TRIBHOVANDAS VITHALDAS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS reference relates to four assessment years, viz., 1965 66 to 1968 69 (corresponding to the accounting years S.Y. 2020 to 2023) of the assessee, Tribhovandas Vithaldas, HUF which consisted of S/Shri Ramanlal, Manherlal and Rameshchandra, who are the sons of late Tribhovandas, and Bai Reva who is the widow of said Tribhovandas. According to the ITO, Shri Natverlal Tribhovandas was also a coparcener. The first accounting year 2020 corresponding to the asst. year 1965 66, comprised of a period commencing from October 18, 1963, to November 4, 1964. The assessee claimed that there was partial partition of the capital of the HUF on Magsarvad 11 of S.Y. 2020, and there was a partition amongst the four members, namely, Ramanlal, Manherlal, Rameshchandra and Bai Reva. This claim of partial partition was rejected by the ITO. The ITO noted that aforesaid Manherlal, Rameshchandra and Bai Reva became partners in S.Y. 2020, corresponding to the asst. year 1965 66 and the new firm carried on a business as wholesalers in coconut in the name and style of M/s Rameshchandra Manherlal & Co.. It was further found by him that the capital introduced by these persons in the firm was transferred by cross entries from their accounts with the HUF and they had failed to prove that they had made any independent contributions. The ITO, therefore, included the share income from this firm of these partners in the assessment of the assessee HUF for the asst. year 1965 66.

(2.) ACCORDINGLY , for the remaining three years also, he clubbed the share income of these partners with the income of the HUF. The assessee, therefore, carried the matter in appeal before the AAC. On behalf of the assessee, it was contended that the amounts withdrawn by the said Shri Rameshchandra and Manherlal from the funds of the HUF were used by them for the purposes of purchasing ornaments and the capital contributions which these two persons made in the firm were raised by borrowing moneys from third parties. On behalf of Bai Reva, it was claimed before the AAC that she had withdrawn from her capital account in the books of the HUF and made the contribution to the firm. The AAC, therefore, by his order of July 20, 1970, thought it advisable to investigate as to the precise source of contribution which the ITO had not done and he, therefore, remanded the matter to the ITO for investigating the source of contribution and certify his findings on the inquiry so made.

(3.) THE ITO by his report of December 6, 1972, certified these findings where, for the reasons stated in the said report, he refused to accept the version of the said Manherlal, Rameshchandra and Bai Reva. According to the ITO, the evidence collected by him disclosed that there was very little possibility for the alleged lenders to save amounts from their meagre net earnings from their lands which would enable them to advance moneys. The ITO also emphasised in this behalf that these alleged lenders have themselves obtained some advances from the Agricultural Credit Society of which they were members. The ITO could not persuade himself to accept the version of the said two partners, Manherlal and Rameshchandra, about the investment of the amounts drawn from the HUF funds in purchase of the ornaments. The reason which weighed in rejecting this version was that the alleged vendors of the ornaments could not satisfy him about the necessity for them to sell the ornaments, and that they were actually in need of the money at the relevant time, nor was there any satisfactory material to show as to how these vendors had acquired the ornaments, nor any evidence was adduced to show that they did possess the ornaments. He also emphasised the fact that the said two partners who claimed to have purchased the ornaments could not satisfy him by producing the ornaments so that the description of the ornaments as given in the receipts passed by the vendors could be tallied, since according to these two partners, the form of the ornaments was changed. They could not, according to the ITO, give the name of the goldsmith by whom these ornaments were remade. In the circumstances, he rejected the version of the said two partners. Unfortunately, however, the ITO did not give his finding qua Bai Reva so far as her claim was concerned that the moneys which she had drawn from the funds of the HUF were from her capital account which comprised, inter alia, insurance money.