http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 8  

PETITIONER: M/S.  LAKSHMICHAND BAIJNATH

       Vs.

RESPONDENT: THE COMMISSIONER OF INCOME-TAX, WEST BENGAL

DATE OF JUDGMENT: 13/11/1958

BENCH: AIYYAR, T.L. VENKATARAMA BENCH: AIYYAR, T.L. VENKATARAMA GAJENDRAGADKAR, P.B. SARKAR, A.K.

CITATION:  1959 AIR  341            1959 SCR  Supl. (1) 415  CITATOR INFO :  R          1982 SC 760  (12)

ACT: Income  Tax-Partition in Hindu undivided  family-Proceedings under  S. 25A of the Indian Income-tax Act-Scope-Receipt  of amount in accounting year-Assessee’s Plea of capital receipt rejected-Liability to tax as business receipt-lndian Income- tax Act, 1922 (XI of 1922), S. 25A.

HEADNOTE: For  the  assessment  year 1946-47 the  appellant,  a  Hindu undivided  family  carrying on business,  filed  a  petition before  the income-tax Officer, under s. 25A of  the  Indian Income-tax  Act,  1922,  claiming  that  there  had  been  a partition  in the family on April 24,1945.  As  regards  the income  assessable under s. 23 Of the Act,  the  appellant’s case regarding six sums aggregating to Rs. 2,30,346 shown in the accounts as the sale proceeds of ornaments, was that  at the  partition the jewels of the family were sold  and  that the  price realised therefrom was invested in the  business. The Income-tax Officer held that the partition was true  and that the family had become divided into five groups, but  as regards the amount of Rs. 2,30,346 aforesaid he rejected the explanation given by the appellant as to how the amount came to be received and held that the amount was not the proceeds of the family jewels sold but represented concealed  profits of the business.  He accordingly included the said amount in the  taxable  income.  The  appellant’s  contentions,  inter alia, before the Appellate Tribunal were (1) that the  order passed  under  s. 25A of the Act by the  Income-tax  Officer must  be held to have decided the factum of a  partition  in the  family as well as the ’possession and division  of  the jewels, as set up by the appellant, and that it was not open to the Department to contend that the amount in question did not represent the value of the family jewels; and (2)  that, in  any case, there was no evidence to show that the  amount represented undisclosed profits. Held,  that when a claim is made under s. 25A of the  Indian Income-tax  Act,  1922,  the points to  be  decided  by  the Incometax Officer are whether there has been a partition  in the  family, and, if so, what the-definite portions  are  in

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 8  

which the division had been made among the members or groups of  members.   The  question as to what the  income  of  the family  assessable  to  tax under s.  23(3)  was,  would  be foreign  to  the scope of an enquiry under s. 25A,  and  any finding  thereon  would  not  be  conclusive  in  assessment proceedings under S. 23. 416 Held, further, that the assessee in the present case  having failed  to  explain satisfactorily the truth of  what  is  a credit  in  business accounts, the  Income-tax  Officer  was entitled  to  draw the inference that  the  amount  credited represents in reality a receipt of an assessable nature.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 271-272  of 1955. Appeal  by special leave from the judgment and  order  dated June  19,  1953, of the Calcutta High  Court  in  Income-tax Reference Nos. 6 & 7 of 1950. A.V. Viswanatha Sastri, A. K. Dutt, S. K. Kapur and  Sukumar Ghose, for the appellant. C.K.  Daphtary,  Solicitor-General of  India,  R.  Ganapathy Iyer, R. H. Dhebar and D. Gupta, for the respondent. 1958.  November 13.  The Judgment of the Court was delivered by VENKATARAMA  AIYAR, J.-The appellant was a  Hindu  undivided family  carrying on business as piecegoods merchants in  the city  of  Calcutta.  The present proceedings relate  to  the assessment of its income for the year 1946-47, the  previous year thereto being June 12, 1944, to April 24, 1945.  In the course  of  the assessment, the appellant filed  a  petition under  s.  25-A of the Incometax Act,  1922,  claiming  that there  had been a partition in the family on April  24,1945. On May 27,1945, the In. come-tax Officer enquired into  both these  matters, the factum of partition and the  quantum  of income charge. able to tax, and pronounced orders thereon on June 30, 1945.  On the petition under s. 25-A, he held  that the  partition  was  true, and that the  family  had  become divided into five groups.  As regards the income  assessable under s. 23, the dispute related to six sums aggregating  to Rs.  2,30,346 shown in the accounts as the sale proceeds  of ornaments.   The  case of the appellant  with  reference  to these  sums  was  that at the partition the  jewels  of  the family  were  sold  in six lots,  that  the  price  realised therefrom was invested in the business, and that the credits in   question  related  thereto.   The  Income-tax   Officer declined to accept this explanation.  He observed that while the books of the appellant 417 showed  that  what was sold was ornaments, the  accounts  of Chunilal Damani to whom they were stated to have been  sold, showed  sale  of gold.  He also pointed out that  while  the weight   of  the  ornaments  according  to   the   partition agreement, Ex.  A, was 3422 tolas, the weight of gold  which was  actually  sold to the purchaser was  3133  tolas.   The explanation given by the appellant for this discrepancy  was that  the  jewels in question had come down  to  the  family through several generations, and were not pure.  The Income- tax Officer rejected this explanation, because he held  that the weight which was actually deducted for impurities in the accounts  of the purchaser was almost negligible,  and  that what was sold was thus pure gold and not gold in old  family jewels.   He  also  remarked that the sales  were  in  round

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 8  

figures  of  500 tolas, and that "if the assessee  had  been taking  old  ornaments  broken or unbroken for  sale  it  is inconceivable  that  on three occasions out of six  he  took gold  weighing 500 tolas in round figure." He also  referred to the fact that there was no list of the family jewels, and that  there was nothing in the family accounts to show  what jewels  were held by the family.  He accordingly  held  that the  story of sale of family jewels was not true,  and  that the sum of Rs. 2,30,346 represented concealed profits of the business,  and  he included the said amount in  the  taxable income.  He also followed it up by an order imposing tax  on the appellant under the Excess Profits Tax Act. The  appellant  took  both these orders  in  appeal  to  the Appellate  Assistant  Commissioner who again went  into  the matter  fully,  and  observed that the  appellant  had  been changing  his version as to the true character of the  sales from  time  to time.  Dealing with the  discrepancy  of  289 tolas  between the weight shown in the partition  agreement, Ex.  A, and that appearing in the accounts books of Chunilal Damani,  he  remarked  that -while the  explanation  of  the appellant before the Income-tax Officer was that it was  due to  alloy and brass in the jewels, before him  the  position taken up was that it was due to pearls and stones which 53 418 had  been  removed  from  the  jewels,  and  that  the  gold contained  in the jewels was pure gold.  He did  not  accept this  explanation as, in his opinion, the jewels which  were stated  to  have  been  in  existence  for  three  or   four generations  should have contained much more of  alloy  than was  shown  in  the  accounts of  the  purchaser.   He  also considered that the sale of gold in round figures of 250  or 500 tolas was a circumstance which threw considerable  doubt as to the truth of the appellant’s version.  In the  result, he  confirmed  the findings of the Income-tax  Officer,  and dismissed the appeals. Against   these  orders,  the  appellant  appealed  to   the Appellate  Tribunal.  There, he sought to rely on a  certain proceedings  book  as showing that the  family  jewels  were really broken up, and that what was sold to Chunilal  Damani was the gold thus separated.  As this proceedings book forms the  real sheet-anchor of the appellant’s contention  before us,  it is necessary to refer to the facts relating  thereto in  some detail.  On February 20, 1945, the members  of  the family  entered into an agreement, Ex.  A, to  divide  their joint proper. ties among the five branches, of which it  was constituted.  In  sch.  B to this document are set  out  the jewels  to be divided, and their total weight is,  in  round figure, 3422 tolas.  Then we have the proceedings book,  and that  purports to be a record of the decisions taken by  the members of the family from time to time for implementing Ex. A.  The  minutes of the meeting held on February  23,  1945, show that the pearls and stones imbedded in the jewels  were to  be  removed and divided among the members,  and  that  a goldsmith  called  Inderban was engaged for the  purpose  of breaking  up  the  jewels.  Then we have the  minutes  of  a meeting  held  on  February 28, 1945,  and  therein,  it  is recited  that  the weight of the pearls, stones  and  copper removed was, again in round figure, 289 tolas, and deducting this  out of 3422 tolas being the weight of the  jewels  set out  in Ex.  A, the gold which was available  for  partition was 3133 tolas.  It is recorded that this quantity should be sold  in  the market and the sale proceeds credited  in  the capital accounts of the business.  And then we have the last of the proceedings dated April 21,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 8  

419 1945,  which record that gold weighing 3133 tolas  was  sold and  the  price  credited in the accounts.   Now,  if  these minutes  are genuine and give a correct picture as  to  what really  took place, they would go a long way to support  the version given by the appellant as to how he came by the sums making up a total Rs. 2,30,346.  Quite naturally, therefore, the  appellant  applied  to  the  Tribunal  to  receive  the proceedings  book  in  evidence, and  the  ground  given  in support of the application was that it had been filed before the Income-tax Officer but had not been considered by him. Then  the question was raised as to whether the  proceedings book  was, in fact, produced before the  Incometax  Officer. The argument of the appellant was that the decision taken at the meeting dated April 21, 1945, which forms the concluding portion of the book had been translated into English at  the instance  of the Income-tax Officer, the original  being  in Hindi,  that  the  said translation was marked  Ex.   B  and contained the endorsement of the Officer " Original produced ",  and  that accordingly the book must have  been  produced before  the Officer.  But the Tribunal was not impressed  by this  argument.   It observed that the book iselft  had  not been initialled by the Officer, and that though the  minutes of the meeting dated April 21, 1945, were genuine, there was no  certainty  that  when it was  shown  to  the  Income-tax Officer it was contained in the book now produced, that such minutes  could have found a place in another book  as  well, and  that,  therefore,  the  book which  was  sought  to  be admitted before it in evidence was not proved to be the book which  was produced before the Officer.  It was also of  the opinion that the minutes of the previous meetings could  not have  been shown to the Officer.  It accordingly refused  to receive  the  book  in evidence, and relying  on  the  other circumstances  mentioned  in  the order  of  the  Income-tax Officer  and the Appellate Assistant Commissioner,  it  held that  the  sum of Rs. 2,30,346 was not the proceeds  of  the family jewels sold but secret profits made by the  appellant in business. Another contention raised by the appellant before 420 the  Tribunal was that in the proceedings under s. 25A,  the Income-tax Officer had held, after making enquiry, that  the partition  set up by it was true, and that as  according  to the  appellant,  the partition consisted  in  the  division, inter  alia,  of  family jewels  weighing  3422  tolas,  the Income-tax  Officer  must be held to have decided  that  the family  was in possession of the jewels mentioned in Ex.   A and  had divided them in the manner set out in Ex.   B,  and that  as that order had become final, it must  conclude  the present  question in favour of the appellant.  The  Tribunal repelled this contention on the ground that the order  under s. 25A only decided that there was partition in the  family, and  that  it had no bearing on the issues which  arose  for decision in the assessment proceedings.  In the result, both the appeals were dismissed. Pursuant  to  an order of the High Court of  Calcutta  dated December  7,  1950, passed under s. 66(2) of  the  Act,  the Tribunal referred the following questions for its Opinion: - (1)" Whether the Income-tax Appellate Tribunal was bound  by the  findings of fact of the Income-tax Officer relating  to the nature and division of the assets of the joint family in question  which he arrived at in his enquiry  under  Section 25A(l) of the Indian Income-tax Act ? (2)Whether there was any material or evidence upon which the taxing authorities could legally hold that the amount of Rs.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 8  

2,30,346 (Rupees two lakhs thirty thousand three hundred and forty-six) represented undisclosed profits of the accounting year in question ? " The  reference was heard by Chakravarti, C. J., and  Lahiri, J., who by their judgment dated June 19, 1953, answered  the first  question  in  the  negative and  the  second  in  the affirmative.  The appellant then filed an application  under s.  -66A(2)  for  leave to appeal to this  Court,  and  that having been dismissed, has preferred the present appeals  on leave granted by this Court under Art. 136. Mr.  Viswanatha Sastri, learned counsel for  the  appellant, raised the following contentions: 421 (1)  In view of the order of the Income-tax Officer under s. 25A,  it was not open to the Department to contend that  the sum  of Rs. 2,30,346 does not represent the value of  family jewels. (2)The  finding of the Income-tax authorities that the  said amount  represents  concealed  profits of  business  is  not supported by legal evidence and is, in any event, perverse. (3)There  is  no  evidence  that  the  amount  in   question represents  profits  of business, and it was  therefore  not chargeable to tax under the provisions of the Excess Profits Tax Act. (1)On  the first question, the appellant relied  on  certain observations  in the order of the Income-tax Officer  passed under s. 25A as amounting to a decision that the family  had the  jewels mentioned in Ex.  A, and that what was  actually divided  was only the price received therefor.  Now, when  a claim is made under s. 25A, the points to be decided by  the Income-tax Officer are whether there has been a partition in the  family,  and if so, what the definite portions  are  in which the division had been made among the members or groups of  members.   The  question as to what the  income  of  the family  assessable  to  tax under s.  23(3)  was,  would  be foreign  to  the  scope of an enquiry under  s.  25A.   That section  was, it should be noted, introduced by  the  Indian Income-tax (Amendment) Act, 1928 (3 of 1928), for removing a defect  which the working of the Act as enacted in 1922  had disclosed.   Under the provisions of the Act as  they  stood prior  to the amendment, when the assessee was an  undivided family,  no assessment could be made thereon if at the  time of  the  assessment it had become divided, because  at  that point  of time, there was no undivided family  in  existence which could be taxed, though when the income was received in the  year  of account the family was joint.  Nor  could  the individual members of the family be taxed in respect of such income as the same is exempt from tax under s. 14(1) of  the Act.  The result of these provisions was that a joint family which  had  become  divided at the time  of  the  assessment escaped tax altogether.  To 422 remove  this defect, s. 25A enacted that until an  order  is made  under  that section, the family should  be  deemed  to continue  as  an undivided family.  When an  order  is  made under that section, its effect is that while the tax payable on the total income is apportioned among the divided members or groups, all of them are liable for the tax payable on the total  income of the family.  What that tax is would  depend on  the assessment of income in proceedings taken  under  s. 23,  and an order under s. 25A would have no effect on  that assessment.   It  is in this context that we must  read  the observations  in  the order under s. 25A relied on  for  the appellant.   In fact, that order does not  expressly  decide that the family had the jewels mentioned in Ex.  A, and that

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 8  

they  were converted into cash as claimed by the  appellant. Nor could such a finding be implied therein, when regard  is had to the scope of the proceedings under s. 25A and to  the fact  that the order under s. 23(3) holding that the sum  of Rs.  2,30,346  did  not represent the value  of  the  family jewels  sold was passed on the same date as the order  under s. 25A and by the very same officer. (2)The next question is and that is what was really  pressed before  us-whether  the sum of Rs. 2,30,346  represents  the price  of  family  jewels sold or whether  it  is  concealed business  profits.  That clearly is a question of  fact  the finding  on which is open to attack in a reference under  s. 66  only if it could be shown that there is no  evidence  to support  it or that it is perverse.  Now, the contention  of Mr. Viswanatha Sastri for the appellant is that the  finding that  it is concealed profits was reached by the  Income-tax Officer  and  by  the Appellate  Assistant  Commissioner  by ignoring  the  very  material  evidence  furnished  by   the proceedings  book,  and  that  the  Appellate  Tribunal  had erroneously  refused to receive the book in evidence.   This contention raises two controversies: (i) Was the proceedings book  which was produced before the Tribunal the book  which was produced before the Income-tax Officer ? (ii) If it was, were  the  minutes of the meeting prior to April  21,  1945, relied  on by the appellant before the Income-tax Officer  ? Whatever 423 view  one might be inclined to take on the former  question, so  far  as the latter is concerned, it is  perfectly  plain that  they were not.  On May 27, 1947, the enquiry was  held on  both  the petitions under s, 25A and on the  quantum  of income  assessable to tax under s. 23(3).  Exhibit D  is  an extract from the order sheet of the Income-tax Officer,  and it runs as follows: "Regarding credits amounting to Rs. 2,30,346-6-3 in the a/c. Udoyaram Bhaniram the representatives state that besides the evidence produced, which are noted below, they are not in  a position to produce any further evidence, (i)  Account books of the assessee containing the details of the amounts aggregating the aforesaid sum. (ii) Sale  statements rendered by Chunilal Damani,copies  of which have been filed. (iii)Roker   of  Chunilal  Damani  containing  entries   for purchase  of  gold, sold by the assessee family  along  with Surajrattan Bagri the accountant of Chunilal Damani. (iv) Statement  of  Lakhmichand  Bhiwaniwalla  and  Pannalal Bhiwaniwalla, member of the assessee family." This  statement is signed by the counsel for the  appellant. It is clear from the above that the proceedings book was not relied  on  as  evidence on the character  of  the  receipts making  up the sum of Rs. 2,30,346.  The fact appears to  be that the appellant produced the proceedings book in  support of his petition under s. 25A for the purpose of establishing that there was a completed partition, and relied only on the minutes  of  the meeting held on April 21,  1945,  in  proof thereof,  and  that  is why that  alone  was  translated  in English  and marked as Ex.  B. It is also to be  noted  that there  is  no reference in the order of  assessment  by  the Income-tax  Officer  under s. 23(3) to the  minutes  of  the meetings  prior  to April 21, 1945, and that they  were  not even  translated,  as was the record of  the  meeting  dated April 21, 1945.  The obvious inference is that they were not relied   on  by  the  appellant,  and  were  therefore   not considered by the Officer.  It is also 424

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 8  

significant that the order -of the Income-tax Officer refers to sale of ornaments broken or unbroken.  The story that the gold which was separated from the jewels after removing  the pearls  and stones was melted and sold in quantities of  250 or 500 tolas, which was the argument pressed before us,  was not put forward before him. It  is  argued that in the appeal against the order  of  the Income-tax Officer the ground was definitely taken that  the proceedings  book had been produced before him, and that  it was  also prominently mentioned in a petition  supported  by affidavit  filed  by the appellant.  But the  order  of  the Appellate  Assistant  Commissioner does not deal  with  this matter  either, and it is inconceivable that he  would  have failed to consider it if it had been pressed before him.  It is  also to be noted that the appellant who had  obtained  a return  of the proceedings book from the Income-tax  Officer did not file it before the Appellate Assistant Commissioner, nor  did he move for its admission in evidence.  Apart  from taking the grounds to which we were referred, the  appellant appears  to  have presented his case  before  the  Appellate Assistant Commissioner precisely on the same lines on  which lie  pressed it before the Income-tax Officer.  In  view  of these facts, we are unable to hold that in refusing to admit the  proceedings  book  as  evidence  in  the  appeal,   the Appellate   Tribunal  acted  perversely   or   unreasonably. Indeed,  counsel  for the appellant did not contend  in  the High  Court  that  the  Tribunal  had  acted  illegally   or unreasonably  in refusing to admit the proceedings  book  in evidence.  That being so, it cannot be said that the finding given  by the Tribunal on an appreciation of the  facts  and circumstances already set out is unsupported by evidence  or is perverse. The position may thus be summed up: In the business accounts of  the  appellant  we  find  certain  sums  credited.   The explanation  given  by the appellant as to how  the  amounts came  to  be  received is rejected  by  all  the  Income-tax authorities  as  untenable.   The  credits  are  accordingly treated  as business receipts which are chargeable  to  tax. In V. Govindarajulu 425 Mudaliar  v. The Commissioner of Income-tax, Hyderabad  (1), this Court observed: "  There is ample authority for the position that  where  an assessee fails to prove satisfactorily the source and nature of  certain amounts of cash received during  the  accounting year,  the  Income-tax  Officer  is  entitled  to  draw  the inference that the receipts are of an assessable nature." That is precisely what the Income-tax authorities have  done in  the  present case, and we do not find  any  grounds  for holding that their finding is open to attack as erroneous in law. (3)Lastly, the question was sought to be raised that even if the  credits  aggregating  to Rs. 2,30,346 are  held  to  be concealed income, no levy of excess profits tax can be  made on  them  without a further finding  that  they  represented business income, and that there is no such finding.  When an amount  is  credited  in  business  books,  it  is  not   an unreasonable  inference  to draw that it is a  receipt  from business.  It is unnecessary to pursue this matter  further, as this is not one of the questions referred under s. 66(2). In  the  result,  the appeals fail and  are  dismissed  with costs.                     Appeals dismissed. (1)  [1958] 34 I.T.R. 807, 810. 54

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 8  

426