This case has been stated by the Income-tax Appellate Tribunal directed by this Court. The relevant facts are as fallows. The assessee, a Hindu undivided family, carries on buiness on cotton and adat at Khamgaon under the name and style of Jayanarayan Nandlal. The adult members of that family are Nandlal, his brother Madanlal and his deceased brother Jayanarayan. Madanlal is the present karta of the family. Nandlal has also a separate business as an insurance agent.
The assessment year to which the matter before us relates is 1946-47, the relevant accounting year being S. Y. 2001. For this assessment year the assessee returned an income of Rs. 9,166. In the course of the examination of the accounts of the assessee the Income-tax Officer noticed that two transaction, each of 200 bales of jarila cotton, for future delivery were shown in the account books of the family as having been entered into by Nandlal and Madanlal respectively through the Khamgaon branch of the Bombay firm of Bhaidas Karsondas. Similar transaction of behalf of the family are effected through this very firm.
3. The transaction entered into in the name of Nandlal resulted in a profit of Rs. 6,483 and he has shown this in his personal return. The transaction in the name of Madanlal resulted in a profits of Rs. 5,870 which was credited in the family books to the account of one Venilal, an employee of Bhaidas Karsondas, and Venilal has down this amount in his personal return. The reason why the transaction for Venilal was entered into in the name of Madanlal is stated by the assessee to be the unwillingness on the part of Venilal to disclose his speculative activities to his employers.
4. The Income-tax Officer treated the profits earned in the two transaction as those belonging to the assessee family. The grounds on which he did so are stated thus in the statement of the case submittred by the tribunal : "(i) the transaction were entered into be these two persons, without making any deposits with the Bombay adatia, on the credit of the family which had business connections with the Bombay firm, and (ii) Venilal was not paid his profits till 1946, i.e. long after the close the relevant accounting year." 5. Against the assessment made by the Income-tax Officer, the assessee went up in appeal before the Appellate Assistant Commissioner, who held that no evidence was laid before the Income-tax Officer to show that these two transaction were entered into by Nandlal and Madanlal in their individual capacity and not indirectly on behalf of the Hindu undivided family, and dismissed the appeal. His order was upheld by the Appellate Tribunal. The findings of the Appellate Tribunal are summarize by it as follows in paragraph 5 of the statement of the case : "In the opinion of the Tribunal, the assessee had not proved satisfactory evidence that the transaction effected were separate and personal transaction of Nandlal and Venilal and the profits therefrom belonged to them. The tribunal held that, having regard to the nature of the transaction and the circumstances in which they were effected, it appeared that they were effected by the family but were indirectly shown to the those of Nandlal and Madanlal." 6. As a result of the Income-tax Officer treating the above two items of profits as the income of the assessee family, a penalty of Rs. 4,375 was levied on the assessee. The grounds for imposing the penalty are stated thus by the Income-tax Officer in his order dated 26th November, 1947 : "The plea of the assessee that a similar profit earned by Nandlal was separately taxed last year is no reason for not coming to a different and right conclusion. The other plea of Venilal having done the business is also not substantiated. In the circumstances the assessee tried to show his income less by the above amounts and thus wanted to escape with a lighter tax." 7. The appeals preferred by the assessee, first to the Income-tax Appellate Assistant Commissioner and then to the Appellate Tribunal were dismissed. The reason given by the latter for dismissing the appeal are stated by it as fallows : "We do not think that the reason adduced by the assessee for the non-application of the penalty can be accepted. Whether there are sufficient grounds for holding that the assessee had deliberately furnished inaccurate particulars of his income must be considered having regard to the whole circumstances of the case. It is immaterial in this case that the income was returned by the two individuals in their individuals returns. That was perhaps a further indirect attempt to reduce the liability of the Hindu undivided family to tax. The facts considered by us in relation to this income have been fully set out in our order referred to above. In our view, the circumstances show that it was a deliberate attempt to show the assessees income less by the abovementioned amount and thus reduce its liability to tax. Taking the circumstances as a whole, we think that there is ample material on which the Income-tax authorities are justified in holding that the assessee deliberately furnished inaccurate particulars of its income.
We see no justification for reducing the amount of the penalty. The order under section 21 (1) (c) must be upheld." 8. The assessee applied to the Appellate Tribunal for referring the case to this Court. As it failed to do so, it made an application to the Court under section 66 of the Income-tax Act. After hearing the Department, this Court required the Appellate Tribunal to state the case and refer the fallowing two questions : "Whether there was any legal evidence to hold that the profits of Rs. 6,484 and Rs. 5,970 were earned by the assessee family and not be Nandlal and Venilal respectively Whether in the Circumstances of the case, there was evidence to hold that there has been concealment and deliberate furnishing of inaccurate particulars of income within the meaning of section 28 (1) (c) of the Indian Income-tax Act ?" 9. What is first to be sen is whether the statement of the case disclosed any legal evidence for holding that the two items of profits were earned by the assessee family or not. No evidence whatever is referred to by the Tribunal in the statement of the case support of its conclusion.
However, it has given its reason, which we have already quoted in paragraph 5 above. The first reason given by the Tribunal that the assessee had not proved by satisfactory evidence that the transaction effected were separate and personal transaction of Nandlal and Venilal is unsounded in law. There is no presumption that a business carried on by a member of a joint Hindu family is a joint family business, nor is there any presumption that a business started even by a karta is joint family business : see Jitumal Chamanlal v. Commissioner of Income-tax, Sardar Singar Singh & Sons v. Commissioner of Income-tax. It is for those who allege that it is so, to prove it. This is the substance of the decision of their Lordships of the privy counsel in Annamalai Chetty v. Subramanian Chetty and Others. In that case a member of a joint undivided family hand been engaged activity in money-lending business and the question which arose for consideration was whether the property acquired by him from his earning could be held as joint family property. Their lordships, answering the question in the negative, observed : "A member of a joint undivided family can make separate acquisition of property for his own benefit, and unless it can be shown that the buiness grew from joint family property, or that the earning were blended with joint family estate, they remain free and separate.
See also Sir Padampat Singhania v. commissioner of Income-tax. In Kalaynji Vithaldas v. Commissioner of Income-tax, their Lordships held that an income from separate and self-acquired property of Hindu which has not been thrown into the common stock is assessable as the income of the individual and not as the income of a Hindu undivided family. It has also been held in Murugappa Chetty & Sons v. Commissioner of Income-tax, Murugappa Chettiar v. Commissioner of Income-tax, Hanumanthappa & Sons v. Commissioner of Income-tax, In re Haridas Purushottam, and Kaniram Hazarimull v. Commissioner of Income-tax, that the commission earned under a managing agency agreement by a karta or other coparcener would prima facie be his individual income, unless it is shown that the right had been acquired with the aid of joint family property. In Sirdar Indra Singh v. Commissioner of Income-tax, and in Singhanias case it was held that the members of a trading joint family may carry on business on their personal account, in which event the profits would be their individual income and not the income of the joint family. In Commissioner of Income-tax v. Thaver Bros. and Commissioner of Income-tax v. Doraiswami Ayyangar, it was held that this would be so, although the members might have borrowed the requisite capital out of the joint family funds. Such being the legal position, the burden is not on the assessee family to show that the earning made by some of its members did not belong to the family. It is for the Department which wants to treat those earning as those of the family to establish that they are not the earnings of the individuals members of the family.
10. It is however argued that since the joint family admittedly owned considerable property, the onus would lie on the person asserting that the property claimed by him as his self-acquired property was acquired by him independently and not with the aid of the funds of the joint family. In support of this contention reliance is placed on Sher Muhammad Khan v. Ramratan, and Raghbir Singh v. Ram Rathan.
11. In the first mentioned case, Stone, C.J., who delivered the judgment of the court observed : "A business, a house, and a site being shown here to have belonged to the family, in my opinion, the burden shifted to the plaintiff to show how he came by self-acquisitions or moneys of his own out of which he was able to acquire the suit houses. Of course, had he established that the sites were acquired and the houses built out of his own self-acquisitions, the resulting acquisitions would have been self-acquisitions." It may be mentioned that in that case the person who claimed the property to be his self-acquired property was not shown to have fort any property from any other sources than his maternal grandfather and his own exertions. It was accepted in that case that had it been shown that the nucleus was so small that it could not have been the means leading to the acquisition of other property, the inference would be that the acquisition was made apart from the ancestral nucleus and was the self-acquired property of the person claiming it. In the present case if is an accepted fact that no family property was at all used for earning the profits in question. On the other hand, it is suggested that the firm Bhaidas Karsondas with whom the transaction were entered into did not insist in any deposit being made by Madanlal and Nandlal.
12. It may be, as suggested in arguments, that this firm waived the requirement of deposits because it new that the undivided family of which Madanlal and Nandlal are members possessed substantial property.
From the mere circumstance that the firm regarded this fact as sufficient it does not follow that any part of the family property or indeed even the credit of the family was used for acquiring the profits.
Unquestionably, Madanlal and Nandlal have undivided shares to the extent of 1/3rd each in the family property. The shares of each was probably an ample security for his transaction and unless something more is known the firm must be deemed to have had regard to the share only of each of these persons.
13. In the other case relied upon, the family firm had dealings in shares. It was asserted by one of the members that 180 shares in a Delhi company belonged to Sultan Singh, a deceased member of the family, individually. Dealing with the matter Lord Macmillan, who delivered the judgment of the Board, observed : "The family firm admittedly had dealings in the companys shares and in the absence of evidence to the contrary there is no adequate reason for attributing 680 shares to the family and 180 to Sultan Singh individually." Their Lordships agreed with the Subordinate Judge that the respondents had failed to discharge the onus upon them of proving that any of the 860 shares in the Delhi company were the separate property of Sultan Singh. In the course of the judgment Lord Macmillan obversed : "The only transaction in shares of the Delhi company of which there is any evidence, namely, those recorded in the entires produced are transaction of the family and there is no evidence that Sultan Singh ever acquired any shares for himself. It is true that there is nothing to show how the holding came to be 860 shares at a Sultan Singhs death.
There may well have been other transaction with the family funds in the companys shares which would have been shown in the companys share and transfer registers had they been searched." It will thus be seen that the real ground for raising the inference that the disputed shares also belonged to the family was the possibility of the family funds being used acquiring them. This possibility was regarded by their Lordships as a good enough ground as there was no evidence to show that Sultan Singh had ever acquired these shares for himself.
14. In the instant case, as already pointed out, the family funds have admitted not been used at all and there is nothing to indicate that the family credit (apart from the credit of an individual member of the family) was at all used. Further, there are the definite statements of the two members to the effect that the family and that one was of Nandlal and the other of Venilal. There was thus no scope here to raise an inference of the kind raised in the case before their Lordships. It may be mentioned that this case also lays down that there is no presumption that a new business carried on by a members of joint family is a joint family business. This case and Annamalais case have been followed by a Division bench of this Court in Jagmohan v. Ranchhoddas.
15. We may point out that when this court ordered the Tribunal to state the case it observed that it could not find any evidence to show that the transaction were those of the joint family. It was therefore all the more necessary for the Tribunal to point out specifically the evidence on the point. It did not so but remained content to point out the two circumstances referred to above. It would, therefore, be legitimate to infer that it found no evidence to substantiate or support the finding. The Tribunal was content to say that the nature of the transactions and the circumstances in which they were effected lead to the inference that they were effected by the family and not be Nandlal and Madanlal. The mere fact that the transaction entered into by Nandlal and Madanlal were of the same nature as those entered into by the family is not susceptible of the inference drawn by the Tribunal. Apart from similarly in the transaction there ought to be something more to suggest that they were in any way connected with the family.
16. Shri Hajarnavis, appearing for the Department, says that there is such evidence and refers to the following : (i) The contracts were in the names of two individual members of the family.
(ii) One of the contracts, which is in Madanlals name, is entered in the family account books.
17. The fact that the transaction were entered into by two of the members of the family does not, as already shown, even raise a presumption that they were entered into on behalf of the family. The fact that the one in Madanlals name was entered in the family account books does not helps the Department inasmuch as there is an entry in the very same books of Rs. 100, debited top Venilal as the commission due to the family for putting through the transaction. No doubt, this does show that Madanlal, in putting it through, acted for the family but then he purported to constitute the family only as an agent Venilal. The advantages earned for the family in the shape of the commission was duly included in the return of its profits or income for the year of assessment. That part, this fact is not relied upon by the Tribunal in its statement of the case. It follows from the decision of the Supreme Court in Sohan Pathak & Sons v. Commissioner of Income-tax, that the High Court in dealing with a reference under section 66 of the Income-tax Act must confine itself to the facts stated in the statement submitted by the Tribunal and cannot travel beyond it.
18. The possession by the family of a share in the firm Bhaidas Karsondas has hardly any relevance to the matter under consideration.
It cannot, by any stretch of reasoning, lead to the conclusion that the transaction were family transaction in the sense that the profits earned from then became those of the family.
19. As already pointed out, there is no materials to show that the members utilized the credit of the family - as apart from their individual credit - with the firm Bhaidas Karsondas for putting through the transactions and that it cannot be presumed that the credit of the family was used. Indeed, the transaction being of a speculative kind, prima facie, the family would not be bound by them and it had to be established by the Department that the family adopted these transactions its own. Even assuming that the family used to enter into similar transactions, the position is not altered. The business represented by the transaction in question would only be similar to that carried on by the family and not the same buiness.
20. As regards the circumstances that Venilal was not paid his profits till 1946, we have already pointed out that it is also not conclusive.
We should add, where a particular amount if found to be credited in the account books to a stranger, the burden is on the Department to show that is does not belong to him : Radhakrishna Behari Lal v.Commissioner of Income-tax, Bihar and Orissa. This burden is not discharged by mere proof of the circumstances that it was paid to the stranger late.
21. We are of opinion that with regard to both the transaction the Tribunal has based itself on conjectures. Conjectures are not inferences and cannot take the place of evidence. In this connection we may refer to the recent decision of the Supreme Court in Mehta Parikh & Co. v. Commissioner of Income-tax.
22. We are therefore of opinion that the first question referred to us must be answered in the negative. In view of the negative answer given to the first question, the answer to the second question must also be in the negative.
23. Costs of the application shall be borne by the non-applicant.
Counsels fees Rs. 150.