BISHAN NARAIN, J. - This is a reference by the Appellate Tribunal to this court under section 66(1) of the Indian Income-tax Act.
The facts of the case are not much in dispute. Amar Chand belongs to a small village named Lalian near Nakodar in Jullundur district. He carried on a petty parchoon business. He has four sons, namely, Bishan Das, Rattan Chand, Hans Raj and Ramhi Das. He was unable to any education to his sons. He did not inherit anything although his sons were given by means of a deed of gift dated the 11th of May, 1936, a house by his sisters son in which the donees lived with their father. Bishan Das migrated to East Africa sometime in 1924 and served the East African Railways and Harbours from 1925 to 1931. In 1931 he was discharged from there. At that time he was receiving shillings 200 a month. He then joined Messrs. Raghunath Gokal Das & Co. and served it from 1931 to 1938. In 1938 he left the company. At that time he was receiving shillings 600, i.e. about Rs. 400 per mensem. In 1939 he set up his own independent business under the name of 'Old Marks Soap Factor, Nairobi'. In the meanwhile Hans Raj migrated to East Africa sometime in 1929. He worked there as a labourer and then as a fitter. In 1931 he also rejoined Messrs. Raghunath Gokal Das & Co. and served there till 1942. Rattan Chand also went to East Africa in 1929 and like his brothers served Messrs. Raghunath Gokal Das & Co. from 1931 to 1942. In April 1942 Bishan Das took both his brothers Rattan Chand and Hans Raj as his partners in the soap factory. Ramji Das, the youngest brother also reached East Africa in 1938. He, however, joined service as a civilian soldier and was discharged from that service in 1945. He also joined the soap factory as a partner after his discharge from service. Thus the soap factory was to start with in 1939 the property of Bishan Das alone. In 1942 two brothers of Bishan Das joined it as partners and in 1945 all the four brothers became partners in this business. It appears that sometime during August 1942 Bishan Das returned to India and that was after his two brothers had joined the soap factory in April of that year. He never went back to East Africa. It further appears that prior to 1942 no money was sent to India by the sons of Amar Chand, but during 1942 and 1943 considerable amounts of money were remitted from East Africa. These amounts were deposited in the Imperial Bank of India in the name of Bishan Das. During this time considerable amount of agricultural land was also purchased and that was from these remittances. The properties were purchased in the name of Amar Chand.
Notice under section 34 of the Income-tax Act for the assessment year 1943-44 was served on the Hindu undivided family consisting of Amar Chand and his sons and according to the returns field there was no income of this family. The Additional Income-tax Officer, Jullundur, however, assessed the income under section 23 (3) read with section 34 of the Income-tax Act. He held that the soap business was the joint family business and its income for the relevant period which accrued to the family but was not brought into India was Rs. 20,000 and after deducting Rs. 4,500 under the third proviso to section 4 (I) (b) (ii) assessed Rs. 15,500 as assessable income. He also assessed Rs. 73,625 as remittances to India from East Africa under section 4 (I) (b) (iii) of the Act. Thus he assessed the total income for the assessment year 1943-44 at Rs. 89,125.
For the assessment year 1944-45 the Income-tax Officer, Jullundur assessed the income of this family in this way. He came to the conclusion that this family had a soap factory and a factory for the manufacture of artificial tea in Nairobi. During the relevant period he assessed the income from the soap factory at Rs. 26,000 and from the tea factory at Rs. 25,000 and after deducting Rs. 45,000 under the third proviso to section 4 (I) (b) (ii) he assessed the income from these two sources at Rs. 46,500. He further held that during the assessment year the family received in India Rs. 74,228 by bank drafts and Rs. 20,000 through Post Office and that these remittances amounting to Rs. 94,228 were assessable as income under section 4(1) (b) (iii) of the Act and he accordiingly imposed income-tax and super-tax on these amounts.
The assessees appealed against these assessments under section 30 of the Income-tax Act. The Appellate Assistant Commissioner decided both the appeals by one order and passed an order dated the 19th March, 1949, directing the Income-tax Officer to make enquiries on the lines indicated in the said order and called for a report within six months. After receiving the report the Appellate Assistant Commissioner came to the conclusion that the soap business did not belong to the Hindu undivided family. He also held that there was no evidence that any factory for the manufacture of artificial tea belonging to the family even existed. He further held that there was no proof that the Hindu undivided family received Rs. 20,000 during the assessment year 1944-45. Dealing with the assessment year 1943-44 the Appellate Assistant Commissioner held that Rs. 38,000 invested in the purchase of property and remittances amounting to Rs. 35,625 and credited to the account of Bishan Das with the Imperial Bank were incomes from some undisclosed sources and were assessable to income-tax. Dealing with the assessment year 1944-45 he taxed the remittances amounting to Rs. 74,228 as assessable income and imposed income-tax and super-tax thereon.
The assessee as well as the Income-tax Department appealed to the Income-tax Appellate Tribunal under the sections 33 (3) and 33B (4) of the Act. The tribunal restored the order of the Income-tax Officer and then on the application of the assessees drew up a statement of the case and referred to the following two questions under section 66 (1) of the Income-tax Act to this Court :
(1) Whenever there is any material on record to enable the Tribunal to find that the business in East Africa carried on by one or more sons of Amar Chand belonged to the Hindu undivided family consisting of Amar Chand and his undivided male issues.
(2) If the answer to the first question is in the negative, whether the income of a junior member of the Hindu undivided family when thrown into joint stock becomes assessable income in the hands of the Hindu undivided family ?
I shall first deal with question No. 1. Admittedly, Amar Chand has four sons. There is no allegation that the joint family cansisting of Amar Chand and his sons ever disrupted. Thus they constitute a Hindu undivided family. There is no presumption, however, that a family. Simply because it is joint, possesses joint property or any property at all. In the present case it is admitted that the joint family did not possess any property and even the house in which they were residing was donated by a sisters son of Amar Chand. The fact that the family is joint is by itself no evidence that the business started and carried on by a member of a joint family is joint family business when admittedly joint family funds at that time did not exists and were not utilized at the time of setting and carring out the business. According to the statement of the case under consideration, there were no ancestral nucleus to which the acquisition of the wealth in East Africa could be referred. The Appellate Tribunal after tracing briefly the career of each son of Amar Chand on there reaching East Africa stated that they came together as partners in the soap factory at Nairobi. Therefore in the present case the facts are that there was no disruption of the joint Hindu family and the Nairobi business was started by Bishan Das in 1942 and Ramji Das was admitted as such in 1945 when the brothers got together in Nairobi. The narration of facts indicates to my mind that the business was not joint Hindu family business, otherwise all the brothers would have gone straight to the soap factory instead of working as fitters etc. elsewhere and joining the business only later on.
It was, however, urged on behalf of Income-tax Authorities that the fact that the money was remitted from East African business without specifying the person who remitted it and the fact that the properties were purchased in India with this monies under the name of Amar Chand indicating that the family intended to treat this business as a joint Hindu family business. It appears to me, as the circumstances do not furnish any evidence for this conclusion. During the assessment years of 1943-44 and 1944-45 there were deposits in the Imperial Bank of India in the name of Bishan Das amounting to nearly Rs. 1,10,000, while property worth 70,000 was acquired in the name of Amar Chand. These facts are stated in the statement of the case under consideration. These facts only show that Bishan Das received these amounts from the Nairobi partnership and from these funds properties were purchased in the name of Amar Chand. The Nairobi business was a partnership and its monies belonged to the partnership of which Bishan Das and his two brothers were the partners at the relevant times. The fact that Bishan Das chose to purchase the properties in the name of his father from the partnership funds or gifted this monies at best to his father who then purchased the properties will not make the Nairobi business a joint family business. The fact that is not clear from the current proceedings as to the amounts were remitted to India to my mind does not matter. Even if this information was available, it could not possibly shown that the business was a joint family business. I am therefore of the opinion that these facts do not serve as any evidence on which the Income-tax Authorities could conclude that the Nairobi business was property of the Hindu undivided family. In fact the circumstances of the case are inconsistent with the view that the business was a property of the Hindu undivided family.
Shri. S. M. Sikri, however, urged that although the Tribunal has not so stated it explicitly the real position is that the income from the business was earned by joint labour of the family although it has arise without any ancestral nucleus and in his support he has relied on a number of cases. It is, however, not necessary to deal with these cases in detail as I am of the opinion that the principle of joint labour of joint effort is not applicable to the present case. Amar Chand never worked in the Nairobi business. In fact he never left India. Ramji Das was not working in it in the relevant period. The history of the business given above shows that it was Bishan Das who stared the business in 1939 after his migration to East Africa in 1924 and he took his brother Rattan Chand and Hans Raj in partnership in 1942. Ramji Das did not join the business as partner till 1945. If some of the members of the joint family share a business as partners it cannot be regarded as a joint family business, although it is well established that if a whole joint family or a whole branch of the family business carries on a business that it may be regarded as joint family business (vide Official Assignee, Madras v. Neelambal Ammal and Syed Wajit v. Wishwanathan. It will be noticed that the sons of Amar Chand did not join the business as members of the family but as partners as has been stated in the statement of the case under consideration.
For all these reasons I am the opinion that the answer to question No. 1 should be given in the negative.
Now I shall deal with question number 2. This question arises only if question No. 1 is answered in the negative and if it is held that the Nairobi business is not joint business. I have already held that the Nairobi business was a partnership business and that being so the income from this business belonged to the partners and even if it be assumed that in the present case it was thrown into the joint stock of the family it can become asset of the joint family and cannot become its income. This is so recognised in the statement of the case which states on this point :
It is pointed out that in this finding also the income is referred to as made by the members although it was treated as the family asset. It is pointed out that the treatment must necessarily be subsequent to the receipt of the income and income members of a joint family which is thrown into the common hotch-pot becomes capital of the family and cannot be again in its hand. We are not here concerned with the income derived from the properties or investments acquired by moneys remitted to East Africa. In this view of the matter the answer to question No. 2 must also be in the negative as it cannot be held that the income thrown into joint stock becomes assessable income in the hands of the Hindu undivided family.
I would therefore answer both the questions referred to this Court under section 66 (1) of the Income-tax Act in the negative and in favour of assessees. The assessees are entitled to get costs of this reference. Counsels fee Rs. 250.
BHANDARI, C.J. - I agree.
Reference answered accordingly.