Burden of proof for Hindu undivided family income failed where profits were unsupported by legal evidence and penalty fell with the addition.

The Department must prove by legal evidence that profits from transactions carried on by members of a Hindu joint family are in fact family income; a presumption cannot be drawn merely from surrounding circumstances. Here, the materials relied on, including the contract names, one family-book entry, the family's interest in the broker's firm, and delayed payment, did not show use of family funds or credit, so the finding that the profits belonged to the Hindu undivided family was unsupported. Because the addition itself failed, the concealment penalty under section 28(1)(c) also could not stand. The reference was therefore answered in favour of the assessee and against the Revenue.

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Issues: Whether there was legal evidence to hold that the profits from the two disputed transactions belonged to the Hindu undivided family and not to the individual members; and whether, on the facts, concealment and deliberate furnishing of inaccurate particulars of income within the meaning of section 28(1)(c) of the Indian Income-tax Act were established.

Analysis: The statement of case disclosed no specific evidence to support the finding that the transactions were family transactions. A business carried on by a member of a Hindu joint family is not presumed to be joint family business, and the burden lay on the Department to prove that the profits were really those of the family. The facts relied on by the authorities, namely, the names in which the contracts stood, the entry of one transaction in the family books, the family's share in the broker's firm, and delayed payment to one alleged beneficiary, did not constitute proof that the family funds or family credit were used or that the profits were earned for the family. The finding rested on conjecture rather than evidence. Since the addition itself was unsupported, the basis for penalty also failed.

Conclusion: The first question was answered in the negative and in favour of the assessee. The second question was also answered in the negative and in favour of the assessee.

Final Conclusion: The reference was decided against the Revenue, the additions treating the profits as family income and the penalty based on concealment were not sustained.

Ratio Decidendi: In a reference under the income-tax law, the Department must establish by legal evidence that profits earned by individual members of a Hindu joint family are really family income; such a finding cannot rest on presumption or conjecture, and a penalty for concealment cannot stand where the underlying addition is unsupported.

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