1. The following question has been referred to this court under Section 66(2) of the Income-tax Act at the instance of the assessee :
'Whether, on the facts and in the circumstances of the case, the Tribunal had material before it to come to the conclusion that the firm of E.A.E.T. Sundararaj and Co. is not a genuine firm, but is only a benami firm for the Hindu undivided family '
The circumstances under which the above reference has been made are these : The assessee is a Hindu undivided family represented by its karta, E. A. E. T. Sundararaj. The Hindu undivided family is carrying on business both in the purchase and sale of raw materials and in the manufacture and sale of fire-works under the name and style of Prithivi Fire Works Industries. For the previous year ending on February 6, 1960, relevant for the assessment year 1960-61, the assessee returned an income of Rs. 15,853 from the said business. A return of income for the same assessment year for which the previous year was the year ended on March 31, 1960, was filed by a firm, E. A. E. T. Sundararaj and Co., disclosing an income of Rs. 7,381. The Income-tax Officer treated the said firm as benami for the family, and treated the net income of Rs. 5,805 returned by the firm as income of the Hindu undivided family headed by the said Sundararaj. The assessee objected to the inclusion of the income of the firm with the income of the Hindu undivided family. Aggrieved against the inclusion of the income of the firm with the income of the Hindu undivided family, the assessee filed an appeal before the Appellate Assistant Commissioner, who, however, accepted the assessee's case and held that there was no justification for clubbing the income of the firm with that of the family. He, therefore, deleted the firm's income of Rs. 5,805 in the assessment of the family. There was a further appeal to the Tribunal by the revenue. The Tribunal was not inclined to accept the view taken by the Appellate Assistant Commissioner that the firm, E.A.E.T. Sundararaj & Co., was a genuine firm, but took the view, on the facts setout in the order of the Income-tax Officer as also the materials gathered in the course of the assessment, that the firm can only be benami for the joint family and that the income earned by the firm had rightly been included by the Income-tax Officer in the assessment of the Hindu undivided family. Therefore, the assessee has sought the above reference.
2. It is stated by Mr. Padmanabhan, learned counsel for the assessee, that there is no relevant and acceptable material to lead to the inference that the firm is not a genuine firm, but is only a benami firm for the Hindu undivided family, and that the facts and circumstances referred to and relied on by the Tribunal cannot be conclusive on the question of benami. What in effect the learned counsel says is that, on the materials referred to by the Tribunal, the conclusion arrived at by the Tribunal is not at all reasonable. The learned counsel refers to the various reasons set out by the Tribunal in its order and states that none of the reasons is sufficient to show that the firm is not genuine at all. On the other hand, the learned counsel for the revenue contends that each of the reasons set out by the Tribunal cannot be taken separately, and that the cumulative effect of all the reasons set out should be considered.
3. Before dealing with the relative contentions of both sides, it is necessary to set out the facts as found by the Tribunal. As already stated, the Hindu undivided family is carrying on business not only in the manufacture and sale of fire-works but also in the purchase and sale of raw materials for the manufacture of fire-works and that business is managed only by Sundararaj, the karta of the family. On January 11, 1957, a partnership has come into existence with two partners : Jagajothi Ammal and Muthulakshmi Ammal, the first being the wife of the karta and the second being the wife of one Chandrasekharan, brother of the karta. The Hindu undivided family consists of only two brothers, Sundararaj and Chandrasekharan. The firm has been constituted with the wives of the two coparceners, and the business of that firm is said to be purchase and sale of raw materials for the fire-works which is also the line of business carried on by the family.
4. The assessment of this firm was taken up for the first time for the assessment year 1960-61. Before the Income-tax Officer, it was contended that the firm is an independent entity, having nothing to do with the Hindu undivided family, that, therefore, the inclusion of the firm's income in the income of the Hindu undivided family was not justified and that there was no justification for the view that the firm is not a genuine one but benami for the Hindu undivided family. At the stage of the assessment, the Income-Officer investigated the question of genuineness of the firm. He recorded sworn statements from the two partners. Ultimately, he came to the conclusion that the firm was not genuine and that the business of thefirm actually belonged to the assessee-family. The facts and circumstances taken by the Income-tax Officer for coming to that conclusion are these:
(i) The two partners of the firm were the wife of the karta of the Hindu undivided family and the wife of an undivided member of the Hindu undivided family;
(ii) The capital provided by the partners was lying in deposit with others and was bringing in some interest to the ladies.
(iii) The business of the firm was also in the same line as that of the assessee ; and there was no specific reason for the wives of the members of the family starting a rival business.
(iv) The business premises of the firm were the same as the business premises of the assessee-family, and the firm was utilising the assessee's own telegraphic address.
(v) Neither of the partners had any experience of the business and both the partners professed complete ignorance of the running of the business ; and
(vi) The karta of the Hindu undivided family, Sri Sundararaj, actually carried on the firm's business.
The Income-tax Officer took the cumulative effect of the above factors and held that the business of the firm has been actually run by Sundararaj, the karta of the undivided family only, in the premises where the Hindu undivided family carried on business, that the business of the firm was also in the same line as that of the family, and that it is quite improbable that the Hindu undivided family would have allowed a firm doing a rival business in the same premises, unless it is benami for the family. The Tribunal has practically accepted the reasoning of the Income-tax Officer. The Tribunal took note of the following circumstances in affirming the view of the Income-tax Officer that the firm was not a genuine one, but only benami for the Hindu undivided family:
(i) The business of the firm was in the nature of a rival business to that of the assessee and there was no reason for the wives of the members of the Hindu undivided family to start such a rival business;
(ii) The explanation for starting business by the ladies, namely, that they wanted to invest their capital with a view to get a better return was not convincing inasmuch as the firm was not started with the capital of the ladies but only with the capital borrowed from the Hindu undivided family and the partners brought in their capital only at a later stage.
(iii) The ladies themselves were completely ignorant of the business of the firm and the business was run entirely by the karta of the Hindu undivided family; and
(iv) Although there was no evidence that the profits of the firm were enjoyed by the Hindu undivided family, there was also no evidence that the profits of the firm were enjoyed by the ladies.
According to the Tribunal, the business run by the firm is in the same line as the business run by the Hindu undivided family. As already stated, the Hindu undivided family is also carrying on business in raw materials for the manufacture of fire-works, and, therefore, it is quite improbable that the joint family would have genuinely brought into existence a firm to carry on the same business and practically in the same premises. The view of the Tribunal is that there is absolutely no reason for the wives of the members of the Hindu undivided family to start a rival business unless the business run by the firm is for the benefit of the Hindu undivided family. We are unable to say that this reasoning of the Tribunal is, in any way, vitiated. As the Tribunal points out, it is quite unlikely that the Hindu undivided family would have allowed a rival firm to start the same line of business within the same premises, unless the business run by the firm is also for its benefit. In fact, the partners have not brought in their capital in the first instance. They are supposed to have borrowed capital from the Hindu undivided family at the time of the constitution of the firm and brought in their capital only at a later stage. We are of the view that this circumstance that the partners did not bring their capital in the first instance is not altogether an irrelevant consideration in finding out the ownership of the business. It is not in dispute that the entire capital was provided by the Hindu undivided family at the first instance. This belies the statement of the assessee that the partners wanted to get larger return for their separate funds and, therefore, they formed the partnership to carry on business in raw materials. Admittedly, the ladies had no prior experience in business, much less in this line of business. Only the karta of the assessee-family is experienced in this business. It is also seen that the firm has purchased the raw materials from the assessee-family and sold them to outsiders. There is not even one instance where the assessee has purchased goods from the firm. The transactions between the assessee-family and the firm indicate that the family sold the raw materials through the firm. The partners were found completely ignorant of the details of the business of the firm and the business was run practically by the karta of the Hindu undivided family. The Income-tax Officer specifically says that he has seen the correspondence and has found that Sundararaj, who is the karta of the family, had attended to the correspondence and had actually given instructions then and there as to how the transactions are to be attended to, to one Srinivasan, said to be the only employee of the firm. The finding of the Income-tax Officer as well as the Tribunal is that the business was actually under the management of the karta of the family. In addition to this, it is pointed out by the Tribunal that though there was no evidence that the profits of the firm were enjoyed by the Hindu undivided family, it is not clear from the accounts that the profits of the firm were enjoyed exclusively by the partners. We have also perused the extracts from the accounts which have been annexed to the statement of the case. The accounts do not disclose that the profits have been withdrawn or enjoyed by the two partners. In the case of both the partners, only small amounts have been withdrawn, but that can be easily explained as withdrawal from the other individual items of receipts shown in the accounts. We have not been shown any entry of withdrawal by the partners as relating to their share of the profits.
5. The learned counsel for the assessee refers to the decision in Madura Knitting Company v. Commissioner of Income-tax, Commissioner of Income-tax, : 74ITR473(Mad) and submits that the principles laid down in that case have not been kept in view by the Tribunal. But, we are of the view that the decision in that case has to be confined to the facts found therein. It is also pointed out by the learned counsel that the firm has been registered under the Partnership Act and that it has also been assessed as a separate entity by the sales tax authorities and that these facts show that the firm should only be genuine. The question whether a particular firm is benami or genuine has to be determined mainly on the facts and circumstances of each particular case and on the basis of the evidence available on record in that case. It is on the cumulative effect of all the materials that are available, the Tribunal has to decide the question of benami and, if there are some materials which can be accepted as relevant and as throwing light on the question of benami, the Tribunal's view cannot be interfered with merely on the ground that another view is possible on the same materials. As pointed out by the Supreme Court in Commissioner of Income-tax v. Durga Prasad More, : 82ITR540(SC) :
' Science has not yet invented any instrument to test the reliability of the evidence placed before a court or tribunal. Therefore, the courts and tribunals have to judge the evidence before them by applying the test of human probabilities. Human minds may differ as to the reliability of apiece of evidence. But, in that sphere, the decision of the final fact-finding authority is made conclusive by law '.
6. The Supreme Court also points out that in considering the materials the Tribunal and the High Court cannot ignore the facts of life. Though, generally, an apparent must be considered real until it is shown to the contrary, in cases like this, where a partnership, which is carrying on a business similar to the one carried on by the joint family, comes into existence and the business of that firm is practically carried on by the karta of the family, it is for the party who contends that the partnership is genuine and a separate entity, having nothing to do with the joint family, to prove as to why such a rival business was started by the wives. Admittedly, there cannot be any dispute that the wives had no experience in this line of business, i.e., purchase and sale of raw materials for the manufacture of fire-works, and the fact that the joint family as well as the firm carry on business in the same place with the same telegraphic address shows that there is an intimate nexus between the firm and the Hindu undivided family and that they are not separate entities. We cannot, therefore, say that the Tribunal had acted on no material in coming to the conclusion that the firm is not a genuine firm, but is only benami for the Hindu undivided family. The question is, therefore, answered in the affirmative and against the assessee. The revenue will have its costs. Counsel's fee Rs. 250.