Joint family business income and tax recovery suit barred where challenge effectively sought to defeat an assessment.

In a trading Hindu family, a business started by adult family members after the father's death may be treated as a joint family business where no independent source of capital is shown and the venture is not speculative; on that basis, the profits were assessable as family income and the family remained liable for the tax. A civil suit framed as a declaration against recovery of income-tax arrears, but in substance aimed at defeating the assessment and enforcement of the demand, was barred by section 67 of the Indian Income-tax Act, 1922. The proper remedy lay within the statutory tax process or in partition proceedings with the tax authorities impleaded.

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Issues: (i) Whether the businesses commenced by the adult members of the Hindu family after the death of the father were joint family businesses, so that the income-tax assessed on their profits was payable by the family members. (ii) Whether the suit seeking a declaration that the family properties were not liable to be proceeded against for realisation of income-tax arrears was barred by section 67 of the Indian Income-tax Act, 1922.

Issue (i): Whether the businesses commenced by the adult members of the Hindu family after the death of the father were joint family businesses, so that the income-tax assessed on their profits was payable by the family members.

Analysis: The evidence did not establish that the adult brothers had any independent source of capital for the new ventures. The family was treated as a trading family, and in such a family the manager may start a new business binding on the minors, provided it is not speculative. The record did not show that the ventures were speculative. The new businesses were therefore capable of being treated as joint family businesses, and the profits from them were rightly assessed as family income.

Conclusion: The new businesses were joint family businesses, and the appellants remained liable for the tax assessed on their profits.

Issue (ii): Whether the suit seeking a declaration that the family properties were not liable to be proceeded against for realisation of income-tax arrears was barred by section 67 of the Indian Income-tax Act, 1922.

Analysis: Although the plaint was framed as a declaration against sale of the properties, its substance was to prevent enforcement of the tax demand arising from the assessment. Section 67 bars a suit that in substance seeks to cancel or modify an assessment. The proper course was to move the income-tax authorities under the statutory machinery available for objections to an undivided-family assessment, or to raise the matter in the partition proceedings with the tax authorities impleaded. A subsequent partition decree did not by itself affect the liability of the properties for the tax arrears.

Conclusion: The suit was barred by section 67 of the Indian Income-tax Act, 1922.

Final Conclusion: The challenge to recovery of the income-tax arrears failed on both merits and maintainability, leaving the tax authorities free to proceed against the properties for realisation of the assessed dues.

Ratio Decidendi: In a trading Hindu family, a new business started by the adult manager binds the family unless it is speculative, and a civil suit which in substance seeks to defeat or modify an income-tax assessment is barred by section 67 of the Indian Income-tax Act, 1922.

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