Patna High Court
Chandmull Rajgarhia vs Commissioner Of Income-Tax, Bihar And ... on 3 February, 1966
Equivalent citations: [1967]66ITR347(PATNA)
JUDGMENT
MAHAPATRA J. - On the assessees application for a reference under section 66(1) of the Indian Income-tax Act, the Appellate Tribunal has forwarded a statement of the case with two questions formulated as below for consideration of this court :
"1. Whether, on the facts and circumstances of the case, the Tribunal was correct in holding the status of the assessee as individual in respect of the income from the business Chandmull Rajgarhia ?
2. Whether, in law, the utilisation of the family funds in the individual business of Chandmull Rajgarhia constituted such blending as to transform the individual business into a joint family business ?"
The relevant year of assessment is 1954-55. For the assessment years 1929-30 to 1953-54, the assessee was assessed to income-tax as an individual on the returns filed on that basis by him. His sources of income were house property, share income from a firm, J. S. Mull & Co., salary, dividends and the income from a business of mining and dealing in mica under the name any style "Chandmull Rajgarhia." For the first time for the assessment year of 1954-55, he filed a revised return claiming his status to be Hindu undivided family in respect of income derived from the above sources; but the assessment being made as before as an individual, he went in appeal before the Appellate Assistant Commissioner, who held that the income from all the above-mentioned sources excepting the last belonged to the Hindu undivided family in respect of income derived from the above sources; but the assessment being made as before as an individual, he went in appeal before the Appellate Assistant Commissioner, who held that the income from all the above - mentioned sources excepting the last belonged to the Hindu undivided family consisting of Chandmull Rajgarhia and his sons. The income from the remaining sources, namely, from the business run in the name of "Chandmull Rajgarhia" was assessable in the hands of run assessee as an individual. This finding was challenged by the assessee before the Appellate Tribunal; and being unsuccessful there, he asked for a reference to this court of the two questions stated above.
The mica business, "Chandmull Rajgarhia", was started from the 1st of May, 1945. In the assessment year of 1946-47, the assessee had contended that the introduction of Rs. 70,000 as capital in that business was from the savings from the income from all his other businesses. This was not accepted; and that sum of Rs. 70,000 was taken as income from an undisclosed source. That was affirmed by the appellate authorities also. Subsequently, in 1951, the assessee made a voluntary disclosure of Rs. 4,39,124 cash in his hand. On the 30th November, 1951, the Inspecting Assistant Commissioner of Northern Range, Patna, recorded an order accepting the disclosure and allowing the introduction of the cash balance in hand of the assessee to the extent of Rs. 1,86,124 into his business. The books of accounts of the business of "Chandmull Rajgrihis" show the introduction of this money on the 4th of December, 1951; and, as observed in the orders of the Appellate Tribunal, that money represented the aggregate of saving from the joint family funds and personal earnings as set out in the assessees disclosure petition of the 30th November, 1951; and that introduced capital came top be fully used up in the business, "Chandmull Rajgarhia."
In this background, the assessee claimed for the assessment year of 1954-55, that this business (Chandmull Rajgarhia) belonged to the Hindu undivided family and not to him exclusively. Learned counsel appearing for the petitioner contended that this business had been started with the capital that belonged to the joint Hindu family in 1945. Although that contention was not accepted by the revenue for the assessment year 1946-47, it was open to him to establish it, even now, as a fact. In this connection, he mainly referred to the disclosure application of the assessee as filed in November, 1951, where he had stated that the sum of Rs. 70,000 put in his mica business in 1945 was out of Rs. 4,39,124, which was his undisclosed income during 1934-35 to 1947-48. In that, he stated that, by the end of the year 1946, he had to stop all his business activities in other directions and devoted full time to his mica business. During the period from 1934-35 to 1947-48, he had earned an income of Rs. 1,70,000 from speculation and odd jobs, which he, however, had not disclosed. In addition to that amount, he gave details of another sum of Rs. 2,69,125 which he got from other sources during that period, which were assessed to income-tax. The total of the two came to Rs. 4,39,124. In paragraph 12 of that disclosure petition he stated that out of the Rs. 4,39,124, he had made different investments of Rs. 2,53 winding of Rs. 70,000 in his mica business in 1945 (Chandmull Rajgarhia) the balance of Rs. 1,86,124 left in his hand in cash. If the came out of the undisclosed income of Rs. 1,70,000, it was not from joint family sources but only from the income from speculation and odd jobs done by the assessee himself. From the order of the Inspecting Assistant Commissioner accepting the disclosure, it appears that it had been agreed by the assessee that the addition of Rs. 70,000 in 1946-47 and Rs. 17,000 in 1947-48 as cash credit in his hand would not be disputed by him and his reference case in the High Court in that respect would be withdrawn by him; the findings in the assessment years of 1946-47 and 1947-48 should not be disturbed. Paragraph 1 of the settlement form referred to in the Inspecting Assistant Commissioners order and printed at page 80 of the paper-book shows the agreed re-allocation of the sum of Rs. 1,70,000 : and with reference to the assessment year 1946-47, the sum of Rs. 70,000 is included therein. Thus, the agreed position completely eliminates the assessees previous contention that the capital for the business "Chandmull Rajgarhia" in 1945, when it was started, came from the joint family sources.
Learned counsel urged that without proof of starting the business with Rs. 70,000 from the joint family funds, the assessee can reply upon the presumption in Hindu law that the business belongs to the joint family. It is well-known that an undivided member of a joint Hindu family can acquire and own separate property with his own earnings. The presence of sufficient nucleus with the joint family, according to whose nature and extent, it is possible to make a acquisition of properties, raises a presumption of new acquisition though in the name of individual members, being for the joint family. In the present case, according to the finding of the Appellate Assistant Commissioner, the other sources of income belong to the joint family. That can be taken to be sufficient to unable acquisition or improvement of the properties. Such presumption, however, does not extend to the stating of a business in the name of an individual member of the family. If a new branch or extended activity of an existing or ancestral business is brought into existence, though under another name and style, the inference may lean in favour of the joint family; but if altogether a new business is started by and in the name of a particular member of the family, the presumption will be that it is his own unless otherwise proved. For acquisition of the immovable properties consideration-money is the main thing; and the possibility of its supply from the joint family nucleus justifies the presumption of acquisition for and by the joint family. But, in a case of new business, more than the capital, the individual skill and exertion is required and, therefore, the primary presumption is different and in favour of the runs it.
Next, learned pended upon the introduction of Rs. 1,86,124 from funds including Chandmull Rajgarhia the joint family into the business on the 4th of December, 1951, disclosure of unassessed cash balance, was accepted by the Assistant Commissioner. His argument was that, though the business was the separate business of a member, it became blended with the joint family when some money was taken from it and utilised in that business. It is, no doubt, open to a member of an undivided family to merge his separate earnings or his separate property into that of the joint family so that the abandons his own claims to that income or property before such a blending takes place; but it is necessary that there must be a clear intention on the part of the person concerned to do so. Mere acts of generosity or inclination to help other members of the family with portions of such separate income will not be the merger of the two interests. The present case is not one in which it is urged that the father, Chandmull Rajgarhia, who started this new business, ever utilized after the 4th December, 1951, its income for the benefit of the joint family or other members of the family. Much less is in evidence about his intention to abandon his separate claim to this business. In this written statement filed in a partition suit in the Civil Court on the 24th of May, 1951, he asserted that this business was his own. That partition suit, however, came to an end with an award made by an arbitrator on the 15th of January, 1954; and he final decree was made in accordance therewith on the 15th of February, 1954. At that stage, this business was taken as belonging to the joint family and the assessee, no doubt accepted that position. That will be proof of his intention of abandoning his exclusive claim to this business in favour of the joint family; but that was after the previous year (1953 calendar year only) with which we are concerned in this case relating too the assessment year 1954-55. Thus, at the relevant time, there is nothing on record to show that before or after the 4th December, 1951, till the end of the year 1953, the assessee intended to blend his separate business with the joint family.
Learned counsel, however, contended that a presumption of blending must be derived in this case from the fact of utilisation of Rs. 1,86,124, a part of which at best was from the joint family funds in the business in December, 1951, though there may not be other evidence of such intention. He referred to the judgment of the Appellate Tribunal, where the Accountant Member accepted that the amount was not only introduced but was actually utilised in it.
According to his argument, an intention of blending is necessary to be established by or clearly inferred from the circumstances of a case where the question is he blending of Cypriot property of an individual member, which has nothing to do either for its acquisition or improvement with the joint family and is funds; but in a case where it is established that the joint family funds have been taken at any stage for improvement of a property or business of an individual member, it should be presumed that the intention of both sides was to merge it into the joint family estate. That would be all the more so, when such member happens to be the father, or the karta of a joint family, in whose hands remains the joint family funds and the control of his separate business. If he runs the business at any stage to the detriment of the joint family estate, he cannot be suffered to retain his exclusive and separate claim to that business thereafter. Ethically, this may sound acceptable. But I do not find any warrant in law to support the proposition that no question of intention of blending is necessary in a case where an individual member of a joint family takes or employs a portion of the joint family funds in his own separate business. He may be accountable for such money that he takes or utilises; but, how can it be said to be a blending, if neither the joint family nor he himself at that point or thereafter did not intend to treat that business to be for the joint family. We know that the doctrine of self acquisition as stated by Yajnavalkya is :
"Whatever is acquired by the coparcener himself without detriment to the fathers estate, as a present from friend, or gift at nuptials, does not appertain to the coheirs."
This principle is much stronger in the case of a business started by a coparcener himself without detriment to the joint family. If, later, on, the caparcener takes funds from the joint family for that business, that fact alone will not rob him of his claim to his business. For the transformation of exclusive rights into joint right in favour of the joint family estate. Such intention can be inferred from circumstances. But, as already stated, there is no circumstances in this case till January or February, 1954, to show such intention of abandonment of exclusive rights.
Learned counsel relied upon some decisions of the Judicial Committed of the Privy Council but they do not appear to be in his support. In the case living separate and was also earning separately by his independent labour (as a lawyer) entered in the joint family account all his self acquisitions and did not maintain a separate account either in respect of the joint property or his own. The association of his separate earnings in the account of the joint family was taken as sufficient evidence of their being blended, although other moneys belonging to persons, who are not members of the joint family, were there, which was held not to destroy the value of the inference of blending. On the analogy of that case, learned counsel pleaded that in the present case there has been a confusion of the separate earning with that of the joint family at least, when the sum of Rs. 1,86,124 was entered in the account of the business. If we go into the facts of the decision, it will soon appear that the analogy is not justified. One Bakhshi Bishnu Narain died in April, 1867, leaving his favour sons, of whom the elder two were Raj Narain and Ram Narain. After the fathers death, Raj Narain became the karta till August, 1890, when he died, whereafter Ram Narain became and acted as the karta till his death in October, 1900. Disputes arose after the death of the two elder brothers between the two younger brothers; and the character of the properties that had been acquired Ram Narain either in his name or his elder brothers or in his son-in-laws name was the main question in those disputes when they came to court. Neither Raj Narain nor Ram Narain had any sons. The latter only had one daughter, who was married to Ratan Lal. Ram Narain practice (at Hardoi as a lawyer) and had affluent earnings from that source. There were also some properties of the joint family in that district but the main center of the joint family and its properties was at Lucknow, where the eldest brother, Raj Narain, practiced as a pleader till his death. The books of account of the family properties were kept at Lucknow; but Ran Narain acted as manager of the properties at Hardoi as well before and after 1890, when Raj Narain died. He bought properties at Hardoi receiving, at any rate, in one instance, which was proved, money from Lucknow to make some purchase and he received income and made disbursements in respect of the joint family properties at Hardoi; but the purchases at Hardoi were made, to a large extent, not with joint family moneys, but with fees earned by Ram Narain in his practice as a pleader; and it is with these properties that the appeals before the Judicial Committee were concerned. Their Lordships examined the question whether there was sufficient evidence to show that Ram Narain blended his own property with the joint property as to make the whole joint property. Their Lordships referred to an earlier case, Lal Bahadur v. Kanhaiya Ltd., where a brother of a Hindu joint family paid into the same banking account his own earnings as an officer of the Indian Education Department as money admittedly belonging to the joint family; and, in that context, it was held that, as there was a considerable nucleus of ancestral property in his hands, the opus was on him to prove that his subsequently acquired property was his separate estate. On the facts before their Lordships they found that there was a little or no direct evidence except the books of account that Ram Narain kept, supplemented by his own verbal evidence in an earlier suit decided in 1893, to throw any light on the disputed question of blending of his separate earning with that of the joint family. From 1869 down to the date of his death he maintained and receipts of money from different sources and undoubtedly it included the receipts of his earnings as a pleaded and his private payments. The entries in that book also showed certain payments of joint accounts. There were entries of revenue payments in respect of villages which were joint property; of income received foam such villages and of payments of the purchase of some other villages. The account was, as their Lordships called, an "omnibus" account into which Ram Narains professional fees were carried in common with other items and from those mingled sources a balance was struck day by day and it was out of that, that the disputed properties were purchased in different names. In their Lordships opinion the balance that were carried forward from time to time and brought into account against future purchases were blended balance of Ram Narains own earnings and of joint moneys and they remained so blended throughout the whole period of time. His previous statement on both in court in August, 1893, to the effect that all the money was of the joint family, partly on account of saving from his law practice and partly from remittances from Lucknow and hate sale deeds in the name of Raj Narain, and some in his own name were out of such saving and belonging to the joint family, was taken by their Lordships as decisive on the point and proof of the blending of separate earning with that of the joint family. Thus, it is clear that though there was a confusion in one account of moneys from the joint family and separate earnings, yet the intention of blending was sought for and found not only in the admission of Ram Narain but also in the utilisation of the mingled cash balances both for personal as well as joint family purposes. Such fats are wanting in the case before us. It cannot, therefore, be said that where separate and joint family moneys are blended into one account, the intention of the parties is irrelevant and the presumption must be drawn.
In the same reported decision, it was found that money belonging to Ram Narains son-in-law, Ratan Lal, was also shown on the receipt side in the same account book. Some properties were purchased by Ram Narain in Ratan Lals name. From other evidence, particularly from a previous statement by Ram Narain, it appeared that he intended to make a gift of those properties to his son-in-law. The mere fact that the transactions were entered in the account books of the joint family and that part of the earnings was blended with the joint family property did not, in the opinion of their Lordships of the Judicial Committee, weaken the inference that he intended to gift away to his son-in-law the properties purchased in his name. They observed :
"Remembering that Ram Narain had full power to deal with his earnings as he thought fit, the fact that he blended those that were not otherwise does not mean that every entry of a purchase in the book is an entry transaction so dealt with that it must be regarded as joint property. If for example, having moneys of Ratan Lals in his own hands, he either by using his own moneys or by borrowing on his own account obtained the funds necessary for the purchase of the property in question, and such there bought with the intention of benefiting Ratan Lal, the transactions were recorded in the books which also receipts of his own and the joint moneys would not prevent for that purpose, and this view appears to have been taken by the subordinate judge; but if this be so, it appears to their Lordships to apply equally to purchases made with the intention of making a gift. The learned Judicial Commissioners appear to think that, even assuming that they had been blended in the first instance, there was nothing to prevent Ram Narain from making this use of them and there would appear to be some support for this view in the fact that similar joint moneys were apparently used for the endowment of the daughter......"
It necessarily follows from this decision that the intention of the parson concerned plays the most important part in all such cases.
In the case of Rajanikanta Pal. v. Jagmohan Pal, the fact were also different. One lal Mohan Pal, who died in February, 1891, originally carried on business in yarns and cloths with on Paju Lal. In 1822, that business came to an end; and, thereafter, Lal Mohan Pal started a similar business with branches at more than one place assisted by his three, sons, Madan Mohan, Jaga Mohan and Radha Gobinda. Radha Gobinda died on November, 1902, leaving a will in which he appointed Jaga Mohan as the executor. On account of a dispute, a suit for partition by Madan Mohan was filed claiming two third share in the business. The other one-third share, according to him, belonged to jaga Mohan. Properties described in schedule 3 in the plaint were those that were acquired after Radha Gobindas death in November, 1902. Schedule 5 (kha) included Government paper, house and investments. The subordinate judge, who tried the suit, gave a decree fur partition of one third share. Radha Gobindas window and the adopted son took the matter to the Privy Council. The question there was whether those properties belong to the joint family estate in which the three branched had one third share and Jaga Mohan one-third share. The Judicial Committee found on evidence :
"The business was, of course under the control of the two elder brother, and it appears that, from the date of the death of the third brother, no alteration whatever was made in the way in which the accounts were kept. The payments in respect of obtaining the probate of the will, which though not grant in extent are servile in number, were all made out of the business account. The payments of the moneys for the probate itself was made in the same manner; but the legacy of Rs. 2,000 to the widow, and the like legacy to her as shebait of the idols, remained unpaid. The income received from the real estate was all thorough shown under separate heads and nowhere distinguished as between the business and the joint estate, and although it is said that in the income from latter was only Rs. 1,100 a year, yet none the less it was all treated in the same way.
It is quite true, as has been pointed out, that, having regard to the nature of the items being carefully specified, both in respect of receipt and payment, it would have been possible to have prepared from the books a further account showing how the respective estates stood in relation to each other, and its also said that the actual moneys paid to the widow and the adopted son exceeded the amount of their interest in the joint estate of which they were members; while finally, and this is perhaps the strongest point of all, the method of blending the two sets of items was continued by Rajanikanta, even after the dispute had begun. There circumstances all deserve consideration, but their Lordships do not think that they have sufficient weight to displace the general presumption that arise when members of a joint family, who have control over the joint estate bland that estate with property in which they have separate interest."
Referring to the case of Suraj Narain v. Ratan Lal, their Lordship observed that :
".......... their separate estate was brought into a joint family account instead of, as this case, the joint family property being brought into the separate accounts. Their Lordship are unable to see that this distinction is sufficient to defeat the appellant claim. the real question for determination is what is the true conclusion to be frown when people united, as the present parties were, by bonds of close relationship and living as a joint family, draw for the joint family expenses out of a fund enriched brother contributions. They think that the result is accurately stated by the subordinate judge in the following words.
If the members of a joint Hindu family confuse the income of their joint properties with their separate properties, their intention reassemble is that the properties acquired with such mixed-up funds are for the benefits of the joint family. It should be noticed that only these acquisitions and improvements made in this case with the amalgamated and confused funds, but the incomes arising from such acquisition and improvements were again partly spent also for joint family expense and purposes, and the balance were again mixed up and confused from year to year to acquire properties and make improvements."
Learned counsel very much stressed upon the words used by the subordinate judge and approved by the Judicial Committee, as stated above; but it cannot be missed from all that I have quoted that the two above; but it cannot be missed from all that I have quoted that the two important things, which governed the subordinate judges conclusion and remarks, were that properties were acquired with mixed up funds and the incomes arising from those acquired properties were also spent for joint family expenses and purpose. About the income from the business, which was not a joint family estate, more particulars after the death of Radha Gobinda in November, 1902, it was found that it was used also for purposes other than the business itself and was mixed up with the income from the joint family estate. The facts instant case before do not have any similarity with the features of the reported decision in which blending of separate and joint family estates was inferred. The mere confession of the two kinds of income in one account does not lead to the inference of blending, but other factors pointing to an intention of blending, when discovered, contributes, to such inference. In my view, therefore, neither of the two cases support the contention of the learned counsel. The inclusion of Rs. 1,86,124 part of which was frame the saving from the joint family income in the business "Chandmull Rajgarhia", was not enough to conclude that that business became thereafter a part of the joint family estate.
Learned counsel next referred to a decrees passes in a partition suit on the basis of an award made by an arbitrator. The suit was filed in February, 1951, by the second son of Chandmull Rajgarhia (that is also the name of the father). In May, 1951 the written statement was filed by the father in which he insisted that the business known as "Chandmull Rajgarhia" was his own. The decrees was passed on the 8th March, 1954 in which that business also was subjected to partition between the father and the sons. The assessing offer and appellate authorities held that this partition decree was a collusive one brought about by the father and the sons with the ultimate view of avoiding proper taxation. Assuming that it was not, so the effect of that partition decree in relation to this particular business will only come into operation after the 8th March, 1954, which is also after the pervious year, with which we are concerned, in the assessment in question.
Learned counsel for the revenue place before us the cases of Lakki Reddi Chinna Venkata Reddi v. Lakki Reddi Lakshmana, Mallesappa Bandeppa Desai v. Desai Mallappa alias Mallesappa and Chattanatha Karayalar v. Ramachandra Iyer to emphasise upon some of the well-known principles, such as business in the name of member of a joint family has no presumption of jointness; the abandonment of exclusive claim to separate property cannot be inferred from the act of generosity; strong evidence of intention of blending is necessary to be establish. It is not necessary to go into the details to those cases.
For the reason given above, the business "Chandmull Rajgarhia" was rightly taken to be of the assessee and not of the Hindu used family. The first question accordingly is answered in the negative. The department will be entitled to cost of Rs. 250 in this from the assessee.
S. N. P. SINGH J. - I agree.