FIRM JATHMALL SADASUKH Vs. COMMISSIONER OF INCOME-TAX

JUDGEMENT

(1.) This is an application under Section 21, Excess Profits Tax Act, read with Section 66(2), Income-tax Act, with a prayer that the Income-tax Appellate Tribunal be directed to state the case with reference to the following question of law arising in the case: Q. Whether the main purpose of starting the new firm Jauhari Lal Khemraj was the avoidance or reductions of the liability to excess profits tax of the assessee firm Jetnmal Sadasukh within the meaning of Section 10-A of the Excess Profits Tax Act?"

(2.) The assessee, Firm Jethmal Sadasukh, carried on kirana business with headquarters at Lucknow and a branch at Kanpur in this firm Jauhari Lal had a one-third share. Swamp Chand and Sripal a none-third share and Kailash Chand minor had a one-third share. On 17-12-1942, another firm under the name and style of Jauhari Lal Khemraj was started at Kanpur to carry on the same kirana business and, in this firm, the three partners of the assessee firm each had a four-anna share. In addition, two other persons, Tara Chand and Abid Ali, entered as partners and they each had a two-anna share. In the assessment years 1944-45, 1945-40, 1946-47 and 1947-48. the profits earned by this new firm Jauhari Lal Khemraj were added to the profits earned by the assessee firm by the Excess Profits Tax Officer under Section 10-A of the Excess Profits Tax Act on the ground that the transaction of starting this new firm had been entered into by the assessee firm with the main purpose of avoiding or reducing excess profits tax liability of the assessee firm. The assessee appealed unsuccessfully before the Income-tax Appellate 'Tribunal. An application was made before the Tribunal for referring the case to this Court under Section 21, Excess Profits Tax Act read with Section 66(1), Income-tax Act, in respect of two questions of law. The first question of law has already been mentioned above. The second question sought to be referred was as to whether the Income-tax Appellate Tribunal was right in requiring that four separate applications for reference should be made to it for the four different assessment years.

(3.) The main question that has been urged in, this application before us is the first one by which the assessee challenges the decision of the Income-tax Appellate Tribunal that the main purpose of the transaction of starting the new firm Jauhari Lal Khemraj was the avoidance or reduction of the liability to excess profits tax of the assessee firm. Learned counsel for the assessee urged that the question of law that arose was that this finding about the purpose given by the Income-tax Appellate Tribunal was without any evidence at all and the burden lay on the Department to prove the circumstances in which such a finding could be given. That the burden lay initially on the Department to prove the circumstances, on the basis of which a finding could be given that the main purpose of the transaction was the avoidance or reduction of the liability to excess profits tax, cannot be doubted. The Income-tax Appellate Tribunal has, however, set out in its Appellate order the various circumstances found by it, from which the inference, as to the purpose pf the transaction was drawn by it. These circumstances are as follows: