COMMISSIONER OF INCOME TAX Vs. RAJINDER NATH

JUDGEMENT

(1.) -Since common questions of law pertaining to the assessment years 1955-56 and 1956-57 have been referred by the Tribunal in these Income Tax References, they are being disposed of by this common judgment. The qusestions of law referred are:-

(2.) References relate to the assessment years 1955-56 and 1956-57 relevant to the previous years ending on 24th March, 1955 and 11th May, 1956 respectively. The Income-tax Officer completed the assessment for the two years on 28th January, 1960, and 9th March, 1961, respectively. The assessee filed substituted returns of income for the above said two years and showed l/3rd share from M/s Faqir Chand Raghunath Dass and also showed income from house properties. The assessee claimed that l/4th share of income of property at Sunder Nagar was not liable to tax for the said assessment years as the house was completed in September, 1954. However, in the assessment year 1956-57, the assessee declared l/4th share of income from house property at Sunder Nagar and l/4th share from Golf Link property but claimed exemption from tax on the income from the property for both these years. The Income-tax Officer while framing the original assessment for 1955-56 held that income from Sunder Nagar was exempt from tax as it was completed in 1954 while for the assessment year 1956-57 the Income-tax Officer held that the assessee had derived l/4th share in the income from both the properties, i. e., at Sunder Nagar and Golf Link. The assessee was a partner in firm M/s Faqir Chand Raghunath Dass and cost of construction of the properties was considered in the assessments of the said firm. The Income-tax Officer found from the record of M/s Faqir Chand Ranghunath Dass for the assessment year 1955-56 that two plots of land Nos. 92 and 94 at Sundar Nagar were acquired in the name of L. Sham Nath.Kartaof the erstwhile Hindu undivided family which carried on business before the partnership firm of M/s Faquir Chand Raghunath Dass was formed. The price of the land was paid out of the accounts of Hindu undivided family. A partial partition of the Hindu undivided family took place on 18th March, 1956, and the business was carried on by the partnership firm consisting of Shamnath and his sons Rajinder Nath and Ramchandar Nath. The third son Surinder Nath being a minor was admitted to the benefits of the partnership. By registered deed dated 18th March, 1950, the plots of land valuing Rs. l,46,672.00 were divided amongst Sham Nath and his sons. Fresh partnership deeds dated 10th May, 1950 and 27th March, 1952, were executed but Surinder Nath was not made a partner in the firm M/s. Faqir Chand Raghunath Dass nor he was admitted to the benefits of the partnership. A sum of Rs. 98,418.00 was debited by the partnership firm to the building account of the firm towards the cost of construction of the building at Sunder Nagar. Before the Income-tax Officer when he was dealing with the assessment of the firm for the year 1955-56 it was contended on behalf of the partnership firm that addition of the above amount in the case of the firm should not have been made as the building was constructed by the partners and not by the firm. The precise contention, therefore, was that the amount of cost of construction of the building should be assessed in the hands of co-oweners.

(3.) The above contention was negatived by the Income-tax Officer whoaddedasumofRs.80,000.00as concealed income of the firm on account of under-statement of the cost of construction of the building. The firm for the assessment year 1956-57 debited a sum of Rs. 99,148.00 in the building account of the firm as cost of construction of the property at Golf Link. The valuation report made by one Brij Mohan Lal, dated 20th January, 1961, was not accepted by the Income-tax Officer and for under-statement of the cost of construction the said officer added a sum of Rs. 35,000.00 towards the income from undis- closed sources to the partnership firm.