Hirachand Vastaram Vs. Commissioner of Income-tax, West Bengal. - Court Judgment

LAIK J. - This consolidated reference under the provisions of section 66(1) of the Indian Income-tax Act, 1922, at the instance of the assessee, is impressed with the rapid flow of events up to the year of final accession to the Indian Dominion by the rules of the States, when the peoples of India were no longer concerned with principalities and powers of the ruling chiefs and when they have upon themselves the whole armour of the Constitution and walk in their enlightened ways, wearing the breast-plate of its protecting provisions and flashing the flaming sword of its inspirations. In one magnificent sweep, all vestiges of arbitrary and despotic power of the ruling chiefs of the States were blotted out. Raigarh is one of such States which is involved in the reference. The original assessment was completed on the assessees by the Income-tax Officer of the said Raigarh State. The facts and law discussed hereafter invest this reference with a little more than a mere passing and historical interest.

On the basis of the same facts and law in the two applications giving rise to this reference, two questions are referre :

'(1) Whether, on the facts and in the circumstances of the case, the assessment of the assessee-Hindu undivided family for the assessment year 1949-50 could be re-opened under section 34 of the Indian Income-tax Ac ?

(2) Whether, on the facts and in the circumstances of the case, the income from the business started by the junior members of the assessee-Hindu undivided family could be included in the total income of the assesse ?'

The facts briefly ar : The assessee is Sri Hirachand Vastaram, a Hindu undivided family, carrying on business at Kharsia, then in the State, popularly called Native State of Raigarh. The assessee had income in the business and was resident and ordinarily resident in the said Indian State. The assessment year in question is 1949-50 and the relevant accounting year ended on Diwali, 1948. Bhogilal was the karta of the said family who had six sons. Sumatilal Mehta was the eldest and Rasiklal Mehta was the second son and these two sons were majors and the rest were minors.

On May 31, 1949, the assessment was completed for the said assessment year, ex parte, by the Raigarh State Income-tax Officer. A sum of Rs. 1,907 was computed as total loss which was determined as the loss in the Raigarh State business only. Any income, outside the taxable territory, so to speak, was not included in the said assessment order. It was made without considering whether the assessee had any foreign income or not. The main reason for it was that the Raigarh State Income-tax Officer had no occasion to consider as to whether the family had other business in then British India.

Thereafter, on the information that Sumatilal, the eldest son, was doing business in the name of Mehta Pictures at Calcutta and Rasiklal, the other son, was doing business in the name of Dreamland Pictures Corporation at Bangalore in the State of Mysore, the Income-tax Officer started an enquiry in or about January, 1953, as to whether the said two film businesses of the two sons had any connection with the family. On March 17, 1954, a notice under section 34(1)(b) of the Indian Income-tax Act, 1922, was issued and the said notice along with a notice under section 22(2) was served on the Hindu undivided family on March 22, 1954. In pursuance of the said notices the assessee filed a return in or about April, 1954, which was revised in the month of June of the same year; but in this return, the assessee showed a loss to the extent of Rs. 40,000 and odd. It may be stated that the said loss was not shown in the original return on which the assessment order was passed on 31st May, 1949. The loss of Rs. 40,000 and odd was shown as speculation loss incurred through one Shri C. V. Shah of Bombay. In this return, neither the incomes of the said two film businesses were included nor the names of Sumatilal and Rasiklal were shown as members of the Hindu undivided family. It was claimed in the return that from the end of the Samvat year 2003, both the said two major sons separated and the said two businesses were not of the Hindu undivided family. It was asserted that they were separate businesses of the said two major sons and it was mentioned that the assessment was already made against Mehta Pictures at Calcutta, showing Sumatilal Mehta as proprietor thereof.

The Income-tax Officer however rejected the story of separation or partition and held that the incomes from the said two businesses accrued to the undivided family and, therefore, included the same in the total income of the assessee. It might be mentioned that only income from Mehta Pictures was estimated at a sum of Rs. 1,77,000 but no income was assessed on Dreamland Pictures at Bangalore. The said figure of Rs. 1,77,000 was taken on the basis of the figure as computed for making assessment on Mehta Pictures. As no evidence was produced, the assessment was completed by the Income-tax Officer under the provisions of section 23(4) on the basis of best judgment assessment and the revised assessment order was passed on March 21, 1955. An application under section 27 of the Income-tax Act was filed on behalf of the assessee before the Income-tax Officer for re-opening the case which was rejected. Against the said revised assessment order dated March 21, 1955, as well as the order rejecting the application under section 27, two appeals were taken by the assessee to the Appellate Assistant Commissioner, who dismissed both of them after affirming the findings of the Income-tax Officer. Thereafter, two appeals were filed by the assessee to the Appellate Tribunal. The assessee lost there also except that the quantum of assessment was reduced by the Tribunal. Two applications under section 66(1) followed which necessitated this consolidated reference. It appears that Bhogilal died during the pendency of the hearing of the reference in this court and on his death all the sons including the said two major sons have appeared before us representing the family as an assessee.

In the said application under section 66(1), the assessee made out the cas : (1) that in March, 1945, Sumatilal commenced the business of Mehta Pictures and the initial capital came from the Hindu undivided family but the same was taken as a loan or accommodation and the interest was paid on the said amount. (2) That in the beginning of Samvat Year 2003, corresponding to the month of October, 1946, it was alleged that the money advanced by the family to both the sons would be in lieu of their shares in the assets of the family. (3) The further case made in the said application was that towards the end of Samvat Year 2003, corresponding to October, 1946, there was a separation of the two major sons from the family.

Mr. K. P. Sinha, the learned advocate appearing in support of the reference, contended firstly, that the Income-tax Officer is incompetent to pass the revised assessment order under the provisions of the Indian Income-tax Act, 1922. In other words, his contention was that the notice under section 34 of the Indian Income-tax Act, 1922, was invalid and inoperative. His basis of the contention was that since the original assessment was completed by the Raigarh State Income-tax Officer on May 31, 1949, under the law prevailing in the said Princely State, the assessee cannot again be assessed under the provisions of Indian Income-tax Act, 1922.

To appreciate the said point, it would be convenient to bear in mind the political background. By several treaties, the British Government accepted the status of the ruling chiefs as independent rulers reserving to themselves, defence, external relations, etc. Mr. Lee Warner describes the relation as that of a 'subordinate Union'. The administration was controlled under the advice of the political department of the Government of India on the footing that the King was the Sovereign who had the right to exercise suzerain powers over the States. On August 15, 1947, when India became independent it was governed by the Government of India Act, 1935. The paramountcy of the British Crown over the States ceased. In other words, the British Parliament and the King ceased to have power to make any laws for India or make any changes in its Constitution. These were left to India.

The question then arose as to the status of the ruling chiefs. Some of them were the sole authorities, executive, legislative and judicial. The number of States prior to August 15, 1947, was 552, excluding only three of them, namely, Hyderabad, Junagadh and Kashmir. Then came the Indian Independence Act, 1947, and the Dominion of India was set up. All the States except the said three, acceded immediately thereafter by the instrument of accession. About the same time, each acceding ruler entered into a standstill agreement with the Dominion of India. Followed in December, 1947, the agreements between the rulers and the Governor-General of India giving full and exclusive authority, jurisdiction and powers in relation to the governance of the States. On December 24, 1947, the Central Government passed Act 47 of 1947 for the exercise of certain extra-provincial jurisdiction. It might be mentioned that while the provisions continued in the Government of India Act for the rulers signing instruments of accession, no suzerain rights were given to the Dominion of India by the Indian Independence Act.

On January 5, 1949, the Legislative Assembly of India, which was also functioning as the Constituent Assembly, passed the Constituent Assembly Act I of 1949. Section 290A for administration of certain acceding States was added to the Government of India Act, 1935. On May 19, 1949, the rulers accepted the invitation of Sardar Patel extended on July 5, 1947, and they came closer to the Centre. It was decided that the Constituent Assembly should also frame the Constitution of the States which would form part of the Constitution of India.

In July, 1949, the Governor-General of India promulgated the States Merger (Governors Provinces) Order of 1949. Some States were sufficiently large and became separate States. Such bigger States were continued as independent units of the Union within the framework of the Indian Constitution. Many small States, particularly where they formed islets within a province, merged with that province.

In 1950 the Governor-General passed the Provinces and State (Absorption of Enclaves) Order, 1950, under section 290, 290A, etc., of the Government of India Act, 1935. Ultimately, the peoples of India including the rulers of the States hammered out for themselves a new Constitution; in which all were citizens in a new order having but one tie; owing but one allegiance, devotion, loyalty and fidelity to the Sovereign Democratic Republic, i.e., India; which was born on January 26, 1950.

In this reference we are concerned with such merger and the particular Act and the Order in relation to a merged State, namely, the State of Raigarh, to which I shall presently refer.

To appreciate the point further, it would be necessary to refer to some of the relevant provisions of (1) the Taxation Laws (Extension to Merged States and Amendment) Act, 1949 (Act No. LXVII of 1949) and consider (2) the Merged States (Taxation Concessions) Order, 1949.

Paragraph 5 of the Merged States (Taxation Concessions) Order, 1949, on which strong reliance was placed by Mr. Sinha, reads as follow :

'5. (1) The income, profits and gains of any previous year ending after the 31st day of March, 1948, which is a previous year -

(i) for the merged State assessment year 1948-49, or

(ii) for the merged State assessment year 1949-50.

shall be assessed under the Indian Income-tax Act, 1922, if, and only if, such income, profits and gains have not, before the 1st day of August, 1949, been assessed under the State law.

(2) Where the income, profits and gains referred to in sub-paragraph (1) have not been assessed under the State law, they shall be assessed under the Indian Income-tax Act, 1922, and the tax payable thereon shall be determined as hereunder -

(i) the tax on the amount of such income, profits and gains included in the total income shall be computed at the Indian rate of tax;

(ii) the amount of such income, profits and gains shall be computed under the State law and the tax thereon computed at the merged State rate of law;

(iii) the amount, if any, by which the tax computed under clause (i) exceeds the tax computed under clause (ii) shall be allowed as rebate from the first mentioned tax, and the amount of the first mentioned tax so reduced shall be the tax payable.

(3) For the purposes of this paragraph -

(a) the merged State assessment year 1948-49 means the assessment year which commences on any date between the 1st April, 1948, and the 31st December, 1948, both dates inclusive; and

(b) the merged State assessment year 1949-50 means the assessment year which commences on any date between the 2nd January, 1949, and the 31st July, 1949, both dates inclusive.'

Mr. Sinha argued that where the assessee had been assessed under the law prevailing in the Raigarh State, validly made by the ruler of the said State before the 1st day of August, 1949, the assessee could no longer be assessed under the provisions of the Indian Income-tax Act, 1922.

On reading the said order as a whole, it seems to me that the order would be applicable, only when the income-tax law prevailing in the State is different from the provisions of the Indian Income-tax Act, 1922. It can proceed only on the said basis. Moreover, paragraph 5 is controlled by the provisions of paragraph 4 of the said order, which runs as follow :

'The provisions of paragraphs 5, 6, 9, 10 and 11 of this order shall apply to only so much of the income, profits and gains included in the total income of an assessee as would, had he been resident in the taxable territories, have been exempt under clause (c) of sub-section (2) of section 14 of the Indian Income-tax Act, 1922, if the Act had not been passed.'

It is not disputed that the aforesaid Act No. XLVII of 1949 and the aforesaid Order of 1949 are applicable to the facts of the present case. The confusion arose, because it was thought that the provisions of the Indian Income-tax Act, 1922, were not at all applicable to the Raigarh State during the relevant period. The States Merger (Governors Provinces) Order, 1949, was promulgated for the administration of the Indian States specified in the schedules thereto. Raigarh is one of such States mentioned in Schedule IV thereof. The appointed day in relation to the States specified in the Schedules I to VI is August 1, 1949. This Order also provides that it shall come into force on the 1st day of August, 1949. It is also not disputed that on April 1, 1949, the State of Raigarh merged with the then Central Provinces and Berar.

A Notification being No. 89/44/D/Raigarh, of the Raigarh Darbar dated July 31, 1944, was to the following effec :

'It is notified for the general information of the assessees of the Raigarh State that the Indian Income-tax Act (XI of 1922) of British India (mutatis mutandis) is in full force in this State with its up to date amendments. All future amendments will be applicable automatically in Raigarh State.

By Order of the Darbar,

Ragho Raj Singh, Diwan,

Raigarh State.'

When the attention of Mr. Sinha was drawn to the said notification, the conclusion becomes all the more impregnable; and Mr. Sinha had to accept the position that the provisions of the Indian Income-tax Act were applicable and was in full force in Raigarh State at the relevant accounting period which is the subject-matter of this reference. The notification is also published in the case of Commissioner of Income-tax v. Paluram Dhanania. The facts leading to the Supreme Court decision in the case of Dalmia Dadri Cement Co. Ltd. v. Commissioner of Income-tax are distinguishable and do not help Mr. Sinha.

Mr. Sinha still argued that though the provisions of the Indian Income-tax Act, 1922, are applicable, the provisions of the said Act cannot be made applicable until and unless the State of Raigarh is substituted for the words 'British India'. As I have already said that the appointed day was August 1, 1949, but the Ruler of Raigarh had accepted at least in July, 1944, the provisions of the Indian Income-tax Act to be in force in the State of Raigarh, which he is entitled to do under the State law. The argument of Mr. Sinha therefore loses all force. In this connection one would profit to read the several observations of their Lordships of the Supreme Court in the case of Thangal Kunju Musaliar v. Venkatachalam Potti, where the question arose as to whether the assessment under the provisions of the Travancore State Act could be investigated by a later Investigation Commission Act of 1947, read with the Travancore Act of 1950, in the background of the Indian Constitution.

Once it is held that the provisions of the Indian Income-tax Act, 1922, are applicable, there is no escape for the assessee, in view of the provisions of sections 4A, 4A(b), 4B(b) and also section 4(1)(b) of the Indian Act, from assessment, unless they are successful on other points.

Lastly, it is overlooked that the said order, paragraph 5 of which was strongly relied on, was itself made in exercise of the powers given by section 60A of the Indian Income-tax Act, 1922.

For these reasons, the main and the principal argument of Mr. Sinha could not be accepted.

Mr. Sinha next contended that as the businesses were started by only two members of the family, though admittedly the nucleus had been taken from the family funds, they should be regarded as independent businesses, to which the family could not lay any claim. According to Mr. Sinha, there is no presumption in law that the businesses belong to the family in spite of the fact that the nucleus is coming from the joint family funds.

On this branch of the argument, the learned advocates on both sides took great pains to refer us to a large number of decisions regarding the law of presumption of jointness of the Hindu family and, in fairness, I think I should mention some of the representative decisions.

It might be instantly answered that the unit of assessment of the Hindu undivided family in the Income-tax Act (shortly referred to hereafter sometimes as Hindu undivided family) is not exactly the same thing as the Hindu undivided family. It is a question of fact in each case. The Supreme Court said so in the case of Bhagwati Prasad v. Rameshwari Juer. It is thus possible to disburden the cases of much of their weights, on the state of records in this reference, which was much pressed upon us by the learned advocate for the revenue, namel :

'(1) There is nothing in writing to show the fact of separation. Bhogilal admitted the same before the Income-tax Officer (see page 9, line 32 of the paper-book). The said admission was again recorded in the order under section 27 of the Act (see page 28, line 5) which also appears in the statement of case (at page 2, line 30). (2) Bhogilal as karta did not inform the alleged fact of separation to the Income-tax Officer, which was also admitted by Bhogilal (see the revised assessment order at page 9, line 27). The said fact was again not intimated to Sri C. V. Shah, an alleged creditor, which was also admitted by Bhogilal. (3) Both the said film businesses were started with the money advanced by the undivided family. In other words the nucleus is admitted. (a) The assessee did not produce the account books of either of the said two businesses. It was held by the Tribunals below that the said account books were withheld deliberately and that for no sufficient reasons. (b) Bhogilal admitted before the Income-tax Officer having no account books for two years prior to November, 1959. (c) Though the account books of the Samvat year 2004 was submitted before the Income-tax Officer they did not show that the accounts of both Sumatilal and Rasiklal Mehta were brought forward. (d) Barring details of cash transaction, no balance-sheets of the two businesses were filed. (e) The undivided family did not produce books of account even for the period from 1st April, 1943, to Diwali, 1947, when admittedly both the two major sons were members of the Hindu undivided family. (f) Bhogilal could not explain how and when accounts were opened in the name of the undivided family in the books of Mehta Pictures and Dreamland Pictures Corporation. (4) Bhogilal further admitted that he, even on 28th March, 1956, formed a joint family with his minor sons in the accounting periods. (5) The original return filed for the year 1949-50 before the Income-tax Officer, Raigarh, on 26th May, 1949, shows the status as Hindu undivided family consisting of not only Bhogilal, but both Sumatilal and Rasiklal Mehta as the members of the said undivided family. The same position continued for the year 1950-51 on the return filed on September 26, 1950.

The facts, in my opinion, are not equivalent to affirmation of fact of a partition or separation having taken place, as claimed by the assessee. Rather, it is entirely consistent with the existence of the family as joint and the businesses as undivided.

There are again circumstances of considerable suspicion. Two affidavits were filed by the two major brothers in support of the story of their separation from the undivided family. Rasiklal stated in his affidavit that he separated from his fathers business but not in lieu of the entire assets of the undivided family which statement had been categorically made in this application for reference under section 66(1). Besides the said two affidavits, a deed of disclaimer was filed during the hearing before the Appellate Assistant Commissioner and it is now admitted by Mr. Sinha that there was a deed of disclaimer by Sumatilal alone and there was no deed of disclaimer or release by another brother, Rasiklal. The year of separation in the said deed does not tally with Bhogilals declaration on February 7, 1955.

I do not think it necessary to enter upon much and further details and I content myself with expressing the view that no partition or separation of the joint family in this reference has been proved. Mr. Sinhas grievance that the affidavits have not been properly considered by the Tribunal below is not sustainable, because upon the whole, this would have been a sound evidence in any court in favour of the continuance of the family as joint and undivided and I am of opinion that the Tribunal below, on a consideration of the evidence, was right in so treating it.

A 'person' under section 2(9) of the Income-tax Act includes a Hindu undivided family. Exemption from payment of tax of an assessee of a general nature in respect of a sum which he receives as a member of a Hindu undivided family is provided in section 14 of the Act. In section 25A, the provision for assessment after partition of a Hindu undivided family is made. When such family is once assessed as undivided, it would continue, even after partition and despite its disruption in law, to be assessed as Hindu undivided family till an order under section 25A is passed recognising the partition. Even where there is physical partition but if no claim of partition is made at the time of making the assessments, as in the instant case, and no order is recorded under section 25A(1), the family must be deemed to continue to be an undivided famil : see Indra Singh v. Commissioner of Income-tax. The above principle was not distinguished by the Supreme Court in the case of Commissioner of Income-tax v. Kalu Babu Lal Chand.

The law about presumption is laid down by the Judicial Committee in the following three decisions, namely, Nageshwar Baksh Singh v. Ganesha, Sannyasi Charan Mandal v. Krishnadhan Banerjee and Benaras Bank v. Hari Narain, all cited by Mr. Sinha.

The observations of Edge C.J. in Gajendar Singh v. Sardar Singh, about the presumption of the continuance of the joint Hindu family, were approved in Nageshwars case. I do not follow how the principle in Sannyasi Charan Mandals case to the effect that the risk of the business cannot be placed by the karta on the minor members of the family, helps Mr. Sinhas contention in this case. The said decision arising out of the Dayabhaga School of Hindu law is extended in the case of Benaras Bank, which was a case under the Mitakshara law and which followed an earlier case of mortgage. In my view, none of the said decisions is of any help to Mr. Sinhas contention.

It is held by the Judicial Committee in the case of Sundar Singh Majithia v. Commissioner of Income-tax that there was nothing in the Income-tax Act to prohibit the members of a Hindu family from dividing some property, while electing to retain their joint status, and carrying on business as partners in respect of those properties treating reference, because it could not be overlooked that the fact of partition was held to be not proved by the Tribunals below. The further principle of law formulated in the said decision as to whether the assessee, having regard to his personal law, has brought into existence a genuine firm, entitled to registration under section 26A of the Act, does not also apply to the facts of the instant case. The question of customary law also fell to be considered in the said decision which has no bearing in the instant reference.

The decisions in the case of Commissioner of Income-tax v. Thaver Brothers and Padampat Singhania v. Commissioner of Income-tax proceeded on the fact, found on evidence, that there was partition, which is not the case here. The decision in the case of Meyyappa Chettiar v. Commissioner of Income-tax mainly touched the interpretation of sections 25A and 26A of the Act. The Patna High Court decision of D. D. Kapoor v. Commissioner of Income-tax was a case of partnership with a stranger. The Supreme Court in the case of Kalu Babu held at page 327 'It is now well-settled that a Hindu undivided family cannot as such enter into a contract of partnership with another person or persons.' Mr. Sinha then cites another Supreme Court decision of Charandas Haridas v. Commissioner of Income-tax. Mr. Sinha overlooked that it was established as a fact in the said Supreme Court decision that the document was genuine and effective. In the instant case, with which we are concerned, not only there is no document of partition or separation, but the deed of disclaimer has been found to be a sham, fictitious and ineffective document. Another decision of the Judicial Committee of the Privy Council, cited by Sinha, namely, Raghbir Singh v. Ram Ratan, instead of supporting his contention goes against him to a great extent. Their Lordships after agreeing with the subordinate judge that the respondents failed to discharge the onus upon them of proving that the shares were Sultans separate property and that it was also not proved that the timber business was Sultans separate property, laid down the principle 'there is no presumption that a new business carried on by a member of a joint family in partnership with a stranger is joint family business. It may be or may not be. It is a matter for evidence.' Such evidence, as there is in this reference, points for the most part in the opposite direction of the contention of the assessee.

It would, therefore, be a mistake to read Hindu undivided family in the Income-tax Act as equivalent to the narrow expression of Hindu coparcenary. In my view separation or partition is not always reflected in the physical division of all the assets of the Hindu undivided family. Hindu law makes no distinction between major and minor coparceners, as sought to be argued, so far as their rights to joint properties are concerned. Ordinary notions or interpretations of Mitakshara law, as elaborately made by Mr. Sinha, did not help him on this branch of his argument.

In my judgment it would not be correct to say that even if a Hindu undivided family has come to an end (though it is not so in this reference) but a portion escaped assessment, a supplementary assessment cannot be made on the family under section 34 read with section 23 of the Act. The said view gets support from the Supreme Court decision in the case of Lakshminarain Bhadani v. Commissioner of Income-tax, where it was held, inter alia, that a proceeding under section 34 might be taken against a karta of a Hindu undivided family to reopen an original assessment on the family, though in the meantime, there had been a disruption of the family and in order in respect of it had been passed under section 25A(1) of the Act. The position was as if the Income-tax Officer was proceeding to assess the income of the Hindu undivided family as in the year of assessment. Mr. Sinha submitted that the said decision in Bhadanis case was held inapplicable in a later Supreme Court decision in the case of Sardar Baldev Singh v. Commissioner of Income-tax. Mr. Sinhas contention is not accurate because their Lordships held at page 489 to the effect that 'it does not mean that the assessment under section 34 must take place at the place where the original assessment was made or not at all.'

Mr. Sinhas second submission, therefore, also fails.

Mr. Sinha thirdly contended that the burden of proof of partition was on the income-tax department and it was for the revenue to show that the family remained undivided at the time of the revised assessment. This contention is also not sound. It is not disputed that the unit of assessment was the Hindu undivided family immediately before the relevant accounting period. Partition is pleaded by the assessee for the next succeeding period, which is the accounting period in the instant reference. In such circumstances, the onus of proof, in my view, would lie on the assessee. In certain cases it is also held that the onus of proof only comes into play when there is no evidence or where there is worthless evidence on either side. But where there is evidence and the Tribunal comes to a determinate conclusion after considering all evidence, question of onus of proof loses significance. For one such case, vide Jasraj Jiwanram v. Commissioner of Income-tax. The burden of proving partition is held in the case of Nihorilal Lal Prabudayal v. Commissioner of Income-tax to be on the assessee. The Supreme Court in the case of Kashinathsa Yamosa Kabadi v. Narsingsa Bhaskarsa Kabadi laid down that the burden of proving that there is division of property amongst the members of the joint Hindu family is on the person who pleads such division. This contention also of Mr. Sinha fails.

It was further contended on behalf of the assessee that as the assessment was made against Sumatilal and Rasiklal in their individual status the taxing authority cannot change the position and is not entitled to assess them now as members of the family.

Even accepting for arguments sake that the assessment order was made against Sumatilal and Rasiklal in their individual status, the provisions of the Income-tax Act do not preclude the revenue from making proper assessment on right persons according to law. If for any such act any other person is aggrieved, say for double taxation or for other reasons as supposed by Mr. Sinha, the said aggrieved person might have his remedies, as he might be entitled under the law, with which we are not concerned in this reference. I find, therefore, that there is no substance on this point of Mr. Sinha either.

Lastly, a faint argument was made on behalf of the applicant that the assessee had been denied the fundamental right of equality before the law and equal protection of the laws guaranteed by article 14 of the Constitution. The argument is misconceived. In any event it must be taken to be reasonable classification of the assessee which is permissible under the equal protections laws. There is no evidence of discrimination in the instant reference. One may refresh his memory by looking into the principle laid down by the Supreme Court in the case of Ramjilal v. Income-tax Officer, Mohindargarh.

On a review of the whole of this case I am of opinion that the presumption against partition of the ancestral business had not been overcome and that the family remains joint with the consequence that both the questions should be answered in the affirmative and the assessee must pay the costs of this reference to the respondent which is certified for two counsels.

P. B. MUKHARJI J. - I agree that both the questions asked in this reference should be answered in the affirmative.

The sun-set of the Princely Order in India, what used to be known as the Native States, and the slumbering but still smouldering ashes of the Hindu law of joint family, invest this reference with a little more than a mere passing interest.

I shall at the outset categories the following outstanding facts on which the two questions arise.

The assessee is a Hindu undivided family carrying on business in grocery and money-lending in the name of Hirachand Vastaram.

The assessee is resident and ordinarily resident in the Indian State of Raigarh where the business was carried on.

The assessment year is 1949-50 and the relevant accounting year ended on Dewali, 1948, corresponding to the year ending on 1st November, 1948.

Bhogilal Mehta was the karta of this Hindu undivided family and he had six sons of which the first two sons, Sumatilal and Rasiklal, were majors and the other sons were minors.

For the assessment year 1949-50 the original assessment was completed on 31st May, 1949, by the State Income-tax Officer, and in that assessment the income outside the State of Raigarh was excluded.

Then the Income-tax Officer received information that Sumatilal was doing business in the name of Mehta Pictures in Calcutta and Rasiklal was carrying on business in the name of Dreamland Pictures Corporation at Bangalore, both being film businesses.

He, therefore, issued notice under section 34(1)(b) and that notice as well as one under section 22(2) was served on 22nd March, 1954.

In response to these notices, a return of income was filed on 24th of April, 1954, and the same return was revised on the revised on the 2nd June, 1954.

In these returns the income from the aforesaid two businesses, Mehta Pictures and Dreamland Pictures Corporation, was not included.

In the return the assessee did not include the names of Sumatilal and Rasiklal as members of the Hindu undivided family and it was claimed that these two sons were separated from the Hindu undivided family as from the end of Samvat year 2003.

Until that date a sum of Rs. 2,03,524 was advanced by the family to the two brothers out of the joint family funds.

The karta - Bhogilal - never informed the Income-tax Officer about any separation which is now the main plank of the assessees case.

The Income-tax Officer rejected the assessees claim for such separation and held that the income from these two businesses (1) Mehta Pictures and (2) Dreamland Pictures Corporation, accrued to the Hindu undivided family and therefore included the same in the total income of the assessee.

The assessee did not produce the account books of either of these two businesses on the ground that the businesses belonged to two separated sons and therefore it was not possible for the assessee-undivided family to produce them.

The assessment was therefore completed under section 23(4) on the basis of the best judgment and the revised assessment order was passed on the 21st March, 1955.

On the first question asked in this reference, namely, whether the assessment of the assessee-Hindu undivided family for the assessment year 1949-50 could be re-opened under section 34 of the Income-tax Act, the major defence of Mr. Sinha, learned advocate for the assessee, is paragraph 5(1) of the Merged States (Taxation Concessions) Order, 1949. Paragraph 5(1) of that Order reads as follow :

'5. (1) The income, profits and gains of any previous year ending after the 31st day of March, 1948, which is a previous year -

(i) for the merged State assessment year 1948-49, or

(ii) for the merged State assessment year 1949-50,

shall be assessed under the Indian Income-tax Act, 1922, if, and only if, such income, profits and gains have not, before the 1st day of August, 1949, been assessed under the State law.'

The defence is developed by stating that the assessment for the assessment year 1949-50 in this case completed by the State Income-tax Officer on the 31st May, 1949, when there was no occasion for the assessee being assessed under the Indian Income-tax Act, 1922. It is, therefore, contended that no question of reopening of the assessment of the said year under section 34 of the Indian Income-tax Act can arise.

The answer to this defence under paragraph 5(1) of the Merged States (Taxation Concessions) Order, 1949, is two-fold. In the first place, it applies only where the relevant income has come to be assessed under the State law. In the second place, the State law as such should be apparently different from the law of the Indian Income-tax Act. In the facts of the present case the assessee satisfies neither of these two essential conditions to attract paragraph 5(1) of the Merged States (Taxation Concessions) Order, 1949.

That paragraph of the Concessions Order does not apply in this case because it has not been shown by the assessee-Hindu undivided family that the relevant income, which is now being brought within the fold of taxation, was in fact assessed under the State law within the meaning of this Concessions Order. That is the first answer. Secondly, the Merged States (Taxation Concessions) Order, 1949, was made in exercise of the powers conferred by section 60A of the Indian Income-tax Act, 1922. Now section 60A of the Income-tax Act was introduced by section 19 of the Taxation Laws (Extension to Merged States and Amendment) Act, 1949. The object of this section, inter alia, is to grant power to make exemptions, etc., in relation to the merged territories. The opening words of section 60A are significantly relevant for this purpose where it is sai :

'If the Central Government considers it necessary or expedient so to do for avoiding any hardship or anomaly, or removing any difficulty, that may arise as a result of the extension of this Act to the merged territories........., the Central Government may, by general or special order, make an exemption, reduction in rate or other modification in respect of income-tax in favour of any class of income, or in regard to the whole or any part of the income of any person or class of persons.'

Section 60A of the Income-tax Act, therefore, obviously was for the purpose of avoiding any 'hardship', 'anomaly' or 'difficulty'. The obvious hardship, anomaly and difficulty contemplated in that section is and can only arise when the merged States were governed by different laws of income-tax than those prevailing in other parts of India outside those States. Where, therefore, there is no hardship, anomaly or difficulty and where there was no difference between the law of income-tax obtaining in the merged States prior to their merger and the law outside those merged States in India, so far as income-tax laws are concerned no question of hardship, anomaly or difficulty would arise and, therefore, section 60A and the Concession Order passed thereunder can have no possible application to such a state of affairs.

The relevant facts on this point ar : (1) that Raigarh was an Indian State; (2) it is one of the States mentioned in Schedule IV of the Government of India Act, 1935, and came under the States Merger (Governors Provinces) Order, 1949, promulgated under section 290A of the Government of India Act, 1935, for the administration of Indian States specified in the schedules thereunder. The appointed date in relation to the State specified in the schedule was August 1, 1949, and that was also the date on which the order came into force; (3) the State of Raigarh merged with the then Central Provinces and Berar on April 1, 1949; and (4) income-tax was levied in Raigarh State for the fist time by virtue of Notification No. 89/44/D/Raigarh of the Raigarh Darbar dated July 31, 1944. That order of the Raigarh Darbar on this point reads as follow :

'It is notified for the general information of the assessees of the Raigarh State that the Indian Income-tax Act (XI of 1922) of British India, (mutatis mutandis) is in full force in this State with its up to date amendments. All future amendments will be applicable automatically in Raigarh State.

By Order of the Darbar,

Sd./- Ragho Raj Singh, Diwan,

Raigarh State.'

This court will take judicial notice of the above facts and they may also be found in the report of the case of Commissioner of Income-tax v. Paluram Dhanania.

These facts show that the Indian Income-tax Act, 1922, including naturally section 34 thereof, applied to Raigarh and the assessees at Raigarh and that the State law was not different from the Indian Income-tax Act of 1922. Indeed the assessment order of the Income-tax Officer, Raigarh, specifically and expressly mentioned section 23(3) of the Indian Income-tax Act as being the section under which the assessment was made. There is, therefore, no question of 'any hardship or anomaly or removing any difficulty' within the meaning of section 60A of the Indian Income-tax Act which could possible have led the Central Government to consider it necessary and expedient to make any exemption in respect of Raigarh. It is clear, therefore, that neither section 60A of the Indian Income-tax Act nor the Merged States (Taxation Concessions) Order, 1949, issued thereunder by their objects and purpose is at all applicable to Raigarh on the facts of this present reference. It follows, therefore, that the first question must be answered in the affirmative.

Coming now to the second question asked in this reference, the first obvious comment is that it is framed in a manner which gives it all the look of a pure question of fact without any law in it. With a view to avoid that difficulty the legal colour that was put to this question by Mr. Sinha appearing for the assessee was the law of presumption is respect of a new business started with the nucleus of a joint Hindu family fund and on the basis of that he criticised the Tribunals order applying such law of presumption. His contention briefly is that any business started for the first time unconnected with the family business even though it was started with funds originally belonging to the Hindu undivided family but treated as loan granted by that family cannot be considered to belong to the Hindu undivided family and there is no presumption in Hindu law or otherwise that such business also became part of the Hindu undivided family. In support of his contention Mr. Sinha relied on a number of decisions, most of which have already been dealt with by my learned brother and it will be unnecessary for me to refer to them again.

The law about presumption on this point is well settled by many leading decisions. Lord Shaw in Nageshar Baksh Singh v. Ganesha at page 70 says that the main proposition is, of course, widely familiar - namely, that 'given a joint Hindu family - the presumption is, until the contrary is proved, that the family continues joint. That presumption is peculiarly strong in the case of the sons of one father.' The limitation of that doctrine of presumption was indicated by the Privy Council in Sannyasi Charan Mandal v. Krishnadhan Banerji where Sir Lawrence Jenkins at pages 114 and 115 indicates the liability of a karta to impose on a minor coparcener the risks and liabilities of a new business started by himself. In that case the point arose in connection with a Dayabhaga family. The principle was held to be applicable to also a Mitakshara family such as in the present case before us. In Benaras Bank Ltd. v. Hari Narain Sri Dinshah Mulla observes that the judgment in Sannyasi Charan Mandals case proceeded on the broad ground that the manager of a joint family has no power to impose upon a minor member of a family the risk and liability of a new business started by him and held that there was no distinction in principle on this point between a case in the Dayabhaga and one under the Mitakshara.

It appears to me that this invocation of the Hindu law is at least partially uncalled for. It is not quite appropriate, in my opinion, to equate the law, doctrine and status of a Hindu joint family as such as to the concept of 'the Hindu undivided family' as a unit of assessment under the Income-tax Act. Section 2(9) of the Income-tax Act defines a person include a Hindu undivided family. The Hindu undivided family is assessed to income-tax and super-tax as a distinct and separate entity. Once such a family is assessed as undivided, it continues, even after a partition according to Hindu law, to be assessed as an undivided family, as a unit for income-tax assessment, till actually an order is passed by the Income-tax Act under section 25A of the Income-tax Act recognising such partition. No such order under section 25A of the Income-tax Act has been passed in this case recognising the alleged partition, so that it continues as a Hindu undivided family as a unit of assessment in the present case. Nobody, neither the karta Bhogilal nor the two alleged separated sons, Sumatilal and Rasiklal, brought the alleged fact of partition on which they seem to rely now to the notice of the revenue authority. It is, therefore, necessary to bear in mind the meaning and import of the term 'Hindu undivided family' and the difference between such a unit of assessment for the purpose of the Income-tax Act on the one hand and the ordinary legal character and incidents of an undivided joint Hindu coparcenary under the Hindu law. Therefore, it appears to me that this whole approach attempting to distinguish and separate the two business, Mehta Pictures and Dreamland Pictures Corporation, alleged to be carried on by Sumatilal and Rasiklal as distinguished from a Hindu joint family business under the Hindu law, is not decisive in this context of income-tax assessment of the unit of Hindu undivided family. An undivided Hindu joint family or coparcenary under the traditional Hindu law need not be the income-tax unit of Hindu undivided family under the Income-tax Act. This leads me also to the consideration of the facts which seem to conclude this matter against the assessee.

The outstanding facts on this particular point may here be noticed. The whole case of the assessee is that these two sons separated from the joint family and started their own respective business in film industry from the Diwali of 2003 or 1947. But this is flatly contradicted by unassailable evidence. In the first place, this claim for separation is contradicted by the fact that returns submitted on the 26th May, 1949, and the 26th September, 1950, showed that they continued to be joint even after the alleged partition. In the second place, this separation is not proved by any document of separation or even by any entry in the books of account either of the assessee-Hindu undivided family or even of Sumatilal or Rasiklal. There is no registered document for partition. A document, purporting to be a deed of release between Sumatilal and Bhogilal dated the 20th September, 1956, was attempted to be used as proof of some kind of a partition. The revenue authorities rightly rejected this document and the Appellate Assistant Commissioner described this as 'a sham document'. If the partition had taken place in 1947, it is incredible why the document should come into existence nine years later in 1956, and that again only by Sumatilal and not also by Rasiklal. There is no overt act shown on the part of either the assessee-Hindu undivided family or Sumatilal or Rasiklal to prove or support such partition.

The Income-tax Officer records the facts, namely, that (1) the alleged separation of the sons was not intimated to the Income-tax Officer before proceedings under section 34 of the Income-tax Act started; (2) that it was not intimated to C. V. Shah, the creditor of the assessee through whom Bhogilals sons had also received loans; (3) that there was nothing in any contemporaneous writing to show this alleged separation; (4) there were no account books for two years prior to the 5th November, 1949; and, lastly, (5) no explanation was given how and why there were accounts opened in the name of the Hindu undivided family Hirachand Vastaram of Kharsia in the books of Dreamland Pictures Corporation at Bangalore and also in the books of Mehta Pictures at Calcutta. These facts create insuperable difficulties in the way of the assessee to prove the alleged case of separation. The amounts that escaped assessment were said to be loans given by the joint family to these two sons. But then these loans were never ultimately paid back to the joint family. The whole case of the assessee is that what was given as a loan to begin with became a kind of a purchase price for the relinquishment of the rights of these two sons in the joint family. But, then, significantly enough, there is no such entry in the books of account of the assessee-Hindu undivided family. No entry shows that the loans have been written off as price paid to these two sons for relinquishment of their respective rights in the Hindu joint family.

Independently, therefore, of all questions of presumption or otherwise, and entirely on the facts and the evidence on record, the conclusion is irresistible that there was no separation. It follows, therefore, that the income from these two business started by these two sons was rightly included in the total income of the assessee-Hindu undivided family. The answer follows. The second question must also be answered in the affirmative.

I agree with my learned brother that the assessee should bear the costs as proposed by him.

Questions answered in the affirmative.