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Deepchand Kothari Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtRajasthan High Court
Decided On
Case NumberD.B. Income-tax Case Nos. 251 to 258 of 1975
Judge
Reported in[1980]124ITR536(Raj); 1977()WLN569
ActsIncome Tax Act, 1961 - Sections 147, 256 and 256(2)
AppellantDeepchand Kothari
RespondentCommissioner of Income-tax
Appellant Advocate L.R. Mehta and; Rajendra Mehta, Advs.
Respondent Advocate S.K. Mal Lodha, Adv.
Excerpt:
.....section 147 sought to be raised by the assessee before the tribunal arises out of the order of the tribunal questions no. 1 to 3 which relate to this point are no doubt questions of law and arise out of the order of the tribunal.;(b) income tax act, 1961-256 - question whether status of assessee is joint hindu family or not--held is a mixed question of fact and law.;the conclusion reached by the tribunal as regards individual or hindu undivided family income is not a conclusion on a pure question of fact but is a fore such finding is open to challenging before the high court.;the questions nos. 4 to 7 pertain to the question of the correct status of the assessee as to whether the income of the assessee was to be assessed as his individual income or income of the hindu undivided family..........at any stage by the assessee. the contention of the learned counsel for the revenue that if the assessee raised this point before the aac and the aac failed to deal with it, the remedy available to the assessee was to make an application before the aac to that effect, is also not tenable as the appeal was allowed by the aac. as regards the contention of the learned counsel for the department that the discretion of the tribunal to permit a point to be raised or not to permit would not give rise to a question of law which requires an answer, it may be said that, in this case, the objection raised by the assessee is that he, all through, was contending that the issue of the notice and the initiation of the proceedings by the ito under section 147(a) of the act was invalid and without.....
Judgment:

R.L. Gupta, J.

1. The applicant has filed these applications under Section 256(2) of the I.T. Act, 1961 (hereinafter called 'the Act'), against the order of the Income-tax Appellate Tribunal, Jaipur Bench, at Jaipur (hereinafter called the 'Appellate Tribunal'), dated December 29, 1973, passed in Income-tax Appeals Nos. 659 to 666 and in Reference Applications Nos. 113 to 120/JP/73-74 dated December 30, 1974, refusing to state the case and refer the questions of law to this court.

2. The applicant, Shri Deepchand Kothari, was being assessed at Beawar in the status of an individual in respect of property income and 25 per cent. share from the registered firm, M/s. Jhabarchand Gokalchand, Beawar. He was assessed in the status of HUF in respect of income from house property, shared profit from M/s. Kundanmal Jhabarchand, Umed, and self-business at Jodhpur. Notices under Section 147(a) of the Act were issued by the ITO, C-Ward, Jodhpur, with prior approval of the Commissioner with a view to club the income arising to the assessee from the source at Beawar treating the income as income of the HUF at Jodhpur. The assessee filed returns of income, under protest, in the status of HUF. During the assessment proceedings, the assessee objected to the proceedings started under Section 147(a) of the Act on the ground that the same were void as there was no concealment of the income on the part of the assessee and contended that the income at Beawar was being assessed in the status of an individual and that at Jodhpur in the status of HUF and it should be continued to be so assessed. The ITO, however, overruled the objection and clubbed the income at Beawar with the income at Jodhpur earned in the status of HUF. The applicant preferred an appeal to the AAC. The AAC by his order dated August 17, 1972, while allowing the appeals of the applicant, caine 1o the conclusion that the status of the assessee for income at Beawar has to be taken as an individual and for that at Jodhpur as an HUF. As such, income of Beawar should be excluded from the income of the assessee assessed at Jodhpur. It may be mentioned here that the applicant in his appeal before the AAC also raised the objection regarding the validity of the proceedings under Section 147(a), but in view of the appeal being allowed on merits the AAC perhaps did not consider it necessary to decide this point. The department preferred appeals to the Income-tax Appellate Tribunal, Jaipur Bench, against the order of the AAC. The Income-tax Appellate Tribunal by its order dated December 29, 1973, allowed the appeals of the department and the order of the AAC was set aside and the order of the ITO was restored for all the years under consideration.

3. The applicant filed applications under Section 256(1) of the I.T. Act, 1961, requiring the Tribunal to draw up the statement of the case and refer the following questions, said to be the questions arising out of the Tribunal's order dated December 29, 1973, to this court:

'1. Whether, in the proceedings initiated under section 147(a), the validity of the notices and proceedings taken in pursuance thereof has been raised before the Income-tax Officer and the appeal of the assessee has been accepted on merits, the Tribunal was legally not right in not allowing the objection as to the jurisdiction of the Income-tax Officer to initiate the notice and as to the validity of the proceedings taken in pursuance thereof to be raised ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that in order to go into the question of jurisdiction, the authorities below will have to find out facts in coming to the conclusion one way or the other and thereby not going into that question?

3. That in the face of the finding of the Tribunal that the full material on the question of jurisdiction is not available on the record, whether the Tribunal was bound to hold that conditions precedent for issuing notice under section 147(a) were not satisfied and the notice issued and entire proceedings taken were bad in law ?

4. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Jodhpur property and share income was the income of Deepchand Kothari, HUF ?

5. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the income from the property and share income of the Beawar firm were the income of the HUF ?

6. Whether, on the facts and in the circumstances of the case, the Tribunal was legally right in holding that the property and share income of Jodhpur and Beawar were thrown into the common stock of the HUF with the intention of treating it as the income of the HUF.

7. Whether, on the facts and in the circumstances of the case, the question of the ownership of the Beawar property and share in the firm and their income for the assessment years up to and including the assessment year 1969-70 have been finally settled and could not be reopened in any of the proceedings under the Act ?'

4. The Tribunal held that questions Nos. 1 to 3 which relate to the validity of the notice under Section 147(a) do not arise out of the order of the AAC.' The Tribunal also did not permit the assessee to take up this plea. If the Tribunal does not permit an additional plea to be raised ordinarily, it is a finding of fact. Thus, questions Nos. 1 to 3 of the applications do not arise out of the order of the Tribunal. As regards questions Nos. 4 to 7, the Tribunal held that they were concluded by the finding of facts found by the Tribunal. Apart from it, if any question of law arises on the facts found by the Tribunal the same stood settled by the Supreme Court and, as such, it would be only academic to refer the same to the High Court. Thus, the Tribunal held that no question of law arose out of the order of the Tribunal and it, therefore, rejected the applications. Hence, these applications by the assessee under Section 256(2) of the Act have been filed before this court.

5. We have heard the arguments of the learned counsel for the parties.

6. As regards questions Nos. 1 to 3, it has been contended by Mr. Mehta, learned counsel for the assessee, that all these questions are regarding the contention of the assessee that the proceedings under Section 147(a) are invalid and void as there was no concealment of income on the part of the assessee. Thus, the notices issued by the ITO, 'C' Ward, Jodhpur, are without jurisdiction. The Tribunal refused to refer these questions as they were not raised before the ITO or before the AAC or the Tribunal. It has been contended that this reasoning of the Tribunal is, on the face of it, wrong. The objections regarding the proceedings under Section 147(a) were specifically raised before the departmental authorities and before the Tribunal. The assessee also moved an application before the Tribunal for seeking permission to raise additional ground regarding the challenge to the validity of the notices issued by the ITO. It amounted to a change of opinion and as such under Section 147 of the Act, it was invalid and that the matter could be covered under Section 147(b) only and not under Section 147(a). Challenge under Section 147(a) was also reiterated. The Tribunal refused the additional plea. It also failed to give any finding on the original ground of attack to the notices under Section 147(a) which was specifically taken before the ITO and which finds place in the order of the AAC and the Tribunal. Thus, questions Nos. 1 to 3 clearly arise out of the order, of the Tribunal and the Tribunal wrongly refused to refer them on the ground that they do not arise out of the order of the Tribunal. All these questions are admittedly questions of law. When a question of law is raised before the Tribunal, but the Tribunal fails to deal with it, it must be admitted to have been dealt with by it and is, therefore, one arising out of its order. For this, he has relied on CIT v. Scindia Steam Navigation Co. : [1961]42ITR589(SC) . The contention which has been raised before the Tribunal even if the Tribunal has refused to entertain it, is a contention which arises out of the order of the Tribunal. For this, he has relied on Harilal Harjivan v. CIT : [1962]46ITR1129(Bom) . Thus the question regarding the challenge to the proceedings under Section 147 of the Act on the additional ground sought to be raised by the assessee before the Tribunal also arises out of the order of the Tribunal.

7. Mr. Lodha, counsel for the revenue, has contended, that the point involved in questions Nos. 1 to 3 was raised at the fag end of the arguments before the Tribunal. This point was not raised before the AAC. Had the assessee argued the point of jurisdiction in respect of proceedings under Section 147(a) of the Act, there was no reason why it should not have been dealt with by the AAC. It means that the assessee did not assail the order of the ITO on the ground that he should not have initiated proceedings under Section 147(a) of the Act. If this ground was raised in the memo of appeal before the AAC, it was not sufficient. It should have been pressed at the time of hearing of the appeal and it should be deemed that the assessee had abandoned this point before the AAC. Therefore, there was no occasion for the Tribunal to deal with this point. Apart from that, in view of the findings arrived at by the Tribunal, the conditions laid down in Section 147(a) existed, and, as such, no question of law arises in this regard out of the order of the Tribunal. So far as the exercise of the discretion by the Tribunal in refusing to permit the assessee to raise the point in respect of Section 147(b) is concerned, the Tribunal has dealt with this aspect of the case and it has reached the conclusion that the plea raised by the assessee would require the authorities below to ascertain facts in coming to a conclusion. The plea does not arise out of the order of the AAC. The Tribunal, therefore, did not allow the assessee to take up the additional plea. The Tribunal has discretion not to permit a party to raise an entirely new point as the new point raised required additional evidence or investigation into fresh facts, This point could have been raised at an earlier stage. This position is well settled by the decisions of the Supreme Court in Moti Ram v. CIT : [1958]34ITR646(SC) and Manji Dana v. CIT : [1966]60ITR582(SC) . Refusal by the Tribunal to permit the assessee to raise a new point cannot be said to be a question arising out of the order of the Tribunal. On a question of law, if it stand's settled by the Supreme Court, reference cannot be compelled. Thus, questions Nos. 1 to 3 do not arise out of the order of the Tribunal.

8. It may be said that the questions Nos. 1 to 3 are questions of law and this aspect of the matter cannot as such be challenged. Looking to the facts and circumstances of the case, the contention of the learned counsel for the revenue that the objections to the validity of the proceedings under Section 147(a) was not assailed before the AAC is not tenable. The initiation of the proceedings under Section 147(a) were challenged before the ITO and, in the grounds of appeal filed before the AAC, this objection was specifically taken. It is true that this point has not been discussed by the learned AAC in his order. The AAC accepted the appeal of the assessee on merits and, in that circumstance, perhaps it was not considered necessary by the AAC to go into that point. This point was also raised before the Tribunal and under the circumstances it cannot be said that this point was abandoned at any stage by the assessee. The contention of the learned counsel for the revenue that if the assessee raised this point before the AAC and the AAC failed to deal with it, the remedy available to the assessee was to make an application before the AAC to that effect, is also not tenable as the appeal was allowed by the AAC. As regards the contention of the learned counsel for the department that the discretion of the Tribunal to permit a point to be raised or not to permit would not give rise to a question of law which requires an answer, it may be said that, in this case, the objection raised by the assessee is that he, all through, was contending that the issue of the notice and the initiation of the proceedings by the ITO under Section 147(a) of the Act was invalid and without jurisdiction and the Tribunal refused to allow this point to be raised. The question is, whether the point raised (which is the subject-matter of questions Nos. 1 to 3) arises out of the order of the Tribunal and, therefore, it should be referred to this hon'ble court Firstly, it may be said that if a contention was raised by the assessee before the Tribunal, even if the Tribunal has refused to entertain it, it is a contention which arises out of the order of the Tribunal and, therefore, the same should be referred to this court. Secondly, the Tribunal's discretion is not under challenge, i.e., it has not been contended by the assessee that the Tribunal has no discretion. Moreover, in Manji Dana's case : [1966]60ITR582(SC) , it has been observed that such a question would not normally be a question of law which does not mean that such a question would not be a question of law in the facts and circumstances of any case. This was so held because, in that case, the additional question was not raised before any authority and that would have necessitated investigation of fresh facts. In that case, the contention sought to be raised before the Tribunal had never been taken before the ITO or before the AAC and also in the grounds of appeal to the Tribunal, and since in arriving at the decision on the question raised thereby it would have necessitated investigation of fresh facts, the Tribunal did not allow the contention to be raised at that stage before them. In the present case, the contention as to the validity and issue of notice and initiation of proceedings under Section 147(a) of the Act was challenged before the ITO and was also challenged in the grounds of appeal before the AAC, therefore, it cannot be said that this additional question was not raised before any authority as it was in Manji Dana's case : [1966]60ITR582(SC) .

9. We are, therefore, of the opinion that the question regarding challenge to the proceedings under Section 147 sought to be raised by the assessee before the Tribunal arises out of the order of the Tribunal. Questions Nos. 1 to 3 which relate to this point are no doubt questions of law and arise out of the order of the Tribunal.

10. As regards questions Nos. 4 to 7, they pertain to the status as to whether the income of the assessee was to be assessed as his individual income or the income of the HUF. The Tribunal refused to refer the above questions on the grounds, (i) that they stand concluded by the findings of fact found by the Tribunal; and (ii) if any question of law arises, the same stood settled by the Supreme Court and, as such, it would be only academic to refer them.

11. The contention of Mr. Mehta is that these questions Nos. 4 to 7 are mixed questions of law and fact. The question as to whether a particular income is an income of the individual or the HUF raises mixed questions of law and fact and the facts found by the Tribunal are open to challenge and it is open to the High Court to examine whether the Tribunal had applied the relevant legal principles correctly or not in reaching its final conclusion. In that sense, the scope of the enquiry and the extent of jurisdiction of the High Court in dealing with such points is the same as in dealing with pure questions of law. The Tribunal has, therefore, wrongly refused to refer them to this court and this court should direct the Tribunal to refer these questions. He has relied on P. N. Krishna Iyer v. CIT : [1969]73ITR539(SC) , wherein it has been held by their Lordships of the Supreme Court that the question whether the income was the income of the HUF or of an individual was a mixed question of law and fact and the final conclusion drawn by the Tribunal from the primary evidentiary facts were open to challenge on the plea that the relevant principles had been misapplied by the Tribunal.

12. Mr. Lodha, on behalf of the department, has contended that none of these questions are questions of law and fact. They are pure questions of fact. The Tribunal has come to its findings on the basis of such facts found by it. It has held that the share which the assessee received from the firm, M/s. Deepchand Gokalchand, was received during the partition of the HUF properties and, therefore, income derived from such firm could only be assessed in the status of HUF. The capital invested in the firm, Jhabar Chand Goralchand, also came from the HUF. No partition has taken place between Deepchand and his three sons and, as such, Deepchand holds thecapacity of karta of the smaller HUF. In the alternative, the Tribunal also found that even if the share income from the said firm be said to be the exclusive property of Deepchand, the same was thrown into the common hotch-potch and, therefore, the assessment could only be made in the status of HUF. All these findings are findings of fact and based on evidence and material on record and the relevant principles have not been misapplied. These findings were not challenged on the ground that there was no evidence to support them or that they were perverse, in an application under Section 256(1) of the Act. Moreover, it is well settled that if an individual gets any share from the property belonging to the HUF and on the relevant date, he was a member of the smaller HUF, the assessment can be made only in respect of that property in the status of HUF. This stands concluded by the Supreme Court judgment in N. V. Narendranath v. CWT : [1969]74ITR190(SC) . If an exclusive property is thrown into the common hotch-potch, it becomes HUF property. Where a member of a HUF by virtue of investing family funds becomes a partner in the firm, income from that firm is income from the HUF. Mr. Lodha, therefore, contended that the questions Nos. 4 to 7 are questions of fact and no question of law arises therefrom. Apart from that, it is well settled that even if an issue of law arises out of the order of the Tribunal and if it has been settled by the highest court of the country or if it is academic, no direction to the Tribunal for reference to the question need be made.

13. It may be said that the questions Nos. 4 to 7 pertain to the question of the correct status of the assessee as to whether the income of the assessee was to be assessed as his individual income or as the income of the HUF. Such question raises mixed questions of law and fact and the facts found by the Tribunal are open to challenge and it is open to the High Court to examine whether the Tribunal has applied the relevant legal principles correctly or not in reaching its final conclusion. It has been held in P. N. Krishna Iyer's case : [1969]73ITR539(SC) that such question as to whether particular income is income of the individual or of the HUF is a mixed question of law and fact. It is true that the conclusion of the Tribunal is no doubt based upon primary evidentiary facts but the ultimate conclusion is determined by the application of relevant legal principles. Questions Nos. 4 and 5 include the challenge that the Tribunal has not applied the correct principles in drawing conclusions from proved facts. The question of the applicability of the principles of Hindu law to the facts of this case is also involved. The construction of the partnership deed of the firm, Jhabarchand Gokalchand, for arriving at the conclusion is also involved. The construction and effect of the AAC's order dated February 5, 1970, on the facts of the present case is also involved. Therefore, it has to be examined by this court whether the Tribunal has applied the relevant legal principles correctly or not in reaching its final conclusion. As regards the contention of Mr. Lodha that even if these questions are mixed questions of law and fact, they stand concluded by the Supreme Court judgment in Narendranath's case : [1969]74ITR190(SC) , it may be said that the primary evidentiary facts found by the Tribunal differ from case to case and the determination of legal principles and their applicability to the facts of each case has to be seen with reference to the facts of each case and, therefore, it cannot be said that questions Nos. 4 to 7 in the present case are covered by the Supreme Court judgment in N. V. Narendranath's case : [1969]74ITR190(SC) . In P. N. Krishna Iyer's case : [1969]73ITR539(SC) , similar questions were referred to the High Court and decided and the Supreme Court also accepted in principle that because they raise mixed questions of law and fact, final conclusion based on primary evidentiary facts are open to challenge on the plea that the relevant principles have been misapplied by the Tribunal. The contention of Mr. Lodha that the findings of fact arrived at by the Tribunal should have been specifically challenged under Section 256(1) as being contrary to the material on record or being perverse and if not so challenged, they cannot be challenged in an application under Section 256(2) of the Act, is of no substance. The conclusion reached by the Tribunal as regards individual or HUF income is not a conclusion on a pure question of fact but is a conclusion on mixed questions of law and fact as pointed out above and, therefore, such finding is open to challenge before the High Court.

14. In this view of the matter, it is not necessary to go into the principle laid down in the cases cited by Mr. Lodha that challenge to the finding of fact must be specifically put into question. Even otherwise, it may be said that the Tribunal's findings of fact can be challenged without a specific question when the language of the question in the case is that the question of law has to be determined 'in the facts and circumstances of the case'. Mr. Mehta in this respect has relied upon CIT v. Ogale Glass Works : [1954]25ITR529(SC) and CIT v. Bikaner Gypsums Ltd. [1975] RLW 202.

15. In this view of the matter, we are of the opinion that the questions Nos. 1 to 3 are questions of law and questions Nos. 4 to 7 are mixed questions of law and fact and they arise out of the order of the Tribunal and call for an answer by this court. We, therefore, direct the learned Income-tax Appellate Tribunal, Jaipur, to submit the statements of the cases and and refer the following questions to this court :

'1. Whether in the proceedings initiated under section 147(a), the validity of the notices and proceedings taken in pursuance thereof has been raised before the Income-tax Officer and the appeal of the assessee has been accepted on merits, the Tribunal was legally not right in not allowing the objection as to the jurisdiction of the Income-tax Officer to initiate the notice and as to the validity of the proceedings taken in pursuance thereof to be raised ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that in order to go into the question of jurisdiction, the authorities below will have to find out facts in coming to the conclusion one way or the other and thereby not going into that question ?

3. That in the face of the finding of the Tribunal that the full material on the question of jurisdiction is not available on the record, whether the Tribunal was bound to hold that conditions precedent for issuing notice under section 147(a) was not satisfied and the notice issued, and the entire proceedings taken, were bad in law ?

4. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Jodhpur property and share income was the income of Deepchand Kothari, HUF ?

5. Whether, on the facts and in the circumstances of the case, the . Tribunal was legally right in holding that the income from the property and share income of the Beawar firm were the income of the HUF ?

6. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the property and share income of Jodhpur and Beawar were thrown into the common stock of the HUF with the intention of treating it as the income of the HUF ?

7. Whether, on the facts and in the circumstances of the case, the question of the ownership of the Beawar property and share in the firm and their income for the assessment years up to and including the assessment years 1969-70 have been finally settled and could not be reopened in any of the proceedings under the Act ?'


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