1973 (12) TMI 33 - HC - Income Tax

Summary

Issues Involved:
1. Whether the share income of Rajendra Kumar from the partnership firm, M/s. Rajendra Medical Stores, is the income of the Hindu undivided family (HUF) of Khubchand Motilal.
2. Whether the said income was rightly included in the income of the HUF for purposes of taxation.

Issue-wise Detailed Analysis:

1. Whether the share income of Rajendra Kumar from the partnership firm, M/s. Rajendra Medical Stores, is the income of the Hindu undivided family (HUF) of Khubchand Motilal:

The court examined the facts and circumstances surrounding the partnership between Rajendra Kumar and Gulabchand Sohaney. It was noted that Rajendra Kumar did not have any personal funds and the initial investment of Rs. 20,000, as well as subsequent funds, were provided by the HUF. The partnership deed dated September 1, 1958, indicated that Rajendra Kumar was to invest the funds and manage further investments as required, with the HUF providing the necessary capital and business premises.

The Tribunal found that the business of M/s. Rajendra Medical Stores came into existence due to the family funds provided by the HUF. Rajendra Kumar had not separated from the family, and the funds provided by the HUF were substantial and continuous over six years. The court referred to several precedents, including _P. N. Krishna Iyer v. Commissioner of Income-tax_ and _Raj Kumar Singh Hukam Chandji v. Commissioner of Income-tax_, to determine whether the income earned by Rajendra Kumar was essentially a return on the family's investment or remuneration for his personal services.

The court concluded that the income earned by Rajendra Kumar was inextricably linked to the investment of the HUF's funds and the business premises provided by the HUF. Therefore, the income from the partnership firm was deemed to be the income of the HUF.

2. Whether the said income was rightly included in the income of the HUF for purposes of taxation:

The court addressed the principle of burden of proof, stating that it was upon the department to prove that the income was that of the HUF and not of the individual member. The court found that the department had successfully discharged this burden by demonstrating the direct connection between the HUF's funds and the income earned by Rajendra Kumar.

The court also considered the argument that Rajendra Kumar's withdrawals for household expenses were not utilized by the HUF. It was held that since Rajendra Kumar had not separated from the family, these expenses were essentially incurred out of the family funds, and the withdrawals did not negate the fact that the income belonged to the HUF.

The court emphasized that the Income-tax Appellate Tribunal is a fact-finding body and its conclusions, if based on proper consideration of evidence, should not be interfered with. The Tribunal's finding that the share income of Rajendra Kumar from the partnership firm was the income of the HUF was upheld as it was based on a thorough evaluation of the evidence.

Conclusion:

The court answered the referred question in the affirmative, confirming that the share income of Rs. 14,700 earned by Rajendra Kumar from the firm, M/s. Rajendra Medical Stores, was in law and in fact the income of the Hindu undivided family of Khubchand Motilal and was rightly included in the income of the HUF for purposes of taxation. The reference was disposed of with costs, and the Tribunal's order was upheld.