SHUKLA P M Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THERE was an HUF consisting of the assessee, Purushottam, his brother, Shridhar, and their mother, Laxmibai, which carried on the business of money lending and plying of trucks, and the family own house property. The two coparceners, Purushottam and Shridhar, in their individual capacity are themselves assessees. According to the assessee, the two coparceners thought of carrying on a new business consisting of cotton oil extraction and the said business was commenced w.e.f. January 8, 1967. Admittedly, there is no partnership document but a registration certificate under the Sales Tax Act has been obtained in the name of the alleged firm. No doubt, later on, a partnership deed has been executed on December 25, 1968, which is, however, not material for the purposes of the assessment for the asst. year 1969 70, the accounting year of the assessee being from Diwali to Diwali. In the instant case, the accounting year ended in October, 1968. The assessment of the HUF was completed on February 6, 1970. However, the ITO came to know about the business in cotton and oil extraction which was carried on in the name and style "M/s P. M. Shukla and S. M. Shukla". The assessment of the HUF was, therefore, reopened and the income of Rs. 28,625 from the new business in cotton and oil extraction started in the name of the alleged firm was added to the income of the HUF. So far as the capital of the alleged firm is concerned, it came out of the funds of the HUF. For the first year ending November 2, 1967, the HUF advanced from time to time an amount of Rs. 67,500 and the closing debit balance in the books of the HUF was Rs. 40,250.

(2.) THE ITO held that there was no evidence to show that there was an independent agreement between the brothers, much less an instrument of partnership, to carry on business as partners, and the whole business was financed from the funds of the HUF. He further found that there could not be a partnership between the Karta representing the HUF, and a coparcener of the same HUF in his individual capacity in respect of the family property brought into the partnership. The ITO took the view that the credits, if any, in the name of the individual members in the books of the HUF having merged with the resources of the HUF it was really the HUF which had financed the firm and not the partners. Thus, the profits of the firm, according to the ITO, necessarily belonged to the HUF. The view taken by the ITO was confirmed by the AAC. The assessee, therefore, filed an appeal before the Tribunal.

(3.) DEALING with the appeal against the order of penalty the Tribunal found that since the income in fact belonged to the HUF and not to the coparceners in their individual capacities, there as a failure to disclose the income from the cotton and oil extraction business in the books of account of the HUF and that the penalty was rightly attracted. Arising out of this common order in both the appeals, the following two questions have been referred at the instance of the assessee to this Court under S. 256(1) of the IT Act: