1. The question that has been referred to us by the Tribunal at the instance of the Commissioner of Income-tax, Bombay City-II, Bombay, for our opinion run thus :-
'Whether the intention of abandonment of his separate rights in his property which is found to be the separate property of Amritlal Dayabhai, can be inferred from the mere fact of omission by Amritlal Dayabhai to keep it separate from February, 1952 to 1957 ?'
2. The question relates to assessment year 1958-59 to 1961-62, corresponding to the previous years are S.Y. 2013 to 2016. The assessee is a H.U.F. comprising of Amritlal Dayabhai and his minor son. Amritlal Dayabhai was originally a member of the H.U.F. named Moolchand Tribhuvandas. There was a partition in 1940 between the members of bigger H.U.F. at which Amritlal Dayabhai received the sum of Rs. 20,824/-. Amritlal Dayabhai contributed that amount (Rs. 20,824/-) as his capital and became a partner in S.Y. 1998 in the partnership firm of M/s. Amritlal Hiralal. The amount was credited in the account book of the firm in an account opened in the same of Amritlal Dayabhai. The profits that fell to the share of Amritlal Dayabhai were credited and withdrawals for his household expenses were debited to that account. It appears that by using several withdrawals made from that account Amritlal purchased immovable properties and share of joint stock companies and income arising from those properties from time to time was also credited to that account. On 21-12-1950. Amritlal received Rs. 38,000/- as a gift from his father. This amount was also credited to that account standing in his name in his name in the account books of M/s. Amritlal Hiralal. Admittedly Amritlal Dayabhai got a son, who was born on 13-12-1952. The initial amount of Rs. 20,824/- received by Amritlal Dayabhai in the partition in 1940, the amount added to it later on as well as the amount of Rs. 38,000/- credited on 21-12-1950 belonged solely to Amritlal Dayabhai till the son was born to him.
3. It appears that for the first time in S.Y. 2013 relevant for the assessment year 1958-59. Amritlal Dayabhai debited the account which stood in his name in the books of the firm and opened a separate account in the books of that firm to which Rs. 56,221/- were credited. The narration of that entry showed that the amount of Rs. 38,000/- received by Amritlal Dayabhai was a gift from his father which along with its interest amounted to Rs. 56,221/- and this new account was opened for the purpose of separating and separate the joint family from the individual funds of Amritlal Dayabhai. For that year viz., assessment year 1958-59 therefore Amritlal Dayabhai filed two returns, one on the status of H.U.F. of Amritlal Dayabhai and another in the status of individual Amritlal Dayabhai. The Income-tax Officer assessed the income from the property in the hands of Amritlal Dayabhai individually and the rest of the income in the name of H.U.F. in the hand if Amritlal Dayabhai. Amritlal Dayabhai preferred a appeal to the Appellate Assistant Commissioner against his individual assessment the question raised before the A.A.C. was whether the correct status of Amritlal Dayabhai was that of an individual or that of a H.U.F. and the question incidentally arose for decision whether the amounts of Rs. 38,000/- which received by Amritlal Dayabhai as a gift from his father in property of H.U.F. of the separate property of Amritlal Dayabhai. The A.A.C. held that the correct status of the assessee was H.U.F. and the entire was assessable in the hands of H.U.F. Before the Appellate Tribunal also on a similar question being raised the Tribunal took the view that even took the view that even assuming that the amount of Rs. 38,000/- was a separate property of the assessee and he had never any intention to waive his separate rights with regard to that amount it was clear from the account that the amount was spent by the assessee and nothing remained with which to open a new account in 1957 with the sum of Rs. 56,221/- as representing the sum of Rs. 38,000/- with interest. The Tribunal held that it was only if the sum had not been spent that a question could have arisen about the intention of the assessee not to throw it into the common stock.
4. It appears that an application was made by Amritlal Dayabhai under section 35 of the Act alleging that the finding of the Tribunal had been rendered under an impression that the amount of Rs. 38,000/- and odd was spent by the assessee and since that impression was wrong, the matter should be reconsidered. That application was also dismissed by the Tribunal.
5. In accordance with the aforesaid finding the income derived from the investment made by Amritlal Dayabhai in immovable properties and share out of withdrawals from the ancestral fund of Rs. 20,824/-, Rs. 38,000/- and interest and the income derived from the investment made out of the aforesaid amount of Rs. 38,000/- were all treated and considered by the I.T.O. as H.U.F. income and included in the assessment for the assessment year 1958-59, 1959-60, 1960-61 and 1961-62. The inclusion of the above incomes in the assessment of H.U.F. for the aforesaid assessment years was upheld on appeal by the A.A.C. Aggrieved by the orders of the A.A.C. the assessee filed second appeal before Appellate Tribunal and when the matter was heard the Tribunal felt that on the earlier occasion in the matter of assessment of Amritlal Dayabhai for the 1958-59 full and relevant facts did not appear to have been placed before. The Tribunal noted that to one had stated before the Tribunal on the former occassion that the withdrawals of Rs. 38,000/- was made by Amritlal Dayabhai in exercise of his rights of separate ownership and that he had invested the same in properties standing in his own name. The Tribunal further as a matter of fact that the amount of Rs. 38,000/- which was received by Amritlal Dayabhai from his father in 1950 was by way of gift constituted his separate property two kinds of property viz. H.U.F. property and separate property came into existence for the first time in February, 1952 only on the birth of a son to him and till then there could never have been any blending of the separate property and the H.U.F. property. The Tribunal observed that it was left with only one fact on the basis of which the decision of that appeal had rested and that was whether the omission of the assessee to separate the sum of Rs. 38,000/- and its interest from the joint family account and to open a separate account till 1957 could be considered as abandonment of his separate rights in the said property. The Tribunal held that such as intention of abandonment of separate rights in separate property could not be inferred from the mere fact that the separate owner failed to keep separate accounts of his separate property. It therefore held that Rs. 38,000/-, the interest that had accrued thereon and the properties acquired by investments constituted separate property of Amritlal Dayabhai and could not therefore be amount were not clear from the record, the Tribunal directed the I.T.O. to record evidence and to satisfy as to what were the Investments made by Amritlal Dayabhai out of his separate property and to delete those investment from those assessments of the H.U.F. On these facts at the instance of the Commissioner of Income-tax the question set out at the commencement of the judgment has been referred to us for our opinion.
5. It may be stated at the outset that the department wanted to raise one more question before the Tribunal for being referred to this Court, namely whether the finding of the Tribunal to the effect that the intention of the donor was that the amount of Rs. 38,000/- gifted to Amritlal was for his exclusive benefit was based on surmises and not supported by any evidence and was therefore perverse. These appears to be sufficient material on record from which the Tribunal had come to the conclusion that the amount of Rs. 38,000/- had been gifted to Amritlal Dayabhai by his father for his exclusive benefit and therefore the Tribunal refused to refer the aforesaid question to this Court. No notice of motion has been taken out by the department out by the department against the said refusal. It must, therefore, be taken for granted that the department has accepted the position as there is sufficient material on record on the basis of which the inference was rightly drawn by the Tribunal that the intention of the donor was that the amount of Rs. 38,000/- gift was for his exclusive benefit and as such constituted his separate property.
6. On the question referred, Mr. Joshi was fair to point out to us that the question could be said to have been concluded of this Court in the case of Commissioner of Income-tax, Bombay-City II vs . Gordhandas K. Vora, reported in : 96ITR50(Bom) , where this Court has taken the view that the mere fact the assessee had not kept separate account for his income from such two years of properties would not prove that he had blended his separate income with his income from the properties which belonged to H.U.F. of which he was the karta. In this case also as the Tribunal has pointed out there was only one circumstances on the basis of which such an inference could be drawn and the circumstances was that there was an omission on the part of Amritlal Dayabhai to separate the sum of Rs. 38,000/- and its interest from the joint family account and to open a separate account till 1957. In our view, the Tribunal has rightly held that such mere omission cannot be considered as abandonment of his separate rights in such property. Apart from this aspect of the matter, there is yet one more circumstance which strengthens the Tribunal's view. Admittedly it was for the first time for the assessment year 1958-59 that two separate returns were filed by Amritlal Dayabhai; one as H.U.F. entity and the other as individual, but for the earlier years after 1952 onwards, that is to say, after the son was born to him he had and he was assessed as such for those assessment years from 1953-54 onwards till 1957-58. This would go to show that he had in fact treated what was admittedly ancestral property as his individual property till the assessment years 1958-59; more so his separate property was treated by him as his individual property in those assessment years. His treating the ancestral property as individual property as individual property might have been wrong but his conduct clearly shows that so far as his sum of Rs. 38,000/- which he received from his father in 1950 and the interest accrued and the investment from out of the said sum and the interest thereon was all along treated by him as his individual property. Such conduct on his part, therefore, clearly goes to show that he had not abandoned his separate rights in the said gifted amount of Rs. 38,000/- and the interest that accrued thereon as well as subsequent investment made by him from out of such separate property.
7. In the result the question referred to us answered in the negative, in favour of the assessee.
8. Department will pay the cost of the reference to the assessee.