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 to Hindu undivided family ?
The facts are that one Pooran Chand had died in 1961, leaving two sons, Pearey Lal and Sagar Mal. Pearey Lal had two sons, Chiranji Lal and Mohan Lal. Sagar Mal had no male issue and the aforesaid Mohan Lal was adopted by him. The family of Pearey Lal-Sagar Mal owned business carried in the name and style of Pooran Chand & Sons and it also had house properties.
Sagar Mal relinquished his interest in the family on March 27, 1944. On the 31st March, 1944, there was a partial partition between Chiranji Lal, now representing one branch of the family, and Mohan Lal, the other branch of Sagar Mal. The house properties were divided into three lots. Lot 'A' went to Chiranji Lal and his three sons, Rameshwar Prasad, Om Prakash and Chandra Prakash (minor). Lot 'B' fell to the share of Mohan Lal and his five sons, and the property comprised in lot 'C' remained joint till the 25th of August, 1947. The aforesaid business of the family was partitioned by division of capital in the books of the firm. The capital which fell to the share of Chiranji Lal was further divided amongst himself and his two adult sons, Rameshwar Prasad and Om Prakash in the ratio of 2 : 1 : 1. On the 1st of April, 1944, an instrument of partnership was executed in respect of the newly constituted firm of Messrs. Pooran Chand & Sons and the share of each of the four partners therein were specified as Mohan Lal 1/2, Chiranji Lal 1/4, Rameshwar Prasad 1/8th and Om Prakash 1/8th.
For the assessment year 1945-46, the Income-tax Officer registered the firm under section 26A of the Act, accepting the partial partition of the erstwhile family business. The registration of the firm was given effect to by allocation of the income of the firm and assessment in the hands of each of its partners under section 23(5)(a) of the Act. The same position prevalied in the subsequent two assessment years 1946-47 and 1947-48.
In respect of the assessment year 1948-49, Chiranji Lal, as hitherto, filed a return in his status of an individual and included therein his 1/4th share income which he had received as a partner from the said firm. He did not however included any income from immovable property on the ground that the said portion of the immovable property which had fallen to the share of his branch of the family on partition did not belong to him 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, his status as an individual, the income from the business holding it to be joint family income. In other words in the return filed by him as an individual showing his 1/4th share income from the business, the Income-tax Officer added income from property also. Chiranji Lal filed three appeals to the Appellate Assistant Commissioner against these assessment made upon him in the status of an individual. The appeals were unsuccessful and the further appeals to the Appellate Tribunal suffered the same fate, except that the Tribunal considered that the status in which the assessment was made upon Chiranji Lal was wrongly taken as 'individual', whereas logically it should have been in the status of 'Hindu undivided family'. The Tribunal having now directed the status to be altered from that of an 'individual' to 'Hindu undivided family', whereas the assessments were made in the status of an 'individual' and the appeals were also filed in that status, the assessee was placed in a quandary and therefore he filed six references applications under section 66(1) in respect of the three relevant assessment years, three in the status of an 'individual' and three as 'Hindu undivided family'. These were unsuccessful. Thereafter, applications under section 66(2) were moved and allowed and that is how this consolidated reference is before us.
The main question which arises for consideration is the first one, whether there was any material for the Tribunals finding that the income from business from the said firm was the income of the smaller Hindu undivided family of Chiranji Lal of which he was the karta The order of the Tribunal mentions no material, worth the name, for coming to the conclusion that income from business be treated as the income of the case as the reason for adopting the status of 'Hindu undivided family' in respect of the business income is 'that the business fell to the share of Mohan Lal and Chiranji Lal on partition and the business commenced with the family nucleus.' Manifestly, this is not material but only the ipsi Dixit of the Tribunal. When we turn to the order of the Tribunal the position is no better. The Tribunal does not advert to any material at all but merely lays down its conclusion in these words :
'... this finding means that Mohan Lals half share in the profits of the firm really belongs to the joint family consisting of Mohan Lal and his undivided male issue and similarly Chiranji Lals 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 fictitions 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 divided in the books of the business between him and his two adult sons in specified shares. The partial partition of the business was thus complete. Further, when the erstwhile family business was converted into a duly constituted partnership business is provided by the Hindu undivided family. When the individual share of each partner is known and the capital of the family shown in their books of the business is split up into specified shares, it is not possible for the department to turn found and say that the nucleus is that of the family. In such circumstances it would be a contradiction in terms to say that the nucleus for the new partnership business came from family funds. The revenue having accepted partial partition of the business, the logical result was to accept that the income therefrom is the income of the individual partners. The finding that there was a partial partion not having been challenged, it was not open to the Tribunal to go behind the partial partition and the deed of partnership duly registered under section 26A, and to assume without any material that the shares as specified in the deed did not belong to the persons specified in the deed or that the nucleus of the new partnership business had come from family funds. If the view of the Tribunal was pushed to its logical conclusion, it would lead to the startling result that in every case, notwithstanding a genuine partial partition of the family business, the share income of the individual partners would always be includible in the assessment of the family, as, loosely speaking, it could always be said that the nucleus for the business and ultimately come from family funds. That, however, is not what is meant by utilisation of family nucleus. At the time when the funds and not that some time in the past they had borne that stamp. Once a partial partition is accepted as being genuine and not a colourable or sham transaction, the share of capital of each such coparcener thereafter ceases to be joint family asset and becomes his individual asset de hors the family, and thereafter it 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 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 approve 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 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 Income-tax and Sunder Singh Majithia v. Commissioner of Income-tax. Mulla in his Hindu Law, 12th edition, paragraph 328, page 503, has summarised the positioned thus :
'328. Partial partition. - (1) A partition between coparceners may be partial either in respect of the property or in respect of the person making it and it is open to the members of the joint family to make a division and severance of interest in respect of a part of the joint estate while retaining the status as a joint family and holding the rest as the properties of a joint and undivided family'.
It is unnecessary to labour this point as the Tribunal, as already observed, has not challenged the factum of the partial partition. Our answer to question No. 1 therefore will be in negative and against the department, that there was no material to justify the view taken by the Tribunal that the income from business could be treated as the income of the Hindu undivided family of which Chiranji Lal was the karta.
The second question referred would appear to assume that the share income of Chiranji Lal, Rameshwar Prasad and Om Prakash from the said firm was assessee jointly in the hands of Chiranji Lal as the karta of his smaller Hindu undivided family. There is no clear indication in the statement of the case as to whether the Income-tax Officer under section 34 of the Act had only included in the individual assessment of Chiranji Lal his 1/4th share or the share of his adult sons, Rameshwar Prasad and Om Prakash, as well. It is however wholly unnecessary to resolve this difficulty in these proceedings in view of our answer to question No. 1, that there was no material at all for including the income from business in the hands of the Hindu undivided family. Therefore, whether it was the income of Chiranji Lal himself or of Chiranji Lal and his minor son and his other two adult sons who constituted the partnership of that firm, the position will remain the same, for, if the family nucleus was not utilised, but only what fell to their share upon partial partition, then the share income resulting therefrom could not possibly be included in the joint family assessment without first giving a finding that the partial partition set up was colourable or sham transaction or that after the income was earned it was inextricably blended with the negative and against the department.
The only other question which was pressed was question No. 5 which pertains to the jurisdiction of the Tribunal to alter the status of the assessee from 'individual' to 'Hindu undivided family'. Section 33(4) of the Act gives the Tribunal very wide powers to 'pass such orders as it think fit'. The Tribunal certainly had the necessary jurisdiction to do this provided there is material on the record to 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 is 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 the assessee a right to file three reference applications in the status of an 'individual' and three more in the status of a karta of the Hindu undivided family. There is no force in this contention. The Tribunal itself in the statement of the case under section 66(2) has correctly described the three additional applications for reference as having been filed by way of 'abundant caution'. The difficulty in which the assessee found himself as a result of the order of the Tribunal was not one of his own making and therefore, if in order to be on the safe side, he filed additional applications for reference and the Tribunal not only entertained but consolidated them for the sake of convenience, we can see nothing illegal, m inherently wrong or irregular in this course. It cannot be that the petitioner is neither an 'individual' nor a 'Hindu undivided family' and as such not entitled to any relief. He certainly had a grievance as a result of the order passed by the Tribunal and at least three of the references were consolidated and the answers given to the questions referred will have to be given effect to in the assessments made and therefore the technical objection taken by the department is of no substance.
Accordingly, the questions are answered as stated hereinabove. Counsels fee is assessed at Rs. 200. In the circumstances of the of the case, there will be no order as to costs of this reference.