1. These three appeals respectively filed by Devendra Chandra Jain, Bipin Chand Jain and Sharat Chand Jain, who are co-partners in the firm named Devendra Bros, of Deputy Ganj, Delhi in the alleged capacity of kartas of their HUFs raise identical ground and since common arguments have been addressed by Shri S.B. Gupta, the learned counsel of the assessee-appellants, and since a common reply has been given by Shri Tajinder Singh, the learned departmental representative, we would, for the sake of brevity and convenience, consolidate them and dispose them of by a common order. The following identical ground has been raised in these three appeals: That in the facts and circumstances of the case and on a correct appreciation of the principles of Hindu law it may be held that the partner joined the firm as the karta of the HUF and the share income was received by him for and on behalf of the HUF and that the learned AAC was wrong to determine the status of the assessee as that of individual." 2. Before we adjudicate upon the common ground raised in these three appeals, we might briefly state the facts leading up to the controversy.
3. For the assessment year 1975-76, all the abovementioned three assessees filed returns showing incomes of Rs. 12,235 as share from the firm named Devendra Bros, in the status of an HUF. It was contended that the share incomes having been derived in the status of HUFs were assessable as such in that status only and not in the status of individuals. In support of the contention, a copy of the partnership deed of Devendra Bros, had been furnished. The preamble of that partnership deed shows that it had been entered into between Shri Girdharilal Jain, father and his three sons, namely, Devendra Chandra Jain, Sharat Chand Jain and Bipin Chand Jain. It further shows that while Shri Girdharilal Jain had entered into the partnership as individual, his three sons had entered into the partnership as kartas of their respective HUFs. The contentions taken by the assessees were rejected by the ITO. The latter held that unless and until the income was derived with the aid and assistance of ancestral funds or unless and until a certain income was impressed with the character of joint family property, it could not be considered as the income of an HUF.For so holding the ITO had placed reliance on a number of decisions.
While, thus, negativing the claims of the assessees, the ITO framed the assessments in the status of HUFs in all the three cases by way of a protective measure. Subsequently, when the first appeals were filed by the three assessees, the AAC upheld the point of view of the ITO. At the same time the AAC noticed the fact that the firm, viz., Devendra Bros, in which the three appellants had become partners in the alleged capacity of kartas of their respective HUFs had been granted registration and the shares had been duly allocated to the partners representing their respective HUFs.
4. It is in the background of the abovementioned facts that the appellants are in appeal objecting to the findings of the ITO and the AAC that the share incomes from Devendra Bros, were appropriately assessable as individual incomes of the three partners. It is submitted by Shri S.B. Gupta, the learned counsel of the assessee, that even though the assessments had been made in the status of HUFs in all the three cases on protective basis, the grievance of the assessees were very much there insofar as the ITO and the AAC had given findings that incomes were correctly assessable only in the status of individuals. As was done before the lower authorities, reliance is once again placed on the document of partnership in order to contend that the share incomes actually belonged to the HUFs of Devendra Chandra Jain, Sharat Chand Jain and Bipin Chand Jain. Shri S.B. Gupta also refers to us to an order dated 23-12-1983 under Section 185 of the Income-tax Act, 1961 ('the Act') in the case of Devendra Bros, to contend that the allocation of the shares having been made in the hands of the HUFs, there was no point in the stand differently taken by the ITO and the AAC to the effect that share incomes were actually assessable as incomes of the three individuals and not as incomes of the three HUFs.
According to the learned counsel, all the surrounding circumstances go to show that the incomes derived by way of share from Devendra Bros, were the incomes of the three HUFs. Further, according to Shri S.B.Gupta, the intention had always been that the share incomes will be the incomes of the three abovenamed HUFs and that important fact ought not to have been ignored by the authorities below in coming to the conclusion that they reached. On a query being made from us as to how could there be smaller HUFs without there being a partition of the bigger family headed by Shri Girdharilal Jain, the learned counsel submitted that in order to bring into existence smaller HUFs, there need not always be a partition of a bigger HUF. According to him in all bigger HUFs, smaller HUFs always exist and that just because the properties of the bigger HUFs are not partitioned, the existence of smaller HUFs cannot be denied. In order to illustrate his point, Shri S.B. Gupta refers to a gift which might be received by a branch of an HUF to be enjoyed by that particular branch. According to the learned counsel, whenever such a gift is received for the benefit of a smaller branch of an HUF, a smaller HUF comes into existence. Similarly, Shri S.B. Gupta gives another illustration and submits that whenever an individual member of a smaller HUF throws a certain self-acquired property into the common stock of his branch of family, a smaller HUF comes into existence notwithstanding that there has been no partition in the bigger HUF. In order to support his various contentions, reliance has been placed by the learned counsel on the decisions of the Hon'ble Supreme Court in Ram Laxman Sugar Mills v. CIT  66 ITR 613 and M.P. Periakaruppan Chettiar v. CIT  99 ITR 1. Over and above, the learned counsel has also placed reliance on the decisions of the Hon'ble High Courts in CIT v. Dilbagh Rai  117 ITR 842 (Punj.
& Har.), M. Raghava Mudaliar v. CGT  118 ITR 640 (Mad.) and Seth Chunilal Parsram v. CIT  70 ITR 288 (Mys.). Before concluding his arguments, the learned counsel has submitted as an alternative to his arguments that in any case when the returns had been filed by the three assessees in the capacity of an HUF, the share income from Devendra Bros, stood impressed with the character of an HUF and that for that reason also, it could not be but assessed in the capacity of an HUF.For so contending reliance has been placed on the decisions of the Hon'ble High Courts in Thakur Had Singh v. CIT  65 ITR 267 (Raj.) and Qundlapalli Mohan Rao v. Gundlapalli Satyanarayana  84 ITR 685 (AP). Placing great emphasis on the decision of the Hon'ble Punjab and Haryana High Court in Dilbagh Rai's case (supra), the learned counsel has submitted that the facts in that case being absolutely similar, the decisions of the lower authorities given in these three cases should be immediately disapproved.
5. In reply, Shri Tajinder Singh, the learned departmental representative, has submitted that these three appeals should be dismissed as frivolous and infructuous as the assessees did not in fact have any grievance against their stand-point taken before the ITO.According to him, the fact of returns filed having been accepted by the ITO, even though on protective basis, had taken the assessments out of the scope of the provisions of Section 246 of the Act. According to him, a grievance could at the best be made by Devendra Chandra Jain, Sharat Chand Jain and Bipin Chand Jain if the assessments of share incomes had been made in the status of individuals but since that was not done by the ITO, there was no question of filing any valid appeals before the AAC. Since, according to the departmental representative, the appeals filed before the AAC were not valid appeals, the appeals filed against the order passed by the AAC were also not valid appeals and, therefore, these ought to be rejected. On merits, Shri Tajinder Singh placed reliance on the findings given by the ITO and the AAC.6. We have given our very careful consideration to the rival submissions. Even though we may not substantially agree with the preliminary objection raised by the departmental representative, we would be failing in our duty if we do not decide the matter on merits.
The preamble of the partnership deed of Devendra Bros., no doubt, states that Devendra Chandra Jain, Sharat Chand Jain and Bipin Chand Jain had joined hands as partners as karta of their respective HUFs but that fact by itself would not create HUFs if these did not otherwise exist in law. These three partners had in fact made no capital investment whatsoever in the partnership business which was to carry on the activity of buying and selling of real estate and flats in multistoreyed buildings and to act as commission and selling agents thereof. Besides, we also significantly noticed that the HUF of Shri Girdharilal Jain continued to be intact and that when the partnership in question was formed, smaller HUFs of Devendra Chandra Jain, Sharat Chand Jain and Bipin Chand Jain had not come into existence. In fact neither any gifts had been received by the alleged three smaller HUFs nor any other thing had happened which could lead to the conclusion that the three HUFs had come into separate existence. The funds which were employed by the partnership firm named Devendra Bros, in order to carry on the business of buying and selling real estate and in order to earn income by way of commission had not emanated from any one of the partners of the firm but had been borrowed by the firm from a sister concern, viz., Ajay Industrial Sales Corpn. In these circumstances, when the business had been carried on from out of the borrowed funds which had not been borrowed by any one of the partners acting in their capacity of the kartas of an HUF but which had been borrowed by the firm itself from a sister concern, it could not be said that the share incomes had been derived by the three assessee-appellants in their capacity of an HUF. In order to determine as to whether an income received by an assessee is income of its HUF or not, the four important tests as enumerated by the Hon'ble Supreme Court in the case of Raj Kumar Singh Hukam Chandji v. CIT  78 ITR 33 have to be taken into account. It has to be seen as to (7) whether the income received had any real connection with the investment of the joint family funds ; (2) whether the income received was directly related to any utilisation of family assets ; (3) whether the family had suffered any detriment in the process of realisation of the income concerned ; and (4) whether the income was earned with the aid and assistance of the family funds.
In the present cases, which are under our consideration, none of these four tests can be applied in favour of the stand-point which is urged on behalf of the assessees. Apart from the fact that the three alleged families of Devendra Chandra Jain, Sharat Ghand Jain and Bipin Chand Jain had yet to acquire any separate existence, there being no partial or full partition of the bigger HUF of Shri Girdharilal Jain, the income which was derived by the abovenamed three assessees had absolutely no connection whatsoever with the joint family funds as mentioned in the four tests laid down by the Hon'ble Supreme Court. For these reasons, we would hold that the departmental authorities were justified in coming to the conclusion that the share incomes derived by Devendra Chandra Jain, Sharat Chand Jain and Bipin Chand Jain were in fact and in law assessable as their individual incomes.
7. Before holding as above, we have carefully gone through the decisions on which reliance has been placed by the learned counsel of the assessees. The decision of the Hon'ble Supreme Court in the case of Ram Laxman Sugar Mills (supra) was a decision given on entirely different facts. In that case it had been held that when a manager of an HUF had entered into partnership and had signed the document in that capacity, it did not result in the members of the family themselves becoming partners in that firm. Their Lordships had further held that in ascertaining the legal effect of a transaction, a Court must seek to find out in the first instance as to what was the intention of the parties. In these present cases, the intention might have been there that the income derived from the three assessee-appellants was to be the income of their HUFs but that intention could not be given any effect as the very prerequisites of the existence of an HUF were absent in the present case. The other decision of the Hon'ble Supreme Court in M.P. Periakaruppan Chettiar's case (supra) is also on entirely different facts. In that case, their Lordships held after going through the deeds of gift which had been executed that the gifts were to enure to the assessee and his two brothers individually and absolutely and could not be considered to be gifts made to their branches of HUFs. We fail to understand as to how that decision can be of any assistance to the case of the assessee. As far as the contention that the document has to be read as a whole, we have already done so and we have found that a mere declaration in a partnership deed that the partners were entering into a firm as kartas of their HUFs without their being anything to support the existence of their HUFs was meaningless. The two decisions of the Hon'ble Supreme Court on which reliance has been placed by the learned counsel, therefore, do not help the case of the assessees at all. The decision of the Hon'ble Punjab and Haryana High Court in Dilbagh Rar's case (supra) also does not help the case of the assessee. In that case their Lordships had held that merely because a partner had not invested any capital of his own, he could not be validly precluded from throwing his share into the common stock of his HUF. In the present case there is a significant difference in the facts found. In the present case, it is not a case where the share income was initially the income of the three individual partners which had been subsequently thrown into the common stock of the HUFs. Here from the very beginning the partners had stated in the partnership deed that Devendra Chandra Jain, Sharat Chand Jain and Bipin Chand Jain were to enter into the partnership of Devendra Bros, as kartas of their HUFs.
In other words, when the partners, right from the very inception of the partnership, attempted to claim that they had entered into partnership as kartas of their HUFs, it could not be subsequently contended that individual properties of the partners had been thrown into the common stock. The decision of the Hon'ble Punjab and Haryana High Court, therefore, does not apply to the facts of the present case. The decision of the Hon'ble Madras High Court in the case of M. Raghava Mudaliar (supra) has also no application to the facts of the present case. In that case it had been established that a certain prize money had been earned from out of the employment of the joint family funds.
In the present case, that factor is significantly absent. In their decision in the case of Seth Chunilal Parsram (supra) their Lordships of the Hon'ble Mysore High Court had disapproved the decision of the Tribunal who had held that the profit earned in cloth business was the income of the HUF of Chunilal Parsram. Their Lordships held that having regard to accounting entries made in the books of account, the income clearly belonged to the individual and not to the HUF. We fail to understand as to how this decision is in any way relevant to the point at issue in the appeals before us. The decisions in Thakur Hari Singh's case (supra) and Gundlapalli Mohan Rao's case (supra) also do not help the case of the appellant inasmuch as the cases before us are not cases of blending of individual property into the common stock of the HUF. As we have repeatedly stated earlier, the present cases are cases where right from the very beginning that is from the date the partnership of Devendra Bros, came into existence it had been contended that Devendra Chandra Jain, Sharat' Chand Jain and Bipin Chand Jain had entered into the firm as kartas of their HUFs. This contention has not been acceptable to vis for two main reasons, viz., that the separate existence of the three smaller HUFs was not there at the time when the partnership deed was executed and secondly for the reason that the alleged smaller HUFs had not in any way employed their funds in order to earn share incomes from the abovenatned three HUFs. The assessees having failed to satisfy the tests laid down by the Hon'ble Supreme Court in their decision in Raj Kumar Singh Hukam Chandj's case (supra), we have no other alternative but to uphold the stand-point of the ITO and the AAC that the incomes derived by the three assessees from their share in Devendra Bros, were incomes not of their HUFs but of the three individuals.
8. In conclusion, the appeals filed must meet their inevitable fate and that is that they stand dismissed.