9911796707
TMI Blog1958 (6) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... ess belonged to Choodamani and Harihara Iyer as an association of person?" Before going into the circumstances which has caused this reference, we may straightway say that question No. 1 does not arise for the reasons mentioned hereunder. In paragraph 14 of the statement of the case, the Appellate Tribunal itself has stated that in disposing of the appeal filed by the Department, it heard both the assessee and the Department also on the question of the applicability of section 34 notwithstanding the fact that the assessee did not specifically take up that matter in a separate appeal. It is further stated that after hearing the contentions of the assessee and the Department, the Income-tax Appellate Tribunal had given a finding that section 34 was also rightly invoked. In view of the a fact that the Appellate Tribunal itself has considered this question and his allowed the assessee to raise the same, the point covered by question No. 1 as to the right of the assessee to raise it before the Tribunal becomes purely academic and, in our opinion, the reference on this point is unnecessary and does not arise. Similarly, in the view that we take regarding questions Nos. 3 and 4, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Tribunal against the order of the Appellate Assistant Commissioner dismissing I.T.A. 365 of 1946-47. The said appeal was heard in the first instance by the madras Bench of the Appellate Tribunal on 28th August, 1948. We find from the order to the Tribunal that N.R. Harihara Iyer contended that the business belonged to the Hindu undivided family of N.S. Venkitarama Iyer (N.S.V. family). As the Tribunal wanted certain points arising in the evidence to be clarified, on that date, the Appellate Tribunal passed an order directing the Income-tax Officer to further investigate the matters in the following words: "We, however, do not feel that the materials on record would leads to a clear inference that N.R. Harihara Iyer was the owner of the which may on further investigation be construed adversely to the assessee, we are not prepared to allow the appeal. It seems to us that the only just course to adopt in this case is to remit the matter to the Income-tax Officer for him to further investigate the matters that have been set our above land submit a report." In consequence of this order of the Tribunal, the Income-tax Officer appears to have made some further enquiries an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to give a written voucher freeing Harihara Iyer from all financial liabilities. These allegations were promptly refuted by N.S.Venkitarama Iyer by his reply notice, dated February 27, 1945. In this it was stated that the N.S.V. family were only giving Harihara Iyer advice in business matters and that the N.S.V. family has nothing to do either with the actual conduct of the business or for any account. There was a further notice on March 11, 1945, sent to N.S. Venkitarama Iyer on behalf of Harihara Iyer reiterating his old demands and threatening court proceedings and this was also very curtly and promptly met by a reply notice dated March 16, 1945, informing Harihara Iyer that his threatened action is awaited by the N.S.V. family. We have mentioned about these notices only to show that it was at no time the case of Harihara Iyer that he and Choodamani Iyer were conducting the business jointly as an "association of persons" or otherwise. Consequent on the order of the Appellate Tribunal on February 28, 1949, allowing the appeal of Harihara Iyer, the Income-tax Department started fresh proceedings under section 34, on March 17, 1950, in respect of the assessment already m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itarama Iyer, piecegoods merchant, Palghat, as a Hindu undivided family for the year of assessment 1943-44. In the said order it is observed: "The question about the real ownership of that business, i.e., whether it belongs to the person in whose name it was being carried on or to the assessee who had actual control over the business was considered at great length and the highest fact finding authority under the law has found that the business did in fact belong to the assessee. Thereupon section 34 proceedings were initiated in the assessee's case." Further in paragraph 3 of the order it is stated: "Accordingly, the assessees were given the opportunity to adduce any evidence that they may have in support of their stand that the business did not belong to them but actually belonged to the person in whose name it was being run. The assessees could not produce any evidence of a substantial nature." Ultimately, the said Officer wound up his conclusion on the question of ownership of the business of N.R. Harihara Iyer as follows: "Doing so one finds overwhelming evidence in support of the theory that the business run in the name of Harihara Iyer in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . family filed an appeal to the Appellate Assistant Commissioner of Income-tax, I.T.A 948 of 1950-51. They have taken specific objections in their memorandum of grounds that the Income-tax Officer had no legal evidence to come to the conclusion that the ownership of the business styled as "N.R. Harihara Iyer" belongs to the N.S.V. family. It is also contended that the Officer committed grave illegality and irregularity in not having adverted to much less considering the actual evidence adduced by the N.S.V. family in these proceedings. The order was also challenged on several other grounds. The Appellate Assistant Commissioner, Coimbatore, by his order dated 8th January, 1953, set aside the order of the Income-tax Officer, Palghat, assessing the N.S.V. family regarding the profits of the business of N.R. Harihara Iyer. The appellate authority has commented about the Income-tax Officer not considering at all the actual evidence produced before him by the N.S.V. family which evidence was fairly large consisting of oral evidence, statements, correspondence and other documents. The appellate authority has also held that the N.S.V. family were not in possession of the evidenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich came in only in June 1943, and, therefore, the plea of Harihara Iyer that his position as a refugee was utilised by the N.S.V. family to secure a cloth licence in his name for their benefit cannot be accepted. Finally, the Appellate Assistant Commissioner held that there is no evidence on record which in his opinion can justify the finding that it belonged to the N.S.V. family as such. In this view, the Appellate Assistant Commissioner set aside the order of the Income-tax Officer, Palghat, and cancelled the assessment made on the N.S.V. family regarding the business of Harihara Iyer. Against this order of the Appellate Assistant Commissioner the Department namely, the Income-tax Officer, Palghat, filed an appeal before the Income-tax Appellate Tribunal, Madras Bench, being I.T.A. No. 7555 of 1952-53, assessment year 1943-44. The Appellate Tribunal by its order dated March 9, 1956, confirmed that order of the Appellate Assistant Commissioner in the following words: "This is a departmental appeal. There is no evidence in the case to fix the ownership of the business in question on the assessee family. We, accordingly, uphold the Appellate Assistant Commissioner's or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2, under section 34 of the Act asking them to furnish a return within the time specified. this notice was served on Choodamani Iyer on March 18, 1952, and he wrote a letter on April 21, 1952, to the Income-tax Officer seeking clarification of the term "another", mentioned in the notice issued to him under section 34. To this, the Income-tax Officer sent a reply on April 26, 1952, stating that it was very strange that Choodamani Iyer should be ignorant of the other person with whom he was carrying on the business. He wound up the reply as follows: "You are called upon to file a return relating to such business or enterprise carried on by either yourself or the family of which you are a member also with the said N.R. Harihara Iyer". The family is evidently mentioned because by that time the order of the Appellate Assistant Commissioner and that of the Tribunal have not been passed in the appeals filed by the N.S.V. family. There is no dispute that no notice was issued to N.R. Harihara Iyer who was admittedly alive at the time when section 34 notice was issued to Choodamani Iyer. When the definite case of the Department is that there was an association of perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business does not belong either to Harihara Iyer or N.S.V. family, then it is obvious that it must have belonged to a third party. The Income-tax Officer observes: "When two persons jointly carry on a business there must be some agreement, either implied or written, between them as to the terms. No such agreement is forthcoming. In the absence of any evidence to the contrary, the statue will therefore be taken as an unregistered firm." The contention regarding the legality of section 34 proceedings was negatived. Regarding the actual ownership of the business, the Officer observed that he cannot accept the contention of Choodamani Iyer that he was only helping Harihara Iyer in the business as a friend and that he had no financial interest or connection in the said business. The Officer relied upon the following circumstances as establishing an association of persons between Harihara Iyer and Choodamani Iyer regarding the business of Harihara Iyer: "Their stay in Burma when they were employed: Harihara Iyer being the President and Choodamani Iyer the Secretary of Noorani Sastha Co-operative Society, Palghat; Harihara Iyer giving ₹ 2,700 towards ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Officer himself and the Income-tax Officer had signally failed to discharge this onus of proof. The Appellate Assistant Commissioner went into the reasons given by the Income-tax Officer one by one and held as follows: "All the reasons given the Officer for holding that there was a partnership completely fall to the ground. The various facts and circumstances referred to by the Income-tax Officer, whether taken individually or cumulatively, do not in the least establish that there was a regular partnership in respect of the business carried on in the name of N.R. Harihara Iyer or that Choodamani Iyer was a partner or had a proprietory interest in his business." The Appellate Assistant Commissioner, it will be seen, attached great importance, and, in our view, quite rightly to the fact that even Harihara Iyer himself at no time contended that the business in question was conducted as a partnership between himself and N.S.V. family, or himself and Choodamani Iyer and that even according to Harihara Iyer, Choodamai Iyer did not have any proprietary interest in the business in his individual capacity. He also adverted to the significant omission in the evidence of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Coimbatore personally supervising the sale of Harihara Iyer's goods. Subsequently, the goods were sold by the N.S.V. firm at the request of Harihara Iyer and Harihara Iyer's accounts have been settled by the N.S.V. family. As stated earlier, there is nothing in this evidence about Choodamani Iyer being associated with the business of Harihara Iyer. When the matter came up again before the Appellate Tribunal by its order dated March 10, 1956, the Department's appeal was allowed. Though there is a reference regarding the assessment proceedings taken against Harihara Iyer and the N.S.V. firm there is no reference by the Tribunal about the confirmation of the order of the Appellate Assistant Commissioner on August 9, 1956, holding that the business does not belong to the N.S.V. family. According to the Tribunal the following circumstances establish that Harihara Iyer and Choodamani Iyer were carrying on the business of N.R. Harihara Iyer as an association of persons: Choodamani Iyer and Harihara Iyer being friends from their childhood and later being friends in Burma; According to Harihara Iyer the business was started in his name at there suggestion of Choodamani Iyer a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ." The assessee was served with this order on March 22, 1956, and he filed an application dated April 24, 1946, under section 66(1) of the Act to the Appellate Tribunal requesting the Tribunal to refer the questions mentioned therein to this court. In the application it has been stated the Tribunal committed an error in relying upon the evidence recorded in the proceedings relating to Harihara Iyer and N.S.V. family as against the assessee. It was specifically stated that Choodamani Iyer who gave evidence in the original proceedings against Harihara Iyer was allowed only to answer questions put to him by the Income-tax Officer or by Harihara Iyer. In view of the attitude adopted by Harihara Iyer of foisting the business on the N.S.V. family, the N.S.V. family sought permission to intervene in the proceedings and sought permission to cross-examine Harihara Iyer and also to adduce evidence independently. Harihara Iyer objected to this request and in consequence, the Income-tax Officer did not permit either the N.S.V. family or Choodamani Iyer to adduce any evidence to Cross-examine Harihara Iyer. Therefore, the evidence of Harihara Iyer in these proceedings without Choodamani h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessable income, the Tribunal reduced the amount from ₹ 30,000 to ₹ 21,000 which was the estimate of the Income-tax Officer in the original proceedings against Harihara Iyer. Otherwise, the Tribunal set aside the order of the Appellate Assistant Commissioner. The learned Advocate-General appearing for the assessee has very strenuously contended that the finding of the Tribunal on the question of the existence of an association of persons as between Choodamani Iyer and Harihara Iyer regarding the business of Harihara Iyer is based upon inadmissible evidence. He even contended that there is absolutely no legal evidence in this case to justify the finding of the Appellate Tribunal. According to the learned Advocate-General the materials relied upon the Tribunal support of their finding were mateials gathered in the original proceedings against Harihara Iyer. Choodamani Iyer had admittedly no opportunity to challenge the evidence adduced in those proceedings and this has been made clear by the order of the Appellate Assistant Commissioner which has not been challenged by the Department. Though an attempt was made in those proceedings even for Choodamani Iyer's fami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t quoted above, it will be seen that a finding even on a question of fact is open to attack as erroneous in law if it is not supported by any evidence or if it is unreasonable and perverse. According to the learned Advocate-General as stated earlier, the finding in this case is not supported by any evidence and it is also perverse. On the other hand, it is there contention of the learned counsel for the Department that there is evidence to support the finding and that we should not substitute our own judgment in this case. We may also refer to an earlier decision of the Supreme Court in Dhirajlal v. Commissioner of Income-tax, [1954] 26 I.T.R. 736. His Lordship Mahajan, Chief Justice, observes at page 739 as follows: "The question whether or not the Hindu undivided family was doing business in shares transferred to it by the firm, is undoubtedly a question of fact; but if the court of fact, whose decision on a question of fact is final, arrives at this decision by considering material which is irrelevant to the enquiry, or by considering material which is partly relevant, and partly irrelevant, or bases its decision partly on conjectures, surmises and suspicious, and partly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... serves by Mudholkar and Tambe, JJ., of the Nagpur High Court in the decision reported in Buldana District Main Cloth Importers v. Commissioner of Income-tax, [1956] 30 I.T.R. 61, 71: "... before any group of persons can be called an association of persons it must be established on facts that they are in the nature of partners, that is, in our opinion, the established facts of the case must at east lead to an inference that the members of the group of their volition or free will have joined in a venture with a view to earn profit." In this connection we may also refer to the judgment of Chagla, C.J,. and Tendolkar, J., of the Bombay High Court in the decision reported in Indira Balakrishna v. Commissioner of Income-tax, [1956] 30 I.T.R. 320. The learned Chief Justice observes at page 328 as follows: "The Income-tax Act only refers to an association of persons as an assessable entity under section 3, but it does not anywhere provide as to when an association of persons can be assessed to tax. The expression 'association of persons' occurs along with other assessable entities, viz., individual, Hindu undivided family, company, and local authority and firm, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , but when the parties sought to be affected are different, the knowledge of the counsel cannot certainty be treated as the knowledge of the party. In this case there is no dispute that Choodamani Iyer as such was not a party to any of the previous proceedings. In fact, his grievance is that his family was not permitted to cross-examine Harihara Iyer in the original proceedings. His further grievance is that he could only answer such questions as were put to him by Harihara Iyer or the Income-tax Officer and he was not in a position to say his own version. In our opinion, this objection is not merely a technical one as assumed by the Tribunal. It is really a matter which goes to the jurisdiction of the Department to make an assessment on Choodamani Iyer and another as an "association of persons". Further, in meeting the objection that the Department should establish that the assessee was the real owner, the Tribunal disposed it of by saying that the Department has established by evidence that Choodamani was taking an active part. In the order dated May 1, 1956, the evidence by which the Department has proved its case has not been mentioned by the Tribunal. Therefore, we h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of Harihara Iyer without any obligation on his part. Further, reliance made by the Tribunal about the transfer of ₹ 148-6-0 from Harihara Iyer's account to N.S.V. Venkatarama Iyer's account does not at all bring in Choodamani Iyer anywhere. It may at the most show some connection with the N.S.V. family and even here, the Appellate Tribunal has held in favour of the N.S.V. family. Even regarding the actual conduct of the business, the Tribunal has considered certain circumstances such as the absence of a separate godown for Harihara Iyer. The fact that the goods were stored with the N.S.V. family again does not incriminate Choodamani Iyer. The reliance placed upon the letter of Choodamani Iyer dated January 14, 1944, and marked as annexure 'A' in the statement of the case does not at all carry the matter any further and it has been sufficiently explained by Choodamani Iyer himself in the statement that he gave to the Income-tax Officer in the proceedings against Harihara Iyer. In fact, even that letter was relied upon by Harihara Iyer only to show that N.S.V. family was interested in his business. Thus the entire evidence that is relied on by the Tribunal is ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
