Gulati, J. - (1.) THIS is a consolidated reference relating to assessment years 1966 -67 and 1967 -68, arising out of proceedings under the Wealth -tax Act of the Hindu undivided family consisting of Lala Chander Sen, the karta, and his four sons. The connected reference is under the Income -tax Act and relates to the assessment year 1968 -69. A common question of law arises in both these cases. Hence, they are being disposed of by a common judgment.
(2.) LATE Rangi Lal and his son, Chander Sen, constituted a Hindu undivided family. This family had some immovable property and a business carried on in the name of Khushi Ram Rangi Lal. On October 10, 1961, there was a partial partition in the family by which the business was divided between the father and the son, and, thereafter, it was carried on by a partnership consisting of the two. The firm was being assessed to income -tax as a registered firm and the two partners were being separately assessed in respect of their share of income. The house property of the family continued to remain pint. On July 17, 1965, Rangi Lal died leaving behind him his son, Chander Sen, and his grandsons, i.e., the sons of Chander Sen. His wife and mother had predeceased him and he had no other issue except Chander Sen. On his death there was a credit balance of Rs. 1,85,043 in his account in the books of the firm. For the assessment year 1966 -67 (valuation date, October 3, 1965), Chander Sen, who constituted a joint family with his own sons, filed a return of his net wealth. The return included the property of the joint family which on the death of the Rangi Lal passed on to Chancier Sen by survivorship and also the assets of the business which devolved upon Chander Sen on the death of his father. The sum of Rs. 1,85,043 standing to the credit of Rangi Lal was not included in the net wealth of the family of Chander Sen (hereinafter referred to as "the assessee -family") on the ground that this amount devolved on Chander Sen in his individual capacity and was not the property of the assessee -family. The Income -tax Officer did not accept this contention and held that the sum of Rs. 1,85,043 also belonged to the assessee -family. At the close of the previous year ending on October 22, 1966, relating to the assessment year 1967 -68, a sum of Rs. 23,330 was credited to the account of late Rangi Lal on account of interest accruing on his credit balance. In the proceedings under the Income -tax Act for the assessment year 1967 -68, the sum of Rs. 23,330 was claimed as a deduction. It was alleged that interest was due to Chander Sen in his individual capacity and was an allowable deduction in the computation of the business income of the assessee -family. At the end of the year the credit balance in the account of Rangi Lal stoqd at Rs. 1,82,742 which was transferred to the account of Chander Sen. In the wealth -tax assessment for the assessment year 1967 -68, it was claimed, as in the earlier year, that the credit balance in the account of Rangi Lal belonged to Chander Sen in his individual capacity and not to the assessee -family. The Income -tax Officer who completed the assessment disallowed the claim relating to interest on the ground that it was a payment made by Chander Sen to himself. Likewise, in the wealth -tax assessment, the sum of Rs. 1,82,742 was included by the Wealth -tax Officer in the net wealth of the assessee -family. On appeal the Appellate Assistant Commissioner of Income -tax accepted the assessee's claim in toto. He held that the capital in the name of Rangi Lal devolved on Chander Sen in his individual capacity and as such was not to be included in the wealth of the assessee -family. He also directed that in the income -tax assessment the sum of Rs. 23,330 on account of interest should be allowed as a deduction. The income -tax department felt aggrieved and filed three appeals before the Income -tax Appellate Tribunal, two against the assessments under the Wealth -tax Act for the assessment years 1966 -67 and 1967 -68 and one against the assessment under the Income -tax Act for the assessment year 1967 -68. The Tribunal has dismissed the department's appeals but, at its instance, has referred the following question for the opinion of this court : " Whether, on the facts and in the circumstances of the case, the conclusion of the Tribunal that the sum of Rs. 1,85,043 and Rs. 1,82,742 did not constitute the assets of the assesee -Hindu undivided family is correct ? "
(3.) IN the connected reference under the INcome -tax Act, it has referred the following question : " Whether, on the facts and in the circumstances of the case, the interest of Rs. 23,330 is allowable deduction in the computation of the business profits of the assessee -joint family ? " The answer to both the questions will depend upon the answer to the question as to whether the amount standing to the credit of late Rangi Lal was inherited, after his death, by Chander Sen in his individual capacity or as a karta of the assessee -joint family consisting of himself and his sons.;