CHIRANJI LAL Vs. COMMISSIONER OF INCOME TAX
HIGH COURT OF ALLAHABAD
COMMISSIONER OF INCOME-TAX, U. P.
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MANCHANDA, J. -
(1.)THIS is a consolidated case stated by the Income-tax Appellate Tribunal, hereinafter referred to as the Tribunal, in respect of six applications made by the applicant, Chiranji Lal, under section 66(2) of the Income-tax Act of 1922, hereinafter referred to as the Act.
(2.)FIVE questions of law have been referred for the opinion of this court, but out of these only three are passed. They are :
1. Whether there was any material to justify the view that the income from business could be treated as income of the Hindu undivided family of which Chiranji Lal was the karta ?
2. Whether there was any justification in law in making a joint assessment of the share incomes of Chiranji Lal, Rameshwar Prasad and Om Prakash and the income from property received by the Hindu undivided family headed by Shri Chiranji Lal ?
3. Whether the Tribunal could direct the authorities below to change the status of the assessee from individual to Hindu undivided family ?
The facts are that one Pooran Chand had died in 1961, leaving two sons, Pearey Lal and Sagar Mal. Pearey Lal had two sons, Chiranji Lal and Mohan Lal. Sagar Mal had no male issue and the aforesaid Mohan Lal was adopted by him. The family of Pearey Lal-Sagar Mal owned business carried in the name and style of Pooran Chand & Sons and it also had house properties.
Sagar Mal relinquished his interest in the family on March 27, 1944. On the 31st March, 1944, there was a partial partition between Chiranji Lal, now representing one branch of the family, and Mohan Lal, the other branch of Sagar Mal. The house properties were divided into three lots. Lot "A" went to Chiranji Lal and his three sons, Rameshwar Prasad, Om Prakash and Chandra Prakash (minor). Lot "B" fell to the share of Mohan Lal and his five sons, and the property comprised in lot "C" remained joint till the 25th of August, 1947. The aforesaid business of the family was partitioned by division of capital in the books of the firm. The capital which fell to the share of Chiranji Lal was further divided amongst himself and his two adult sons, Rameshwar Prasad and Om Prakash in the ratio of 2 : 1 : 1. On the 1st of April, 1944, an instrument of partnership was executed in respect of the newly constituted firm of Messrs. Pooran Chand & Sons and the share of each of the four partners therein were specified as Mohan Lal 1/2, Chiranji Lal 1/4, Rameshwar Prasad 1/8th and Om Prakash 1/8th.
(3.)FOR the assessment year 1945-46, the Income-tax Officer registered the firm under section 26A of the Act, accepting the partial partition of the erstwhile family business. The registration of the firm was given effect to by allocation of the income of the firm and assessment in the hands of each of its partners under section 23(5)(a) of the Act. The same position prevalied in the subsequent two assessment years 1946-47 and 1947-48.
In respect of the assessment year 1948-49, Chiranji Lal, as hitherto, filed a return in his status of an individual and included therein his 1/4th share income which he had received as a partner from the said firm. He did not however included any income from immovable property on the ground that the said portion of the immovable property which had fallen to the share of his branch of the family on partition did not belong to him alone but constituted the asset of his smaller Hindu undivided family of which he was the karta. Chiranji Lal had, however, filed a separate return for the same assessment year in the status of a Hindu undivided family and showed in this return the income from immovable property. The Income-tax Officer for this assessment year took a view contrary to what had been taken in the preceding three assessment years and held that as the nucleus for the business had come from joint family funds, therefore, the income from business derived by Chiranji Lal was also includible in the assessment of his smaller Hindu undivided family, and made the assessment accordingly.
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