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Jagannathram Gangaram Vs. Commissioner, Income-tax, B. and O. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtOrissa High Court
Decided On
Case NumberSpecial Jurisdiction Case No. 15 of 1949
Judge
Reported inAIR1951Ori48; [1951]19ITR353(Orissa)
ActsIncome Tax Act, 1922 - Sections 66; Hindu Law
AppellantJagannathram Gangaram
RespondentCommissioner, Income-tax, B. and O.
Appellant AdvocateB.N. Mohanti and ;Monohar Lall, Advs.
Respondent AdvocateStanding Counsel
Cases ReferredSundar Singh v. Commissioner of Income
Excerpt:
.....makubur rahman, 1993 (2) glr 430 and new india assurance co. ltd. v smt rita devi, 1997(2) glt 406, approved. new india assurance co. ltd. v birendra mohan de, 1995 (2) gau lt 218 (db) and union of india v smt gita banik, 1996 (2) glt 246, are not good law]. - 2. this is a motion by an assessee, a hindu undivided family, invoking our jurisdiction to issue a writ requiring the appellate tribunal (income-tax) to state a case and to refer the same to the court in the event of our not being satisfied of the correctness of their decision in rejecting the assessee's appeal and in refusing to state a case to this court. for the reasons stated below, we are not satisfied with the decision of the tribunal as correct. it has been held over and over again on high judicial authorities that..........e(i) gangaram, (ii) ramanarayan, (iii) bhagawan, (iv) kanhialal and (v) surajmal constituted a joint family. the family owned extensive properties, both movables and immovables, inclusive of two business concerns in yarn and timber. indisputably the family continued joint till 9-11-1942, the date of commencement of the accounting period 1942-43 the period ends on 28-10-1948. before that date two of the aforesaid sons had died. of them late ramanarayan has left behind a widow and late bhagwan a son by name satyanarayan, a minor who is a member of the joint family. it is claimed by the assessee that on 9-11-1942, the members of the family under the leadership of jagannathram ascertained the shares of the family members, namely, jagannathram, his three sons and the son of a predeceased.....
Judgment:

Ray, C.J.

1. This case was heard on 22-3-1950 and its result was then communicated after close of the hearing. We reserved deliverance of our judgment incorporating the reasons.

2. This is a motion by an assessee, a Hindu undivided family, invoking our jurisdiction to issue a writ requiring the Appellate Tribunal (income-tax) to state a case and to refer the same to the Court in the event of our not being satisfied of the correctness of their decision in rejecting the assessee's appeal and in refusing to state a case to this Court. For the reasons stated below, we are not satisfied with the decision of the Tribunal as correct.

3. The facts that constitute the background In which the correctness of the Tribunal's decision has to be considered are that one Jagannathram and his five sons E(i) Gangaram, (ii) Ramanarayan, (iii) Bhagawan, (iv) Kanhialal and (v) Surajmal constituted a joint family. The family owned extensive properties, both movables and immovables, inclusive of two business concerns in Yarn and Timber. Indisputably the family continued joint till 9-11-1942, the date of commencement of the accounting period 1942-43 the period ends on 28-10-1948. Before that date two of the aforesaid sons had died. Of them late Ramanarayan has left behind a widow and late Bhagwan a son by name Satyanarayan, a minor who is a member of the joint family. It is claimed by the assessee that on 9-11-1942, the members of the family under the leadership of Jagannathram ascertained the shares of the family members, namely, Jagannathram, his three sons and the son of a predeceased son, to be l/5th each in the joint family assets. They separated the aforesaid two businesses of Yarn and Timber from the joint family and divided the same amongst five members allotting the timber, business to Jagannathram and Satyanarayan and the Yarn business to the shares of Gangaram, Kanhialal and Surajmal. The bone of contention is that since that date these two business concerns ceased to be joint family properties and became the separate properties of the members to whom they were allotted and held, inter se, 'in common tenancy' and distinct from 'in coparcenary'. In order to carry out the purpose of the said division, two deeds of partnership agreements were brought into being-one was executed and entered into between Gangaram, Kanhialal and Surajmal governing the Yarn business which had been taken out of the joint family assests and allotted to them as a part of their share in the joint family properties and the other was similarly executed and entered into as between Jaganathram and Satyaranayan covering Timber business. Each of the two documents with material variations as were appropriate in relation to the business which it was intended to govern contained a recital giving out the fact of partition of the joint family and formation of partnership firms. Foe the sake of perspicuity, the following quotation may be taken from one of said two documents :

'The aforesaid Jagannathram, Gangaram, Kanhialal, Surajamal and Satyanarayan minor through guardian Jagunnatharam on 8-11-42 mutually agreed and decided that their share in the entire joint family properties is equal i.e., 1/5th share each and in pursuance of the same they further decided to divide their joint family business in Twist and Timber in the same proportion and further decided that the Twist business with a capital of Rs. 105,000 will fall to the lot of Gangaram of the first party, Kanhialal, Surajmal of the second and third party, each being deemed to have contributed and contributing Rs. 35,000 as his share capital and which they will run in patnership to the exclusion of jagannath and Satyanarayan and similarly timber business with capital of Rs. 70,000 will fall to the lot of Jagannathram and Satyanarayan minor through guardian Jagannathram each being deemed to have contributed Rs. 35,000 as his share capital and which the latter two alone will run in partnership under the name of Jagannathram Satyanarayan to the exclusion of the former, namely, Gangaram, Kanhialal and Surajmal, and all the members further decided that their remaining properties, namely, their landed properties, buildings and all other movables and immovables will continue as joint as before under the name of Jagannathram Gangaram and with this clear understanding that they are separate be far their twist basinass is under the name of Kanhialal Surajmal and timber business under the name of Jagannathram Satyanarayan with the specification of shares and contribution of capital as enumerated above are concerned and they are joint as regards the remainder of the joint family property......'

4. On execution of the aforesaid two documents, the parties approached the Registrar of firm and secured certificate of registration in March 1914, This was followed by correspondence to the Commilla Bank and to a supplier of Yarn in the years 1944 and 1945 respectively stating that the two trades referred to therein were being run as partnership Firms as between the different groups of persons named in the partnership deeds.

5. In the assessment year, namely, 1944-45, three sets of returns were filed-one for Jagannathram Gangaram as representing the Hindu undivided family before the Income-tax Officer (Special Circle), Cuttack who had been vested with special power to deal with it by the commissioner, Income-tax, Bihar and Orissa, Patna, and the other two separate returns, one for Kanhialal Surajmal and another for Jagannathram Satyanarayan, in relation to the incomes of the timber and the twist business respectively before the Income-tax Officer, Cuttack, who had territorial jurisdiction over them. Side by side, the two partnership Firms filed applications before the said Income-tax officer Cuttack, for registration of their Firms for the purpose of this Act under Section 26A, Income-tax Act, 1922. The Income-tax officer Cuttack, it is stated, instead of making an assessment order or registering the firms Under Section 26A, sent the case records to the Income-tax Officer (Special Circle) who had S9isin of the assessment of the Hindu undivided family income. The Income-tax Officer (Special Circle) treated the incomes of the aforesaid two business concerns as part of the Hindu undivided family incomes and made an order of assessment on the consolidated income of Rs. 96,918 in place of Rs. 579 returned by the Hindu undivided family as such. The firms of Kanhialal Surajmal and Jagannathram Satyanarayan fruitlessly appealed to the Appellate Assistant Commissioner in the matter of Schedule 6A. The Appellate Asst. Commissioner observed that he had no such case before him. Thereupon they appealed to the Appellate Tribunal. The said Tribunal, by its order dated, camp-Puri, 27-3-947 observed:

'No orders seem to have been passed by the I. T. O., Cuttack, to whom applications for registrations have been filed. Objection was also raised by the Hindu Undivided family Firm before the I. T. O. (Special Circle) that the income from these two partnerships should not be included in the income of the Hindu Undivided family. The Special I. T. 0. has stated that there was no proceeding for registration of a partnership before him and, therefore, no application under Schedule 6A can be entertained by him. Against that order as confirmed by the Appellate Asst. Commissioner, the present appeals have been filed before the Tribunal. .... The appeal against the decision of the Special I. T. 0. of the Hindu Undivided family Firm is pending before the Tribunal.....We have no doubt that after the appeal of the Hindu Undivided family Firm is disposed of by the Tribunal, the I. T. 0. Cuttack before whom the returns and the applications for registration of the appellant's firms were filed will deal with them in accordance with law. The two appeal are rejected.'

The result is that the matter of assessment of the Firms will be governed by the decision of the Tribunal against which the present partition is directed.

6. The Appellate Tribunal, agreeing with the orders of the Income-tax Officer (Special Circle) and the Appellate Asst. Commissioner, observed:

After considering the several matters brought before us and having heard both the parties to the appeal, we cannot but hold that the timber and yarn business continued to be in the ownership of the Hindu Undivided family of Jagannathram Gangram during the relevant accounting period commencing on 9-11-1942 and ending on 29-10-48.'

7. The assesses moved the Tribunal to state case under Sub-section (1) of Schedule 6 of the Act. The reply of the Tribunal was:

'The evidence adduced by the assessee in support of its contention was examined and after considering in para. 7 of its order the salient features of that evidence, the Tribunal came to the conclusion that the timber and yarn businesses continued to be in the ownership of the Hindu Undivided family of Jagannathram Gangram during the relevant aocounting period. That finding, based as it is on the evidence placed before it, is a finding of fact. No question of law arises out of the said finding and this application is dismissed.'

8. It is urged before us by the learned counsel for the assessee that the finding of fact as recovered by the learned Tribunal is not based on sufficient evidence. Facts, as such, are divisible into 'facts physical' and 'facts legal'. A physical fact is one that is capable of perception by the senses. Those facts either do occur as incidence or do arise as result equally tangible in all respects in the chain of cause and effect; but inferences deducible in law which go to establish a circumstance which either amounts to a status or gives rise to a status in relation to rights and obligations are legal facts. Some times several inferences do, as their combined effect, create a legal fact. Declaration of intention to separate with ascertainment of shares by the members of a coparcenary creates disruption of a Hindu joint family. Here, the fact of declaration is a physical fact, so is the ascertainment of shares to be held in separate tenancy in pursuance of that declaration. But disruption of the joint family which create severence of the joint family which creates severence of the joint status into individual is the legal fact. Where the Court pronounces a finding of legal fact, it is more often than not a question of law to adjudge whether the materials are sufficient in in law to the establishment of the legal fact.

9. The learned Tribunal refer to para. 7 of their order disposing of the appeal as containing the salient features of the evidence adduced by the assessee. The paragraph, therefore, needs examination. It is there that, if at all, the materials sufficient in law to make out the legal fact expressed, as found, have to be searched for. The documents of partnership of the two businesses of yarn and timber are rejected along with the certificate of registration with the Registrar of Firms on the ground that they were made on 25-1-1944 and June 1944 respectively. It is held that they being subsequent to the accounting period afford no evidence of the severence of the two businesses from the assets of the joint family property. This conclusion is arrived at even though the recitals in the document contradict such a conclusion. The partnership agreements themselves predicate that the division of the joint family assets, so far as the two businesses form an integral part of them, had taken place from 9-11-1943. The Tribunal observe :

'The clauses in the partnership agreements that the partnership businesses shall be deemed to have commenced on and from Kartik Sudi-Samvat 1999.2000, corresponding to 9-11-1942 have no meaning. This may have been mentioned despite the tact that the decision to take these businesses out of the family fold, was arrived at a much later date.' In the same strain the learned Tribunal say: 'Even the division of profits between the partners in the books of the two different businesses for the accounting year ended 29-10-1943 might have been done long after, i.e., after the partnership agreements were executed.'

10. The questions that can be addressed to are if the legal fact that the status of the joint family was not disrupted is supported by the physical fact, that the deeds of agreements recited the, physical fact of division having taken place on 9-11-1942, and the profits, acquired in the businesses since that dale up to 29-10-1943, were divided as between the partners and not carried into the joint family assets. The answer cannot but be in the negative, It has to be borne in mind that in the Head Office books relating to joint family concerns, the real division of capital of these two businesses, as between the five members of the family, each getting Rs. 35,000 was made on 9-11-42. It should also be borne in mind that partial partition of joint family assets by verbal agreements followed by necessary changes in the account-books of the family is permissible in law. Earlier in their judgment in para. 5, the Tribunal have observed :

'But mere entries in the books of account cannot alone be considered to be sufficient for the purpose 0f establishing transfer of a business from one ownership to another. There seems to be no agreement in writing for recording the arrangement to take out these two businesses from the family fold, and turn them into two separate partnerships.'

This observation is undisputably based upon misconception of law. It has been held over and over again on high judicial authorities that division of businesses can best be achieved by necessary changes in the books of account. This also is in accord with commonsense. [11] Secondly, the Tribunal observe in para 7 :

'In addition to that, one of the books, viz., Malha. coolly account book, written up in 1943 showed the name of Jagannathram Gangaram despite the fact that the timber business had changes its name and belonged, as Claimed by the appellants, to the firm of Jagannathram Satyanarayan.'

This fact has not been considered in its context. The Tribunal has not examined the nature and contents of these books. They may, consistently with the assessee's theory, contain in the name of Jagannathram Gangaram if the entries there in present either the previous advances from or arrears due to Jagannathram Gangaram which were carried over to the year 1943. Besides, to demonstrate the uncertainty involved in such summary consideration, I shall quote from para. 13 of the Appellate Assistant Commissioner's judgment in Income-tax Appeal no. 80 of 1946- 47 of the year of assessment 1945-46 and of the assessee Messrs. Jagannathram Gangaram, Cuttack, wherein he says:

'Under the heading 'Non-production of books' the I. T. O. has also discussed 'the few pages of rough Rokar and the few pages of Hatachitha 'which were discovered during a surprise visit on 30-11-1944, I have examined these books, so-called rough Rokar which consists of a few stitched papers in which there are stray jottings. It is alleged that they were found, by the I. T. 0. on the top of the Almirah and they did not belong to the assessee. The figures reproduced by the I. T. 0. were practically the only figures noted therein and these related to the prior accounting year. This does not prove the existence of any regular rough Rokar for the previous year. The Hatachitha is similarly an obscure book-let consisting of entries in 21/2 pages from 1-6-1944 to 7-9-1944. There are stray jottings regarding sale of timber amounting to PBS. 575-30 and grains As. 12-140. During this period the two timber accounts of the assessee produced before the I.T.O. showed a sale of Rs. 5088. The identity of the Chitha is of doubtful nature, and as noted in para. 4 above the I. T. 0. in summing up his reasons for Schedule 3 (4) assessment has not laid any stress on these two booklets containing few pages.'

12. The Appellate Tribunal seems to think that the assessee on whom did He the onus did not adduce sufficient evidence to establish his case. To sum up, the assessee has produced books of account containing severance of the concerned businesses from the joint family assets, the distribution of allotment of those businesses to several members or group of members, the documents sufficiently proclaimed to the world by their registration of creation of partnership firms, and the separate bank accounts and business transactions with the customers on the footing that they are separate partnership firms businesses as distinguished from joint family businesses. It was up to the Tribunal to consider the cumulative effect of these as to their sufficiency to establish the aasessee's version. To counterbalance the above, it has not been shown that either the incomes derived from these businesses or the expenses incurred in them are shared in by all the members of the joint family as part of their joint family business. As regards interpolation of the transaction of division of capital in the Nakal (of yarn shop) within 6' of space, the Tribunal observe:

'The Appellate Assistant Commissioner has not come to any finding on this point in his appellate order dated 28-8-46.'

Nor have they arrived at any finding of their own as to the suspicious feature of the writing. The Head Office books are the only relevant books in which the division of capital as such is to be duly entered into. No exception has been taken by any of the authorities concerned about them.

13. The Appellate Tribunal had not dispelled in their judgment, the doubt created by the I. T. 0. on the effectiveness of the partnership agreements executed on 25-1-14 on the ground that there could be no division of the joint family assets without all the file male members of family being signatories either as executants or otherwise thereto. This objection overlooks that the recitals in both the documents are identically the same and in them there is a clear acknowledgment by two members of the family in one document and three in the other that there has been such a division. Besides in those recitals, the members of the timber business group disclaim any interest in the yarn business and the members of the yarn business group disclaim any interest in the timber business. These documents have, therefore, the necessary substance though not the form of being documents establishing complete division having taken place with the concurrence of all the members of the family in respect of the two businesses since 9-11-42.

14. My conclusion, therefore, is that the finding of the legal fact recorded by the Appellate Tribunal, in order to be binding and conclusive as a finding of fact, must be based upon sufficient evidence. The legal fact must flow, conclusively from the physical facts, if not established. On the high authority of Sir George Rankin, in the case of Sundar Singh v. Commissioner of Income-tax, c. P. & U. P., (1942) 10 I. T. R., 467 : (A. I. R. (29) 1942 P. C. 67), it has been said :

'To decide that an Instrument is in this sense not genuine is to come to a finding of fact. Whether there was evidence upon which it was open to the Income-tax Authority to come to such a decision is a question of law.'

15. In the circumstances, stated above, we should issue a writ of mandamus to the Income tax Appellate Tribunal, Madras Branch, to state a case as to whether there was sufficient evidence in the case to hold that the timber and yarn businesses were not severed from the joint family assets.

Panigrahi, J.

16. I agree.


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