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TMI Blog1983 (9) TMI 122X X X X Extracts X X X X X X X X Extracts X X X X ..... a member of the board of directors of the above-named company'. Shri M.L. Jalan did not charge anything for standing guarantee from India Jute Co. Ltd., up to 31-3-1969. It appears that some time hearabout June 1970, Shri M.L. Jalan wrote to India Jute Co. Ltd. expressing his desire to get released from the liability of the guarantor to the State Bank of India on behalf of the said company. On 15-6-1970 the said company wrote to the assessee as follows : " As desired by you, we requested the State Bank of India to release the guarantee provided by you for our company's cash credit account and instead accept the guarantee of Shri T.R. Jalan, a director of our company, but we have been given to understand that while accepting the guarantee from you, they have considered the worth of the whole of your family and as such they want that you as the head of family should provide the required guarantee. We shall, however, again take up the matter with the bank and would try to get your guarantee released but in the meantime we request you to please continue to provide the guarantee on our account to the State Bank of India." 3. On receipt of the aforesaid letter, it appears that the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said company by the said bank on the following dates : Rs. 12-4-1972 1,85,000 15-3-1973 1,85,000 The aforesaid payments were in respect of the financial years ending on 31-3-1971 and 31-3-1972, respectively, Shri M.L. Jalan returned the aforesaid commission received in the return of income filed by him for his HUF styled as Mohanlal Sons in respect of the financial year ending on 31-3-1973 corresponding to the assessment year 1973-74. The ITO assessing the said family undertook enquiries with regard to the real ownership of the said commission. The State Bank of India informed the ITO vide its letter dated 22-10-1975 that the guarantee in question given by Shri M.L. Jalan was 'personal guarantee'. Apparently the ITO raised some further queries from the bank in reply to which the said bank wrote back to the ITO on 19-11-1975 as follows : " With reference to your' letter No. 11-040-HX-6130/438 dated the ----------------------------------- CAL/V2/(H) 15th November, we have to advise as under : (a) We confirm that Shri M.L. Jalan furnished his guarantee to the bank in his personal capacity for the cash credit facility granted to the above-named company. (b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the HUF "It is clear from the aforesaid letters of the bank that they had never considered the immovable properties of the HUF as described before while considering the guarantee of Shri M.L. Jalan. The bank considered the personal guarantee of Shri M.L. Jalan and not the financial position of Shri M.L. Jalan as karta of the HUF. In this context it appears that the guarantee commission is shown by the India Jute Co. Ltd. as paid to Mohanlal Sons although the real payment was made to Shri M.L. Jalan who stood for the guarantee in his individual capacity and received the commission as such. This had been possible because both Shri M.L. Jalan and his son had a decisive control in the management of the company. Hence, the income from this source should be assessed in the personal assessment of Shri M.L. Jalan for the assessment year 1973-74. But as the assessee has shown in its return, this sum of Rs. 3,70,000 as income the same is taken in the total income of the assessee only as a protective measure." After making the protective assessment as above, the ITO reopened the assessment of Shri M.L. Jalan (deceased) as an individual on the same date, i.e., 25-2-1976. The material cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the material on record which might have live nexus with the formation of the belief. From the information which the ITO received from the bank, he could, in our opinion, have formed the tentative belief that the guarantee commission was earned by Shri M.L. Jalan in his personal capacity. The satisfaction at this stage need not necessarily be such as would stand the test of ultimate evidence. It is by its very nature a tentative belief which on receipt of proper evidence can be changed. The reopening of the assessment is, therefore, hereby sustained. 6. On merits, however, we feel that the appraisal of evidence by the learned Commissioner (Appeals) deserves interference. While evaluating the evidence the learned Commissioner (Appeals) has ignored to take note of the fact that it is not the contract of guarantee of 1956 on the basis of which the guarantee commission was earned by Shri M.L. Jalan from India Jute Co. Ltd., as the facts narrated above would go to show that late Shri M.L. Jalan had not earned any guarantee commission whatsoever from India Jute Co. Ltd. from 1956 to 31-3-1969. It was only from 1-4-1969 onwards that the guarantee commission was demanded by Shri M.L. Jal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Jalan made the request to the assessee-company to issue the cheques for commission in the name of 'my HUF Mohanlal Sons'. The aforesaid letter, in our opinion, is important and provides the genesis of the contract which yielded commission to the assessee. Prior to that there was no consideration flowing from the assessee-company to Shri M.L. Jalan for his agreeing to give guarantee to the State Bank of India. When it was decided that guarantee commission be paid to Shri M.L. Jalan he made it clear to the India Jute Co. Ltd. that the agreement to pay commission and to stand guarantee will be entered into by Shri Jalan with the said company not in his individual capacity but in his capacity as the karta of the HUF. Apparently the aforesaid arrangement was communicated by the assessee to the bank also and that is why the bank explained in his letter dated 13-12-1975 that "in 1970 Shri M.L. Jalan was the karta and his sons and relatives were members of the old established HUF firm of Soorajmull Nagarmull . . . Shri M.L. Jalan and his sons were also directors and shareholders in several limited companies under the management of Soorajmull Nagarmull and had large investments therein" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the said income in terms of sub-section (2) of section 145 of the Act. No quarrel can, therefore, in our opinion, be had with the action of the ITO to tax the receipt of Rs. 3,70,000 in the previous year under consideration. Inasmuch as, the aforesaid amount is not the assessee's income as per our findings above, the question of including the said income in the assessee's hands even on receipt basis does not arise. Accordingly, we accept the assessee's appeal and delete the addition of Rs. 3,70,000 sustained by the learned Commissioner (Appeals). 8. In the result, the appeal is allowed. Per Shri S.S. Mehra, Judicial Member --I have the privilege of going through the comprehensive order prepared by my learned brother, Shri Anand Prakash, however, I regret my inability to agree with the conclusion arrived at : 2. The assessee has taken, inter alia, the following effective grounds in the appeal : " 1. That the learned Commissioner of Income-tax (Appeals) erred in confirming the initiation of the reassessment proceedings in this case under section 147(a) of the Income-tax Act, 1961 in respect of the assessment year 1973-74. 2. That without prejudice to the above, the learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he guarantee was given by Shri M.L. Jalan to the bank in his personal capacity and not as the karta of the HUF. In support of the assessee's contentions a letter from the State Bank of India was filed. It is clear from the said bank's letter that Shri M.L. Jalan stood guarantor in his personal capacity. What the bank has said in that letter that Shri M.L. Jalan's guarantee given in his individual capacity was continued as it found that he was the karta of the HUF to which his son, Shri T.R. Jalan, the principal director of the company, was a member. The same view is also upheld by the learned IAC in his instructions. With an eye to the above discussion the guarantee commission received by Shri M.L. Jalan is treated as his individual income." 4. The assessment order on this point was subsequently challenged by the assessee and Shri N.K. Poddar, the learned counsel on behalf of the appellant, argued before the learned Commissioner (Appeals), on the basis of the letters received from the bank. It was also mentioned that it was incorrect that the guarantee commission was received by the assessee in his individual capacity. He further argued that Shri Mohanlal Sons (HUF) have been a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arantee by the late guarantor was given in his personal and individual capacity or any other capacity. In this connection, through my note dated 31-12-1982, I wanted my office to request the assessee to furnish the copies of the bank guarantee and the correspondence between the company, bank and the guarantor before finalising the matter, i.e., the guarantee. In pursuance to the said note, our office sent a letter to the assessee on 1-1-1983. In reply thereto, the assessee sent a letter dated 8-2-1983, but none of the things called for. The matter, therefore, is to be decided only on the basis of material placed on record. 9. It is seen that in reply to the learned ITO's letter dated 15-9-1975, the bank sent a communication on 19-11-1975--put up on the signature of the Deputy Manager--saying, inter alia : " We confirm that Shri M.L. Jalan furnished his guarantee to the bank in his personal capacity for the cash credit facility granted to the abovenamed company." 10. The language of the letter from the bank at that stage did not and could not admit of any ambiguity on the point. The guarantee was given in the personal capacity of Shri M.L. Jalan and the HUF--subsequently broug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the considered view that the learned ITO correctly brought to tax the escaped income and such action of the learned ITO was rightly confirmed by the learned Commissioner (Appeals). I, therefore, confirm the impugned order on the point. 14. In the result, the assessee's appeal is dismissed. THIRD MEMBER ORDER Per Shri T.D. Sugla, President--On a difference of opinion between the learned Members who heard the appeal originally, the following point of difference has been referred to me for disposal as Third Member under section 255(4) of the Act : " Whether, on the facts and in the circumstances of the case, the sum of Rs. 3,70,000 given by India Jute Co. Ltd. to late Shri M.L. Jalan by way of guarantee commission was assessable in his hands in his individual capacity or as karta of the Hindu undivided family ? " 2. The facts have been clearly and correctly stated by the learned Accountant Member. It is, thus, not necessary to reproduce the facts once again. However, it is desirable to refer to the facts in brief. Late Shri M.L. Jalan, when he was alive, had given in the year 1956 guarantee to the State Bank of India in respect of various loans and cash credit facilities all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Shri M.L. Jalan, as an individual, did never have any wealth. I have also gone through the two decisions of the Gujarat High Court in the cases of V.J. Patel and P.J. Patel v. CIT [1973] 91 ITR 353 and CIT v. Dineshchandra Sumatilal [1978] 112 ITR 758 relied upon by the departmental representative. The decisions refer to well known tests to be applied for finding whether an income' belongs to an individual or HUF. There cannot, possibly be any dispute about the tests laid down by the aforesaid Gujarat High Court in the two decisions and a number of other decisions including the decision of the Supreme Court. Ultimately, the decision depends on the facts of each case whether or not an income is assessable as income of an individual or the HUF. 6. In my opinion, all these documents, the genuineness of which is not in dispute, support the assessee's contention. The department can derive support for its stand, if at all, from the State Bank of India's letters to the ITO dated 22-10-1975 (not on record) and the other letter dated 19-11-1975. Here, again, I am constrained to observe that the department does not want to read the letter in full. It relies up on the first portion of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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