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Commissioner of Income-tax Vs. J.K.K. Sundararajah - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case Nos. 38 to 40 of 1978 (Reference Nos. 11 to 13 of 1978)
Judge
Reported in[1986]160ITR370(Mad)
ActsIncome Tax Act, 1961 - Sections 25A, 66, 171, 254(2) and 256(1)
AppellantCommissioner of Income-tax
RespondentJ.K.K. Sundararajah
Appellant AdvocateJ. Jayaraman, Adv.
Respondent AdvocateS. Swaminathan, Adv.
Cases ReferredIn N. C. T. Chidambaram Chettiar v. Ct. A. Ct. Subramaniam
Excerpt:
direct taxation - assessment - sections 25a, 66, 171, 254 (2) and 256 (1) of income tax act, 1961 - whether 50% of share income of assessee from company could be assessed in hands of assessee - partition between assessee and his minor son - capital invested in various non-exporting partnerships divided - funds continued to stand invested in firms and from those investment income received - capital investments in partnership taken to be owned by assessee and his son as tenants-in-common - assessee entitled to profits arising from such investment according to their shares in investment - sons entitled to profits referable to their shares - question answered in affirmative. - - angappa chettiar [1979]116itr456(mad) will apply to the income from the exporting firms as well, as contended.....ramanujam, j. 1. at the instance the revenue, the following two questions have been referred to this court by the income-tax appellate tribunal, under section 256(1) of the income-tax act, 1961, with reference to the three assessment years 1965-66, 1966-67 and 1967-68 : '1. whether, on the facts and in the circumstances of the case, only 50% of the share income of the assessee from m/s. sundaram spinning mills, m/s. kandaswamy weaving factory and company, m/s. quality traders and m/s. super textiles could be assessed in the hands of the assessee for the assessment years 1965-66, 1966-67 and 1967-68 2. whether, on the facts and in the circumstances of the case, only 50% of 1,17,503 and rs. 9,103 can be assessed as the income of the assessee from the export firms for the assessment years.....
Judgment:

Ramanujam, J.

1. At the instance the Revenue, the following two questions have been referred to this court by the Income-tax Appellate Tribunal, under section 256(1) of the Income-tax Act, 1961, with reference to the three assessment years 1965-66, 1966-67 and 1967-68 :

'1. Whether, on the facts and in the circumstances of the case, only 50% of the share income of the assessee from M/s. Sundaram Spinning Mills, M/s. Kandaswamy Weaving Factory and Company, M/s. Quality Traders and M/s. Super Textiles could be assessed in the hands of the assessee for the assessment years 1965-66, 1966-67 and 1967-68

2. Whether, on the facts and in the circumstances of the case, only 50% of 1,17,503 and Rs. 9,103 can be assessed as the income of the assessee from the export firms for the assessment years 1965-66 and 1966-67, respectively 7'

2. The assessee was the karta of a Hindu undivided family consisting of himself, his minor son, Manickam, his wife, Thirumathi Rajammal, and six minor daughters. The assessee was eo nominee a partner in the firms Messrs. Sundaram Spinning Mills, M/s. Quality Traders, Messrs. Super Textiles and Messrs. Kandaswamy Weaving Factory and Company. Messrs. Quality Traders and Messrs. Super Textiles have been considered as branches of Messrs. Sundaram Spinning Mills. The funds of the aforesaid Hindu undivided family had been invested in the abovementioned firms with the result that the share income therefrom belonged to the said Hindu undivided family. On March 31, 1967, there was a partition in the said Hindu undivided family whereunder the net capital of the family in the abovementioned firms amounting to Rs. 3,72,592.19 was divided between the assessee and his son, Manickam, equally, each of them being allotted Rs. 1,86,296.10. The said partition was recognised by the Income-tax Officer by an order dated August 31, 1967, passed under section 171 of the Income-tax Act. Besides the above firms, there were certain other firms, namely, Messrs. Colombo Stores, Messrs. Ashoka Textiles, Messrs. Rathinam Traders, Messrs. Rajam Textiles and Messrs. Kandaswamy Spinning Mills (Export Section) (hereafter referred to as 'export firms') in which the assessee was not eo nomine a partner. These firms were found to have indulged in the sale of import licences. Investigations were made by the Income-tax Department in respect of these firms and they indicated that the assessee and his three brothers were the real persons interested in these firms though they were not eo nomine partners. Ultimately, a settlement was arrived at between the Department on the one hand and the assessee and his three brothers on the other in March, 1970. As per the said settlement, it was agreed that Rs. 31,03,231 was to be treated as the value of the unexplained investments and brought to charge, that Rs. 8,10,420 should be taken as income from the export firms that was to be assessed in the hands of the assessee and his three brothers equally, that the undisclosed income of Rs. 20,21,911 should be assessed in the hands of the four brothers equally and spread over two assessment years 1965-66 and 1966-67.

3. On September 13, 1966, the assessee filed returns in the status of an individual declaring loss of Rs. 1,32,381 and Rs. 29,530 for the assessment years 1965-66 and 1966-67, respectively. On August 23, 1968, he filed revised returns in the same status declaring loss of Rs. 41,109 and Rs. 25,137 for the abovementioned assessment years. For the assessment year 1967-68, the assessee filed a return on February 13, 1968, in the same status declaring nil income. In the revised returns filed by the assessee for the years 1965-66 and 1966-67 and in the return filed for the assessment year 1967-68, the assessee claimed deduction of 50% of the share income from the firms, Messrs. Sundaram Spinning Mills, Messrs. Quality Traders, Messrs. Super Textiles and Messrs. Kandaswamy Weaving Factory Company, on the ground that the interest in the aforesaid four partnership firms originally belonged to the Hindu undivided family consisting of himself, his minor son, his wife and his daughters and of which he was the karta, that in the partition made on March 31, 1961, the same was divided equally between the assessee and his minor son, that consequently the assessee's minor son was entitled to 50% of the share income from the aforesaid firms and the same could not be assessed in the hands of the assessee Similar claim for reduction of 50% of the share income from the export firms was also put forward in respect of the years 1965-66 and 1966-67. The Income-tax Officer rejected the claim of the assessee by his order dated March 23, 1970, and determined the assessee's total income as Rs. 6,15,965, Rs. 3,12,304 and Rs. 83,238 for the assessment years 1965-66, 1966-67 and 1967-68, respectively, treating the entire share income of the assessee in all the firms as the income of the assessee.

4. Aggrieved by such assessments, the assessee preferred appeals to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner, however, rejected the assessee's contention regarding the deduction of the alleged share income of the minor son from all the firms, though he held that interest at 6% of the capital invested in these firms which belonged to the minor son of the assessee should be deducted.

5. Thereupon, the assessee preferred appeals to the Income-tax Appellate Tribunal contending that the Appellate Assistant Commissioner had erred in disallowing the deduction claimed towards the alleged minor's share income. The Revenue also filed cross-objections contending that the Appellate Assistant Commissioner had erred in holding that interest calculated at 6% on the capital invested in those firms should be deducted from the share income in respect of the non-export firms. Before the Tribunal, it was contended by the assessee and his son that on March 31, 1961, the interest of the erstwhile joint family in the aforesaid non-exporting firms had become divided and that consequently the assessee's son became entitled to 50% of the share income from the abovementioned firms. The assessee also alternatively contended that even granting that what was allotted to the assessee's minor in the partition was a specific sum of Rs. 1,86,296.10 only, in so far as the said sum was continued to be invested by the assessee in the aforesaid firms in which he continued to be a partner, he was accountable to his minor son in respect of the latter's half share out of the profits derived by the assessee from the four non-exporting firms. The Tribunal held that since the interest of the erstwhile undivided family in respect of the four non-exporting firms had equally been divided between the assessee and his minor son, the latter's income of the share income from the aforesaid firms could not be considered as belonging to the assessee and, therefore, could not be assessed as income in his hands, and the Appellate Assistant Commissioner was in error in directing a deduction at the rate of 6% on the moneys of the minor utilised in the business of the aforesaid firms. Aggrieved by the said view of the Tribunal, the Revenue has raised the first question.

6. So far as the income from the export firms in which the assessee and his brothers were not eo nomine partners are concerned, it was contended before the Tribunal that the funds belonging to the Hindu undivided family of which he was the karta, had been utilised in the business carried on by the export firms, and that because of the partition effected between the assessee and his son, the profits of the erstwhile Hindu undivided family had come to be held by the assessee and his son as tenants-in-common and, consequently, the assessee was entitled only to 50% of the Share of the income from export firms and the other 50% belonged to his son. It was also contended that, in any event, since the funds belonging to the son had been utilised in the business carried on by the said exporting firms, so much of the income as was attributable to such utilisation belonged to the assessees son based on the principle of section 90 of the Indian Trusts Act, 1882.

7. It was, however, contended by the Revenue that under the settlement arrived at between the assessee and his brothers on the one hand and the Department on the other, the assessee had agreed that the income from the export firms had to be taken as the income of the four brothers and that, therefore, it was not open to the assessee to contend that only 50% of his share income from the export firms should be considered as belonging to him and the other 50% should be considered as belonging to his son. It was also contended that there is no evidence of the funds of the Hindu undivided family of which the assessee was the karta having been utilised in the business carried on by the firms. It was further pointed out that three of the export firms, namely, Rajaram Textiles, Messrs. Colombo Stores and Messrs Rathinam Traders had been constituted on July 3, 1961, May 1, 1961, and July 3, 1961, respective]y, subsequent to the partition between the assessee and his son.

8. On a consideration of the rival contentions, the Tribunal rejected the contention of the Department that it was not open to the assessee to contend that only 50% of such income should be considered as his income and held that the assessee and his son have become divided in status on March 31, 1961, the date of the partition and that thereafter they held the properties which were left undivided only as tenants-in-common, that if the undivided funds had been utilised in the business carried on by the export firms by the assessee, the income would undoubtedly belong to both of them in equal moieties, and the fact that some of the export firms came to be constituted subsequent to March 31, 1961, did not make any difference to the situation. The Tribunal then proceeded to consider whether the funds of the erstwhile Hindu undivided family had been invested in the export firms. It found that the funds of the respective Hindu undivided family of the assessee and his three brothers alone had been invested in the export firms and that in view of the partition effected on March 31, 1961, 50% of the income from the export firms belonged to the assessee and the other 50% to his son and that consequently only 50% of the income could be assessed in his hands. The Tribunal, therefore, allowed a deduction of 50% from the income from the export firms.

9. Aggrieved by the decision of the Tribunal, the Revenue has raised the second question.

10. So far as the first question is concerned, we find that it is covered by the decision of this court in CWT v. J. K. K. Angappa Chettiar : [1979]116ITR456(Mad) . Though that case arose out of an assessment under the Wealth-tax Act, the principle of that decision applies squarely to the facts of this case. In that case, one of the brothers of the assessee as karta of his branch was eo nomine a partner in the four non-exporting firms with which we are concerned. There was a partition on March 31, 1961, between him and his two minor sons and the capital account of the Hindu undivided family of which he was the karta in the various partnerships was equally divided between the assessee and his two sons. The partition has also been accepted by the Income-tax Officer under section 25A of the Income-tax Act. In the wealth-tax assessment, he claimed that 2/3 rds of the capital in the various partnerships belonged to the minors and, therefore, 2/3rds of the profits from the firms also belonged to them. This claim was negatived by the Wealth-tax Officer who held that after the partition, the sons had no interest in the partnership business and hence the entire profits belonged exclusively to the assessee. When the matter went to the Tribunal, it held that the profits, assets, accretions and investments made out of the profits attributable to the sons' Share cannot be considered as the wealth of the assessee and, in that view, upheld the assessee's claim. On a reference, this court held that after the partition, the parties held the amount invested in the various firms as an investment made by the assessee and his two sons as tenants-in-common, that as such they are entitled to the profits arising therefrom in accordance with their shares and that, therefore, on and from the date of the partition, the assessee was not entitled to the profits in its entirety but was entitled to only that portion of the profit referable to his share in the capital investment and the sons were entitled to profits referable to their shares. Accordingly, the share of future profits from the firms was held by the assessee and his two divided sons and the same was not vested in the assessee wholly and exclusively and hence the profits attributable to the interest of the two minor sons in the various partnerships cannot be treated as the wealth of the assessee but will have to be treated as the wealth of the divided sons.

11. Here also, there has been a partition between the assessee and his minor son on March 31, 1961. Though the capital invested in the various non-exporting partnerships had been divided, the funds continued to stand invested in the firms and from those investments, income has been received. Therefore, the capital investments in the partnerships should be taken to be owned by the assessee and his son as tenants-in-common and, therefore, they are entitled to the profits arising from such investments according to their shares in the investments. On these facts, the decision of this court in CWT v. J. K. K. Angappa Chettiar : [1979]116ITR456(Mad) is applicable. We have to, therefore, answer the first question in the affirmative and against the Revenue.

12. Coming to the second question, we find that the facts are slightly different. Here, according to the Revenue, all the three exporting firms came into existence after the partition and that there is no evidence of the funds allotted to the minor son at the partition having been invested in the said exporting firms. As already stated, though there is controversy as to whether the exporting firms were newly constituted or they were merely reconstitution of the old firms, having regard to the various facts and circumstances, we are inclined to hold that the exporting firms have been constituted after the partition between the assessee and his three brothers. However, we are proceeding on the basis of the finding of the Tribunal that the funds of the minor son of the assessee had been invested in the exporting firms by the assessee especially when there is no other material to indicate that the assessee withdrew the capital invested in the non-exporting firms which was the subject-matter of division and handed over to the son his share therein. In the absence of any such evidence of the minor's funds having been handed over to him or kept or invested separately, the natural presumption is that the father had invested in the exporting firms not only his money but also his son's. From the materials on record, it is not possible to specifically hold that the amount allotted to the son's share has not been utilised by the father by way of investments in the exporting firms. The learned counsel for the Revenue would, however, point out that even then the principle of the decision in CWT v. J. K. K. Angappa Chettiar : [1979]116ITR456(Mad) , will not apply to the income from the exporting firms, for the exporting firms were created after the partition and, therefore, there should be actual evidence of the investment of the son's moneys, and that in CWT v. J. K. K. Angappa Chittiar : [1979]116ITR456(Mad) , the investment has already been made by the joint family and that investment continued even after the partition and, therefore, there was a justification in that case for raising the presumption that the funds of the shares had been utilised in earning the income, but that such a presumption cannot arise in the case of the exporting firms which came into existence after the partition.

13. The question is, whether the principle of the decision in CWT v. J. K. K. Angappa Chettiar : [1979]116ITR456(Mad) will apply to the income from the exporting firms as well, as contended by the assessee. Here, admittedly. there is no dispute that the assessee and the son got divided on March 31, 1961, and that the income from the non-exporting firms was invested by the assessee and his brothers. According to the finding of the Tribunal, the assessee has invested the funds of the erstwhile joint family. Therefore, the amount allotted to the share of the son under the partition deed should also be taken to have been invested by the assessee on behalf of his minor son in the exporting firms. Therefore, the question that arises for consideration is, whether the father who had divided from his son has earned an income by utilising not only his funds but also his son's funds and whether he is liable to account for the income referable to the funds of the son.

14. In Mayne's Hindu Law and Usage, eleventh edition, the following passage occurs :

'As from the date when the right to partition accrues, however, the manager will be bound to render an account of the same nature as would be demanded from a trustee or agent......... So, if a member of a joint family is wrongfully excluded from the enjoyment of the family property and subsequently establishes his position as a member, his right of action accrues at the date of his exclusion; and he will be entitled as from that time to an account such as would have to be rendered by a trustee.'

15. In Jakha Devayya and Sons v. CIT : [1952]22ITR264(Mad) , it has been held that if a minor is not admitted to the benefits of a partnership but his assets in the business belonging to his share are utilised in the business continued by the other partner after division, the minor may be entitled to the profits attributable to the use of his share in the business on the principle of section 37 of the Partnership Act, though the section itself may not apply, or under the general principles indicated in sections 80, 90 and 95 of the Indian Trusts Act. In Kathoon Bi v. Abdul Wahab Sahib [1939] II MLJ 208, a Mohammedan merchant died leaving one minor daughter and three brothers. The daughter who was entitled to one-half share in the estate of the deceased was living under the guardianship of her uncles. The uncles continued the business of the deceased after taking charge of his assets and earned profits. The question arose as to whether the uncles who continued the business after taking charge of his assets were in a fiduciary position of trustees for the daughter of the deceased to the extent of one-half of the profits. It was held that since the daughter's one-half share has been utilised in the business which has earned income, the daughter was entitled to a half share also in the profits so arising as the uncles who were in a fiduciary position and as such accountable and the fact that they were co-owners of the estate of the deceased along with the daughter does not affect their liability to account as guardians or as trustees. In N. C. T. Chidambaram Chettiar v. Ct. A. Ct. Subramaniam [1981] 2 MLJ 424, a question arose as to whether a coparcener in management acts in a fiduciary capacity in relation to the other coparceners and the court held that unless section 90 of the Trusts Act is invoked, one coparcener in management cannot be said to act in a fiduciary capacity in relation to the other coparceners, and that section 90 of the Trusts Act will apply only if two essential conditions are satisfied, namely, that the person (coparcener) is placed in fiduciary capacity and that he gained an advantage by virtue of such position and it was further held that where it was established on the facts that the co-owner by his dealings derived benefit and advantage to himself, section 90 of the Trusts Act would come into operation and he would be regarded as being in a fiduciary position.

16. Lewin on Trusts, sixteenth edition, contains the following principle at page 192 :

'If a trustee or executor uses the fund committed to his care in buying and selling land or in stock speculations, or if he lays out trust money in a commercial adventure, as in fitting out a vessel for a voyage or putting it into the trade of another person from which he is to derive certain stipulated gains, or employs it himself for the purposes of his own business or trade, he is liable for all losses and must account to the beneficiary for all clear profits. If the trustees is one only of a firm which uses the trust money, he must account for his share of the profits.'

17. The principle that a trustee must be benefit from the trust applies to guardians as well.

18. In this case, the partition has taken place between the assessee and his son, when the son was a minor, and his funds have been handled only by the father as a guardian. Therefore, the assessee even as a guardian is liable to account for the profits earned by the investment of the minor's funds. In this view of the matter, we feel that the decision in : [1979]116ITR456(Mad) is applicable to the case of income from exporting firms as well. The second question is also, therefore, answered in the affirmative and against the Revenue. The assessee will have his costs from the Revenue. Counsel's fee Rs. 500.

Fakkir Mohammed, J.

19. Question No. 1. - I agree with the finding of my learned brother judge. With great respect, I differ on question No. 2.

20. Question No. 2. - Admittedly, in the partition agreement dated March, 31, 1961, between the assessee and his minor son represented by his mother and guardian, S Rajammai, the total family capital in the four firms, viz., M/s. Sundaram Spinning Mills, M/s. Kandaswamy Weaving Factory and Company, M/s. Quality Traders and M/s. J. K. K. Natarajan and Co., has been declared as Rs. 3,72,592.19 and the minor's half share in the same has been declared as Rs. 1,86,296.10. There is absolutely no reference whatsoever to any investment of capital in any export firm and no family capital account in any export firm has been mentioned in the partition agreement dated March 31, 1961. The partition agreement was admittedly confirmed by a deed of partition dated April 26, 1961, as mentioned in paragraph 17 of the order of the Appellate Tribunal, dated January 24, 1977. Before mentioning the family capital account in the partition agreement, it is stated that there are no other movable properties to be divided between the assessee and his minor son, Manickam, and that if there are any movable properties are mentioned in the agreement, the minor son shall be entitled to share them equally. The mediators also have signed the partition agreement.

21. In the third paragraph of the partition agreement dated March 31, 1961, the circumstances and the reasons that necessitated such a partition arrangement in the presence of mediators have been mentioned as follows :

'As the party of the first part was obliged to stay in foreign countries for a long time, the condition of his health is not satisfactory FURTHER THE PARTY OF THE FIRST PART IS DESIROUS OF ENGAGING IN SPECUTLATIVE AND OTHER RISKY BUSINESSES. These factors are not considered to be conducive to the well-being of family by the mother and guardian of J. K. S. Manickam, the party of the second part and also by the well-wishers of the family. Accordingly the Panchayatdars interested in the family members and in their well being have with the concurrence of the mother and guardian of the party of the second part, brought about a partition of the family properties. In accordance therewith and accepting their decision, we the parties herein are effecting a partition of the movable assets of the family as mentioned hereunder.'

22. Admittedly, in the course of the assessment proceedings in relation to the abovementioned four firms in which the assessee and his divided three brothers alone are eo nomine partners, it came to light that there were certain other firms, viz., M/s. Colombo Stores, M/s. Ashoka Textiles, M/s. Rathinam Traders, M/s. Rajam Textiles and M/s. Kandaswamy Spinning Mills, in which the assessee and his three brothers were not eo nomine partners and were indulging in unlawful dealings in export licences, that the Income-tax Department had to make investigations in respect of the abovesaid secret firms and discover certain incriminating documents, which would indicate that the assessee and his three brothers were the real persons interested in those firms, though those firms had been represented by certain of their relations and that ultimately the assessee and his three brothers were constrained to suggest a settlement with the Department in March, 1970, and the actual settlement was arrived at on March 14, 1970. The above facts are not disputed.

23. In the said settlement dated March, 14, 1970, it was agreed that the total assessable unaccounted investments and income accounted was Rs. 31,03,231 and that the assessee and his three brothers had agreed to be assessed on one-fourth share each on Rs. 31,03,231 for the assessment years 1965-66 and 1966-67. A reservation has been made in that settlement by the Department that the settlement was arrived at without prejudice to the penal proceedings and prosecutions that would be initiated and decided by the Department for the unlawful trade in export licences. It is such risky and unlawful gambling trade that has been contemplated in the agreement of partition dated March 31, 1961, which culminated in a deed on April 26, 1961. The above facts are also not disputed. It is significant to note that the total unaccounted investments and unaccounted tax payment have been given as Rs. 42,26,248 in the trade on export licences done by the assessee and his three brothers under the settlement dated March 14, 1970, and the investment of the one-fourth share in the same by the assessee was not been mentioned in the agreement of partition dated March 31, 1961. So far as the assessee's minor son's share under the partition agreement dated March 31, 1961, is concerned, they continued to be invested in the four registered firms, which are mentioned therein and that is the subject-matter of question No. 1 that has been referred to by the Tribunal to this court and we have accepted the finding of the Tribunal on that question since the assessee had received profits subsequent to the partition by utilising the share of the capital allocated to the assessee's minor son represented by the mother and the Department also had not found any material that the assessee had paid away the minor's share of the capital, which has been arrived at in the agreement of partition dated March 31, 1961.

24. With regard to the undisclosed income of Rs. 2,52,739 for which also the assessee was fully assessed, the Tribunal had turned down the contention of the assessee to say that he should be assessed only on the 50% of the undisclosed income, since the other 50% belonged to his divided son on the ground that the assessee had not raised that point in the earlier proceedings before the Tribunal. It appears that the learned counsel for the assessee had argued that the above contention could be treated as an additional ground raised in the appeal, but the Tribunal turned down the said request by observing in paragraph 12 that the assessee had not raised such contention in the memorandum and grounds of appeal before the Tribunal. So also, in the memorandum and grounds of appeal, the assessee has not specifically raised the stand that his son is entitled to 50% of the investments and income in the unlawful trade on export licences by the assessee and his three brothers. Such a ground has not been specifically taken even before the Appellate Assistant Commissioner. Only a general ground was taken that the assessee is accountable to the minor son for the 50% of the investments and income in view of the partition agreement dated March 31, 1961, in the enumerated firms.

25. Admittedly, the assessee had first filed the original returns for 1965-66 and 1966-67 On September 13, 1966, declaring a loss of Rs. 1,32,381 and Rs. 29,530, respectively, as an individual. Then, on August 23, 1968, the assessee filed a revised return declaring a loss of Rs. 41,109 and Rs. 25,137 for 1965-66 and 1966-67, respectively, and he filed a nil return on February 13, 1968 for 1967-68. All those returns pertained to the activities of the four registered firms and not in relation to the shady and unlawful dealing in export licences in the firms which are not set out in the partition deed. It is only after his returns were submitted that the Department investigated and discovered the unlawful activities in export licences through the export firms and he could not have claimed non-liability for 50% in his returns so far as the income from export firms are concerned. The assessing Income-tax Officer and the Appellate Tribunal have considered the above facts also. In fact, in paragraph 3 of the statement of the case, the Tribunal has mentioned that in the course of the assessment proceedings for the disputed assessment years, the assessee had made an alternate claim that there was a diversion of the share income by an overriding title. The export firms were found to have indulged in the sale of export licences only during the investigations made by the Department, which revealed incriminating documents which indicated that the assessee and his three brothers are the real persons interested in such secret export firms, though they were not eo nomine partners. In paragraph 13 of its order also, the Tribunal has dealt with this aspect as well as the settlement arrived at between the assessee and his three brothers on the one hand and the Department on the other with respect to Rs. 1,17,503 for 1965-66 and Rs. 2,52,739 for 1966-67. The assessee has not now challenged the finding of the Tribunal regarding the undisclosed income of Rs. 2,52,739.

26. Now, it has to be seen whether the assessee has established that the capital which was allocated to the minor son of the assessee under the partition agreement in the four registered firms had been withdrawn and invested or utilised by the assessee in the export firms. Admittedly, the assessee did not make any reference to such investment of the minor's share of capital in the unlawful trade activity in export licences. The Tribunal has discussed in paragraph 15 of its order about the contention raised on behalf of the Department to the effect that the export firms, Rajaram Textiles, M. S. Colomboo Stores and M/s. Rathinam Traders, were constituted on July 3, 1961, May 1, 1961 and July 3, 1961, respectively, subsequent to the partition between the assessee and his son on March 31, 1961, and that, therefore, there is no question of the funds of the erstwhile Hindu undivided family having been utilised in the export firms. Then after making a reference to the settlement dated March 14, 1970, in paragraph 16 of the order, the Tribunal has observed that the question as to whether the computed income of Rs. 8,10,420 from the export firms was treated as individual income of the assessee and his three brothers, or as the income belonging to the respective Hindu undivided family, was not gone into at all in the settlement and that, therefore, it cannot be said that by reason of such settlement it is not open to the assessee to put forth the present contention and that, therefore, the objection of the Department cannot be sustained. There is no reasoning in the said observation in view of the admitted fact that the partition arrangement specifically states that because the assessee was desirous of indulging in risky unlawful trade activity and the interested relations and the mother of the minor son wanted to protect the interest of the minor, the partition agreement was arrived at and the investments in the four registered firms were divided It is for the assessee to place the necessary materials and evidence to prove that the Hindu undivided family capital had been invested in the export firms. Admittedly, the assessee did not make any reference to the same in his original return dated September 13, 1966, or in the revised return dated August 23, 1968, or in the nil return filed on February 13, 1968, for 1967-68. He has been allowed to raise contentions in a casual manner which will deprive the Central Exchequer of a sizable tax amount. Unscrupulous and black market traders who had indulged in secret and fictitious export licence business cannot be permitted to have their varied contentions accepted without any material. The Tribunal has not referred to any material or evidence that was placed by the assessee for accepting his belated contention. There is absolutely no reference made by the Tribunal with reference to any portion of the divided capital of the minor son in the four registered firms mentioned in the partition agreement having been withdrawn and invested in the export firms. The Tribunal has put the cart before the horse by observing at the end of paragraph 17 of the order as, 'it is not the case of the Department that the assessee herein has been having his separate funds which had been invested by him in the export firms.' It is quite strange that the Tribunal has made such an observation quite against the partition document. It is the duty of the assessee to place necessary materials and accounts to show that after partition he had invested his Hindu joint family funds in the export firms. It is uncharitable that the Tribunal has thrown the blame and burden upon the Department to prove that after March 31, 1961, the assessee had invested his divided capital in the export firms, which are fictitious firms. The only reasoning given by the Tribunal for the above is that having regard to the background and the circumstances under which the agreement (partition agreement) has come to, it will be quite clear that the funds of the respective Hindu undivided families of the assessee and his three brothers alone had been invested in the export firms. Such an observation is not based on any material or evidence. The export firms mentioned in the grounds have not been mentioned in the partition agreement. The Tribunal has unwittingly given indication to protect the other three brothers also which is quite uncalled for and unwarranted.

27. A careful reading of the grounds of appeal filed by the assessee before the Appellate Assistant Commissioner and before the Tribunal will clearly show that a general contention was raised to the effect that his divided minor son has got 50% in the income of the several firms and that, therefore, the assessee is liable only for 50% of the income, which was arrived at by settlement. The assessee does not make any specific statement about any specific investment of the Hindu undivided family capital in the export firms for his unlawful trade activity, contrary to the terms of the partition agreement. The assessee is very careful in omitting such specific ground, as it will amount to admission or confession in any penal proceeding or prosecution that might be initiated against him by the Department. It is such risks that are contemplated in the partition. The Tribunal has come to the conclusion that even though the assessee has not placed any material in support of his belated contentions, the assessee is entitled to avoid 50% of the income-tax.

28. The learned senior counsel appearing for the assessee has argued at great length that the assessee stands in the position of a trustee or guardian under the Trusts Act or Hindu law, as the case may be, with reference to the divided capital allotted in the partition to the minor son, since the actual division of the capital has not been effected by the document and that, therefore, the assessee is accountable to the minor son for the 50% of the capital invested in the export firms also. The said argument is only based on the air without any evidence or material. The assessee has not at all established that the capital of the minor was withdrawn from the four registered firms and utilised in the unlawful export trade activity and against the recitals of the partition deed. It was argued that even if the father had unlawfully utilised the minor's money for unlawful business, he is accountable to the minor son for his share of the capital. The share capital of the minor son has been specifically mentioned as having been invested in the four registered firms and there is no reference to any division of any capital investment in any export firm. Admittedly, the majority of the export firms had come-into existence after the partition agreement and the mother is the guardian representing the minor in the partition agreement. It is admitted that no evidence was furnished by the assessee to prove that the divided capital under the partition agreement, allotted to the minor son, had been taken away from the four registered firms in which the assessee and his three divided brothers are eo nomine partners. The consistent contention is that the share of minor's capital continued in the four registered firms only. It is only in the course of the argument that the learned senior counsel appears to have raised the new contention that it shall be presumed from the settlement dated March 14, 1970, that the minor's capital also had been utilised in the export firms. There is no basis for this argument. Therefore, the decision in CWT v. J. K. K Angappa Chettiar : [1979]116ITR456(Mad) , cannot be applied to the facts of the present case. In that case, it appears to have been established that the capital of the minors continued to be utilised in the four registered firms and, hence, the father was held liable for one-third share only, whereas the two minor sons were entitled to two-thirds share of the income. In that case also, J. K. K. Angappa Chettiar entered into a partition arrangement with his two minor sons on March 31, 1961.

29. The learned counsel referred to a passage in Mayne's Hindu Law and Usage, 11th edition, which has been extracted in question No. 2. There is no dispute with regard to the dictum found in Mayne's Hindu Law and Usage, provided it is established that the minor divided son had been wrongfully excluded from the enjoyment of the divided family property or that his share of capital had been beneficially enjoyed by another divided member of the family. The other decisions referred to also do not support the contention of the assessee on the second question.

30. In this particular reference, it is the facts which have constituted the basis for making a reference on this question of law and hence it has become necessary to consider this legal question with reference to the facts available in this case which are discussed by the Tribunal and the lower authorities. It is those facts which have led to the legal conclusion that the divided minor son is precluded from either claiming half of the share of the income from the export firms in which it is not established that his share of capital from the registered firms had been invested or to be burdened with 50% tax liability. On the other hand, from the facts, it can be presumed that the assessee and his three brothers alone had invested their own capital as a risky venture which the assessee himself had declared in the partition agreement. Hence, it is not open to the assessee to claim that he is liable to pay income-tax only on 50% of the income.

31. Accordingly, it is answered on this question that, on the facts and in the circumstances of the case, the Appellate Tribunal was not right in holding that the assessee is liable for tax only on 50% of Rs. 1,17,503 and Rs. 9,103 as the income of the assessee from the export firms for the assessment years 1965-66 and 1966-67, respectively. The parties will bear their respective costs since they have succeeded in part.

32. In view of the difference of opinion on the second question, the matter is placed before the Hon'ble Chief Justice for posting the matter before a third judge for a decision on the following question, on which there is a difference of opinion :

'Whether, on the facts and in the circumstances of the case only 50% of Rs. 1,17,503 and Rs. 9,103 can be assessed from the export firms for the assessment years 1965-66 and 1966-67, respectively ?'

M.N. Chandurkar, C.J.

33. This reference which was made at the instance of the Revenue under section 256(1) of the Income-tax Act has been placed before me because there is a difference of opinion between Ramanujam J. and (late) Fakkir Mohammed J. on the answer to be given to question No. 2.

34. The two questions referred were :

'1. Whether, on the facts and in the circumstances of the case only 5O% of the share income of the assessee from M/s. Sundaram Spinning Mills, M/s. Kandaswamy Weaving Factory and Company, M/s. Quality Traders and M/s. Super Textiles could be assessed in the hands of the assessee for the assessment years 1965-66, 1966-67 and 1967-68

2. Whether on the facts and in the circumstances of the case, only 50% of Rs. 1,17,503 and Rs. 9,103 can be assessed as the income of the assessee from the export firms for the assessment years 1965-66 and 1966-67, respectively ?'

35. The first question has been answered by both the learned judges in the affirmative and against the Revenue. I am, in this reference, concerned only with the second question.

36. The relevant facts have been set out in sufficient detail in the separate judgments of both the learned judges. I shall, therefore, set out only such facts as are necessary for the decision of the second question. The export firms referred to in question No. 2 are M/s. Colombo Stores, M/s. Ashoka Textiles, M/s. Ratnam Traders, M/s. Rajam Textiles and M/s. Kandaswami Weaving Factory (Export section). Those firms were found to have indulged in sale of import licences. Investigation made by the Income-tax Department indicated that the assessee and his three brothers were the real persons interested in those firms, though they were not eo nomine partners, but had been represented by other relations. A settlement was arrived at between the Department on the one hand and the assessee and his three brothers on the other, in March, 1970. The Tribunal found that the terms of the settlement, as gathered from the letter of the Income-tax Officer dated March 13, 1970, and accepted by the assessee and his brothers, were that Rs. 31,03,231 was to be treated as the value of the unexplained investments and brought to tax, that Rs. 8,10,420 should be taken as their income from the export firms, and that the same was to be assessed in the hands of the assessee and his three brothers equally. It was also agreed that the undisclosed income was to be taken at Rs. 20,21,911 and this was to be assessed in the hands of the four brothers equally and spread over the assessment years 1965-66 and 1966-67.

37. On September 13, 1966, the assessee filed returns in the status of an individual declaring a loss of Rs. 1,32,381 and Rs. 29,530 for the assessment years 1965-66 and 1966-67, respectively. The assessee filed revised returns in the same status declaring a loss of Rs. 41,109 and Rs. 25,137 for the above-mentioned assessment years. For the assessment years 1967-68, the assessee filed a return on February 13, 1968, in the same status declaring the income as 'nil'. In the revised return as well as in the return filed for the assessment year 1967-68, the assessee claimed a deduction of 50% of the share income from the export firms on the ground that the interest in the aforesaid four partnership firms originally belonged to the Hindu undivided family consisting of himself, his minor son, his wife and his daughters and of which he was the karta, and that in the partition made on March 31, 1961, the same was divided equally between the assessee and his minor son and, consequently, the assessee's minor son was entitled to 50% of the share income from the export firms and the same could not be assessed in the hands of the assessee.

38. It is an admitted position that there was a partition on March 31, 1961, and on the basis of that partition, question No. 1 was answered against the Revenue and in view of that partition, only 50% of the share income of the assessee from M/s. Sundaram Spinning Mills, M/s. Kandaswamy Weaving Factory, M/s. Quality Traders and M/s. Super Textiles could be assessed in the hands of the assessee for the assessment years 1965-66, 1966-67 and 1967-68.

39. The Income-tax Officer, following the wealth-tax assessment for the assessment year 1962-63, included Rs. 1,17,503 and Rs. 9,103 as income from the export firms for the assessment years 1965-66 and 1966-67, respectively, and also Rs. 2,52,739 as undisclosed income of the assessee for the two assessment years.

40. The Appellate Assistant Commissioner, following his order in Wealth-tax Appeals Nos. 104, 105 and 106/68-69, relating to the assessment years 1962-63 to 1964-65, rejected the assessee's contention that the share income of his minor son from the four export firms could not be included in his income. The Appellate Assistant Commissioner, however, directed that interest at 6% on the capital invested in those firms which belonged to the minor son of the assessee should be deducted.

41. The assessee carried the matter in appeal to the Income-tax Appellate Tribunal. The Department also filed cross-objections contending that the Appellate Assistant Commissioner had erred in holding that interest calculated at 6% on the capital belonging to the minor son of the assessee should be deducted from the share income in respect of the abovesaid four firms.

42. The Tribunal found that the main question which arose for consideration before it was whether under the partition effected between the assessee and his son on March 31, 1961, the interest of erstwhile joint family in the aforesaid four firms had become divided and consequently the assessee's son became entitled to 50% of the share income from the abovementioned firms. An alternative contention was raised before the Tribunal that even granting that what was allotted to the assessee's minor son in the partition was a specific sum of Rs. 1,86,296.10 only, in so far as the said sum was continued to be invested by the assessee in the aforesaid four firms, in which he continued to be a partner, he was accountable to his minor son in respect of the minor son's half share of the profits derived by the assessee. The Tribunal, following the decision of the Bench of the Tribunal in the wealth-tax appeals involving a similar question in respect of the assessee, held that since the interest of the erstwhile Hindu undivided family in the abovementioned four firms had been equally divided between the assessee and his minor son, the latter's share of the share income could not be considered as belonging to the assessee and could not, therefore, be assessed in his hands. The Tribunal, therefore, found that the direction given by the Appellate Assistant Commissioner that interest at 6% of the moneys of the minor utilised in the business of the aforesaid four firms should be allowed, was not valid and had to be deleted.

43. However, while giving effect to the order of the Tribunal, the Income-tax Officer rejected the contention of the assessee that for the assessment years 1965-66 and 1966-67, 50% of the share income from the export firms and 50% of the undisclosed income which had been included in the original assessments should also be deducted.

44. The assessee then filed a miscellaneous petition under section 254(2) of the Income-tax Act, 1961, for rectification of a mistake in the order of the Tribunal dated November 30, 1973, by directing (i) exclusion of half share of the share income from the export firms, and (ii) exclusion of half share of the undisclosed income which had been included in the assessments. Before the Tribunal. the Department had contended that under the settlement arrived at between the assessee and his brothers on the one hand and the Department on the other, it has been agreed that the share income of the relations, who were shown to be partners in the export firms, had to be taken as the income of the four brothers and the assessee having accepted the settlement, it was not open to him to contend that only 50% of such income from the export firms should be considered as belonging to him and the other 50% should be considered as belonging to his son. The contention was that there was no claim in the settlement proceeding that the funds of the Hindu undivided family, of which the assessee was the karta, had been utilised in the business carried on by the export firms and it was for the assessee to establish that the funds of the Hindu undivided family had been utilised in the business of the export firms and since the same had not been established, the claim could not be accepted. The Tribunal took the view that the question as to whether the income from the export firms was to be treated as the individual income of the assessee and his three brothers or as income belonging to the respective Hindu undivided family was not gone into at all at the time of settlement. The Tribunal recorded a finding that if undivided funds had been utilised in the business carried on by the export firms, the income would also belong to both of them in equal moieties. The Tribunal took the view that the fact that some of the export firms came to be constituted (after the partition) did not make any difference in the situation. The Tribunal found that at least two firms, i.e., Colombo Stores and Ashok Traders, had been constituted on December 19, l957, and August 17, 1958. The Colombo Stores was reconstituted as a firm on May 1, 1961. The Tribunal noticed the fact that it was not the case of the Department that the assessee had separate funds and had invested the same in the export firms. The Tribunal recorded a positive finding that it was clear that the funds of the respective Hindu undivided families of the assessee and his brothers alone had been invested in the export firms. Consequently, in view of the partition effected on March 31, 1961, 50% of such income from the export firms belonged to the assessee and the other 50% of such income could be assessed in his hands. The correctness of this finding has been put in issue in the second question.

45. Ramanujam J. took the view that the reference could be decided on the basis of the finding of the Tribunal that the funds of the minor son of the assessee had been invested in the exporting firms by the assessee especially when there was no other material to indicate that the assessee withdrew the capital invested in the non-exporting firms which was the subjectmatter of division and handed over to the son his share therein. The learned judge took the view that in the absence of any evidence of the minor son's funds having been handed over to him or kept or invested separately, the presumption would be that the father had invested in the exporting firms not only his money but also his son's. The learned judge took the view that from the material on record, it was not possible to specifically hold that the amount allotted to the son's share has not been utilised by the father by way of investments in the exporting firms. The learned judge referred to the finding of the Tribunal that the assessee had invested the funds of the erstwhile joint family and, therefore, the amount allotted to the share of the son under the partition deed should also be taken to have been invested by the assessee on behalf of his minor son in the exporting firms. The learned judge held that as guardian the assessee was liable to account for the profits of the minor son and, therefore, the ratio of the decision in CWT v. J. K. K. Angappa Chettiar : [1979]116ITR456(Mad) , where it was held, in respect of the same assessee, that on and from the date of the partition dated March 31, 1961, the assessee had become liable to render an account of the profits and the liability to such account is that of a trustee or agent, would be applicable in the instant case. Thus, the learned judge took the view on the second question against the Revenue.

46. Fakkir Mohammed J. approached the controversy by posing the question whether the assessee had established that the capital which was allocated to the minor son of the assessee under the partition agreement in the four registered firms had been withdrawn, invested and utilised by the assessee in the export firms. Taking the view that the three export firms, viz., Rajam Textiles, Colombo Stores and Ratnam Traders, were constituted on July 3, 1961, May 1, 1961, and July 3, 1961, respectively, subsequent to the partition dated March 31, 1961, the learned judge found that there was no question of the funds of the erstwhile Hindu undivided family having been utilised in the export firms. The learned judge found fault with the Tribunal when it observed that 'it is not the case of the Department that the assessee herein has been having his separate funds which had been invested by him in the export firms'. The learned judge found that the observation made by the Tribunal that the funds of the respective Hindu undivided families of the assessee and his three brothers alone had been invested in the export firms was not based on any material or evidence. The learned judge found that the assessee did not make any statement about any specific investment of the Hindu undivided family capital in the export firms for his unlawful trade activity contrary to the terms of the partition agreement. It appears from the judgment of the learned judge that the main circumstance which weighed with him when differing with the view of Ramanujam J. on the second question was that the majority of the export firms had come into existence after the partition agreement and the mother was the guardian representing the minor in the partition agreement. The learned judge, therefore, answered the second question by holding that the Appellate Tribunal was not right in holding that the assessee was liable only for 50% of Rs. 1,17,503 and Rs. 9,103 as the income of the assessee from the export firms for the assessment years 1965-66 and 1966-67, respectively.

47. In view of the difference of opinion, the two judges have referred the following question for decision :

'Whether, on the facts and in the circumstances of the case, only 5O% of Rs. 1,17,503 and Rs. 9,103 can be assessed from the export firms for the assessment years 1965-66 and 1966-67, respectively ?'

48. Learned counsel for the Revenue has contended before me that the question referred by the Tribunal is a general question and that this question would include the controversy whether the Tribunal had before it evidence to hold that the share income from the export firms belonged to the erstwhile Hindu undivided family. It was contended that there has to be positive evidence of investments of the Hindu undivided family funds and that the Tribunal was in error when it placed the burden of proof on the Revenue to show that separate funds owned exclusively by the erstwhile manager of the joint family were invested in the export firms. Learned counsel appearing on behalf of the assessee has contended that the question as to whether there was evidence before the Tribunal to hold that the funds invested in the export firms belonged to the erstwhile Hindu undivided family has not been referred, and unless such a question is specifically referred, it is not open to the Revenue to challenge the finding of fact recorded by the Tribunal. Learned counsel has also contended that the decision in the wealth-tax reference of one of the brothers of the assessee reported in CWT v. J. K. K. Angappa Chettiar : [1979]116ITR456(Mad) , should be followed in the instant case. In any case, according to learned counsel, once there was a partition between the assessee and his son and there is nothing to show that any funds were separately invested in the export firms, the share income falling to the share of the minor son would be held in trust by the father - assessee - and the assessee would be liable to account for it to the son.

49. I have referred earlier to the finding recorded by the Tribunal. The order of the Tribunal specifically shows that the question which was considered by the Tribunal in paragraph 17 of the appellate order was : 'Whether the funds of the erstwhile family have been invested in the said firms ?' While answering this question, the Tribunal referred to the fact that though the export firms themselves were to be treated as registered firms for the purpose of assessment under the Income-tax Act, the aggregate of the share income of the relative partners was to be equally assessed in the hands of the assessee and his three brothers. Paragraph 3 of the letter of the Income-tax Officer dated March 13, 1970 (annexure 'B'), which contains the terms of settlement, reads as follows :

'The export firms will be granted registration and the share income allocated to the members of the assessee family will be brought to tax in the hands of the four brothers equally.'

50. From the above recital, an inference was drawn by the Tribunal that the funds of the respective Hindu undivided families of the assessee and his three brothers alone had been invested in the export firms. It was in the light of this circumstance that the Tribunal came to a finding that the income from such firms did not belong to the assessee exclusively but belonged to him and his son in equal moieties.

51. The order of the Tribunal would, therefore, show that the finding recorded by the Tribunal that the income from the export firms did not belong to the assessee exclusively is a finding based on circumstances which appeared in the assessment proceedings. The correctness of this finding on the ground that there was no material before the Tribunal to arrive at such a finding, is not a question which was referred to the High Court. The scope of a reference under section 256(1) of the Income-tax Act, 1961, is a very limited one and the High Court must take the facts as stated in the statement of the case. In Karnani Properties Ltd. v. CIT : [1971]82ITR547(SC) , the Supreme Court has indicated the limited jurisdiction of the High Court in a reference as follows (p. 551) :

'The jurisdiction of the High Court in dealing with a reference under section 66 is a very limited one. It must take the facts as stated in the statement of the case unless the question whether the findings of the Tribunal are vitiated for one or the other of the reasons recognised by law is before it.'

52. After referring to this decision, the Supreme Court in CIT v. S. P. Jain : [1973]87ITR370(SC) , has undoubtedly taken the view that though the question referred to the High Court did not challenge the validity of the finding given by the Tribunal, if the Tribunal fails to take into account the relevant material on record in arriving at its finding and acts on inadmissible evidence or misreads the evidence and bases its conclusion on conjectures and surmises, the court could ignore the finding of the Tribunal and re-examine the issue arising for decision on the basis of the material on record.

53. Undoubtedly, the Revenue could have asked for a reference of the specific question as to the finding recorded by the Tribunal with regard to the funds invested in the export firms being owned by the Hindu undivided family. The Revenue, however, did not ask for reference of such a question. The statement of the case filed on behalf of the Revenue before the Tribunal shows that the view of the Tribunal that after the partition, the properties of the erstwhile Hindu undivided family which were left undivided were held by the assessee and his son as co-tenants, was challenged as not being correct on the ground that a similar view in the wealth-tax assessments taken by the Tribunal was already the subject-matter of challenge in the wealth-tax references. The further stand taken in the statement of the case was that the profits of a firm are not earned by the mere use of the capital and, according to the Revenue, it could not, therefore, be said that merely because the capital of the minor son was also used in the business of the export firms, the assessee's minor son was entitled to 50% of the profits earned by the assessee. The main ground on which the exclusion of 50%, which was the share income of the minor, was challenged, was that at the time of the settlement of undisclosed income, it was never claimed that half of the share income should be assessed in the hands of the minor son. It appears that in the statement of the case, incidentally, a ground was taken : 'Besides there is absolutely no evidence that the joint family funds' formed the nucleus towards the capital in these firms. The further stand taken in the statement of the case was that the assessee's son was a minor and it could not, therefore, be said that he had indulged in unlawful activities of trafficking in licences along with his father, and an implied agreement to that effect cannot be assumed and even if there was such an agreement, the agreement was void per se.

54. It has to be borne in mind that even at the stage of the appeal before the Appellate Assistant Commissioner, the position did not seem to be disputed that some amount belonging to the minor was utilised by the export firms. Throughout the assessment proceedings, it has been the case of the assessee that for the assessment years in question, he was entitled to a deduction of 50% out of the share income of the firms. Even the Appellate Assistant Commissioner had found that the assessee was entitled to deduction of interest at 6% on the moneys of the minor utilised by the assessee.

55. The question which essentially falls for consideration is whether the present case would fall within the ratio of the decision of the Supreme Court in S. P. Jain's case : [1973]87ITR370(SC) and unless I come to the conclusion that though the correctness of the finding recorded by the Tribunal as being without any evidence is not specifically referred to the High Court, can it be said that the finding is based on conjectures and surmises, or is it vitiated on account of the failure to take into account any relevant material on record, or, as the learned counsel for the Revenue put it, by placing the burden of proof wrongly on the Department.

56. The circumstance that when the settlement was made in 1970, the assessee and his three brothers were not eo nomine partners and yet the aggregate share of profits of all the partners was to be equally divided between the four brothers, was a relevant fact. The two firms, viz. M/s. Colombo Stores and Ashok Traders, were already in existence on the date of partition, they having been formed on December 19, 1957, and August 17, 1958, respectively. These firms having been formed prior to the partition, the only inference can be that the funds of the Hindu undivided family were already invested in these firms and the mere fact that the share income from the export firms was to be assessed in the hands of each of the four brothers respectively would not affect the very important fact that the investments in these two firms must necessarily be the investments of the erstwhile Hindu undivided family. In the light of these circumstances, the Tribunal was entitled to consider that it was not the case of the Revenue that the assessee had any separate funds which could be invested by him in the export firms. When the Tribunal made these observations, it did not amount to placing any wrong burden of proof on the Revenue. This was only one of the circumstances which the Tribunal considered in aid of its conclusion that the funds in the export firms belonged to the erstwhile Hindu undivided family. It can hardly be disputed that this was a very relevant circumstance. Therefore, the finding recorded by the Tribunal that the funds of the Hindu undivided family were invested in the four export firms and consequently after the partition, 50% of the share income belonged to the son of the assessee, cannot be said to be in any way vitiated either by non-consideration of any relevant evidence or by considering any irrelevant evidence, or the placing of wrong burden of proof. In my view, there is no reason to reject the finding recorded by the Tribunal. Accordingly, I would agree with Ramanujam J. that question No. 2 must be answered in the affirmative and against the Revenue.

Ramanujam, J.

57. The following two questions came to be referred to this court under section 256(1) of the Income-tax Act :

'1. Whether, on the facts and in the circumstances of the case, only 50% of the share income of the assessee from M/s. Sundaram Spinning Mills, M/s. Kandaswami Weaving Factory and Company, M/s. Quality Traders and M/s. Super Textiles could be assessed in the hands of the assessee for the assessment years 1965-66, 1966-67 and 1967-68

2. Whether, on the facts and in the circumstances of the case, only 50% of Rs. 1,17,503 and Rs. 9,103 can be assessed as the income of the assessee from the export firms for the assessment years 1965-66 and 1966-67, respectively ?'

58. When the tax cases were posted at the first instance before a Division Bench (Ramanujam J. and (late) Fakkir Mohammed J.), the Bench answered question No. 1 against the Revenue, but differed in their opinion on the second question. In view of the difference of opinion on the second question, the matter was referred to a third judge. The learned Chief Justice has agreed with the view expressed by one of the judges (Ramanujam J.) and in view of the said expression of opinion by the third judge, the second question has to be answered against the Revenue taking note of the opinion expressed by the majority of two as against one. Therefore, both the questions referred in the tax cases have to be answered against the Revenue and they are answered accordingly. The tax cases are ordered accordingly.

No costs.


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