Judgement

Appeal (No. 65 of 1946) from a judgment and decree of the High Court (April 18, 1944) delivered and passed on a reference made by the Income Tax Appellate Tribunal under s. 66, sub-s. 1, of the Indian Income-tax Act, 1922, as subsequently amended.

The following facts are taken from the judgment of the Judicial Committee. A Hindu named Tulsi Ram had two sons, Chunilal and Lachhman Das (the appellant). Chunilal had three sons and Lachhman Das

had seven sons, two of whom were named Daulat Ram and Kanhaya Lal. Shortly before his death in 1930 Tulsi Ram made a gift of Rs.30,000 to Daulat Ram. Daulat Ram deposited that sum at interest with the firm of the joint family carried on by Chunilal and Lachhman Das. The family was governed by the Mitakshara law. In or about 1938 a partition took place between Chunilal and his sons on the one hand and Lachhman Das and his sons on the other. Lachhman Das and his sons, however, remained joint. Daulat Ram was repaid his deposit, which, with interest, had increased to Rs.48,000, and that sum he invested in certain mills called the Indian Woollen Textile Mills. It was undisputed that that sum was his separate property. It had been found as a fact by the Tribunal, and that question was not now before the Board, that the mills were the property of a partnership consisting of the undivided family of Lachhman Das and his sons of the one part and Daulat Ram in his individual capacity of the other part.

In the assessment for the year 1938-39 on the appellant the question arose whether, for the purposes of such assessment, the mills could be held to belong to the joint family of the appellant and his sons or to a partnership consisting of the joint family of the one part and Daulat Ram and Kanhaya Lal of the other. In his assessment order, dated July n, 1941, the income tax officer, Amritsar, held that the mills belonged to the joint family and that the sum of Rs.48,000 should be treated as a loan by Daulat Ram to the family. The assessment was made accordingly. The appellant appealed against the order to the Appellate Assistant Commissioner of Income Tax, who, by his order, dated November 1, 1941, upheld the order of the income tax officer. The appellant thereupon appealed to the Tribunal against that order of the appellate income tax commissioner. The contention that Kanhaya Lal was a partner, which had been urged in the previous proceedings, was given up at the hearing. By its order of September 8, 1942, the Tribunal allowed the appeal, holding that the mills belonged to a partnership consisting as stated above. The Tribunal held that Daulat Ram received as aforesaid by a gift from his grandfather as early as 1929-30 a sum of Rs.30,000, which he at first invested in the joint family business and subsequently, when it had increased to Rs.48,000, he invested it in the mills. That investment had all along been treated by the income tax department as the individual asset of Daulat Ram, and the interest earned on that amount from the business had been included in his separate assessment and had been allowed as such in the assessment of the mills for 1938-39. The Tribunal went on to add that, in view of that treatment of the capital as well as the interest, they found it difficult to appreciate the conclusion of the income tax authorities that Daulat Ram could not be deemed to have any separate interest in his individual capacity as a partner in the mills. There was no evidence whatever, they added, to show that either the capital or the interest was blended with the joint family property or its income or merged in one general account. On the other hand, it was common ground that in the account of the mills the investments of the family and the interest derived on their capital were systematically discriminated from those belonging to Daulat Ram. The Tribunal then referred to certain authorities and distinguished some of them from the case before them, holding, in the result, that the mills belon