TaxTMI 
TaxTMI 
1965 (1) TMI 67
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....ection 34 of the Income-tax Act? 4. Whether the proceedings under section 34(1) of the Income-tax Act are barred by time? 5. Whether the Tribunal could direct the authorities below to change the status of the assessee from 'individual' to 'Hindu undivided family'?" 2. The statement of case relates to the assessment years 1946-47, 1947-48, and 1948-49, the relevant previous years being the years ending March 31, 1946, March 31, 1947, and March 31, 1948. 3(a). The assessee is a Hindu undivided family and the family tree is given below: Poornan Chand Pearey Lal Sagar Mal Chiranji Lal Mohan Lal Rameshwar Prasad Om Prakesh Mohan Lal was adopted by Sagar Mal and after adoption stood in the relationship of first cousin to Chiranji Lal. Shri Sagar Mal relinquished his interest in the family on 27th March, 1944. 3(b). Up to March 31, 1944, the Hindu undivided family enjoyed the income from business and house property. On March 31, 1944, there was a partial partition between Chiranji Lal and Mohanlal: (i) the property comprised in lot "A" was taken by Chiranji Lal and his sons; (ii) the property comprised in lot "B" was taken by Mohanlal ....
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....essment years 1945-46 and 1946-47, the income of those properties is to be assessed in the personal assessments of Chiranji Lal and Mohanlal, whereas property which was not divided on the 1st April, 1944, and which remained the property of the joint Hindu family till 26th August, 1947, is to be assessed in the hands of the Hindu undivided family. In this view of the matter, the rental income of the properties as divided on April 1, 1944, will be taken out of the assessment of the Hindu undivided family and the persons concerned will be assessed for the rental income of those properties owned by them separately." Copy of the order passed by the Tribunal is made part of the case (annexure "A"). 3(g). It may be mentioned that Shri Chiranji Lal has filed three further reference applications before the High Court under section 66(2) out of the same order of the Tribunal. These three reference applications were filed out of abundant caution as the assessee, Chiranji Lal, individual, had filed three returns of income on which assessments were made originally. The High Court has directed that the same questions may be referred in this case also and as the questions arise o....
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....e questions mentioned in paragraph 1 of this statement are the questions which arise out of the order of the Tribunal and are hereby referred, as directed. T. N. Sapru and S. C. Chandra, for the assessee R. L. Gulati, for the Commissioner JUDGMENT MANCHANDA J.--This is a consolidated case stated by the Income-tax Appellate Tribunal, hereinafter referred to as the Tribunal, in respect of six applications made by the applicant, Chiranji Lal, under section 66(2) of the Income-tax Act of 1922, hereinafter referred to as the Act. Five questions of law have been referred for the opinion of this court, but out of these only three are passed. They are: 1. Whether there was any material to justify the view that the income from business could be treated as income of the Hindu undivided family of which Chiranji Lal was the karta? 2. Whether there was any justification in law in making a joint assessment of the share incomes of Chiranji Lal, Rameshwar Prasad and Om Prakash and the income from property received by the Hindu undivided family headed by Shri Chiranji Lal? 3. Whether the Tribunal could direct the authorities below to change the status of the assessee from 'individual....
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.... alone but constituted the asset of his smaller Hindu undivided family of which he was the karta. Chiranji Lal had, however, filed a separate return for the same assessment year in the status of a Hindu undivided family and showed in this return the income from immovable property. The Income-tax Officer for this assessment year took a view contrary to what had been taken in the preceding three assessment years and held that as the nucleus for the business had come from joint family funds, therefore, the income from business derived by Chiranji Lal was also includible in the assessment of his smaller Hindu undivided family, and made the assessment accordingly. Thereupon, the Income-tax Officer started proceedings under section 34 of the Act for the earlier two relevant years of assessment 1946-47, 1947-48, previous years being the years ending on the 31st March, 1946, and 31st March, 1947, respectively. The Income-tax Officer completed these assessments under section 23(3) read with section 34 of the Act and included in the total income of Chiranji Lal, the assessee, in his status as an individual, the income from the business holding it to be joint family income. In other words, i....
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....lly belongs to the joint family consisting of Mohan Lal and his undivided male issue and similarly Chiranji Lal's 1/4th share in the profits of the firm belongs to the joint family consisting of Chiranji Lal and his undivided male issue, not excluding Rameshwar Prasad and Om Prakash, who were taken as partners and who in that capacity had As. 0-2-0 share each in the profits of the firm." The Tribunal, unfortunately, put the cart before the horse. They should have first addressed themselves to the basic question as to whether the partial partition claimed in respect of the family business was genuine or only a fictitious transaction. If the answer was that the partition of the business was genuine, then it would inevitably have followed that the Hindu undivided family, be it the larger family of Chiranji Lal-Mohan Lal or the smaller family of Chiranji Lal, thereafter could not as such claim a share in that business. That particular asset upon partial partition went out of the fold of the larger Hindu undivided family of Chiranji Lal-Mohan Lal and even of the smaller family of Chiranji Lal when the half share of the capital which fell to his branch of the family was further....
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....is not possible to say that the nucleus for the new partnership business came from the Hindu undivided family funds. The share income derived by the investment of such funds in a partnership business cannot be included in the assessment of the Hindu undivided family, unless it can be shown that the individual members who derived the share income had blended it with the income of the smaller Hindu undivided family or were nominees or benamidars for their family. No attempt has been made by the department to prove any such thing. There was thus no material whatsoever for the finding of the Tribunal that the nucleus in respect of the capital which was duly divided in the books of the firm after partial partition still continued to be the nucleus of the funds belonging to the larger or the smaller joint family. The law is well settled that there can be a partial partition of a part of the joint family assets: see Charan Das Hari Das v. Commissioner of Incometax* and Sunder Singh Majithia v. Commissioner of Income-tax**. Mulla in his Hindu Law, 12th edition, paragraph 328, page 503, has summarised the position thus: "328. Partial partition.--(1) A partition between coparceners ma....
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.... " to " Hindu undivided family ". Section 33(4) of the Act gives the Tribunal very wide powers to " pass such orders as it thinks fit ". The Tribunal certainly had the necessary jurisdiction to do this provided there is material on the record to determine the correct status in which a party should be assessed. It cannot be that if the Tribunal comes to the conclusion that the status is that of a " Hindu undivided family ", it should not have the power to correct the status. The question as framed, therefore, is answered in the affirmative, i.e., that the Tribunal has the jurisdiction to direct the status of an assessee to be changed and to determine the correct status. Lastly, it was contended by Mr. Gulati for the department that six references made to this court at the instance of Chiranji Lal by the Tribunal are not maintainable. According to him the notice to the assessee under section 22(2) of the Act had been served in the status of an individual. The returns made were made in the status of an individual. Appeals were also filed in the same status and therefore the mere fact that the Tribunal directed the status to be changed did not give t....