under the provisions of section 23(4) on the basis of best judgment assessment and the revised assessment order was passed on March 21, 1955. An application under section 27 of the Income- tax Act was filed on behalf of the assessee before the Income-tax Officer for re-opening the case which was rejected. Against the said revised assessment order dated March 21, 1955, as well as the order rejecting the application under section 27, two appeals were taken by the assessee to the Appellate Assistant Commissioner, who dismissed both of them after affirming the finding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had the right to exercise suzerain powers over the States. On August 15, 1947, when India became independent it was governed by the Government of India Act, 1935. The paramountcy of the British Crown over the States ceased. In other words, the British Parliament and the King ceased to have power to make any laws for India or make any changes in its Constitution. These were left to India. The question then arose as to the status of the ruling chiefs. Some of them were the sole authorities, executive, legislative and judicial. The number of States prior to August 15, 1947, was 552, excluding only three of them, namely, Hyderabad, Junagadh and Kashmir. Then came the Indian Independence Act, 1947, and the Dominion of India was set up. All the States except the said three, acceded immediately thereafter by the instrument of accession. About the same time, each acceding ruler entered into a standstill agreement with the Dominion of India. Followed in December, 1947, the agreements between the rulers and the Governor-General of India giving full and exclusive authority, jurisdiction and powers in relation to the governance of the States. On December 24, 1947, the Central Government pas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous year ending after the 31st day of March, 1948, which is a previous year-- (i) for the merged State assessment year 1948-49, or (ii) for the merged State assessment year 1949-50. shall be assessed under the Indian Income-tax Act, 1922, if, and only if, such income, profits and gains have not, before the 1st day of August, 1949, been assessed under the State law. (2) Where the income, profits and gains referred to in sub-paragraph (1) have not been assessed under the State law, they shall be assessed under the Indian Income-tax Act, 1922, and the tax payable thereon shall be determined as hereunder-- (i) the tax on the amount of such income, profits and gains included in the total income shall be computed at the Indian rate of tax; (ii) the amount of such income, profits and gains shall be computed under the State law and the tax thereon computed at the merged State rate of tax; (iii) the amount, if any, by which the tax computed under clause (i) exceeds the tax computed under clause (ii) shall be allowed as rebate from the first mentioned tax, and the amount of the first mentioned tax so reduced shall be the tax payable. (3) For the purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... general information of the assessees of the Raigarh State that the Indian Income-tax Act (XI of 1922) of British India (mutatis mutandis) is in full force in this State with its up to date amendments. All future amendments will be applicable automatically in Raigarh State. By Order of the Darbar, Ragho Raj Singh, Diwan, Raigarh State. When the attention of Mr. Sinha was drawn to the said notification, the conclusion becomes all the more impregnable; and Mr. Sinha had to accept the position that the provisions of the Indian Income-tax Act were applicable and was in full force in Raigarh State at the relevant accounting period which is the subject-matter of this reference. The said notification is also published in the case of Commissioner of Income-tax v. Paluram Dhanania [1960] 39 I.T.R. 432, 434. The facts leading to the Supreme Court decision in the case of Dalmia Dadri Cement Co. Ltd. v. Commissioner of Income-tax [1958] 34 I.T.R. 514 ; [1959] S.C.R. 729 are distinguishable and do not help Mr. Sinha. Mr. Sinha still argued that though the provisions of the Indian Income- tax Act, 1922, are applicable, the provisions of the said Act cannot be made applicable until an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of fact in each case. The Supreme Court said so in the case of Bhagwati Prasad v. Rameshwari Juer [1951] S.C.R. 603. It is thus possible to disburden the cases of much of their weights, on the state of records in this reference, which was much pressed upon us by the learned advocate for the revenue, namely: (1) There is nothing in writing to show the fact of separation. Bhogilal admitted the same before the Income-tax Officer (see page 9, line 32 of the paper-book). The said admission was again recorded in the order under section 27 of the Act (see page 28, line 5) which also appears in the statement of case (at page 2, line 30). (2) Bhogilal as karta did not inform the alleged fact of separation to the Income-tax Officer, which was also admitted by Bhogilal (see the revised assessment order at page 9, line 27). The said fact was again not intimated to Sri C.V. Shah, an alleged creditor, which was also admitted by Bhogilal. (3) Both the said film businesses were started with the money advanced by the undivided family. In other words the nucleus is admitted. (a) The assessee did not produce the account books of either of the said two businesses. It was held by the Tribunals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bhogilal's declaration on February 7, 1955. I do not think it necessary to enter upon much and further details and I content myself with expressing the view that no partition or separation of the joint family in this reference has been proved. Mr. Sinha's grievance that the affidavits have not been properly considered by the Tribunal below is not sustainable, because upon the whole, this would have been a sound evidence in any court in favour of the continuance of the family as joint and undivided and I am of opinion that the Tribunal below, on a consideration of the evidence, was right in so treating it. A person under section 2(9) of the Income-tax Act includes a Hindu undivided family. Exemption from payment of tax of an assessee of a general nature in respect of a sum which he receives as a member of a Hindu undivided family is provided in section 14 of the Act. In section 25A, the provision for assessment after partition of a Hindu undivided family is made. When such family is once assessed as undivided, it would continue, even after partition and despite its disruption in law, to be assessed as Hindu undivided family till an order under section 25A is passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 26A of the Act, does not also apply to the facts of the instant case. The question of customary law also fell to be considered in the said decision which has no bearing in the instant reference. The decisions in the cases of Commissioner of Income-tax v. Thaver Brothers [1934] 2 I.T.R. 230 and Padampat Singhania v. Commissioner of Income-tax [1953] 24 I.T.R. 184 proceeded on the fact, found on evidence, that there was partition, which is not the case here. The decision in the case of Meyyappa Chettiar v. Commissioner of Income-tax [1950] 18 I.T.R. 586 mainly touched the interpretation of sections 25A and 26A of the Act. The Patna High Court decision of D.D. Kapoor v. Commissioner of Income-tax [1955] 27 I.T.R. 348 was a case of partnership with a stranger. The Supreme Court in the case of Kalu Babu [1959] 37 I.T.R. 123, 127; [1960] 1 S.C.R. 320 held at page 327 It is now well-settled that a Hindu undivided family cannot as such enter into a contract of partnership with another person or persons. Mr. Sinha then cites another Supreme Court decision of Charandas Haridas v. Commissioner of Income-tax [1960] 39 I.T.R. 202 ; [1960] 3 S.C.R. 296. Mr. Sinha overlooked that it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an order in respect of it had been passed under section 25A(1) of the Act. The position was as if the Income-tax Officer was proceeding to assess the income of the Hindu undivided family as in the year of assessment. Mr. Sinha submitted that the said decision in Bhadani's case [1951] 20 I.T.R. 594 (S.C.) was held inapplicable in a later Supreme Court decision in the case of Sardar Baldev Singh v. Commissioner of Income-tax [1960] 40 I.T.R. 605, 611; [1961] 1 S.C.R. 482. Mr. Sinha's contention is not accurate because their Lordships held at page 489 to the effect that it does not mean that the assessment under section 34 must take place at the place where the original assessment was made or not at all. Mr. Sinha's second submission, therefore, also fails. Mr. Sinha thirdly contended that the burden of proof of partition was on the income-tax department and it was for the revenue to show that the family remained undivided at the time of the revised assessment. This contention is also not sound. It is not disputed that the unit of assessment was the Hindu undivided family immediately before the relevant accounting period. Partition is pleaded by the assessee for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto the principle laid down by the Supreme Court in the case of Ramjilal v. Income-tax Officer, Mohindargarh [1951] 19 I.T.R. 174 ; [1951] S.C.R. 127. On a review of the whole of this case I am of opinion that the presumption against partition of the ancestral business had not been overcome and that the family remains joint with the consequence that both the questions should be answered in the affirmative and the assessee must pay the costs of this reference to the respondent which is certified for two counsels. P.B. Mukharji J.-- I agree that both the questions asked in this reference should be answered in the affirmative. The sun-set of the Princely Order in India, what used to be known as the Native States, and the slumbering but still smouldering ashes of the Hindu law of joint family, invest this reference with a little more than a mere passing interest. I shall at the outset categorise the following outstanding facts on which the two questions arise. The assessee is a Hindu undivided family carrying on business in grocery and money-lending in the name of Hirachand Vastaram. The assessee is resident and ordinarily resident in the Indian State of Raigarh wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on the 21st March, 1955. On the first question asked in this reference, namely, whether the assessment of the assessee-Hindu undivided family for the assessment year 1949-50 could be re-opened under section 34 of the Income-tax Act, the major defence of Mr. Sinha, learned advocate for the assessee, is paragraph 5(1) of the Merged States (Taxation Concessions) Order, 1949. Paragraph 5(1) of that Order reads as follows: 5. (1) The income, profits and gains of any previous year ending after the 31st day of March, 1948, which is a previous year-- (i) for the merged State assessment year 1948-49, or (ii) for the merged State assessment year 1949-50, shall be assessed under the Indian Income-tax Act, 1922, if, and only if, such income, profits and gains have not, before the 1st day of August, 1949, been assessed under the State law. The defence is developed by stating that the assessment for the assessment year 1949-50 in this case was completed by the State Income-tax Officer on the 31st May, 1949, when there was no occasion for the assessee being assessed under the Indian Income-tax Act, 1922. It is, therefore, contended that no question of reopening of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where there was no difference between the law of income-tax obtaining in the merged States prior to their merger and the law outside those merged States in India, so far as income-tax laws are concerned no question of hardship, anomaly or difficulty would arise and, therefore, section 60A and the Concessions Order passed thereunder can have no possible application to such a state of affairs. The relevant facts on this point are: (1) that Raigarh was an Indian State; (2) it is one of the States mentioned in Schedule IV of the Government of India Act, 1935, and came under the States Merger (Governors' Provinces) Order, 1949, promulgated under section 290A of the Government of India Act, 1935, for the administration of Indian States specified in the schedules thereunder. The appointed date in relation to the State specified in the schedule was August 1, 1949, and that was also the date on which the order came into force; (3) the State of Raigarh merged with the then Central Provinces and Berar on April 1, 1949; and (4) income-tax was levied in Raigarh State for the first time by virtue of Notification No. 89/44/D/Raigarh of the Raigarh Darbar dated July 31, 1944. That order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut treated as loan granted by that family cannot be considered to belong to the Hindu undivided family and there is no presumption in Hindu law or otherwise that such business also became part of the Hindu undivided family. In support of his contention Mr. Sinha relied on a number of decisions, most of which have already been dealt with by my learned brother and it will be unnecessary for me to refer to them again. The law about presumption on this point is well settled by many leading decisions. Lord Shaw in Nageshar Baksh Singh v. Ganesha [1926] L.R. 47, I.A. 57 at page 70 says that the main proposition is, of course, widely familiar--namely, that given a joint Hindu family--the presumption is, until the contrary is proved, that the family continues joint. That presumption is peculiarly strong in the case of the sons of one father. The limitation of that doctrine of presumption was indicated by the Privy Council in Sannyasi Charan Mandal v. Krishnadhan Banerji [1922] L.R. 49 I.A. 168 where Sir Lawrence Jenkins at pages 114 and 115 indicates the liability of a karta to impose on a minor coparcener the risks and liabilities of a new business started by himself. In that case th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed from a Hindu joint family business under the Hindu law, is not decisive in this context of income-tax assessment of the unit of Hindu undivided family. An undivided Hindu joint family or coparcenary under the traditional Hindu law need not be the income-tax unit of Hindu undivided family under the Income-tax Act. This leads me also to the consideration of the facts which seem to conclude this matter against the assessee. The outstanding facts on this particular point may here be noticed. The whole case of the assessee is that these two sons separated from the joint family and started their own respective businesses in film industry from the Diwali of 2003 or 1947. But this is flatly contradicted by unassailable evidence. In the first place, this claim for separation is contradicted by the fact that returns submitted on the 26th May, 1949, and the 26th September, 1950, showed that they continued to be joint even after the alleged partition. In the second place, this separation is not proved by any document of separation or even by any entry in the books of account either of the assessee-Hindu undivided family or even of Sumatilal or Rasiklal. There is no registered document f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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