1. At the instance of the assessee, the Income-tax Appellate Tribunal, Patna Bench, referred to this court the following questions of law for the assessment years 1976-77 and 1977-78 for its opinion under Section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as the 'Act') :
'1. Whether the finding of the Tribunal that a Government servant, having taken house building loan from the Government, cannot provide the same as loan to his Hindu undivided family for construction of his family house is legal and valid
2. Whether the finding of the Tribunal that the assessee is 50 per cent. co-owner of the house with his Hindu undivided family merely because the house building loan taken by him from the Government was also utilised in the construction of the Hindu undivided family house, even though it was provided to the Hindu undivided family as loan, is legal and valid
3. If the answer to question No. 2 be in the negative whether the order of the Tribunal directing assessment of 50 per cent. of the house property income in the assessee's hand is legal and valid ?'
2. Earlier we had heard the matter on September 9, 1996, and at that point we were of the opinion that there being no evidence that the assessee gave the loan to the Hindu undivided family, the first question did not arise and the others being academic did not require any answer on the facts of the case. However, while writing the judgment we felt that the
matter needs further consideration. Accordingly, we were of the opinion that since the other matters appertaining to the assessee were also listed, this matter could be decided afresh,
3. We have further heard the parties.
4. The assessee purchased a plot of land measuring 582.66 sq. yards from the Improvement Trust on December 23, 1972, for a sum of Rs. 11,966. He made initial payment, i.e., Rs. 6,100. Out of which he claimed that a sum of Rs. 3,000 had come from the sale proceeds of agricultural produce belonging to his family and Rs. 3,100 from his own individual source. The rest of the amount was paid in instalments. Thereafter construction was made on the land and the house was built. As to how the investment was made on the construction, the case of the assessee was that a sum of Rs. 50,000 was invested by the Hindu undivided family out of various loans and advances taken by the Hindu undivided family. An amount of Rs. 60,000 was with the assessee having taken a loan from the Government as loan for house building, from the provident fund, and from the sale proceeds of his motor car which was given to the Hindu undivided family as loan. A further sum of Rs. 12,000 was also spent on the construction, which came from the rental income received from the house. The Income-tax Officer held that the house was constructed by the Hindu undivided family of which the assessee was the karta and accordingly the income from the house property was assessed in the hands of the Hindu undivided family for the assessment years 1975-76 to 1977-78.
5. As to how the matter came up before the Appellate Tribunal, we may note that for the assessment for the years 1976-77 and 1977-78, the assessee filed his return of income as individual under Section 143(1) of the Act showing his income only from his salary. The Commissioner of Income-tax issued notice under Section 263(1) of the Act to the assessee, as according to him, the assessment of the Hindu undivided family for the assessment years 1975-76 to 1977-78 and the individual assessment for the period 1976-77 and 1977-78 were erroneous. The Commissioner of Income-tax thereafter passed an order holding that the bulk of the investment made in the construction of the house was from the individual source of income of the assessee, i.e., loan from the State Government, loan from the provident fund of the assessee and sale proceeds from his motor car. He was of the opinion that loan taken by the Government servant for house building purposes from the Government and loan from the provident fund for the same purpose could not be given as loan to others and not utilised for the purpose for which it was drawn. Accordingly, the
Commissioner of Income-tax set aside the assessment. The assessee appealed before the Appellate Tribunal, which partly allowed the appeal. Thereafter on reference as aforesaid the matter has come before us.
6. Earlier when the matter was heard we were impressed by the fact that the assessee could not have advanced the loan to the Hindu undivided family, when he had taken loan from the Government for the house building in his name and also the amount drawn from the provident fund for this purpose when in fact there was no evidence that any such loan was advanced to the Hindu undivided family by the assessee for house building purposes. Mr. Jain, learned counsel for the assessee, submitted that that the loan was advanced was not disputed and what was disputed was that the loan could not have been advanced on which account the Appellate Tribunal also fell into error and took an erroneous view of law. The Revenue is not much concerned with the source from where the income is derived. Earlier assessments for income from house property were rightly made in the hands of the Hindu undivided family and it was not relevant for the income-tax authorities to know if the assessee could have given loan of the money to the Hindu undivided family, for building a house or otherwise which money he himself had obtained as house building loan from the Government and also took advance from the provident fund for this very purpose. In this connection, Section 2(45) and Section 5 of the Act may be referred to which describe 'total income'. We are thus of the view that if advancement of loan was made by the assessee out of the loan/funds received by him from the Government and the advance taken by him from his provident fund was in violation of any rule of the Government, it will be for the Government to take any action and for that there cannot be any ground for the Revenue to raise objection.
7. Mr. Rastogi, counsel appearing for the Revenue, also does not contest this point that the loan could have been so advanced by the assessee to the Hindu undivided family. Once we come to the conclusion that the assessee could have given the loan aforesaid to the Hindu undivided family, the first question has to be answered in the negative, in favour of the assessee and against the Revenue.
8. Once having given the answer to the first question in favour of the assessee we are of the opinion that the second question as a matter of fact does not arise for consideration and need not be answered on the facts and circumstances of the case. In any case, the answer to this question No. 2 has to be returned in the negative, in favour of the assessee and against the Revenue. In these circumstances the third question has
also to be answered in the negative, in favour of the assessee and against the Revenue.
9. All the questions are answered in favour of the assessee. There shall be no order as to costs.