Judgment:
P.C. Jain, J.
1. D.B. Income-tax Cases Nos. 78, 79, 80, 81, 82, 83, 85, 86, 87, 88, 89, 90, 91, 92, 93, 97 and 98 of 1973 were decided by a common judgment passed by this court on December 14, 1976, as common questions of law arose in all the aforesaid cases. This court was pleased to direct the Income-tax Appellate Tribunal to draw up a statement of case and refer the question of law as given in its order to this court along with a statement of case for the assessment years 1955-56 to 1961-62 (Reference Case No. 102 of 1979). Similarly, this court, vide its order dated August 2, 1977, directed the Tribunal to draw up a statement of case and refer questions of law for the opinion of this court with respect to the assessment year 1966-67 (Reference Case No. 17 of 1978). By the same order dated August 2, 1977, this court directed the Tribunal to draw up a case and refer the question of law for its opinion for the assessment year 1968-69 (Reference Case No. 18 of 1978).
2. The Income-tax Appellate Tribunal (hereinafter referred to as 'the Tribunal') by its order referred the following three identical questions of law for the assessment years 1955-56 to 1963-64 :
'(1) Whether, on the facts and in the circumstances of the case, action under Section 147 was validly commenced ?
(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in the conclusion that the business of M/s. Radhey Shyam Hari Narain and M/s. Temani Trading Company belonged to the assessee-Hindu undivided family without finding any evidence that the funds invested in that business flowed from Hindu undivided family on the mere ground that the partners were not able to explain their investment satisfactorily and the Tribunal based its conclusion on mere presumption and in disregard of the dictum that ' apparent is real unless otherwise proved differently ' ?
(3) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee has deliberately concealed particulars of its income and thus the assessee was liable to penalty under Section 271(1)(c) ?'
3. In respect of the assessment year 1966-67, the Tribunal referred a similar question which has been referred under question No. (3) above. In respect of the assessment year 1968-69, the following question was referred:
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding the assessee guilty and imposing a penalty under Section 273(1)(a) of the Income-tax Act for the assessment year 1968-69?'
4. The assessee in these cases is a Hindu undivided family carrying on business in the name of M/s. Prahlad Maliram. The Income-tax Officer, D-Ward, Jaipur, issued notices under Sections 147 and 148 of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), for reopening the assessment on the ground that the partnership firm carrying on their business in the name and style of M/s. Radhey Shyam Hari Narain and M/s. Temani Trading Co. were the offshoots of the assessee-firm and, therefore, their income should have been clubbed with the income of the assessee. According to the Income-tax Officer, the business of these two firms, namely, M/s. Radhey Shyam Hari Narain and M/s. Temani Trading Co., was carried on by the coparceners of the Hindu undivided family and, therefore, their income should have been taken as the income of the assessee-firm. The Income-tax Officer while assessing the firm assessed the income by clubbing the income of M/s. Temani Trading Co. with the income of the assessee-firm. The assessee took up the matter before the Appellate Assistant Commissioner of Income-tax who rejected the appeal of the assessee and concurred withthe finding given by the Income-tax Officer. In separate proceedings commenced under Section 271(1)(c)/274(2) of the Act, the Inspecting Assistant Commissioner came to the conclusion that concealment of income had' taken place on the assessee's part in furnishing inaccurate particulars of income. The Inspecting Assistant Commissioner imposed penalties. The assessee on receipt of the aforesaid orders preferred appeals before the Tribunal. The Tribunal rejected the appeals of the assessee. With regard to penalties, the Tribunal, by its order dated February 4, 1977, held that the levy of penalty was justified, but directed that the penalties be calculated at the minimum rate after giving effect to the appellate orders.
5. The case of the assessee is that it is a Hindu undivided family and has been assessed as such to income-tax from the assessment year 1950-51. The geneological table of the assessee's-Hindu undivided family, as given by the assessee, is as follows :
Prahlad Smt. Ram Rakhi
_____|__________________________________|______
| |
Kishori Sharan Radhey Shyam
alias Marilam II ________|_____
_________|______________ | |
| | | | Ramgopal Noratanmal
Hari Kunj Nand Jugal
Narain Behari Kishore Kishore
6. It was stated by the assessee that Prahlad had another son who was known as Maliram, but he had separated from his father during his lifetime. The assessee also submitted that the business of the assessee was in cloth. The submission of the assessee-firm was that the Income-tax Officer committed an illegality in reopening the already completed assessment of income-tax under the provisions of Sections 147 and 148 of the Act and clubbing the income of the assessee-firm with the business carried on in partnership in the name and style of M/s. Radhey Shyam Hari Narain and, later on, in the name of M/s. Temani Trading Co. It was the submission of the assessee that the proceedings for reassessment could not be commenced under Section 147 of the Act in the absence of any reason to believe that the assessee omitted or failed to make a return under Section 139 of the Act for any assessment year to the Income-tax Officer or omitted or failed to disclose fully and truly all material facts necessary for his assessment for that year, as a result of which income chargeable to tax has escaped assessment for that year. Shri B.P. Agrawal, learned counsel for the assessee, submitted that the Tribunal rejected the contention of the assessee on the ground that there was abundant evidence on record for the Tribunal to hold that the business of the two concerns, infact, belongs to the Hindu undivided family and that the whole drama was staged as a disguise to evade payment of proper tax. In this behalf, Shri B.P. Agrawal, learned counsel for the assessee, submitted that, in fact, the Tribunal failed to consider that unless the Income-tax Officer had reason to believe that the assessee did not fully and truly disclose all the necessary facts for the relevant assessment year and that by reason of that, income chargeable to tax had escaped assessment for that year, he had no jurisdiction to reopen the assessment under Section 147(a) and Section 148 of the Act. Shri Agrawal further submitted that there is nothing on record to show that the establishment of M/s. Radhey Shyam Hari Narain and for that reason the business of Temani Trading Co, was an extension of the business of the assessee's-Hindu undivided family. It was the submission of Shri Agrawal that simply because the coparceners of the family carry on the business of M/s. Radhey Shyam Hari Narain and M/s. Temani Trading Co. in partnership, it cannot give rise to the presumption that the business of these firms is one. Shri Agarwal submitted that there is no presumption that the capital of the partnership firm came out of the funds of the family. It was further alleged by him that the legal position is that it is for the Department to prove that the funds contributed by different coparceners came from the funds of the assessee's-Hindu undivided family. In fact, the submission of Shri Agrawal is that the Tribunal placed the onus wrongly upon the assessee to prove that the amount advanced by different coparceners to the partnership firm came out of their personal funds. In order to appreciate the submission made by Shri Agrawal, it is essential to see the findings recorded by the Tribunal. It appears that the contention of the assessee was rejected by the Tribunal. The following reasons were given by the Tribunal in its order :
'(a) Business of the applicant-assessee was in cloth which the firm, Radhey Shyam Hari Narain, embarked upon in 1952 or the business Temani Trading Co. carried on was also in cloth.
(b) The premises used by the firm, Radhey Shyam Hari Narain, were also of the applicant-assessee and there was nothing to show that any rent was paid. Subsequently, of course, the firm, Radhey Shyam Hari Narain Temani Trading Co., obtained independent premises on rent but this circumstance need not be given undue significance as a branch of the applicant-assessee could as well have business in independent premises.
(c) Whatever investments were made in the new venture, their only source could be from the funds of the applicant-assessee as Hari Narain had absolutely no money of his own.
(d) The lamentable manner in which Hari Narain and Radhey Shyam (coparceners partners in the new venture of Radhey Shyam Hari Narain/Temani Trading Co.) made conflicting versions shows that they had little regard for truth and this led to the natural inference under the circumstances that the business of Radhey Shyam Hari Narain was started with the funds of the joint family and the business of Temani Trading Co. continued with the same capital and it could well be said that these false versions were not meant to protect the applicant-assessee.
(e) In their opinion, with the source of investment being already attributable to the nucleus of the funds of the joint family, the initial presumption that the business was of the individual coparceners was sufficiently rebutted and they also relied on the same principle that the abstract rule of onus probandi lost much of its significance when both sides led their evidence.
7. Shri Agrawal, learned counsel for the assessee, placed reliance on Mangi Lal Rungta v. CIT : [1955]28ITR167(Patna) , wherein a Division Bench of the Patna High Court observed as follows (p. 177):
'The onus should have been placed upon the Department to show that those amounts came from the funds of the assessee family.'
8. There is absolutely no material placed on record by the Income-tax Department to discharge the onus which lay upon it. There is, therefore, no escape from the conclusion that there was no material on the basis of which the Tribunal could come to the conclusion that the capital contributed by Mst. Ram Rakhi was really capital advanced by the assessee-firm.
9. Shri B.P. Agrawal, learned counsel for the assessee, placed reliance on Chattanatha Karayalar v. Ramachandra Iyer : [1955]2SCR477 . In that case, the Supreme Court observed as follows (headnote):
'Under the Hindu law, there is no presumption that a business standing in the name of any member is a joint family one even when that member is the manager of the family, and it makes no difference in this respect that the manager is the father of the coparceners.'
10. The same view has been taken by the Supreme Court in G. Narayana Raju v. Chamaraju : [1968]3SCR464 , in which it has been held that it is well established that there is no presumption under Hindu law that a business standing in the name of any member of the joint family is a joint family business even if that member is the manager of the joint family. Unless it could be shown that the business in the hands of the coparcener grew up with the assistance of the joint family property or joint family funds or that the earnings of the business were blended with the joint family estate, the business remains free and separate.
11. Shri Agrawal, learned counsel for the assessee, placed reliance on CIT v. Daulat Ram Rawatmull : [1973]87ITR349(SC) , in which the Supreme Court observed that (headnote):
'There should be some direct nexus between the conclusion of fact arrived at by the authority concerned and the primary facts upon which that conclusion is based. The use of extraneous and irrelevant material in arriving at that conclusion would vitiate the conclusion of fact because it is difficult to predicate as to what extent the extraneous and irrelevant material has influenced the authority in arriving at the conclusion of fact.'
12. In the same authority, the Supreme Court observed that a person could still be held to be the owner of a sum of money even though the explanation furnished by him regarding the source of that money was found to be not correct. The said observations are as follows (headnote):
'A person could still be held to be the owner of a sum of money even though the explanation furnished by him regarding the source of that money was found to be not correct. From the simple fact that the explanation regarding the source of money furnished by X, in whose name the money was lying in deposit, had been found to be false, it would be a remote and far-fetched conclusion to hold that the money belonged to Y.'
13. In the same authority, it was further observed that the onus of proving that the apparent was not the real was on the party who claimed it to be so.
14. Shri Surolia, learned counsel for the Department, controverting the submissions made by Shri Agrawal, submitted that in the case there was enough material to sustain the order of the Tribunal. When a nucleus of joint family is proved or admitted, a presumption arises that the whole of the property of the joint family is joint. Shri Surolia submitted a number of authorities, but we are not referring the same as, in our opinion, the law laid down by the Supreme Court in the above-referred cases is quite clear. Regarding onus of proof, Shri Surolia placed reliance on C. Kant & Co. v. CIT : [1980]126ITR63(Cal) , on the basis of which Shri Surolia submitted that on whom the onus lies in a particular case is a question of law; but whether that onus has been discharged in a particular case is a question of fact. This ruling also does not help Shri Surolia in any way.
15. We have carefully perused the entire record and the findings of fact arrived at by the Tribunal and we are of the opinion that the findingrecorded by the Tribunal is more or less based on presumptions and surmises. This is clearly reflected by the fact that the learned Tribunal has stated that whatever investments were made in the new venture, their only sources could be from the funds of the assessee as Harinarain had absolutely no money of his own. This finding is patently based on conjectures as there is no evidence to support it. We are of the opinion that on the facts and in the circumstances of the case, the Department failed to discharge the onus which lay upon it. There was, in fact, no material on record for having any reason to believe that the assessee omitted or failed to make the return under Section 139 of the Act for any assessment year, or omitted or failed to disclose fully and truly all material facts necessary for assessment for that year, as a result of which income chargeable to tax escaped assessment for that year. There is no evidence to arrive at the conclusion that the business of Harinarain Radhey Shyam/Temani Trading Co. belonged to the assessee's Hindu undivided family. There is further no evidence to prove that the funds invested in that business of the said firm came from the Hindu undivided family. On the simple ground that the partners were not able to explain their investment satisfactorily, the Tribunal should not have based its conclusion on a mere presumption as a heavy burden lay upon the Department in view of the authorities cited by the assessee and referred to above. Thus, there was no material on record to come to the conclusion that investment and cash credits in the alleged two branches were includible in the income of the family.
16. Having considered all the aspects of the matter, we are of the opinion that the action under Section 147 was not validly commenced. We are also of the opinion that the Tribunal was not justified in its conclusion that the business of M/s. Radhey Shyam Harinarain and M/s. Temani Trading Co. belonged to the Hindu undivided family. Our answer to the reference with regard to question No. 1 is in the negative and against the Department. With regard to question No. 2 also, our answer is in the negative and against the Department. In view of our answer to the questions Nos. 1 and 2, as we have decided in favour of the assessee, the question of imposition of penalty does not arise.
17. The references stand decided accordingly.