JUDGMENT R.M. Sahai, J.
16-3-1983
1. This is an application under Section 256(2) of I.T. Act for calling a question of law arising out of the order passed by the Income-tax Appellate Tribunal. Although three questions were raised, yet the learned counsel for the assessee has mainly argued for question No. 2, which runs thus :
"Whether, on the facts and circumstances, the Tribunal was legally correct in holding that the property purchased in the name of Sri Ayodhya Prasad, individual, on November 16, 1971, was actually purchased by the HUF with the view that the burden lies on the applicant to prove otherwise ?"
2. Normally in application under Section 256, no reasons are required to be recorded but as my brother does not share my view that a question of law does arise and is inclined to record independent reasons and dismiss the application, I am left with no option except to notice in brief why I think that the application should be allowed.
3. The assessee is an HUF. In respect of the assessment year 1972-73, the ITO reopened proceedings as he was of opinion that the house purchased on November 16, 1971, in the name of Ayodhya Prasad, who was the karta, was in fact, purchased by the undisclosed funds of the assessee. An affidavit was filed by the son of Ayodhya Prasad before the ITO that his father had agricultural property and money-lending business from which he had independent income. It was also stated that his mother had savings. And the house was purchased from the funds so available.
4. The Tribunal did not place any reliance on the affidavit, as according to it, it contained arguments and not facts. Further, while considering an unexplained investment of Rs. 25,000, which was another deposit, the Tribunal found that the assessee carried on cloth business with a capital of Rs. 17,000 only, and therefore, its income was nominal. And the income from agricultural property and money-lending business must have been consumed by the family. Therefore, according to the Tribunal, it was not possible to accept that Ayodhya Prasad had Rs. 13,500 from which he could have purchased the house. Another circumstance which weighed heavily with the Tribunal was that the income from the house was shown as the income of the HUF in the regular return filed by the assessee, which became final.
5. None of the circumstances, in my opinion, were relevant. Affidavit is on record. It contains factual averments and not arguments. In fact, the case disclosed in the affidavit that Ayodhya Prasad had agricultural property and money-lending business has been believed by the AAC and it has not been set aside by the Tribunal. It could not ignore the affidavit. The Tribunal, therefore, omitted to consider a relevant evidence. Then, after having found that the assessee had nominal income from cloth business, which was insufficient, how could it conclude that Rs. 13,500 was available with the assessee for purchasing the house? It again committed an error of law in dismissing the appeal of the assessee on the finding that it was not satisfactorily explained that Rs. 13,500 belonged to Ayodhya Prasad. Even if the explanation of Ayodhya Prasad was disbelieved, it would not result in a finding that the house which stood in the name of Ayodhya Prasad was a benami (property) of the assessee. No evidence has been pointed out by the Tribunal which could support the case of the Department that the house was a benami purchase of the assessee. Even the last circumstance was erroneously construed against the assessee. Ayodhya Prasad having died, the house in the hands of his sons and other members became the property of the HUF by the operation of law. In the return which was filed, the income from the property had to be shown as the income of the HUF. But this could not reflect back to the date of the purchase.
6. In my opinion, therefore, none of the circumstances enumerated by the Tribunal were sufficient for holding that the funds for the purchase of the house were the undisclosed funds of the assessee. I would, therefore, allow this application and direct the Tribunal to submit a statement of case on the aforesaid question.
V. K. Mehrotra, J.
16-3-1983
7. The case relates to the assessment year 1972-73 and the sole question which the assessee, an HUF, seeks to get referred for the opinion of this court in the present application under Section 256(2) of the I.T. Act is the one mentioned in the order passed by my brother, R. M. Sahai, though, as also noticed by him, as many as three questions were initially posed.
8. The controversy, as canvassed before us, is whether the Tribunal was justified in upholding the view taken by the ITO as well as the AAC, that the assessee had failed to establish that the investment of Rs. 13,500 in the house purchased on November 16, 1971, was not from undisclosed sources. The assessee had claimed that the property was purchased by Ayodhya Prasad, the karta, from his own sources.
9. Proceedings for the year in question were commenced by a notice under Section 148 of the Act. The assessee ciaimed, in the return filed by it, that the income from the property was that of the family. The income was, in fact, treated to be one of the assessee itself, which remained unchallenged by it. During the course of the proceedings for the assessment years 1973-74 and 1974-75 an affidavit was filed in which it was asserted that the house property had been acquired by Ayodhya Prasad after the death of his wife, Sona Devi, to fulfil her wish, from the money accumulated during her lifetime. This statement is contained in para. 6 of the affidavit sworn on July 8, 1976. The ITO disbelieved this assertion in the absence of any evidence as to the availability of cash with Smt. Sona Devi.
10. The AAC called for a fresh report from the ITO directing him to examine the documentary evidence available with the assessee. A report dated January 7, 1981, was submitted by the ITO in which it was mentioned that the carrying on of money-lending business by Ayodhya Prasad on a very small scale was proved. The AAC considered the material on record, including the affidavit, and concluded that though Ayodhya Prasad had carried on money-lending business, yet it was on a very small scale and there was no scope for saving by him in individual capacity. Also, that the agricultural land belonged to the HUF and not to him in his individual capacity. Ayodhya Prasad could not have any individual funds to purchase the house. Since the disclosed income of the HUF was also insufficient to sustain the purchase, it had to be treated to be an income from undisclosed sources.
11. The Tribunal affirmed the conclusion of the AAC. After noticing the the rival submissions made before it, including the arguments of the departmental representative that "an affidavit is an evidence only in respect of the facts stated therein and not arguments or claim in respect of which no material facts have been stated in the affidavit", and, with which it rightly agreed, the Tribunal recorded its ultimate conclusion thus:
"Considering all this and looking to the totality of the facts and circumstances, we have no hesitation in holding that the Appellate Assistant Commissioner was perfectly justified in coming to the finding that out of the total investments of Rs, 38,500 during the previous year relevant to this assessment year the nature and savings of the earlier years and the balance investment of Rs. 21,000 remained unexplained which could be treated as the assessee's income from other sources. No interference with the order of the Appellate Assistant Commissioner on this issue, therefore, appears called for."
12. The only triable issue before the Tribunal was whether during the year in question some of the investments by the assessee were from undisclosed sources. That they were not, was attempted to be proved by the assessee. It brought evidence on the record which was considered but not believed. Can it justifiably be said, as in effect, attempted by the counsel for the assessee, that an affidavit if filed must be believed even though it contains a mere bald assertion without any material being brought on the record to justify it. Or, that some statable question of law must be discovered in the order of the Tribunal even though the triable issue before the Tribunal is essentially a question of fact. Can it be overlooked that a question basically of fact cannot be justified as one of law merely because it is couched in a language simulating that character. And that is what has been the assessee's endeavour in the present case.
13. Where judicial opinions vary, recording of separate reasons is the only mode of expressing the diversity in thought. Else, the judicial process would lose much of its worth. There is no room for any other option.
To conclude, I would dismiss the applicaton.
ORDER 16-3-1983
14. In view of the difference of opinion amongst us, we direct that the papers of this case be laid before the Hon. the Chief Justice for listing before an appropriate Bench.
H. N. Seth, J.
26-4-1983
15. By this application under Section 256(2) of the I.T. Act, the assessee, M/s. Singhai Ayodhya Prasad Lakhpat Rai, Jhansi (HUF), prays that in respect of its assessment for the year 1972-73, the Income-tax Appellate Tribunal, Allahabad, be required to state the case in regard to three questions of law for the opinion of the High Court. When the application came up for hearing before a Division Bench of this court, the learned counsel for the assessee pressed the application in respect of question No. 2 which was formulated in the application thus:
"Whether, on the facts and circumstances, the Tribunal was legally correct in holding that the property, on November 16, 1971, purchased in the name of Shri Ayodhya Prasad, individual, was actually purchased by the HUF with the view that burden lies on the applicant to prove otherwise?"
16. Whereas one of the learned judges constituting the Bench was of the opinion that the aforesaid question was a question of law arising out of the appellate order of the Tribunal in respect of which the statement of the case should be called for, the other learned judge opined that the only triable issue before the Tribunal was whether during the year in question some of the investments made by the assessee were from undisclosed sources. This essentially was a question of fact and the Tribunal could not be required to state the case in respect thereof. In view of the aforesaid difference (of opinion) between the two judges, it became necessary to obtain the opinion of a third judge and that is how the matter has now come up before me.
17. At the very outset, Sri Rajesh Kumar, the learned counsel appearing for the assessee, urged that the purpose of an application under Section 256(2) of the I.T. Act merely is to satisfy the court that prima facie an arguable question of law arises from out of the appellate order of the Tribunal and that if the High Court is so satisfied, the Tribunal is called upon to draw up a statement of the case and refer the said question of law for the opinion of the court. According to him at this stage, the High Court does not decide any controversy, which is finally determined only after hearing both the parties after the statement of the case is submitted by the Tribunal. The position in this regard is similar to the preliminary hearing of a petition under Article 226 of the Constitution where, at the initial stage, the High Court scrutinises the petition with a view to satisfy itself that the case is such in which the respondent should be called upon to put in appearance. Learned counsel invited my attention to a decision of the Supreme Court in the case of Jasbir Singh Dhillon v. Union of India, AIR 1981 SC 1765, and urged that in this case the Supreme Court has ruled that in a case where the two judges constituting the Bench differed on the question whether the petition should be dismissed in limine or the rule should be issued and the matter is referred to a third judge, the petition should not be dismissed in limine and that the rule must be issued so that the controversy may be decided after hearing both the parties.
18. I am unable to accept the submission made by the learned counsel. In the first place, there is material difference between a petition under Article 226 of the Constitution, which is scrutinised by the court at the preliminary stage with a view to determine whether or not the respondent should be called upon to put in an appearance, and an application under Section 256(2) of the IT. Act which comes up for final disposal after notice to the respondent and is being so disposed of after hearing both the parties. After the notice of an application filed under Section 256(2) of the I.T. Act has been issued and it is to be disposed of after hearing both the parties, it cannot be said that the application is being disposed of in limine.
19. Moreover, I do not think that in Jasbir Singh Dhillon's case, AIR 1981 SC 1765, the Supreme Court has laid it down as a proposition of law that invariably and in every such case where there is a difference of opinion between the two judges at the preliminary hearing of a petition, and the matter is referred to a third judge, the third judge is obliged to issue the rule. In Jasbir Singh Dhillon's case, AIR 1981 SC 1765, the learned judges, after narrating the circumstances in which the controversy on a difference of opinion between the judges constituting the Bench came to be referred to the third judge and the third judge agreed that the petition deserved to be dismissed in limine, went on to observe that the case before them was such which should not have been dismissed in limine. It appears that, in that case, the Supreme Court made the order restoring the writ petition to its original number as on the facts of that particular case, it felt that the petition involved questions which could properly be adjudicated upon after hearing both the parties. It is difficult to accept the proposition that whenever at the preliminary hearing of a petition there is a difference of opinion between two judges on the question whether or not the rule should be issued and the matter is referred to a third judge, the third judge has without applying his mind to the controversy, necessarily to agree with the issuing of the rule, for, in such a case, reference of the case for opinion of the third judge would be utterly meaningless and the law would have provided that the opinion expressed by a judge in favour of issuing the rule shall prevail over the opinion of the judge who holds a contrary view. Of course, the third judge, to whom the matter is referred, will, while considering the question, keep the fact that one of the judges after scrutinising the matter was of opinion that the case was such which should not be dismissed in limine, and will thereafter form his own judicial opinion in this regard after considering the matter in the light of the reasons, if any, given by the two judges in support of their respective views. It is, therefore, necessary for me to go into the question as to whether or not the present one is such a case where the Tribunal should be required to state the case and refer the question set out above for the opinion of this court.
20. I have, after carefully going through the opinion of the learned judges as also hearing the counsel for the parties, come to the conclusion that in this case a question of law, on which a statement of the case can be called from the Income-tax Appellate Tribunal, does arise and I proceed to state my reasons for this conclusion.
21. The assessee, M/s. Singhai Ayodhya Prasad Lakhapat Rai, Jhansi, is an HUF. By means of a notice dated 24th of January, 1980, the ITO reopened the asses see's assessment for the year 1972-73 on the ground that he had reasons to believe that some part of its income for that assessment year had escaped assessment. In response to the notice issued by the ITO, the assessee filed a return including therein the income derived by it from a house purchased in the name of Ayodhya Prasad, karta of the family, on 16th of November, 1971, for a sum of Rs. 13,500. During the course of the assessment proceedings, the ITO sought to include a sum of Rs. 25,000 invested by the assessee in that year in its cloth business as also the sum of Rs. 13,500 invested in purchasing the house on 16th November, 1971, as the assessee's income from undisclosed sources. The assessee filed an application before the ITO and explained the investment of Rs. 25,000 made by it in the cloth business by contending that the said amount became available from out of the savings from agriculture, money-lending business and cloth business carried on by it from time to time. So far as the amount invested in purchasing the house was concerned, the case set up by the assessee was that Smt. Sona Devi, wife of Sri Ayodhya Prasad, died on 30th of January, 1976. As desired by her, Ayodhya Prasad purchased the house on 16th November, 1971, for a sum of Rs. 13,500 from out of the money left by Smt. Sona Devi. Thus, the said house was in no way connected with the HUF and for purposes of the I.T. Act, the responsibility of explaining the said investment was that of Smt. Sona Devi and her husband, Ayodhya Prasad, who had his own source of income and not that of the assessee-HUF. In support of its case, the assessee relied upon an affidavit filed on its behalf on 8th of July, 1976, in proceedings for its assessment for the year 1973-74 wherein a similar stand had been taken by it.
22. The ITO was, however, not satisfied with the assessee's explanation and treated the investment of Rs. 25,000 in the cloth business and that of Rs. 13,500 in purchasing the house property as unexplained investments and, consequently, assessed the same as the assessee's income from undisclosed sources. In appeal, the AAC eventually came to the conclusion that from out of the sum of Rs. 25,000 invested by the assessee in the cloth business, investment of Rs, 17,500 stood adequately explained and that in that regard only a sum of Rs. 7,500 could be treated as income from undisclosed sources. So far as the investment of Rs. 13,500 in purchasing the house on 16th of November, 1971, the explanation given by the assessee that the same had been purchased by Ayodhya Prasad could not be accepted and inasmuch as even though Ayodhya Prasad carried on money-lending business, yet then it was on a very small scale. There was no scope for any saving in individual capacity. The disclosed income of the HUF derived from agriculture was also meagre and must have been consumed for meeting the household expenses of the family. As in his opinion , Ayodhya Prasad could not have any individual fund for purchasing the house for Rs. 13,500, the irresistible conclusion was that Ayodhya Prasad being the karta of the HUF acquired the asset from out of the HUF, the source whereof had remained unexplained. The AAC accordingly modified the assessment made by the ITO and granted relief to the assessee to the extent of Rs. 17,500.
23. Both the assessee and the Department went up in appeal before the Income-tax Appellate Tribunal, Allahabad. The Appellate Tribunal by its judgment dated 5th of January, 1982, dismissed both the appeals and confirmed the order passed by the AAC.
24. The controversy involved in the question in respect of which the assessee has pressed this application under Section 256(2) of the I.T. Act merely concerns the investment of Rs. 13,500 made in purchasing the house on 16th of November, 1971, in the name of Ayodhya Prasad. Whereas the case of the assessee was that the said property had been purchased by Sri Ayodhya Prasad from out of his personal funds and that it belonged to him individually, the case of the Revenue was that the said property had been purchased in the name of Ayodhya Prasad, the karta of the assessee, from out of the HUF funds, the source of which had remained unexplained. In support of its case, the assessee had placed strong reliance on the affidavit filed on its behalf in assessment proceedings for the year 1973-74, wherein it had been asserted that the said property had been purchased by Ayodhya Prasad from out of the funds left by Smt. Sona Devi and from out of his own personal funds. The Revenue, on the other hand, did not produce any evidence for substantiating its case that the said property had in fact been purchased from out of the HUF funds. It merely relied upon certain circumstances appearing from the material on record.
25. The Appellate Tribunal, after observing that the affidavit relied upon by the assessee was evidence only in respect of the facts stated therein and not arguments or claim in respect of which no material or facts had been stated therein, observed thus :
"The assessee's learned counsel, Shri Chopra, has not controverted the claim made by the learned departmental representative, Shri Chatterjee, that the income from property under consideration here was shown in the return of income and was also included in the assessee's total income against which there was no appeal by the assessee. This itself contradicts the claim of the assessee that the property did not belong to the assessee-HUF but to Shri Ayodhya Prasad, individual. Here it will also be necessary to point out that the return of income filed by the assessee is also on solemn verification and even where a property belongs to the HUF it has necessarily to be purchased in the name of the karta or some other member of the family. Considering all this and looking to the totality of the facts and circumstances, we have no hesitation in coming to the conclusion that the property under consideration here belonged to the assessee-HUF. It automatically follows, therefore, that the onus to explain the nature and source of the investment in the purchase of this property lies on the assessee-HUF and not on any one else. The asseesee-HUF was, therefore, under an obligation to discharge the onus which lay upon it to satisfactorily explain the nature of the cloth business and Rs. 500 in the purchase of property..."
and eventually concluded that, inasmuch as the said amount could not be invested from the known source of the assessee's income, it was rightly treated as the assessee's income from other sources. It thus appears that the eventual decision of the Tribunal is based on the following reasonings:
1. Case of the assessee that the property belonged to Ayodhya Prasad individually cannot be accepted in view of the fact that the assessee itself had treated the income of the property as its own income in the returns for the year 1972-73, filed by it oil solemn verification.
2. The fact that the property had been purchased in the name of the karta, Sri Ayodhya Prasad, or some other member of the family is not of much consequence as the property belongs to the HUF had necessarily to be purchased in the name of the karta or some other member of the family.
3. Once it was held that the property belonged to the HUF the onus to explain the nature and source of the investment in purchasing the property lay on the HUF and not on any one else.
26. So far as the third reasoning given by the Tribunal is concerned, it proceeds on the assumption that if the property belonged to the HUF, it must necessarily have been purchased from its own source of income and accordingly the onus to disclose that source lies upon the assessee and in case the assessee is unable to discharge that onus it can be taken that the investment was made from income derived from other unidentified sources.
27. It is not unusual that a property pruchased by a member of the HUF is thrown in the common hotchpotch and becomes the property of the HUF. In such a case, no question of investing the funds of the HUF arises and consequently there would be no onus on the HUF to explain the source from which such investment was made. If once the property purchased by Sri Ayodhya Prasad was thrown in the common hotchpotch in the very year in which it was purchased, the assessee could rightly treat the income derived from the property as its own income and show the same in the return for the year 1972-73. In the circumstances, the action of the assessee in showing the income of the said property in the return filed by it could at best be treated as an admission on its part that the said property belonged to the HUF but then it could not be treated also as an admission that the said property had been purchased by the HUF from its own sources, disclosed or otherwise. In the view which the Tribunal took, it did not consider it necessary to express any opinion on the question whether Ayodya Prasad had the means to pay the price of the said property from his own sources, disclosed or undisclosed. It thus appears that one of the questions that arises for consideration in this case is whether the facts found by the Income-tax Appellate Tribunal provided sufficient nexus for it to presume that the house standing in the name of Ayodhya Pd., the karta of the family, had been purchased from the funds of the HUF acquired from some unidentified source.
28. It is true that whether a certain property belonged to and had been acquired by an HUF by its own sources is essentially a question of fact but then in the case of Mehta Parikh and Co. v. CIT [1956] 30 ITR 181 (SC), it has been observed thus (p. 189):
"It follows, therefore, that facts proved or admitted may provide evidence to support further conclusions to be deduced from them, which conclusions may themselves be conclusions of fact and such inferences from facts proved or admitted could be matters of law. The court would be entitled to intervene if it appears that the fact-finding authority has acted without any evidence or upon a view of the facts, which could not reasonably be entertained or the facts found are such that no person acting judicially and properly instructed as to the relevant law would have come to the determination in question."
29. The Supreme Court applied the aforesaid dictum in the case of CIT v. Daulat Ram Rawatmull [1973] 87 ITR 349, where the Income-tax Appellate Tribunal had arrived at the conclusion that the amount of Rs. 5,00,000 in fixed deposit in the name of Biswanath was the concealed income of the respondent-firm on the following circumstances (p. 358):
"1. Explanation furnished by Biswanath with regard to the source of Rs, 5,00,000 in proceedings relating to his personal assessment was found to be incorrect.
2. The transfer of the two amounts of Rs. 5,00,000 each from Calcutta to Bombay and thereafter to Jamnagar and the issue of fixed deposit receipts by the bank in the names of the sons of the partners of the respondent firm.
3. The use of the above-mentioned two receipts as collateral security for the overdraft facility of Rs. 10,00,000, afforded to the respondent-firm."
and the High court had taken the view that the above material was not sufficient for holding that the sum of Rs. 45,00,000 belonged to the respondent-firm and that the Tribunal had taken into consideration material which was not relevant to the issue. The question that arose for consideration in the Supreme Court was whether in the circumstances the High Court was justified in interfering with the finding of fact arrived at by the Tribunal. The Supreme Court agreed with the first circumstance pointed out by the Income-tax Appellate Tribunal, namely, that the explanation furnished by Biswanath with regard to the source of Rs. 5,00,000 in proceedings relating to his personal assessment was found to be incorrect, and observed thus (p. 359):
"The falsity of the above explanation of Biswanath, in the opinion of the High Court, did not warrant the conclusion that the amount of Rs. 5,00,000 belonged to the assessee. We can find no flaw or infirmity in the above reasoning of the High Court. The question which arose for determination in this case was not whether the amount of Rs. 5,00,000 belonged to Biswanath, but whether it belonged to the respondent-firm. The fact that Biswanath has not been able to give a satisfactory explanation regarding the source of Rs. 5,00,000 would not be decisive even of the matter as to whether Biswanath was or was not the owner of that amount. A person can still be held to be owner of a sum of money even though the explanation furnished by him regarding the source of that money is found to be not correct. From the simple fact that the explanation regarding the source of money furnished by A, in whose name the money is lying in deposit, has been found to be false, it would be a remote and farfetched conclusion to hold that the money belongs to B. There would be in such a case no direct nexus between the facts found and the conclusion drawn therefrom."
30. It thus appears that, in the opinion of the Supreme Court, if there is no direct nexus between the facts found and the conclusion drawn therefrom, the conclusions, even though they may be of fact, can be said to give rise to a question of law on which a statement of the case can be called under the provisions of the I.T. Act as indicated above. The question that arises for consideration in the instant case is whether the fact that a particular property standing in the name of the karta or a member of an HUF, treated by it as its own property, provides sufficient nexus for recording a finding that the consideration for purchasing the said property necessarily flowed from some source belonging to the HUF to identify and explain the said source. This, in my opinion, would be a question of law, to resolve which a statement of the case should and can be called from the Income-tax Appellate Tribunal.
31. In the result I would reframe question No. 2 proposed by the applicant thus:
"Whether, on the facts and circumstances of the case, the Tribunal was legally justified in holding that the property purchased in the name of Sri Ayodhya Prasad had actually been purchased from out of the funds belonging to the Hindu undivided family and the burden to explain the source from which the said fund was acquired lay upon the assessee-Hindu undivided family?"
and call upon the Income-tax Appellate Tribunal, Allahabad, to draw up a statement of the case and refer the aforesaid question of law for the opinion of this court.
32. Let the opinion given by me above be placed before the Bench concerned for passing necessary orders.
21-7-1983
33. In view of the opinion received by the third hon'ble judge, we direct the Income-tax Appellate Tribunal, Allahabad Bench A, Allahabad, to submit a statement of the case on the following question of law :
"Whether, on the facts and circumstances of the case, the Tribunal was legally justified in holding that the property purchased in the name of Sri Ayodhya Prasad had actually been purchased from out of the funds belonging to the Hindu undivided family and that the burden to explain the source from which the said fund was acquired lay upon the assessee-Hindu undivided family?"
34. The assessee shall be entitled to its costs.