D.S. Tewatia, J. - (1.) IN these seven INcome-tax References, ITR No. 65 of 1974, at the instance of the assessee, Shri S. P. Jaiswal, under Section 256(2) of the I.T. Act, 1961, hereinafter referred to as "the Act" and ITRs Nos. 98, 99 and 100 to 103 of 1977, at the instance of the Commissioner of INcome-tax, Haryana and Chandigarh, Rohtak, hereinafter referred to as "the revenue", under Section 256(2) of the Act, an identical question as to whether in law, on the facts and circumstances of the given cases, as found by the INcome-tax Appellate Tribunal, the varying interest amounts earned by the two sons, a daughter and the wife of the assessee in the respective assessment years on the amounts advanced to them by the assessee are or are not to be taxed in the hands of the assessee, has been posed for the opinion of this court.
(2.) THE backdrop of the facts against which the opinion on the question posed is to be formulated can be stated thus : THE assessee is the managing director of the Karnal Distillery Company Ltd., Karnal, hereinafter referred to as the company. THE assessee had a deposit with the said company of a sum of Rs. 1,74,639 as reflected in the credit balance to his account in the account books of the said company. On the instructions of the assessee, the said company in its books of account on April 3, 1962, showed the said amount to the credit of a partnership firm of M/s. Modern Property Dealers, Karnal, hereinafter referred to as the "firm", which comprised of only three partners, namely, Sudhir Kumar Jaiswal and Arun Kumar Jaiswal, sons of the assessee, and Smt. Mina Jaiswal, daughter of the assessee, who were to share in equal share, that is, one-third each, the profits and losses of the said firm. In the books of account of the said firm, the said amount was shown to the credit of the said three partners in equal shares. THE said amount was also shown in the account books of the company to the debit of the assessee and no interest had, in fact, been received by the assessee from the company during the assessment years in question on the amount in question which had been so advanced by him. In the assessment year 1963-64, the assessee in his estimate of advance tax filed on September 4, 1962, had shown Rs. 19,000 as interest income. In his first return for the assessment year 1963-64, filed on August 16, 1963, the assessee had shown the interest income of Rs. 15,717 which he deleted from the revised return. The ITO, with the following observations, held that the interest income in question was to be taxed in the hands of the assessee : "If the assessees had advanced the amount of loan on 4th March, 1962, there was no occasion for showing this amount in the estimate of income and in the return of income filed on 16th August, 1963, Even on merits this income has to be assessed in the hands of the assessee. No genuine loans have been advanced and only book entries have been made to reduce the tax liability. The definition of the loan (according to the Chambers' Twentieth Century Dictionary) is : 'Anything lent especially money at interest and permission to use.' In this case, no interest had been charged and no actual handing and taking over of the money has taken place. The scrutiny of the accounts also reveals that during the year not even a single pie was withdrawn for the use of business. The company has paid Rs. 15,814 as interest to the partners. This amount in fact belongs to Shri S.P. Jaiswal and is taken in his hands." The said decision of the ITO was upheld right up to the Income-tax Appellate Tribunal. The Tribunal declined to refer the matter to the 'High Court, whereupon the assessee had the matter referred to the High Court under Section 256(2) of the Act. When the taxing of the interest earned by the sons and daughter of the assessee again cropped up for the assessment year 1964-65, the ITO and the AAC taxed the said amount in the hands of the assessee, but the Tribunal, on appeal, reversed that decision and held that, in law; the advancing of the amount by the assessee in question to his said major children amounted to a loan and, therefore, interest so accrued to them could not be taxed in the hands of the assessee. According to the Tribunal, the said transaction could neither be construed to be a benami one nor the interest income in the hands of the assessee's said children would tantamount to interest income of the assessee on the amount that he had advanced to them as no interest had, in fact, been received by him and he could not, in law, be forced to earn interest on that amount. The Tribunal distinguished its earlier decision pertaining to the assessment year 1963-64 on the ground that in that year the assessee had himself indicated his interest income first in the estimate of advance tax and later on in the first return that he filed and, therefore, the claim in the revised return that he earned no interest was considered an after-thought and for that reason that interest amount in question was taxed in his hands,
(3.) IN the later years, the ITO and the AAC remained consistent and continued to tax the interest income of the kind in the hands of the assessee, while the Tribunal on its part continued to follow the ratio of its decision rendered in regard to the assessment year 1964-65, from which had arisen I.T.R. No. 98 of 1977. The Tribunal, however, in regard to all the assessment years starting from 1964-65, referred the matter for the opinion of this court under Section 256(1) of the Act, posing the identical question, as already mentioned. Before embarking upon the consideration of the question referred for our opinion, one additional fact pertaining to the interest income in the hands of the wife of the assessee may be noticed. The assessee had shares in the Khasa Distillery. He sold those shares and advanced the proceeds thereof amounting to Rs. 30,000 to his wife, which she deposited with the company and earned interest thereon. The amount of interest so earned was sought to be taxed in the hands of the assessee. The question that primarily arises for consideration is as to whether the amount so advanced by the assessee to his three major children and his wife, in the eye of law, partook the character of the application of income by the assessee or it was in the nature of a loan or a transaction of the kind which fell within the provisions of Section 61 of the Act. ;