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Judgment
In these cases the assessee is a Hindu undivided family in the name of Noopchand Magniram, of which the karta is Premsukhdas Jagnani. It appears that the other coparceners of the Hindu undivided family were Girdhari Lall Jagnani, Benarsi Lall Jagnani and Ram Vallabh Jagnani. In these cases we are concerned with two assessment years, 1948-49 and 1949-50. In the course of proceedings for assessment the assessee claimed that there was disruption of the Hindu joint family. It was, however, held by the Income Tax Office in his order u/s 25A made on the 30th October, 1950, that the description of the Hindu joint family must be taken to have occurred on the 5th January, 1949. The result, therefore, was that for the two assessment years 1948-49 and 1949-50 the assessee was taxed in the status of a Hindu undivided family. The case of the assessee is that in the assessment years 1944-45 the four coparceners of the assessee family carried on business of the Mahabir Oil Mill with the partnership of two other persons, Mahadeo Prasad and Kashi Ram. The shares of the partners in the alleged partnership were as follows :
Mahadeo Prasad
...
...
4 annas
Kashi Ram
...
...
4 annas
Premsukhdas Jagnani
...
...
2 annas
Girdhari Lall Jagnani
...
...
2 annas
Benarsi Lall Jagnani
...
...
2 annas
Ram Vallabh Jagnani
...
...
2 annas
For the assessment year 1944-45 the Income Tax Office made an assessment of tax on the basis that the 8 annas share belonging to the four coparceners belonged to the Hindu undivided family and the four annas share belonged to each of the partners, Mahadeo Prasad and Kashi Ram. The eight annas share of the profits so determined was included by the Income Tax Officer in the total assessment of the Hindu undivided family. This method of allocation of the profits was followed by the Income Tax Officer for the assessment years, 1945-46 and 1946-47. In the assessment year 1945-46 the partnership was granted registration by the Income Tax Officer u/s 26A of the Income Tax Act. Nevertheless, the profits of the four partners who were members of the Hindu undivided family were consolidated together and the profits of the 8 annas share was collectively taxed as belonging to the Hindu undivided family for the assessment year 1947-48. But for the assessment years, 1948-49 and 1949-50, the assessee raised an objection that the profits of the partnership should be taxed individually in their hands and not clubbed together for being taxed in the hands of the Hindu undivided family. The objection was rejected by the Appellate Tribunal on the ground that there no material on the record to show that the assessee familys interest in the partnership firm was divided among the members of the family. The Appellate Tribunal accordingly affirmed the order of the Appellate Commissioner and of the Income Tax Officer taxing the profits of the four co-partners in the partnership as belonging to the Hindu undivided family.
As directed by the High Court, the Income Tax Appellate Tribunal has stated a case on the following question of law u/s 66(2) of the Indian Income Tax Act :
"Whether in the circumstances of the case it can legally be held that the two annas share of each of the four partners, namely, Premsukhdas Jagnani, Girdhari Lall Jagnani, Benarsi Lall Jagnani and Ram Vallabh Jagnani, in the income of the partnership firm, Mahabir Oil Mill, is the income of the Hindu undivided family of the Jagnani brothers ?"
On behalf of the assessee the argument is put forward by learned counsel that there was no material in the present case to support the finding of the Income Tax authorities that the 2 annas share of each of the four partners, namely, Premsukhdas Jagnani, Girdhari Lall Jagnani, Benarsi Lall Jagnani and Ram Vallabh Jagnani in the income of the partnership firm, Mahabir Oil Mill, was really the income of the Hindu undivided family. In our opinion the argument put forward by learned counsel is well founded and must be accepted as correct. It is true that the Income Tax Appellate Tribunal has found that there was an actual partition and physical division of the assets of the joint family on January 5, 1949, which was the date on which there was disruption of the joint family for the purpose of Income Tax u/s 25A of the Income Tax Act. That is the finding of the Income Tax Officer in his order made u/s 25A dated October 30, 1950. But the principle is well established that there is no presumption in Hindu law that any business carried on by a member of the joint Hindu family is also a joint family business. In order to establish that the income of a member of a joint Hindu family from a partnership business in which he is a partner is joint family income, there should be material to show that he has employed the property or resources of the family in the partnership business or that he was in fact representing the family for the share of the partnership he holds. That is the view expressed by a division bench of this High Court in Kapoor v. Commissioner of Income Tax and of the Madras High Court in Narayanaswami Iyer v. Commissioner of Income Tax. In Annamalai Chetty v. Subramaniam Chetty, the Judicial Committee expressed the view that there is no presumption in Hindu law that any business carried on by a member of a joint Hindu family is also a joint family business. Even upon the assumption that for two assessment years in question in the present case the status of a joint Hindu family continued, the question arises whether there is any material on the record to support the finding of the Income Tax authorities that the four coparceners of the Hindu joint family had really entered into the partnership business not in their individual capacity but as representing a Hindu undivided family. On this question the Appellate Tribunal has said in the supplementary statement of the case that in the books of account of the Mahabir Oil Mill each coparcener has been allotted a separate account. The account of Ram Vallabh Jagnani for the first year of the mill business is given as follows :
"Credits
Rs. a. p.
4-5-43 cash
...
7,500 0 0
18-5-43 "
...
6,000 0 0
1-4-44 interest
...
877 8 9
Share of profit
...
1,806 8 9."
The Appellate Tribunal has further stated that the account of the three other members of the joint family are exacted of the same nature. This finding supports the argument addressed on behalf of the assessee that the four coparceners of the Hindu joint family had entered into a partnership in their individual capacity and not as members of the Hindu joint family. On behalf of the Income Tax department the learned standing counsel referred to the fact that in the supplementary statement of the case the Tribunal has found that the assessee family has also a separate account in the books of the Mahabir Oil Mill. The account for the first year of the Mill business for the assessee family is stated as follows :
"Credits
Rs. a . p.
14-4-43
cash
101 0 0
3-8-43
"
3,000 0 0
21-11-43
"
2,000 9 0
12-3-44
"
5,100 0 0
Rs. a. p.
Goods
3,725 12 6
Coal & machinery parts
6,817 0 0
...
10,542 10 6
21,540 12 6
(The figure of Rs. 21,640-12-6 in the statement of the case is wrong)
Rent
...
4,500 0 0
26,040 12 6
Less debit sutli
...
61 1 6
25,979 11 0
Balance of credit."
It was also pointed out that the assessee family has realised rent to the extent of Rs. 4500 from the partnership. This fact, however, does not necessarily suggest that the Hindu undivided family itself had entered into the partnership business as one of the partners. On the contrary, it is also consistent with the inference that the assessee family was carrying, on transaction with the Mahabir Oil Mill. On this point the Appellate Tribunal has observed that in the absence of the family books of accounts it was not possible to say whether the goods worth Rs. 10,542 and odd were taken away from the assessee family when the mill was started or whether they represent the supplies made by the family later. It is, therefore, manifest that an examination of the books of account does not unequivocally support the finding of the Appellate Tribunal that the Hindu undivided family itself was a partner of the business named Mahabir Oil Mill. Reference has also been made by the Appellate Tribunal in this connection to the circumstance that for the previous assessment years, 1946-47 and 1947-48, the assessee did not object to being assessed for the 8 annas profit of the partnership business and the assessee did not take an appeal from the decision of the Income Tax Officer making the assessment on the basis that the Hindu joint family was really the owner of the 8 annas share of the partnership business. But this is not a valid reason for the finding of the Appellate Tribunal because it is well established by numerous authorities that the principle of estoppel or res judicata has no application to Income Tax cases (see the decision of Lord Carson in Broken Hill Proprietary Co. Ltd. case, the decision of this High Court in Sirdar Bahadur Indra Singh v. Commissioner of Income Tax and also of the Lahore High Court in Jitumal Chamanlal v. Commissioner of income tax). The last circumstance to which the Appellate Tribunal has referred is a decision of the Income Tax Officer u/s 25A, dated the 30th October, 1950, wherein it has been held that there was disruption of the joint family status with effect from the 5th January, 1949, because on that date there was an effective physical division of the joint family. This reasoning of the Appellate Tribunal has really no relevance for determining the question of law raised in this case because the question for determination is not at what point of time there was disruption of the Hindu joint family u/s 25A of the Income Tax Act. Even on the assumption that there was a disruption of the Hindu joint family for the purpose of Income Tax on the 5th January, 1949, the question really is whether the four members of the Hindu joint family had entered into a partnership with the Mahabir Oil Mill in their individual capacity or as representing the Hindu joint family. For the decision of that question it is manifest that the finding of the Income Tax Officer in his order dated the 30th October, 1950, u/s 25A, has no relevance.
For these reason we hold that in the circumstances of this case it cannot legally be held that the 2 annas share of each of the four partners, namely, Premsukhdas Jagnani, Girdhari Lall Jagnani, Benarsi Lall Jagnani and Ram Vallabh Jagnani, in the income of the partnership firm of the Mahabir Oil Mill is the income of the Hindu joint family of the two assessment years, 1948-49 and 1949-50. We accordingly, answer the question of law referred by the Income Tax Appellate Tribunal in favour of the assessee and against the Income Tax department. The assessee is entitled to the costs of this reference. This will be a consolidated hearing fee of Rs. 250 for both these cases.
Question answered accordingly.