CHOOHARMAL WADHURAM Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessment for six assessment years, namely, 1946 -47, 1947 -48, 1950 -51, 1951 -52, 1952 -53 and 1953 -1954, were the subject -matter of different appeals before the Tribunal, but the present reference relates only to the assessments for the assessment years 1946 -47 and 1947 -48 and we will, therefore, state only so much of the facts as relate to the assessments for those assessments years. The assessee is one Chooharmal Wadhuram represented by Daulatram and others as his legal representatives. Prior to the partition of Indian which took place on 15th August, 1947, the assessee was residing in Karachi and he carried on business in partnership with one Muljibhai in the name of Daulatram Chooharmal at Karachi. Subsequent to the partition of India, the assessee and Muljibhai came down to India and it is common ground that the partnership between them was dissolved by an agreement dated 7th November, 1948. The record does not show that the assessee was assessed to income -tax in Karachi for the assessment years 1946 -47 and 1947 -48 and the case before the revenue authorities throughout proceeded on the basis that no assessment of the assessee to income -tax was made in Karachi for those assessment years. The assessee died in India on 28th August, 1952, leaving behind him Daulatram and others as his legal representatives. Now it appears that in the books of account of a firm named Messrs. Narayandas Purshottamdas, which was carrying on business in Petlad, there was an account in the name of 'Daulatram Chooharmal Vahivatkarta Shah Muljibhai Dahyabhai, Karachi' and in that account diverse amounts were credited on different dates between 31st January, 1946, and 6th August, 1946. The total amount credited during the financial year 1945 -46 came to Rs. 70,000 and that credited during the financial year 1946 -47 came to Rs. 30,000. During Samvat year 2008, that is Samvat year ending on 18th October, 1952, a sum of Rs. 74,000 was debited in this account and the narration in the debit entry was that Rs. 2,500 were withdrawn by the owner of the amount and Rs. 71,500 were adjusted by means of a Havala entry under which the owner of the account took over the debts owed by two persons by the names of Nana Mahiji and Ranchhod Bakor to Messrs. Narayandas Purshottamdas. There was also a further sum of Rs. 7,047 debited in this account with the recital that a flour factory called Panchal Ranchhod Dhura Flour Factory was transferred to the owner of the account in consideration of the said amount. It was the case of the revenue that all these adjustment were made with Messrs. Narayandas Purshottamdas by Daulatram on behalf of the owner of the account. The Income -tax Officer was of the view that the various amounts deposited in the aforesaid account with Messrs. Narayandas Purshottamdas belonged to the assessee and that they represented undisclosed income of the assessee which was diverted in the shaped of deposits in that account and the Income -tax Officer, therefore, sought the sanction of the Commissioner for initiating proceedings against the assessee by his legal representatives, Daulatram and others, under section 34(1)(a). The deposits were in the previous years relevant to the assessment years 1946 -47 and 1947 -48 and the sanction for initiating proceedings under section 34(1)(a) was, therefore, sought by the Income -tax Office by two separate applications, one for the assessment year 1946 -47 and the other for the assessment year 1947 -48 : In each of the application the name of the assessee sought to be proceeded against was shown as 'Shri Chooharmal Wadhuram by his legal representatives, Daulatram and others' and the status of the assessee was shown as 'association of persons.' There was a report enclosed with each application and the report stated : 'It is possible that Chooharmal may have diverted his un -taxed profits in the benami account of his son though the medium of Muljibhai. Approval is, therefore, sought for under section 34(1)(a) to assess him.' The Commissioner gave his sanction on each of the applications and the Income -tax officer thereafter issued two notices to Chooharmal Wadhuram, legal representatives, Daulatram and others. These two notices were served only on Daulatram and were not served on the on other legal representatives. The notice for the assessment year 1946 -47 was served on Daulatram on 29th March, 1955, while the notice for the assessment year 1947 -48 was served on him on 29th March, 1956. Pursuant to these two notices Daulatram attended before the Income -tax Officer from time to time and ultimately the assessment for the assessment year 1946 -47 was completed on 24th March, 1956, and the assessment for the assessment year 1947 -48 was completed on 31st January, 1957. There were appeals against the assessment order and the Appellate Assistant Commissioner set aside the assessment order and directed the Income -tax Officer to make fresh assessments after giving the assessee a proper opportunity of being heard. The Income -tax Office thereupon gave a proper hearing to the assessee and made fresh order of assessment. The Income -tax Officer took the view that the amounts deposited in the name of Daulatram Chooharmal with Messrs. Narayandas Purshottamdas belonged wholly to the assessee and he accordingly added a sum of Rs. 70,000 in the assessment for the assessment year 1946 -47 and sum of Rs. 30,000 in the assessment for the assessment year 1947 -48 together with the full amounts of interest credited in this account in the account years corresponding to those respective assessment years. The Income -tax Officer also held that the assessee carried on yarn business during the relevant pervious years and he estimated the income of the assessee from such business at Rs. 6,000 for the assessment year 1946 -47 and Rs. 5,000 for the assessment year 1947 -48. These assessment orders were followed by the appeals to the Appellate Assistant Commissioner and the appeals were partly successful. The Appellate Assistant Commissioner held that only one half of the amounts deposited in the account in the name of Daulatram Chooharmal with Messrs. Narayandas Purshottamdas could be said to belong to the assessee and he, therefore, allowed only Rs. 35,000 to be added in the assessment for the assessment year 1946 -47 and Rs. 15,000 to be added in the assessment year 1947 -48 together with half the amounts of intent credited in the account for the respective assessment years. He, however, confirmed the addition of Rs. 6,000 for the assessment years 1946 -47 and the addition of Rs. 5,000 for the assessment year 1947 -48. There were further appeals to the Tribunal against the order of the Appellate Assistant Commissioner and in the appeals various contention were raised which have given rise to the present reference before us. We shall presently refer to these contentions but it may be sufficient to state at the moment that these contentions were all rejected by the Tribunal and the Tribunal confirmed the order made by the Appellant Assistant Commissioner. The assessee thereupon applied for a reference and according to the assessee there were ten question of law which arose out of the order of the Tribunal but the Tribunal took the view that some of the question sought to be raised by the assessee were question of fact and the Tribunal, therefore refereed only five questions for the opinion of the court. These questions are :

(2.) WE may point out at the outset that question No. 3 was not pressed by Mr. Dwarkadas, learned advocate appearing on behalf of the assessee, and it is, therefore, not necessary to say anything about it. The only question which require to be considered are question Nos. 1,2,4 and 5. We shall proceed to consider these question according to their serial order.

(3.) THE position of the assessee is equally hopeless, when we turn to the second question. We will assume for the purpose of the second question, as the Tribunal seems to have done, that the amounts deposited in the account of Daulatram Chooharmal with Messrs. Narayandas Purshottamdas belonged to the firm of Messrs. Daulatram Chooharmal consisting of the assessee and Muljibhai as partners with equal shares. But that does not preclude the revenue from the assessing the assessee to tax in respect of his half share in the said amounts. It is now well -settled, as a result of the decision of the Bombay High Court in J.C. Thakkar v. Commissioner of income -tax, the decision of this court in Fulchand Purshottam v. Vasavada, Income -tax Officer, and the decision of the Supreme Court in Commissioner of Income -tax v. Murlidhar Jhawar and Purna Ginning and Pressing Factory that in the case of a firm, the revenue has an option either to assess the firm or to assess the partners of the firm as individuals. The revenue is not bound to proceed first against the firm before proceeding against the partners of the firm. It was, therefore, competent to the revenue in the present case to assess the assessee as a partner of the firm of Messrs. Daulatram Chooharmal in respect of his half share in the amounts deposited in the name of Messrs. Daulatram Chooharmal on the basis that they represented the undisclosed income of the said firm. The decision of she second question must also, therefore, be given against the assessee.