Zainuddin Ahmad v. Commissioner Of Income Tax — 1956 DIGILAW 15 (PAT)

Judgment Sinha, J. 1. These two Miscellaneous Judicial cases have been heard together and they are being disposed of by this judgment. Under Sec. 66(2), Income-tax Act, this Court required the Appellate Tribunal in respect of M. J. C. 389 of 1953 to state the case on the following points of law: "(1) Whether there is any material for the finding that the assessee earned the sum of Rs. 25,000 as an association of persons? (2) Whether in the circumstances of the case the sum of Rs. 25,000.00 which was invested on 26-4-47 for the purchase of the house, could be treated as the income earned in the accounting year?" In M. J. C. 390 of 1953 under the same provision of law this Court required the Appellate Tribunal to state the case on the following point of law: "Whether there is any material for the finding that the assessee earned the sum of Rs. 30,000 as an association of persons in the accounting year?" 2. The facts leading to these applications may be shortly stated as follows. The four brothers, the petitioners before us, namely, Sheikh Zainuddin Ahmad, Sheikh Ainuddin Ahmad, Sheikh Sira-juddin Ahmad & Sheikh Minhajuddin Ahmad had purchased a certain house in the town of Gaya on 25-4-1947, for a consideration of Rs. 25,000/-. The Income-tax. Department received information from the Registration Office to that effect. Thereupon the Income-tax Officer started the assessment proceedings and asked the assessees, the petitioners, to explain the source of this income of Rs. 25,000. The assessees appeared and gave explanations to the effect that all these four brothers had contributed, though unequally, to the consideraion for the purchase of this house. One of these brothers, namely, Sheikh Minhajuddin Ahmad was a student at the time of the assessment. The Income-tax Officer rejected the explanations given by the four brothers, and he made the following observation: "Zainuddin is reported to have carried on extensive business in tobacco in the district of Purnea. Ainuddin is also reported to have done extensive business in tobacco. Sirajuddin is also reported to have done extensive business in Ranchl in sweetmeat. All the above four persons are brothers among themselves and this is an Association of persons of a Muslim family. Ainuddin is also reported to have done extensive business in tobacco. Sirajuddin is also reported to have done extensive business in Ranchl in sweetmeat. All the above four persons are brothers among themselves and this is an Association of persons of a Muslim family. The house is also being built jointly in the name of all the four persons." and these four brothers were assessed with the status of an association of persons for the accounting year 1947-48, the assessment year being 1948-49, on this lump sum of Rs. 25,000. In the assessment year 1949-50 corresponding to the accounting year 1948-49 the house purchased was rebuilt at a cost, assessed by the Income-tax Officer, at Rs. 60,000. The Income-tax Officer, therefore, assessed these assessees again for the period mentioned on the lump sum of Rs. 60,000 on their status as an association of persons. The order of the Income-tax Officer was upheld in both the cases by the higher authorities except in regard to the assessment of the second year where the amount was reduced from Rs. 60,000 to Rs. 30,000. On these facts this Court, as already observed, had asked the appellate Tribunal to state the case already mentioned. 3. Mr. Dutt appearing on behalf of the assessee-petitioners has submitted, firstly, that there was no material on record to show any justification for the Department to assess these four brothers as an association of persons, arid, therefore, the assessment of the tax on the lump sum of Rs. 25,000 in one case and Rs. 30,000 in the other case is bad in law. He also submitted that .there was no material to show that the aforesaid income of Rs. 25,000 had been received by the assessees in the period between 1-4-1947 and 25-4-1947, the date of the purchase of the house of the accounting period. 3a. Sec.3, Income-tax Act provides that income-tax shall be charged "in respect of the total income of the previous year of every individual, Hindu undivided family, company and local authority, and of every firm and other association of persons or the partners of the firm or members of the association individually." The question is whether the finding of the Department that the assessees should be taxed on their status as an association of persons is liable to be interfered with by this Court. 4 It is established that the jurisdiction of this Court under the provisions of Section 66(2) of the Act does not extend to setting aside findings of fact arrived at by the Appellate Tribunal, or to in any manner interfere with findings of fact provided that there be some material in support of that finding of fact. The other ground of interference by this Court is that in coming to a finding of fact the Tribunal has committed an error of law. This principle of law has been laid down over and over again and the recent cases to which the attention of this Court has been drawn are to be found in Manindranath V/s. Commr. of Income-Tax B. & O., 1954 Pat 610 (AIR V 41) (A) and M. L. Tewary V/s. Commr. of Income-tax, B. & O., 1955 Pat 59 ( (S) AIR V 42) (B). I will have occasion to refer to these cases once again while dealing with the second point raised by Mr. Dutt. I have already quoted the observations of the Income-tax Officer who had started the assessment proceeding and had been responsible for collection of materials on which he assessed the petitioners. From the materials contained in his order which are to be found on the records of this case, I am unable to get any evidence to show that these four brothers had earned the income of Rs. 25,000 as an association of persons. It is true the Income-tax Officer had said in his order that out of the four brothers, three of them had been carrying on extensive business, some in tobacco and some in sweetmeat. That, however, does not show that these brothers were carrying on those business at different places as members of an association. Mr. R. J. Bahadur on behalf of the Department has submitted that in the absence of any account-books produced by the aasessees, if the inference was drawn that they, had earned this income as members of an association, that inference being well founded should not be interfered with by this Court. I am unable to agree. There was no admission or proof that the petitioners had carried on any business jointly, and in the absence of such admission or proof, there could be no adverse inference against them by non-production of account-books that they were carrying on business as being members of an association. I am unable to agree. There was no admission or proof that the petitioners had carried on any business jointly, and in the absence of such admission or proof, there could be no adverse inference against them by non-production of account-books that they were carrying on business as being members of an association. Mr. Bahadur has placed before us some authorities which I like to consider at present. The case In re B. N. Elias, 1935-3 ITR 408 (Cal) (C) had entirely different facts. In that case a certain building known as the Norton Buildings was purchased by A, B, C and D. The interest of these four persons was specifically mentioned in the deed of sale, and according to the terms of the document, these four persons were to have and to hold the said premises absolutely and for ever as tenants in common and later on three of them had executed a joint power of attorney in favour of the fourth to manage all their affairs in relation to the above-mentioned property and other properties. This purchase was made in 1920. In 1933-34 these four persons were assessed to income-tax and super-tax on the income derived from the Norton Buildings as an association of individuals. It was held on the facts of that case that these four persons did constitute an association of individuals within the meaning of the In-some-tax Act and were rightly assessed. In that case the assessment was on the income derived by the four assessees from the property purchased, namely, the Norton Buildings. They held the property as tenants-in-common. They had a joint management, and, therefore, the income derived from that building was held to be an income of an association of individuals. That is not the case here. In another case Commr. of Income-Tax, Burma V/s. M. A. Baporia, 1939 Rang 258 (AIR V 26) (SB) (D), the facts were not at all similar to the facts in the present case. In that case certain individuals had inherited certain shares and the coheirs had appointed one of them as their agent to realise the shares of the property left to them by their father and mother under the Muhammadan Law, and it was held on the facts of that case that the income derived from the property was the income of an association of individuals. In that case it was held that the assessees had been rightly assessed with the status of an association of individuals. An unreported case of this Court has also been cited in this connection which is Sharafat Hussain V/s. Commr. of I. T., Bihar, 1955 pat 509 (AIR V 42) (E). This case as the others, already referred to, afford little help in deciding the question before us. In that case also a number of persons had inherited certain property, and in their return for assessment of income-tax they had themselves described their status as an association of individuals or association of persons. Mr. Dutt has relied upon the case of In re Nizam-uddin Amir-uddin, (1943) 11 ITR 443 (Lah) (F). In this case the assessees were co-heirs of a Muhammadan and had under the Muhammadan law inherited certain property after the death of their ancestor in specific shares of the property left by the deceased. They had jointly employed a munshi to manage the property and collect the rents and the income after deducting the cost of collection and other expenses was distributed in accordance with their respective shares, and it was held on the facts of that case that the assessees did not form an association of individuals and that they should be separately assessed. In my judgment these are cases which are different on facts. In order to assess the assessees with their status as an association of persons, there must be some evidence of a joint venture or there must be something to show that the income was the result of some joint effort or a joint business.In the present case there is not an iota of evidence on the whole of record to suggest that this income of Rs. 25,000 in one case and Rs. 30,000 in the other case was the result of any joint venture or that this income had been derived from any joint, business or any joint property. In that view of the matter in my judgment, the assessees were illegally assessed as an association of persons. They should have been assessed individually and should have been separately assessed on their individual shares. The document of sale of the house in question does not disclose the shares of these different four brothers. In that view of the matter in my judgment, the assessees were illegally assessed as an association of persons. They should have been assessed individually and should have been separately assessed on their individual shares. The document of sale of the house in question does not disclose the shares of these different four brothers. In the absence of specification of shares in the document or any evidence to the contrary it must be assumed for the purpose of this assessment that these four brothers had equal shares in the. property and in the consideration that they paid for the purchase of this property. I would, therefore, hold that there is no material for the finding of tne Appellate Tribunal that the assessees earned the sum of Rs. 25,000 in the one case and Rs. 30,000 in the other case as an association of persons. 5. In the first case (M. J. C. 389 of 1953) the second question remains to be considered. The accounting year is 1947-48 for the assessment year 1948-49. The assessees had been called upon to disclose the source and date of the income and they had given certain explanation but that has been disbelieved. The result is that they have failed to disclose the source and the date of this income of Rs. 25,000. In the absence, therefore, of any satisfactory explanation by the assessees regarding the source and nature of the money received by them, the Revenue Authorities were entitled to draw the inference that this income was received before the purchase of the house on 25-4-1947; in other words, this income was received during the accounting period 1947-48.If the assessees wanted the Income-tax Authorities to believe that this sum of money, namely, Rs. 25,000 had been received long before the date of purchase of the house beyond the accounting period, the burden of showing the same was upon the assessees, because they were in possession of the best evidence as to when they received the money. Having failed to discharge the onus, the Department was right in holding that this income was received by the assessees during the accounting period before the purchase of the house in Question. Having failed to discharge the onus, the Department was right in holding that this income was received by the assessees during the accounting period before the purchase of the house in Question. In the case of Manindranath (A) already referred to above, it has been held by this Court that if the assessee receives a certain amount in course of the, accounting year, the burden of proof is upon him to show that the item oi receipt is not of an income nature, and if the assesses fails to prove positively the source and nature of the receipt, the revenue authorities are entitled to draw an inference that the receipt is of an income nature. It was further held that the burden of proof in that case was not upon the Department but upon the essessee to show by sufficient material that the item of receipt was not of an income character. This principle of law was reiterated in a subsequent case reported in the same volume--1955 Pat 59 ( (S) AIR V 42) (B), In my judgment, therefore, there is no merit in the second point, and I must hold that the Department was right in treating the income of Rs. 25,000 as an income earned in the accounting year 1947-48. 6. In the result the application (M. J. C. 389 of 1953), so far as the first point is concerned, is answered in favour of the assessees as also the point in M. J. C. S90 of 1953, but so far as the second point in MJC 389 of 1953 is concerned it is answered against the assessees and in favour of the Department As the success of the parties is divided, I would direct that each party should bear its own costs of this Court. Rai, J. 7 I agree.