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TMI Blog1987 (4) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... s were all along made in the status of a Hindu undivided family of which Ambika Prasad and his two brothers, Panna Lal and Prem Chand, were its members and coparceners. During the course of assessment proceedings for the assessment year 1973-74, the Income-tax Officer called upon the assessee to explain why assessments should not be framed in the status of a Hindu undivided family, as in the past, and why the income earned by his two brothers in their names should also be not included in the total income of the family. The assessee took up the stand that his brothers had separated since long. They were doing their separate businesses in their own names. In the statements recorded on oath by the Income-tax Officer, both Panna Lal and Prem Chand had stated that there was a partition in the family on May 19, 1965. A copy of family partition deed in support of such claim was also filed before the Income-tax Officer. However, both the brothers could not give the names of the witnesses who were the signatories to the partition deed. The Income-tax Officer recorded a finding that the partition deed was a got-up document that had been prepared after he had instituted an enquiry by givi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... family. The Income-tax Appellate Tribunal did not accept any of these contentions and upheld the assessments in due course and the assessee applied for references and succeeded in obtaining references under section 256(2) of the Act. Consequently, the following consolidated question of law for all the years in dispute has been referred for the opinion of this court: " Whether on the consideration that prevailed with the Income-tax Appellate Tribunal, it was justified under the law in holding that the income earned by Sri Prem Chand and Panna Lal were liable to be clubbed with the income of the assessee-Hindu undivided family ? " Counsel appearing for the assessee urged that in the instant case, section 171 (1) did not apply inasmuch as this section applied to a " Hindu family hitherto assessed as undivided ". According to him, admittedly, the undivided family has not been, assessed to tax after the assessment year 1965-66 till the assessment year 1973-74. Therefore, it is not family " hitherto assessed as a Hindu undivided family " within the meaning of that expression as contemplated by section 171 (1) of the Act. Another argument of counsel was that once the family is disso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otal income received on behalf of the joint family as such will, up to the date of partition, be made in accordance with the provisions of sub-section (4)(a) and sub-section (5) of section 171 of the Act. These provisions provide for an assessment in the hands of the family ignoring the partition in the family and the determination of the tax payable by the joint family as such ignoring the partition, as if no partition had taken place and the family were still in existence. Sub-section (4)(b) of section 171 in such a situation provides a machinery for the recovery of taxes from each of the members or group of members which liability is joint and several, for the whole amount of tax determined on the joint family. From the aforesaid discussion, it follows that unless the partition is recognised by the Income-tax Officer by passing an order under section 171(3) of the Act, the family continues to be joint under section 171 (1) for the purposes of this Act and is liable to tax on its total income irrespective of partition in the family. The provisions of section 171 had been the subject-matter of scrutiny before the Supreme Court in Kalloomal Tapeswari Prasad (HUF) v. CIT [1982] 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee is rejected. The assessee's counsel invited our attention to paragraph 7 of the order of the Income-tax Appellate Tribunal where the alternative contention of the assessee has been recorded in the following manner: " Alternatively, he submitted that since the income of 'sonari' is professional income and not an income from business, the income earned by S/Shri Panna Lal and Prem Chand by dint of their labour and without the help of the Hindu undivided family funds, could not be included in the total income of the assessee. " We were also referred to the Tribunal's findings contained in paragraph 10 which are to the following effect: " The alternative argument put forth on behalf of the assessee is also devoid of any merit. It is pertinent to note that even in the earlier years, the income earned by all the coparceners was treated as the income of the Hindu undivided family and not their individual income even though they had earned the income by dint of their labour. " Learned counsel submitted that the Tribunal has proceeded wrongly in this matter. He argued that each year's assessment is separate from the other and that an order in respect of an earlier year may be rele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me, earned by Pannalal and Prem Chand after the alleged partition, which at one time belonged to the family before its allotment to them, has only been brought to tax in the hands of the Hindu undivided family. In these circumstances, he suggested, no exception should be taken to the Tribunal's order when it confirmed the clubbing of the income with the other income of the family. We have carefully gone through the orders of the -tax authorities. There is nothing on record to show that in the earlier years Panna Lal and Prem Chand were making any income from their personal labour or profession and yet it was subjected to tax in the hands of the Hindu undivided family. On the other hand, it seems to us that the Tribunal has decided the question on an abstract legal position without investigating the correct facts. It has proceeded accepting the facts as true as stated by the assessee before it and has confirmed the clubbing of income. The Tribunal was swayed in its decision by the principle of res judicata, having at the back of its mind that the income before the partition in the family earned by the joint efforts of all coparceners was treated as the income of the Hindu undivided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reviewed several cases of the Supreme Court and of other courts and enumerated the following tests (at page 43): "(1) Whether the income received by a coparcener of a Hindu undivided family as remuneration had any real connection with the investment of the joint family funds; (2) whether the income received was directly related to any utilisation of family assets ; (3) whether the family had suffered any detriment in the process of realisation of the income ; and (4) whether the income was received with the aid and assistance of the family funds. " It was held in that very case (at pages 43 and 44): ".. ...... the broader principle that emerges is whether the remuneration received by the coparcener in substance though not in form was but one of the modes of return made to the family because of the investment of the family funds in the business or whether it was a compensation made for the services rendered by the individual coparcener if it is the former, it is an income of the Hindu undivided family but if it is the latter then it is the income of the individual coparcener. If the income was essentially earned as a result of the funds invested, the fact that a coparcener has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court and he is not precluded from arriving at a conclusion inconsistent with his conclusion in another year. It is open to the Income-tax Officer, therefore, to depart from his decision in subsequent years, since the assessment is final and conclusive between the parties only in relation to the assessment for the particular year for which it is made." Applying these principles to the facts of the case, we must come to the conclusion that the Tribunal did not perform its duties at it was bound to do. In our opinion, it has not considered the position dispassionately. It has acted in a routine manner and not judiciously. The Appellate Tribunal permitted the assessee to raise a fresh ground which was not the subject of issue before the other two tax authorities. Whether it had the jurisdiction to allow such a plea to be raised for the first time before it is not the question with which we are concerned in this case. Having done so, the Tribunal, however, committed an error when it sustained the assessment order on the ground that " even in the earlier years, the income earned by all the coparceners was treated as the income of the Hindu undivided family and not as their individual ..... X X X X Extracts X X X X X X X X Extracts X X X X
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