K. P. RADHAKRISHNA MENON J. - The following question at the instance of the Commissioner of Income-tax, Kerala-I, Ernakulam, has been referred to this court for its opinion :
'Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the assessees were partners and not co-owners is not the above-finding wrong and unreasonable ?'
The year of assessment is 1969-70, the accounting year ending March 31,1969.
The facts lie in a narrow compass. On November 10, 1966, the assessees purchased a 'grape garden' at Hyderabad for Rs. 2,95,000. The consideration was paid by drawing movies from the firm, the National Cashew Company, of which the assessees are partners. From the 'grape garden', the assessees, for the year in question, had made a profit of Rs. 4,94,137. The assessees are entitled to equal shares in the said profit. The assessees, however, had not included this receipt in the returns they had furnished for the year in question on the ground that this profit represented only agricultural income.
The Income-tax Officer accepted the returns and made the assessments.
The assessment of Mohandas Rajan, one of the respondent-assessees, for the year in question, was reopened and in the course of enquiry, the assessing authority found that the 'grape garden' could not have yielded such a large profit as Rs. 4,94,137 and hence he held that the excess profits therefrom should be treated as income of the respondent-assessees from other sources. Accordingly, the assessments of the other five assessees were also reopened and after adding their respective share income therefrom to their assessable income, the reassessments under section 147 were made (annexures A and B-1 to B-5).
The Income-tax Officer thereafter initiated penalty proceedings under section 271(1)(c) of the Income-tax Act and since the minimum penalty imposable would exceed a sum of Rs. 1,000, he referred the matter to the Inspecting Assistant Commissioner in terms of section 274(2), as it stood then. The Inspecting Assistant Commissioner, after hearing the assessees, found that there was concealment of income and accordingly a sum of Rs. 50,000 was levied as penalty on each of the assessees. Annexures C-1 to C-6 are the penalty orders.
The assessees filed appeals before the Appellate Tribunal. The Appellate Tribunal consolidated all the appeals and disposed of them by a common order, annexure D. The Appellate Tribunal set aside the orders levying penalty on the ground that it was not the assessees who had concealed the particulars of income but a firm of which they are the partners.
The Commissioner sought a reference to this court of seven question said to be questions of law arising out of the order of the Tribunal. The Tribunal, however, referred only the above question to this court. That is how the Revenue is before us.
Before the Tribunal, counsel for the assessees raised the following ground as the first ground :
'The first ground urged by Shri Panicker and which goes to the root of the levy of penalty is this. The grape garden has been purchased by the Trivandrum firm utilising its own funds'.
After hearing the arguments on this point, the Tribunal has found :
'Though it is a fact that the grape garden was purchased by monies drawn from the firm, that does not mean that the grape garden is an asset of the firm and its income is of the firm. Monies had been drawn on behalf of all the partners the Hyderabad account and that amount is shown as debt to the firm........So, we find that the grape garden is not the property of the firm.'
Having held so, learned counsel for the Revenue contended, there was no need for the Tribunal to have considered the further question whether the six persons, that is the assessees, are co-owners or partners. He submits that in view of the definite case of the assessees that the 'grape garden' was purchased by the Trivandrum firm, the profit-if the same is liable to be assessed under the Income-tax Act - could be assessed only in their hands as partners of the said firm. Counsel further submitted that the profit should have been treated as the income of another firm which, according to them, owned the 'grape garden', for the sole reason that they had not raised it before the Inspecting Assistant Commissioner. The Tribunal, having allowed the assessees to raise this contention, must be held to have misdirected itself in law warranting interference with the following excerpts from the order of the Inspecting Assistant Commissioner disclosing the definite case put forward by the assessees before the said authority :
'The Hyderabad property was purchased by the registered partnership of the National Cashew Company and not by the assessees. If there is any discrepancy in the firms books of account, the responsibility should fall upon the firm and not upon the assessees. Hence, the reopening of the income-tax assessment is not justified.'
The Inspecting Assistant Commissioner, however, was not prepared to accept this contention. Dealing with this aspect, the Inspecting Assistant Commissioner held thus :
'There has been no such claim raised in the past during the course of any proceedings in this case. Apart from that, there is a factual finding on the matter in the Tribunals order. This order of the Tribunal was passed in the appeals filed by the assessees against the order of reassessment. The assessee, along with five others, has purchased on November, 10, 1976, a grape garden near Hyderabad for a total consideration Rs. 2,90,000. There is no possibility of going behind that finding at this stage.'
The Tribunal none the less considered the question whether the assessees are co-owners or partners of a firm (other than the Trivandrum firm) which owned the 'grape garden', and held that the 'grape garden' was owned by the aforesaid firm and not by the assessees as co-owners, Counsel for the Revenue says that this finding is liable to be eschewed in view of the fact that the Tribunal has virtually ignored the decision of the Supreme Court in Champaran Cane Concern v. State of Bihar : 49ITR152(SC) .
The Tribunal did not stop there. it considered the question whether there was any concealment of income in the case. In this regard, the Tribunal found that the assessees claim for profit of Rs. 5 lakhs on turns of Rs. 5.4 lakhs is based on false books. In these circumstances, an estimate of the income is certainly attracted and can be a basis for penalty. There is enough material to hold that the assessee had internationally boosted up the income from the grape garden and to give the colour of agricultural income to his otherwise taxable income(paragraph 19). The Tribunal has further held that 'An argument was raised that mere falsity of the explanation should not be the basis for penalty. This argument has to be totally rejected. There is no dispute as to the nature of the receipt. It is also the assessees case that the receipt is income. But his case is that it is agricultural income. That claim has been found to be false. So it is income only. The Department has not used falsity of explanation to prove the character of a receipt which was otherwise not income. It is income alight, even according to the assessees'. The Tribunal, however, did not determine the quantum of concealed income and thus left open the question relating to quantification of penalty because, according to the Tribunal, the concealment of income is not attributable to the assessees but only to the firm which is a distinct legal entity for the purpose of assessment under the Income-tax Act, 1961.
Counsel for the Revenue submitted that in the light of the finding that the 'grape garden' is not an asset of the Trivandrum firm and in view of the definite finding entered by the Tribunal in its order disposing of the appeals filed by the assessees against the orders of reassessment that the assessees were enjoying the 'grape garden' as co-owners, and also in view of the decision of the Supreme Court in Champarans case : 49ITR152(SC) , the finding that the 'grape garden' is owned by a firm and not by the assessees as co-owners is liable to be eschewed and consequently the orders of the Inspecting Assistant Commissioner require to be restored. Such a restoration without a further enquiry is possible in this case in view of the findings in paragraphs 19 and 20 of the order of the Tribunal, he submits. We are of the view that these submissions of counsel for the Revenue are not without force. However, we do not propose to go into the merits of these submissions as we have decided to send the cases back to the Tribunal for a reconsideration of the issue, in the light of the materials already on record.
Counsel for the assessee, however, submitted that the question referred to us is one relating to a finding of fact. He further submitted that inasmuch as there is no challenge against the finding that the 'grape garden' belonged to another firm of which the assesses are only partners, the said finding has become final and hence the question should be answered in favour of the assessees. In this connection, he called our attention to the various question the Revenue sought to raise. A reference to paragraph 17 of the statement of the case is enough to reject the above submission of counsel for the assessees. In paragraph 17, the Tribunal has stated : 'Question No. 3 is the consequence of the finding that the assessees were partners. The question by itself does not stand. It is implied in question No. 2. Since we are referring question No. 2, no separate reference of question No. 3 is necessary, and question No. 3 is as follows :
'Whether, on the facts and in the Circumstances of the case, the Tribunal is right in law and fact in holding that as far as such assessee was concerned he has shown the share allocation by the firm should be penalised ; He has correctly shown the share income as allotted to him and credited to his account. There is untruth found in the explanation and are not the above findings wrong, unreasonable, contrary to law and unwarranted in the case ?'
We have, therefore, no hesitation in rejecting the above submission.
Having heard counsel on both sides, we have come to the conclusion that the Tribunal has not considered the question involved in the case in the right perspective. The very approach made by the Tribunal to the issue involved is erroneous. The materials now available on record would not justify the approach made by the Tribunal.
In the view we have taken, we decline to answer the question. The matter, therefore, is remitted to the Tribunal and the Tribunal is directed to dispose of the appeals taking into account the materials and evidence already on record and in the light of the observations in the judgment.
The various authorities cited at the bar by counsel on both sides are not dealt with in view of the fact that we are remanding the cases to the Tribunal for fresh disposal.
A copy of this judgment under the seal of the High Court and the signature of the Registrar shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.