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Tolaram Jalan Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Kolkata
Decided On
Judge
Reported in(1983)6ITD261(Kol.)
AppellantTolaram Jalan
Respondentincome-tax Officer
Excerpt:
1. through this appeal the assessees challenges the initiation of proceedings for reassessment under clause (a) of section 147 of the income-tax act, 1961 ('the act') in respect of the assessment year 1973-74. the addition of rs. 3,70,000 made to the assessee's total income is also assailed on merits. the facts bearing on the controversy may be first noted.2. the assessee, in the present case was one shri m.l. jalan who has since expired. these proceedings are being now prosecuted by his legal heirs shri tolaram jalan and others. shri m.l. jalan, while he was alive had given guarantee to the state bank of india in respect of the various loans and cash credit facilities which the said bank had given to india jute co. ltd. from the letter of the state bank of india, dated 19-11-1975 , it.....
Judgment:
1. Through this appeal the assessees challenges the initiation of proceedings for reassessment under clause (a) of section 147 of the Income-tax Act, 1961 ('the Act') in respect of the assessment year 1973-74. The addition of Rs. 3,70,000 made to the assessee's total income is also assailed on merits. The facts bearing on the controversy may be first noted.

2. The assessee, in the present case was one Shri M.L. Jalan who has since expired. These proceedings are being now prosecuted by his legal heirs Shri Tolaram Jalan and others. Shri M.L. Jalan, while he was alive had given guarantee to the State Bank of India in respect of the various loans and cash credit facilities which the said bank had given to India Jute Co. Ltd. From the letter of the State Bank of India, dated 19-11-1975 , it appears that the said guarantee was given by Shri M.L. Jalan initially in the year 1956 'presumably because he was then a member of the board of directors of the above-named company'. Shri M.L.

Jalan did not charge anything for standing guarantee from India Jute Co. Ltd., up to 31-3-1969. It appears that some time nearabout June 1970, Shri M.L. Jalan wrote to India Jute Co. Ltd. expressing his desire to get released from the liability of the guarantor to the State Bank of India on behalf of the said company. On 15-6-1970 the said company wrote to the assessee as follows : As desired by you, we requested the State Bank of India to release the guarantee provided by you for our company's cash credit account and instead accept the guarantee of Shri T.R. Jalan, a director of our company, but we have been given to understand that while accepting the guarantee from you, they have considered the worth of the whole of your family and as such they want that you as the head of family should provide the required guarantee.

We shall, however, again take up the matter with the bank and would try to get your guarantee released but in the meantime we request you to please continue to provide the guarantee on our account to the State Bank of India.

3. On receipt of the aforesaid letter, it appears that the said Shri M.L. Jalan told the company that he might be willing to provide his guarantee to the company provided it paid him something to standing guarantee. Accordingly, the company passed a resolution being Resolution No. 141 in the meeting of the board of directors on 13-7-1970 to the following effect : Mr. M.L. Jalan is one of the guarantors to the State Bank of India for the company's cash credit account and additionally is from time to time called upon to furnish counter guarantees in favour of bank.

Mr. M.L. Jalan has not been remunerated for such services in the past but he now asks that in accordance with usual commerce practice he be paid a commission on all guarantees effected or to be effected by him calculated upon the maximum amount guaranteed in any financial year. The matter was discussed and the following resolution passed : Resolved that with effect from 1st April, 1969, and until otherwise determined by the board Mr. M.L. Jalan be paid a commission of one per cent in each financial year of the company on all guarantees effected or to be effected by him on account of the company from time to time calculated upon the maximum amount so guaranteed by him in each financial year.

The contents of the aforesaid resolution were communicated by the company to the said Shri M.L. Jalan who thereupon wrote a letter to the said company on 3-8-1970 to the following effect : I am in receipt of your Letter No. PKB/PK dated 20-7-1970 agreeing to pay a commission at the rate of 1 per cent in each financial year of your company on all guarantee provided or to be provided by me, calculated upon the maximum amount so guaranteed with effect from 1-4-1969.

As I have provided the guarantee on request of my sons, Shri T.R. Jalan, Shri N.P. Jalan and Shri B.P. Jalan who with their wives, children and other associated concerns are having the controlling interest in your company and who have agreed to share the liability, if any, that may arise in future on this account, I request you to please issue the cheques for commission in the name of my HUF, Mohan Lal & Sons.

In accordance with the above arrangement the said company paid two cheques for Rs. 1,85,000 each in favour of Mohanlal & Sons in respect of the guarantee provided by Shri M.L. Jalan to the State Bank of India, Calcutta, for standing guarantee against the cash credit facilities given to the said company by the said bank on the following dates : 12-4-1972 1,85,000 15-3-1973 1,85,000 The aforesaid payments were in respect of the financial years ending on 31-3-1971 and 31-3-1972, respectively. Shri M.L. Jalan returned the aforesaid commission received in the return of income filed by him for his HUF styled as Mohanlal & Sons in respect of the financial year ending on 31-3-1973 corresponding to the assessment year 1973-74. The ITO assessing the said family undertook enquiries with regard to the real ownership of the said commission. The State Bank of India informed the ITO vide its letter dated 22-10-1975 that the guarantee in question given by Shri M.L. Jalan was 'personal guarantee'. Apparently the ITO raised some further queries from the bank in reply to which the said bank wrote back to the ITO on 19-11-1975 as follows : With reference to your letter No. 11-040-HX-6130/438 CAL/V2/(H) dated the 15th November, we have to advise as under : (a) We confirm that Shri M.L. Jalan furnished his guarantee to the bank in his personal capacity for the cash credit facility granted to the above-named company.

(b) It is observed from our records that the guarantee of Shri M.L.

Jalan was initially obtained by the bank in the year 1956 presumably because he was then a member of the board of directors of the above-named company. Although Shri Jalan left the company's board long ago, his guarantee was continued as he was the karta of the HUF of which his son Shri T.R. Jalan, the principal director of the company, was a member. According to market reports received by us, the value of the joint family property of the Jalans was estimated at about Rs. 20/25 lakhs in the year 1970.

Apparently some more queries were made by the ITO through his letter dated 24-11-1975 in reply to which the said State Bank of India wrote to the ITO on 13-12-1975 as follows : with reference to your letter No.11-040-HX-6130/460 CAL/V2/(H) dated 24-11-1975, we have to advise that while compiling opinion reports on parties, estimated value of the parties' assets, as per information gathered from the market is taken into account for computing their means for the bank's purpose and not by any strict evaluation of the various items of assets of such parties.

2. In the present case, in 1970 Shri M.L. Jalan was the karta and his sons and other relatives were the members of the old established HUF firm of Soorajmull Nagarmull, 8, B.B.D. Bag(E), Calcutta-1. Shri M.L. Jalan and his sons were also directors and shareholders in several limited companies under the management of Soorajmull Nagarmull and had large investments therein.

3. We hope, we have been able to explain the manner of computation of the estimated means of the parties, for our purpose.

From the aforesaid correspondence with the bank the ITO concluded that the guarantee commission in question was received by Shri M.L. Jalan in his personal capacity and that as such it was assessable in his hands as his personal income and that the said income did not belong to Shri M.L. Jalan as karta of his family. It appears from the assessment order of the HUF dated 25-2-1976 filed by the assessee before us that the information regarding the exchange of letters between the India Jute Co. Ltd. and the assessee referred to by us above and the resolution of the said company were not on his record for no reference whatsoever had been made by the ITO in his assessment order of the HUF. The ITO recorded the following finding in the assessment order of the HUF : It is clear from the aforesaid letters of the bank that they had never considered the immovable properties of the HUF as described before while considering the guarantee of Shri M.L. Jalan. The bank considered the personal guarantee of Shri M.L. Jalan and not the financial position of Shri M.L. Jalan as karta of the HUF. In this context it appears that the guarantee commission is shown by the India Jute Co. Ltd. as paid to Mohanlal & Sons although the real payment was made to Shri M.L. Jalan who stood for the guarantee in his individual capacity and received the commission as such. This had been possible because both Shri M.L. Jalan and his son had a decisive control in the management of the company. Hence, the income from this source should be assessed in the personal assessment of Shri M.L. Jalan for the assessment year 1973-74. But as the assessee has shown in its return, this sum of Rs. 3,70,000 as income the same is taken in the total income of the assessee only as a protective measure.

After making the protective assessment as above, the ITO reopened the assessment of Shri M.L Jalan (deceased) as an individual on the same date, i.e., 25-2-1976. The material contained in the assessment order of the HUF constituted the base for the formation of belief by the ITO in the case of the individual that the assessee's income to the extent of Rs. 3,70,000 had escaped assessment due to the omission and failure on the part of the assessee to disclose fully and truly the primary facts necessary for the assessment of the assessee. For identical reasons, he assessed the income of Rs. 3,70,000 in the hands of the individual also. The assessee thereupon appealed to the Commissioner (Appeals) and pleaded before him that the reopening of the assessment was not proper for the material in question did not provide a live link for the formation of the ITO's belief that the income of the assessee as an individual had escaped assessment. On merits also it was contended that the said income belonged to the HUF and not to the individual. Alternatively it was argued that the entire income was earned in the previous years ending on 31-3-1971 and 31-3-1972 which did not fall within the previous year corresponding to the assessment year 1973-74 which had ended on 10-4-1973. It was urged in this connection that the assessee was maintaining his accounts on mercantile basis and, therefore, the income from guarantee commission could have been assessed in his hands on accrual basis only and such accrual, on the basis of evidence on record, could not have taken place during the previous year under consideration.

4. The learned Commissioner (Appeals) rejected all the contentions of the assessee for the reasons given by him in his order. The assessee is in appeal before us against the said order. The same arguments, as were urged by the assessee before the learned Commissioner (Appeals), have been canvassed before us. On behalf of the revenue the order of the learned Commissioner (Appeals) has been stoutly supported.

5. We have carefully examined the facts on the record and the rival submissions. So far as the reopening is concerned, its validity, in our opinion, cannot be challenged on the facts of this case. The ITO had information before him which the State Bank of India had supplied and on the basis of the said information it was clear that Shri Jalan had given his personal guarantee to the bank. While evaluating the action under section 147(a) of the Act one does not have to look on the sufficiency of the evidence but merely on the existence of the material on record which might have live nexus with the formation of the belief.

From the information which the ITO received from the bank, he could, in our opinion, have formed the tentative belief that the guarantee commission was earned by Shri M.L. Jalan in his personal capacity. The satisfaction at this stage need not necessarily be such as would stand the test of ultimate evidence. It is by its very nature a tentative belief which on receipt of proper evidence can be changed. The reopening of the assessment is, therefore, hereby sustained.

6. On merits, however, we feel that the appraisal of evidence by the learned Commissioner (Appeals) deserves interference. While evaluating the evidence the learned Commissioner (Appeals) has ignored to take note of the fact that it is not the contract of guarantee of 1956 on the basis of which the guarantee commission was earned by Shri M.L.

Jalan from India Jute Co. Ltd., as the facts narrated above would go to show that late Shri M.L. Jalan had not earned any guarantee commission whatsoever from India Jute Co. Ltd. from 1956 to 31-3-1969. It was only from 1-4-1969 onwards that the guarantee commission was demanded by Shri M.L. Jalan and was given by the said company. The agreement for standing guarantee to the State Bank of India and for giving guarantee commission was in between India Jute Co. Ltd. on the one hand and Shri M.L. Jalan on the other hand. The State Bank of India was certainly one of the necessary parties because guarantee was being given by Shri M.L.

Jalan to the said bank in favour of India Jute Co. Ltd. but the said bank was to pay no commission to Shri Jalan on that account. The real consideration flowed from the company to Shri Jalan, and, therefore, it is the agreement between India Jute Co. Ltd. and Shri M.L. Jalan which would determine the real nature of the transaction as also the capacity in which Shri Jalan had entered into the said transaction. The evidence which is being placed on record in this connection leaves, in our opinion, no room for doubt as to the capacity in which Shri M.L. Jalan had entered into the agreement with India Jute Co. Ltd. As is clear from the letter of the company to Shri M.L. Jalan dated 15-6-1970, Shri Jalan was unwilling to continue as guarantor for the company and had requested the company to release him from the said obligation but the company made request to him to continue as the guarantor because the bank was unwilling to relieve Shri M.L. Jalan from the position of the guarantor and to replace Shri T.R. Jalan in his place. The company indicated the reason for the aforesaid reluctance of the bank to Shri M.L. Jalan in the following words : We have been given to understand that while accepting the guarantee from you, they have considered the worth of the whole of your family and as such they want that you as the head of family should provide the required guarantee.

The company thereafter passed Resolution No. 141 offering guarantee commission to the assessee and communicated the same to him. On receipt of such communication the assessee wrote another letter dated 3-8-1970 which has been quoted by us above in extenso wherein the assessee made it plain that he would be entering into agreement with the said company for standing guarantee on behalf of the said company to the State Bank of India only in his capacity as the karta of the HUF so that if and when the occasion arose the loss which might be occasioned on account of his aforesaid guarantee may be shared by the other members of the family also. Accordingly, Shri M.L. Jalan made the request to the assessee-company to issue the cheques for commission in the name of 'my HUF Mohanlal & Sons'. The aforesaid letter, in our opinion, is important and provides the genesis of the contract which yielded commission to the assessee. Prior to that there was no consideration flowing from the assessee-company to Shri M.L. Jalan for his agreeing to give guarantee to the State Bank of India. When it was decided that guarantee commission be paid to Shri M.L. Jalan he made it clear to the India Jute Co. Ltd. that the agreement to pay commission and to stand guarantee will be entered into by Shri Jalan with the said company not in his individual capacity but in his capacity as the karta of the HUF.Apparently the aforesaid arrangement was communicated by the assessee to the bank also and that is why the bank explained in his letter dated 13-12-1975 that "in 1970 Shri M.L. Jalan was the karta and his sons and relatives were members of the old established HUF firm of Soorajmull Nagarmull . . . Shri M.L. Jalan and his sons were also directors and shareholders in several limited companies under the management of Soorajmull Nagarmull and had large investments therein". From the order of the learned Commissioner (Appeals) we notice that the aforesaid arrangement with India Jute Co. Ltd. has not at all been taken note of by him and the entire emphasis of the learned Commissioner (Appeals) has been on the correspondence between the ITO and the bank. If the focus of attention is shifted to 1956 to 1970 and if it is taken note of that from 1956 to 31-3-1969, no guarantee commission was payable by India Jute Co. Ltd. to the assessee-company and that from 1-4-1969 onwards the aforesaid company and the assessee did enter into an agreement whereby commission was payable to Shri M.L. Jalan and further that at the time when such an agreement was being entered into Shri M.L. Jalan had made it clear to the said company that he was entering into the agreement of guarantee with the said company in his capacity as the karta of the HUF, the conclusion which was arrived at by the Commissioner (Appeals) would have been different. In view of the facts stated above, we are of the opinion that Shri M.L. Jalan had entered into an agreement with India Jute Co. Ltd. for payment of guarantee commission not in his individual capacity but in his capacity as the karta of the HUF and, therefore, the income from guarantee commission was assessable in the hands of the HUF. Accordingly, the assessment of the said income in the hands of the HUF was justified and, as such, the inclusion of the said income in the hands of Shri M.L. Jalan as an individual is not justified. We, accordingly, exclude it from his assessment as an individual.

7. The alternative contention raised by the assessee based on the question of accrual of said income does not, in our opinion, survive for decision after we have given the above finding. Yet, inasmuch as, the arguments on that subject were put forward before us, we consider it expedient to dispose of the said branch of reasoning also. The learned Commissioner (Appeals) has, in our opinion, rightly pointed out that so far as the guarantee commission is concerned it was a distinct source of income and inasmuch as the assessee did not maintain any account with regard to this source of income, the previous year for the said income would be the financial year and not the accounting year of the assessee. In the absence of accounts it was open to the ITO to bring it to tax in the hands of the assessees on the basis of the receipt of the said income in terms of subsection (2) of section 145 of the Act. No quarrel can, therefore, in our opinion, be had with the action of the ITO to tax the receipt of Rs. 3,70,000 in the previous year under consideration. Inasmuch as, the aforesaid amount is not the assessee's income as per our findings above, the question of including the said income in the assessee's hands even on receipt basis does not arise. Accordingly, we accept the assessee's appeal and delete the addition of Rs. 3,70,000 sustained by the learned Commissioner (Appeals).

1. I have the privilege of going through the comprehensive order prepared by my learned brother, Shri Anand Prakash, however, I regret my inability to agree with the conclusion arrived at : 2. The assessee has taken, inter alia, the following effective grounds in the appeal : 1. That the learned Commissioner of Income-tax (Appeals) erred in confirming the initiation of the reassessment proceedings in this case under section 147(a) of the Income-tax Act, 1961 in respect of the assessment year 1973-74, 2. That without prejudice to the above, the learned Commissioner (Appeals) erred in confirming the inclusion, in the total income of the appellant, in respect of the assessment year 1973-74, a sum of Rs. 3,70,000 on account of alleged income by way of guarantee commission.

3. That the learned Commissioner (Appeals) erred in confirming that the appellant provided guarantee to the State Bank of India for and on account of India Jute Co. Ltd., in his personal capacity and not as karta of the Hindu undivided family styled 'Mohanlal & Sons'.

3. The assessment pertains to late Shri M.L. Jalan, now represented by Shri Tolaram Jalan and others as legal heirs. In the assessment order, the status of the assessee is shown as a resident-individual and the method of accounting is mercantile. The accounting period which we are concerned with is the year ending 10-4-1973 (R.N. 2029). The original assessment was completed under section 143(3) of the Act on 27-11-1975 at a total taxable income of Rs. 8,214. Subsequently, the learned ITO found that the assessee (late Shri M.L. Jalan) had received guarantee commission to the tune of Rs. 3,70,000 during the period relevant to the assessment year under consideration, i.e., 1973-74. Such commission was received by the assessee by virtue of a guarantee given to the State Bank of India, Calcutta Main Branch-I, Strand Road, Calcutta, in favour of India Jute Co.'s cash credit account with the bank. The assessee at the relevant time failed to show the said amount in his individual account. In these circumstances, the assessment was reopened under section 147(a) on 25-2-1976. In reply to notice under section 148 of the Act, a return of income was filed by the assessee on 3-4-1976 reflecting the net income of Rs. 8,214. The learned ITO sent a draft order under section 144B of the Act to the learned IAC concerned on 1-2-1980. The necessary instructions from him were received on 16-6-1980 and in pursuance thereto, the assessment order was refraraed.

The learned ITO included the guarantee commission sum in the assessment, inter alia, with the following observation : The assessee relied on the decision of the Supreme Court in the case of S.RM.CT.PL. Palaniappa Chettiar v. CIT [1968] 68 ITR 221.

However, the facts and circumstances of the assessee's case are quite different from that of the case law cited by him and as such his submissions could not be entertained. It is seen that the guarantee was given by Shri M.L. Jalari to the bank in his personal capacity and not as the karta of the HUF. In support of the assessee's contentions a letter from the State Bank of India was filed. It is clear from the said bank's letter that Shri M.L. Jalan stood guarantor in his personal capacity. What the bank has said in that letter that Shri M.L. Jalan's guarantee given in his individual capacity was continued as it found that he was the karta of the HUF to which his son, Shri T.R. Jalan, the principal director of the company, was a member. The same view is also upheld by the learned IAC in his instructions. With an eye to the above discussion the guarantee commission received by Shri M.L. Jalan is treated as his individual income.

4. The assessment order on this point was subsequently challenged by the assessee and Shri N.K. Poddar, the learned counsel on behalf of the appellant, argued before the learned Commissioner (Appeals), on the basis of the letters received from the bank. It was also mentioned that it was incorrect that the guarantee commission was received by the assessee in his individual capacity. He further argued that Shri Mohanlal & Sons (HUF) have been assessed to tax on such guarantee commission for the year under consideration. The ratios in the cases in S.RM.CT.PL. Palaniappa Chettiar v. CIT [1968] 68 ITR 221 (SC) and Raj Kumar Singh Hukam Chandji v. CIT [1970] 78 ITR 33 (SC) were also relied upon. The learned Commissioner (Appeals) after considering the contentions raised before him, case laws and the correspondences, confirmed the learned ITO's finding, inter alia, with the following observation : That Shri M.L. Jalan furnished his guarantee to the bank in his personal capacity for the cash credit facility guaranteed to India Jute Co. Ltd. So it was established beyond any shade of doubt that the guarantee was given by Shri M.L. Jalan in his personal capacity.

Hence, commission which accrued through providing of such guarantee was his personal income accruing in individual capacity by Shri M.L.

Jalan. Consequently, such income was obviously assessable in his hands.

So the ultimate fact remained that Shri M.L. Jalan's guarantee was a personal one. There was no attempt on the part of the bank to enter into a contract with Shri M.L. Jalan bringing to focus his capacity as karta of the HUF and securing his HUF properties as surety in case of his failure. In the absence of such a document, it was idle to speculate as to what could have been or might have been his capacity as a karta of the HUF. Such consideration was wholly beside the point and as such irrelevant for legal consequences under any Act in force. I, therefore, hold that such projection sought to be invested upon Shri M.L. Jalan by the bank's letter was without foundation, so far as legal implications were concerned and, accordingly, worthy of no consideration.

5. The assessee is now in further appeal before us, inter alia, on the grounds mentioned hereinabove.

6. On behalf of the appellant, Shri Poddar, the learned counsel, repeated and reiterated all the arguments he had earlier raised before the lower authorities. On behalf of the respondent-revenue, Shri Chakraborty, the learned departmental representative, supported the actions of the authorities below.

7. The first ground pertaining to the objection against the initiation of the reassessment proceedings under section 147(a) was not very seriously agitated before us and, therefore, we leave it here itself.

8. The mute question for consideration before us was as to whether the guarantee by the late guarantor was given in his personal and individual capacity or any other capacity. In this connection, through my note dated 31-12-1982, I wanted my office to request the assessee to furnish the copies of the bank guarantee and the correspondence between the company, bank and the guarantor before finalising the matter, i.e., the guarantee. In pursuance to the said note, our office sent a letter to the assessee on 1-1-1983. In reply thereto, the assessee sent a letter dated 8-2-1983, but none of the things called for. The matter, therefore, is to be decided only on the basis of material placed on record.

9. It is seen that in reply to the learned ITO's letter dated 15-9-1975, the bank sent a communication on 19-11-1975put up on the signature of the Deputy Managersaying, inter alia : We confirm that Shri M.L. Jalan furnished his guarantee to the bank in his personal capacity for the cash credit facility granted to the above-named company.

10. The language of the letter from the bank at that stage did not and could not admit of any ambiguity on the point. The guarantee was given in the personal capacity of Shri M.L. Jalan and the HUFsubsequently brought on the scenewas no way in the view. In fact, in view of the nature of the guarantee and capacity, there was no occasion for the HUF to be, in any manner, associated with the affairs. It appears as if on the personal understanding of the individual, the bank accepted the guarantee and nothing more than this can be inferred from the few papersdespite the best efforts by the learned ITOpresented for perusal.

The subsequent letter of the bank dated 13-12-1975 is some sort of an opinion expressed by the bank officialswhich opinion, in my view, is unrelated with the issue at stake. It is further possible to presume that no thinking of this sort is shown to have influenced the bank at the time of accepting the guarantee. The contents of the said letter, being irrelevant, do not inspire any confidence.

11. It is really curious to note that the official of the bank who wrote on 19-11-1975 that the guarantee was furnished in the personal capacity of the individual, by the subsequent letter, dated 8-2-1983, says that the guarantee of Shri M.L. Jalan was on behalf of the HUF.The subsequent letter put up on the signature of the same official, i.e., Deputy Manager, appears to be worthy of no credence since it is not brought before us as to in what circumstances or on the basis of what evidence, papers or documents the said official permitted himself to be persuaded to change the capacity of the individual from personal to the HUF. It may more be the business of the bank to ascertain from its official as to how he took shifting stands in the matter. For me, it is sufficient to say that in the natural course of business, the position was clearly stated at the earlier stage that the guarantee was furnished in personal capacity.

12. The assessee in its letter dated 8-2-1983 has, inter alia, stated that the bank has confirmed that the guarantee given by Shri M.L. Jalan was on behalf of the HUF. No evidence worth the name is brought to our notice on the basis of which the bank may be in a position to confirm as contended.

13. The case laws relied upon being distinguishable on facts do not appear to help the assessee. In the case before us, the guarantee being purely of personal character and nature, no property of whatsoever or whomsoever was, in any manner, touched or is shown to have been touched through any documentary evidence. In these circumstances, I am of the considered view that the learned ITO correctly brought to tax the escaped income and such action of the learned ITO was rightly confirmed by the learned Commissioner (Appeals). I, therefore, confirm the impugned order on the point.

14. In the result, the assessee's appeal is dismissed. THIRD MEMBER ORDER 1. On a difference of opinion between the learned Members who heard the appeal originally, the following point of difference has been referred to me for disposal as Third Member under section 255(4) of the Act: Whether, on the facts and in the circumstances of the case, the sum of Rs. 3,70,000 given by India Jute Co. Ltd. to late Shri M.L. Jalan by way of guarantee commission was assessable in his hands in his individual capacity or as karta of the Hindu undivided family 2. The facts have been clearly and correctly stated by the learned Accountant Member. It is, thus, not necessary to reproduce the facts once again. However, it is desirable to refer to the facts in brief.

Late Shri M.L. Jalan, when he was alive, had given in the year 1956 guarantee to the State Bank of India in respect of various loans and cash credit facilities allowed to India Jute Co. Ltd. ('the Company').

He did not charge any remuneration for furnishing the above guarantee from the company up to 31-3-1969. He was not willing to continue his guarantee thereafter. However, he was persuaded by the directors of the company to continue his guarantee and the company agreed to pay him commission at the rate of 1 per cent in each financial year on all guarantees provided calculated upon the maximum amount so guaranteed with effect from 1-4-1969. The company paid the commission by cheques in the name of late Shri M.L. Jalan-HUF styled 'Mohanlal & Sons' and the cheques have been credited in the bank account of the HUF. The said HUF has disclosed the commission so received as its income and has been assessed to tax in respect thereof.

3. From one of the letters of the bank dated 19-11-1975 to the ITO, the ITO considered that the aforesaid commission represented the separate and individual income of late Shri M.L. Jalan. Accordingly, he reopened the assessment and completed the ' same after including the aforesaid commission income. The Commissioner (Appeals) having confirmed the order of the ITO, the assessee came in appeal before the Tribunal.

4. The first ground against the reopening of the assessment has been rejected by both the learned Members. On merits of the inclusion of the commission income, there has been a difference of opinion and that is why the matter has come up before me as a Third Member.

5. I have heard the parties and have carefully gone through the orders of the learned Members, the orders of the ITO and the Commissioner (Appeals) and the documents relied upon by the parties, such as, the company's letter dated 15-6-1970 to the late Shri M.L. Jalan, resolution No. 141 in the meeting of the board of directors of the company on 13-7-1970, the late Shri M.L. Jalan's letter dated 3-8-1970 to the company, the State Bank of India's letter dated 19-11-1975 to the ITO and the State Bank of India's letter dated 13-12-1975 to the ITO. It may be stated that the assessee's learned counsel and the departmental representative have mainly relied upon the orders of the learned Accountant Member and the Judicial Member respectively. In response to a requisition from the Bench, Shri N.K. Poddar, the counsel for the assessee, has furnished figures of the assessee's net wealth in the different years which show that late Shri M.L. Jalan, as an individual, did never have any wealth. I have also gone through the two decisions of the Gujarat High Court in the cases of V.J. Patel and P.J.Patel v. CIT [1973] 91 ITR 353 and CIT v. Dineshchandra Sumatilal [1978] 112 ITR 758 relied upon by the departmental representative. The decisions refer to well known tests to be applied for finding whether an income belongs to an individual or HUF. There cannot, possibly be any dispute about the tests laid down by the aforesaid Gujarat High Court in the two decisions and a number of other decisions including the decision of the Supreme Court. Ultimately, the decision depends on the facts of each case whether or not an income is assessable as income of an individual or the HUF.6. In my opinion, all these documents, the genuineness of which is not in dispute, support the assessee's contention. The department can derive support for its stand, if at all, from the State Bank of India's letters to the ITO dated 22-10-1975 (not on record) and the other letter dated 19-11-1975. Here, again, I am constrained to observe that the department does not want to read the letter in full. It relies upon the first portion of the letter only. In my opinion, this is, certainly, not the way to consider a document or to draw an inference therefrom.

7. For the sake of convenience, it may be desirable to reproduce the relevant portion of the bank's letter dated 19-11-1975 to the ITO : With reference to your letter No. 11-040-HX-6130/438/CAL/V2/(H) dated 15th November, we have to advise as under : (a) We confirm that Shri M.L. Jalan furnished his guarantee to the bank in his personal capacity for the cash, credit facility granted to the above-named company.

(b) It is observed from our records that the guarantee of Shri M.L.

Jalan was initially obtained by the bank in the year 1956 presumably because he was then a member of the board of directors of the above-named company. Although Shri Jalan left the company's board long ago, his guarantee was continued as he was the karta of the Hindu undivided family of which his son Shri T.R. Jalan, the principal director of the company was a member. According to market reports received by us, the value of the joint family property of the Jalans was estimated at about Rs. 20/25 lakhs in the year 1970.

Read as a whole, it is difficult to accept that the guarantee furnished by late Shri M.L. Jalan to the bank was against his personal property.

The other documents, as stated by me earlier, clearly vindicate the stand of the assessee. The conduct of the assessee vide his letter dated 3-8-1970 requesting the company to make the payment of commission in the name of his HUF, the company making the payment to the HUF and the HUF offering the commission amount as its income, all go to show that the commission income as the income of the HUF and not that of the individual. Having regard to the above discussion and for the reasons given by the learned Accountant Member in his order, I hold that the sum of Rs. 3,70,000 given by India Jute Co. Ltd. to late Shri M.L.

Jalan by way of guarantee commission is assessable as the income of his HUF.8. The order will now be placed before the Bench for disposing of the appeal in accordance with the majority view.


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