HIRACHAND VASTARAM Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS consolidated reference under the provisions of s. 66(1) of the Indian IT Act, 1922, at the instance of the assessee, is impressed with the rapid flow of events up to the year of final accession to the Indian Dominion by the rulers of the States, when the peoples of India were no longer concerned with principalities and powers of the ruling chiefs and when they have upon themselves the whole armour of the Constitution and walk in their enlightened ways, wearing the breast-plate of its protecting provisions and flashing the flaming sword of its inspirations. In one magnificent sweep, all vestiges of arbitrary and despotic power of the ruling chiefs of the States were blotted out. Raigarh is one of such States which is involved in the reference. The original assessment was completed on the assessees by the ITO of the said Raigarh State. The facts and law discussed hereafter invest this reference with a little more than a mere passing and historical interest.

(2.) ON the basis of the same facts and law in the two applications giving rise to this reference, two questions are referred :

(3.) THE ITO however rejected the story of separation or partition and held that the incomes from the said two businesses accrued to the undivided family and, therefore, included the same in the total income of the assessee. It might be mentioned that only income from Mehta Pictures was estimated at a sum of Rs. 1,77,000 but no income was assessed on Dreamland Pictures at Bangalore. The said figure of Rs. 1,77,000 was taken on the basis of the figure as computed for making assessment on Mehta Pictures. As no evidence was produced, the assessment was completed by the ITO under the provisions of s. 23(4) on the basis of best judgment assessment and the revised assessment order was passed on 21st March, 1955. An application under s. 27 of the IT Act was filed on behalf of the assessee before the ITO for re-opening the case which was rejected. Against the said revised assessment order dt. 21st March, 1955, as well as the order rejecting the application under s. 27, two appeals were taken by the assessee to the AAC, who dismissed both of them after affirming the findings of the ITO. Thereafter, two appeals were filed by the assessee to the Tribunal. The assessee lost there also except that the quantum of assessment was reduced by the Tribunal. Two applications under s. 66(1) followed which necessitated this consolidated reference. It appears that Bhogilal died during the pendency of the hearing of the reference in this Court and on his death all the sons including the said two major sons have appeared before us representing the family as an assessee. In the said application under s. 66(1), the assessee made out the case : (1) that in March, 1945, Sumatilal commenced the business of Mehta Pictures and the initial capital came from the HUF but the same was taken as a loan or accommodation and the interest was paid on the said amount. (2)