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Issues: (i) whether the completed assessment for assessment year 1949-50 could be reopened under section 34 of the Indian Income-tax Act, 1922 in the facts of a merged State where the same Act had been made applicable; (ii) whether the income from the businesses started by the two major sons could be included in the total income of the Hindu undivided family.
Issue (i): whether the completed assessment for assessment year 1949-50 could be reopened under section 34 of the Indian Income-tax Act, 1922 in the facts of a merged State where the same Act had been made applicable
Analysis: The concessional protection in paragraph 5 of the Merged States (Taxation Concessions) Order, 1949 applied only where income had been assessed under a State law different from the Indian Income-tax Act, 1922. The Raigarh State notification had already made the Indian Income-tax Act, 1922 operative in that State with future amendments, so the State law was not shown to be different from the Indian Act. As the relevant income was liable to assessment under the Indian Act and the reopening was based on escaped income, section 34 was available.
Conclusion: The reopening under section 34 was valid and the issue was decided against the assessee.
Issue (ii): whether the income from the businesses started by the two major sons could be included in the total income of the Hindu undivided family
Analysis: The claim of separation or partition was not proved. The contemporaneous returns continued to show the family as joint, no reliable document of partition or relinquishment existed, the alleged disclaimer was treated as ineffective, and the books of account and surrounding circumstances did not support the asserted disruption of the family. In income-tax law, a Hindu undivided family continues as the assessable unit until partition is recognised, and the burden of proving partition lay on the assessee.
Conclusion: The income from the two businesses was rightly included in the total income of the Hindu undivided family and the issue was decided against the assessee.
Final Conclusion: The reference was answered wholly in favour of the revenue on both questions, with the assessee remaining assessable as a Hindu undivided family and the escaped income properly brought to tax.
Ratio Decidendi: Where the Indian Income-tax Act is already in force in a merged State, the special concessions for income previously assessed under a different State law do not bar reopening under section 34, and a claimed partition of a Hindu undivided family must be proved by the assessee before the family can cease to be treated as the assessable unit.
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