MANOHAR LALL, J. - This is a reference by the Commissioner of Income Tax, Bihar and Orissa , under Section 66(3) of the Indian Income Tax Act.
It is common ground that Sirdar Indra Singh and his two sons, Sirdar Baldev Singh and Sirdar Ajaib Singh were members of a joint Hindu family up to 1935, but there is a serious dispute between the assessee and the Income Tax department as to whether this Hindu undivided family had joint family property the income whereof was the subject of assessment to Income Tax in a number of years and particularly in the year of assessment 1938-39 for the accounting period 1937-38 with which this reference is concerned. In that year Sirdar Indra Singh, the assessee, made a return showing his status as of a Hindu undivided family and was assessed on a total income of Rs. 1,30,805. He contended at the time of making of the assessment that he should be assessed as an individual and not as joint Hindu family. This contention does not appear to have been clearly raised before the Income Tax Officer but was allowed to to be raised in the appeal before the Appellate Assistant Commissioner who overruled the contention and held that the status of the assessee was that of a Hindu undivided family. In the assessable income the Income Tax Officer included a sum of Rs. 12,000 as directors fees received by Sirdar Indra Singh on behalf of the joint Hindu family in circumstances to be described fully hereinafter. The assessees objection that this was his own private income and not the income of the joint Hindu family was overruled both by the Income Tax Officer and by the Assistant Commissioner who dismissed the appeal on the December 29, 1939. It may be observed here that the assessee had objected to inclusion of two other items, (1) Rs. 185-6-6 received from the Indian Steel and Wire products, Ltd., and (2) Rs. 5,000 which was said to belong to one A.N. Biswas. The assessee failed in getting these two items exclude from his assessable income and the question now framed do not cover these two items of income and so nothing further need be said about them. Thereafter the assessee moved the Commissioner of Income Tax to refer to the High Court under Section 66(2) of the Act certain question of law formulated by him. But the Commissioner on the August 9, 1940, held that these questions were questions of fact and declined to make a reference. The assessee thereafter moved this court when the following three questions of law were formulated upon which the Commissioner of Income Tax was asked to state a case :-
"(1) Do Sirdar Indra Singh and his two sons constitute a "Hindu undivided family" for the purposes of the Indian Income Tax Act (XI of 1922) ? (2) If the answer to question (1) is in the affirmative, is the income from business. property, etc., assessable as the income of joint family or of Sirdar Indra Singh alone ?
(3) Can the income of Sirdar Indra Singh as managing director of Indra Singh and Sons Ltd., amounting
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to Rs. 12,000 in the year of account be included in the income of the Hindu undivided family ?"
The Commissioner sent up a stated end of the case on the of June 2, 1941.
The assessee who is a very wealthy man started his career years ago as a private contractor in Jamshedpur and by his person extensions built up a large lucrative and expanding business. Before the year 1924 the assessee used to be assessed to Income Tax as an individual. The joint Hindu family had no nucleus (see the statements in paragraphs 2 and 3 of the petition of the assessee to this Court at page 13-these facts were accepted as correct in the course of the argument before us). On the June 26, 1925, the assessee moved the Commissioner of Income Tax under Section 33, of the Act to revise the assessment which had been made treating his income as that of an individual. He claimed before the Commissioner that his assessable income was derived from business which "belongs to him and his three sons and his brother Sirdar Hira Singh," that his father is alive but is separate from Hira Singh and Indra Singh and live with their step-mother, that the father and the sons by one with are joint and the two sons by another wife and joint will eat other but seperate from their father and stepbrothers. The Commissioner by an order dated the June 25, 1925, (printed at Page 8) while disposing of this application for revision of assessment held that the assessment will be made on Rs. 60,000, but with regard to the claim that no super-tax should be charged. The effect of this order was that the assessee was assessed for the first time in 1924-25 under the status of a Hindu undivided family. In the subsequent years the assessee continued top be assessed on the same status as a Hindu undivided family and indeed he filed returns, which are required to be submitted each year, on the same basis. It may be stated here that since June 26, 1925, nothing further has been heard of Sirdar Hira Singh. He appears to have dropped out completely out completely from the assessment records of the Income Tax department. As years rolled on, the business of the assessee grew still further and in 1935 he or the family owned the Indian Steel and Wire Products Works. Towards the end of the year this concern ceased to exist and its assets were transferred too a public company with limited liability, the memorandum of the company shows that Sirdar Indra Singh, his two sons, Sirdar Arjian Singh and four other persons were the first subscribers. The capital of this company was fixed at Rs. 50,00,000 divided into 45,000 ordinary shares of Rs. 100 each and 20,000 deferred shares of Rs. 25 each (see paragraph 5 of the memorandum). In the articles of association it is distinctly provided that this limited company was formed to forthwith enter into an agreement with Sardar Indra Singh in terms of a draft agreement which was then ready. A formal agreement was actually entered into on the February 8, 1936. (marked exhibit 1 in this Court), between Sirdar Indra Singh and Indian Steel and Wire Products Limited wherein it was agreed after referring to the relative clauses in the articles of association that a sum of Rs. 32,00,000 being a portion of the consideration for the sale of the goodwill and assets of Indian Steel and Wire products shall be paid to the vendor Sirdar Indra Indra Singh in this way : Rs. 5,00,000 by the issue to the vendor or his nominees of 20,000 fully paid deferred shares in the capital of the company, of Rs. 25 each, Rs. 17,00,000 by the issue to the vender or his nominees of 17,000 fully paid ordinary shares in capital of the company, and the balance of Rs. 10,00,000 by the issue of first mortgage debentures of the company carrying in tourist at the rate of Rs. Seven and half percent. per annum. In the recitals it is distinctly and clearly stated that the vendor has for some time past in his own name or as the sole proprietor of Indra Singh and Sons carved on business as the manufacturer of and dealer in steel wire products at Jamshedpur under the name and stool of the "Indian Steel and Wire Products," There is no statement that the assessee was the Karta of any joint Hindu family and that he was entering into this large scale transaction on behalf of his joint Hindu family. (This de ed of agreement was tendered on behalf of the assessee and marked as an exhibit in the case without objection by the learned counsel for the Income Tax department. The contents of this documents were freely used by the Commissioner in preparing his statement of the case and, therefore, it was thought necessary to have it on the record).
On the of December 2, 1935, Sirdar Indra Singh and his son Sirdar Baldev Singh became the first two subscribers of a memorandum of association to form a private company. This company waste Indra Singh and Sons Limited - the memorandum and articles of association are on the record. Although the subscribes were Sirdar Indra Singh and Sirdar Baldev Singh it is common ground that Sirdar Indra Singh and his two sons, the third sons was dead by this time, were the shareholders of this private limited company which was duly registered under the Indian Companies Act of 1913. The capital of this private company was Rs. 30,00,000 divided into 3,000 shares of Rs. 1,000 each and this company was to act as the managing agents of the Indian Wire and Steel Products Company, Limited, hereinafter to be referred to as the "Public Company". Sirdar Indra Singh nominated Indra Singh and Sons Limited as his nominee to receive Rs. 30,00,000 from the public company as per agreement dated the February 8, 1936. This sum was divided by the vendor into three parts of Rs. 10,00,000 each between himself and his two sons who, as stated just now, were the only three shareholders of this private company. By article 111 of this company Sirdar Indra Singh was appointed as a governing director until he g-resigns the office or dies or ceases to hold at least 10,000 shares, By article 116 his remuneration while he held the office of the governing director was fixed at the rate of Rs. 1,000 a month so that his annual emolument was Rs. 12,000 which forms the subject of question No. 3 to be answered by this court. In the year 1938-39 the assessee came to be assessee came to be assessed as already stated on his income for the previous year 1937-38. The assessment was made on the December 30, 1938. The appeal against this assessment was disposed of on the December 29, 1939. In the meantime on the of March 24, 1939 Sirdar Indra Singh and his two sons entered into an agreement which is described as memorandum of agreement between the father and his two sons and is exhibit H (at page 10). It recites that Sirdar Indra Singh by his own extension and out of his own income has acquired various properties in British India and has been enjoying the rents. Issues and profits thereof, that the parties have been living as members of the joint Hindu family, that a number of shares were transferred to a private limited company, Indra Singh and Sons Limited, and that these shares have been divided into three parts of Rs. 10,00,000 each, but as differences have arisen between the parties regarding the joint character, management, alienation and distribution of the income of a number of properties including the shares of Indra Singh and Sons Limited, so the parties in order to avoid ruinous and costly litigation have entered into this family arrangement. In the first paragraph it is provided that the properties described in part 1 of the schedule standing in the name of Sirdar Indra Singh are his separate and sell-acquired properties. Similarly in subsequent paragraphs reference is made to properties detailed in parts 2 and and 3 of the schedules as belonging separately to the other two sons.
In the year of assessment 1939-40, that is subsequent to the year with which the present case is concerned, Sirdar Indra Singh filed an application under Section 25A of the Indian Income Tax Act and relied upon this deed of agreement in support of his claim that the assessee cannot be assessed as a member of a joint Hindu family.
Such in brief is a survey of the facts which have been relied upon by the Commissioner in the statement of the case to come to the conclusion that Sirdar Indra Singh and his two sons constitute a Hindu undivided family for the purpose of the Indian Income Tax Act, 1922, and, therefore, he invites that the answer to the first two questions should be in favour of the department. The assessee on the other hard contends that the Commissioners finding, apparently a finding of fact, is vitiated by errors of law in that the Commissioner has thrown the onus upon the assessee to prove that the property or business which produced the assessable income in the year of assessment is his private property and has mis constructed the legal effect of the admissions of Sirdar Indra Singh before the Commissioner in 1924 and in the sub-sequent years. It is also contended that the admission made before the Commissioner in 1925 was due to a misapprehension of the legal position or it might have been an incarnate statement deliberately made to avoid payment of super-tax and that the subsequent declarations which were made in the several years of assessment were similarly being made inadvertenly and draftsman of the various returns simply copied out the statement from the earlier assessment orders. It is argued that when it is the admitted case that this joint Hindu family business or the property was transferred to the joint family in a manner recognised by law. It is pointed out that the Commissioner has failed to consider the effect of the various documents which went to form the limited companies in 1935 or the deed of agreement of the February 8, 1936, or the family arrangement of March, 1939, and, therefore, the Commissioner erred in law when he stated that the assessee He produced no evidence to support his claim that the business or the property was the self-acquired property of Sirdar Indra Singh. Objection is also taken grown up and of good training and experience in business "have been evidently throwing their earning in the common stock." It is claimed that there is no evidence whatsoever to show that the assessees sons have been throwing their earnings in the common stock. Mr. Isaacs, who argued the case on behalf of the assessee, also submitted that even if the business and the property be considered to be that of a Hindu undivided family the effect of the transaction in 1935 was to disrupt the joint family so that the family could no longer be treated in laws as a Hindu undivided family from February, 1936, and, therefore, in the year of assessment the status of the assessee in law was that of an individual.
Learned Counsel on behalf of the Income Tax department on the other hand argues that the question whether the property and business of the assessee is his self-acquisition or whether it belongs to the admitted joint Hindu family is question of fact and the Commissioners finding must be accepted by this court as correct. It is also argued that the assessee is bound but the admissions which he clearly made before Mr. Middleton in June 1925, that the admission was made deliberately with full understanding of its consequences and indeed with the deliberate object that it should be acted upon. It is urged that the assessee cannot complain that his own statement has been accepted as correct and has been acted upon to his advantage and to the detriment of the revenue since 1925. It is pointed out that there could not have been any mistake or inadvertence in making the assertions in 1925, because the assessee repeatedly relied upon the same statement in the subsequent now under consideration. In all these years the return which had to be filed as provided by the Act were duly verified either by or on behalf of the assessee the answer put forward is that the provisions of Section 25A(3) of the Indian Income Tax Act are a bar to its being held that the status of the assessed is other than that other of a Hindu undivided family.
It must be observed at the outset that the principle of estoppel or res judicata has no application in Income Tax cases. This has been well settled both in England and in India and reference need only be made to the well known case of Broken Hill Co., Ltd. v. Municipal Council of Broken where Lord Carson in delivering the judgment of their Lordships of the Judicial Committee observed at page 100 that the decision of the High Court in an earlier year which was sought to be treated as a final decision binding between the parties was not a final decision because it "related to a valuation and a liability to a tax in a previous year, and no doubt as regards that year the decision could not be disputed. The present case relates to a new question. Namely, the valuation for a different year and the liability for that year. It is not eadem quaestio, and therefore the principle of res judicata cannot apply". There are number of decisions of the Indian Courts to the same effect (see for instance Rai Bahadur Sahu Har Prasad Raja Radha Raman v. Commissioner of Income Tax Central and United Provinces. There is therefore no estoppel against the assessee but the admissions made by Sirdar Indra Singh before the Commissioner in 1925 and the subsequent admissions made by him in the later assessment Proceedings are undoubtedly pieces of evidence in the case which can be considered to determine the status of the assessee.
To begin with it may be recalled that up to 1925 Sirdar Indra Singh was being assessed as an individual. I have already stated that it is the common case before us that the joint Hindu family of Sirdar Indra Singh and his sons had no nucleus. It must, therefore, be taken that the assessee was being assessed correctly as an individual up to 1924. What happened in 1925 is to be gathered only from the concluding portion of the order of Mr. Middleton while disposing of a revision application of the assessee under Section 33 of the Indian Income Tax Act. Unfortunately the exact statement made by Sirdar Indra Singh has been held in a number of cases that the recitals in a judgment are no evidence whatsoever to prove the exact admission made by a party or a witness unless the whole of the statement is recited therein, this is based on a good principle because it may be that the Court has taken an incorrect view or has misunderstood the admission made. In Kashi Nath Pal v. Jagat Kishore Acharya Choudhury a Division Bench of the Calcutta High Court pointed out at page 644 that "the principle is that all judgments, as public transactions of a solemn nature, are presumed to be faithfully recorded. Every judgment is, therefore conclusive evidence, for or against all persons whether parties, privies, or strangers, of its own existence, date and legal effect, as distinguished from the accuracy of the decision rendered; in other words, the law attributes unerring variety to the substantive as opposed to the judicial portions of the record." Attention may also be drawn to the remarks made by Lord Shaw of Dunfermline when delivering the judgment of the Board in the case of Ram Parkash Das v. Anand Das. In that case one of the disqualifications relied upon to invalidate the right of the mahant was that he had entered into a tie of marriage, but this fact was in dispute. In order to prove this fact reliance was sought to be placed upon the statement in a judgment in a criminal case in the course of trial whereof it was alleged that a person who knew the circumstances made a statement on oath that defendant No. 2 was a married man.
The Magistrate who tried the case stated in his judgments that an admission of the marriage was made in the course of it. Their Lordship held that the note of the admission made to the Magistrate in the criminal case was rightly rejected as not being by itself evidence of the fact recorded therein (page 81)
Assuming however that Mr. Middleton correctly understood the statement which was made to him by Sirdar Indra Singh what was that statement ? It was merely this that the business is that of a Hindu undivided family and belongs to sirdar Indra Singh and his three sons and his brother Hira Singh. It is not stated clearly in the admission that the business from the very start was of an undivided Hindu family. The admission must be construed literally and strictly and so construed it can safely be assumed to mean that, at the time when the statement was made, or in the year of accounting for which the assessment was being made, the business was that of a Hindu undivided family. Can such a statement convert the business into the business of a joint Hindu family ?
The Commissioner has expressed the view that it is evident from this declaration that the property and earning of Sirdar Indra Singh were thrown into the common stock of the family, but, in my opinion, this was an erroneous view to take in law. It is well settled that title to land cannot pass by an admission when the statute requires a deed (see the case of Jadu Nath Poddar v. Rup Lal Poddar) where reference is made to Mc Nelly v. S.R.O. Co. Learned Counsel for the assessee relied upon the case of A.L.P.R. Periakaruppan Chetty v. R.M.A.R. Arunachalam Chetty where Reilly, J., observed that "the separate Property of a Hindu ceases to be his separate Property and acquire the characteristics of his joint family are ancestral property, not by any physical mixing with his joint family or ancestral property, but by his own volition and intention, by his waiving or surrendering his special right in it as separate property" and further a few lines later that" a mans intention can be discovered only from his words or from his acts and conduct. When his intention can be discovered only from his words or from his acts and conduct, in the way in which he has dealt with the property or has allowed others to deal with it." He therefore, contends that the mere statement made by Sirdar Indra Singh to the Commissioner of Income Tax was not a clear expression of intention should have been made to other members of the joint Hindu family. He submitted that there is no dispositive document in this case by which Sirdar Indra Singh transferred the property - his own property to the joint Hindu family. I agree with this contention. The Property of an individual cannot become the property of a joint Hindu family by mere expression or intention unless the property is transferred to the joint Hindu family by some means recognised by law, for instance if it is movable property then it should be handed over to the joint family and its subsequent possession or enjoyment should be shown to be on behalf of the joint Hindu family, or if it is immovable then it must be transferred by a registered document it its value is more than Rs. 100. The subsequent declarations made by Sirdar Indra Singh from time to time cannot have a higher value than the original declaration of 1925 because it is not the case of the Income Tax department that anything further was done by Sirdar Indra Singh after he made the statement before Mr. Middleton in 1925 beyond mere declarations in the subsequent assessment proceedings.
Again the commissioner has not considered the effect of the subsequent documents of 1935-36 and 1939 and was wrong in thinking that no evidence was produced on behalf of Sirdar Indra Singh that the property in question was his self-acquired Property. The recitals in these documents and the transitions evidenced thereby are good evidence to show that the property was the self-acquisition of Sirdar Indra Singh. If the Commissioner has done that the elaborate machinery which was adopted by the assessee in 1935, by which he transferred Indian Steel and Wire Products Works to a public company and received the consideration and formed another company to become the managing agents of the public company, was a mere sham transaction, the matter would have been different. But the Income Tax department themselves treated these transitions as real transactions valid law because they took action under Section 23A of the Indian Income Tax Act regarding the assessment of 1937-38 and proceeded to tax the individual shareholders that is to say Sirdar Indra Singh and his two sons on the undistributed income received by the private company. All the three assessees, Sirdar Indra Singh and his two sons, preferred three separate appeals against the order of the Income Tax Officer which was heard by a Board of Referees who decided on the July 12, 1940 that the Income Tax Officer was justified in invoking the aid of Section 23A(2). They held that the financial position of the company warranted a declaration of dividends and it could have declared dividends by calling upon its principal shareholder - Mr. Sirdar Indra Singh-who happens to be the managing director. To make repayments of his debts (see exhibit 2 of this Court). The Commissioner on the other hand relied upon this decision of the Board of Referees as if it held "that the private company at Calcutta was practically a one man show, that the company may not be assessed as a separate entity and that its three shareholders (Sirdar Indra Singh and his 2 sons), who are also the members of the joint family, could be assessed directly on the income of the private company under that section" (see paragraph 12 of the statement of the statement of the case at page 21). This is misapprehension of the decision of the board of Referees. As the Commissioner has relied upon this decision but had not sent up the actual decision of the Board of Referees we have admitted this upon the record of this case with the consent of both parties and have marked it as exhibit 2.
The Commissioner appears to have failed into a serious error in treating the shareholders of the company as equivalent to the company itself.
The Commissioner has nowhere considered that the public company was specifically formed to acquire the assets of the Indian Steel and wire Products Company nor has he considered the recitals in the deed of agreement of February, 1936, nor has he considered that the two sons of Sirdar Indra Singh along with the other members of the public in different walks of life were subscribers to the formation of the public company and that the two sons were subscribers of the private company. It is inconceivable that a public company which was floated in Calcutta with such publicity on such a large scale and acting through well-known solicitors would have entered into this transactions of the purchase of the properties of the value of about 39 lakhs of rupees without investigating the title of the vendor that he was the sole owner of the business and the property hereinbefore carried in the name of Indian Steel and Wire Product Company. In my opinion the effect of these recitals is to completely outweigh the effect of the admission which was made by Sridar Indra Singh before the Commissioner in 1925, the legal effect of which I have already considered above. Again, the Commissioner has not considered that Sirdar Indra Singh exercised full dominion over the consideration which he received as a result of the transfer to the public company to the knowledge of his sons. He had the power on that date to appoint his nominees to receive the consideration in full or in part and this was actually done by transferring Rs. 30,00,000 of the consideration to the private company. The Commissioner fell into an error when he observed at page 19, line 40, that "if this business were the individual property of Sirdar Indra Singh, he would have himself got the consideration money (which comprised of shares and debentures) and he would not have asked the public company to give that consideration to the private company in which his two sons were also the shareholders with himself in equal shares". This is a complete misapprehension of the true position. The consideration was received by Sirdar Indra Singh as it was open to him to ask the vendee to pay a portion of the consideration to anybody else and a payment would result in an effectual discharge of the obligation of the vendee.
For these reasons I am of opinion that the Commissioner of Income Tax erred in law in holding that the property and the business in question belonged to the joint family and not to Sirdar Indra Singh alone so that the income derived therefrom in the previous year was assessable in the year of assessment as the income of Hindu undivided family.
This court is not interfering with the finding of fact by the commissioner but is merely considering the proper legal effect of all the proved facts which have been stated in the reference by the Commissioner and which were admitted by the parties. Lord Buckmaster in delivering the judgment of their Lordships of the Judicial Committee in Nafar Chandra Pal Choudhry v. Shukur Sheikh observed at page 195 : "Questions of law and of fact are sometimes difficult to disentangle. The proper legal effect of a proved fact is essentially a question of law, so also is the question of admissibility of evidence and the question of whether any evidence has been offered on one side or the other; but the question whether the fact has been proved, when evidence for and against has been properly admitted, is necessarily a pure question of fact." In Ramgopal v. Shamskhaton, Sir Richard Couch in delivering the judgment of the Board referred with approval to the dictum of the Judicial Committee in Ramratan Sukal v. Nandu where it was said : "It has now been conclusively settled that the third Court, which was in this case the court of the Judicial Commissioner, Cannot entertain an appeal upon any questions to the soundness of findings of the fact by the second Court; if there is evidence to be considered, the decision of the second Court, however unsatisfactory it might be if examined, must stand final" and observed at page 99 : "The present case does not come within that rule. The facts found need not be questioned. It is the soundness of the conclusions from them that is in question, and this is a matter of law." This is exactly the case here where the question for determination is the question of the status of an individual. Moreover when the Commissioner has committed so many errors of law and misunderstood the legal position which exists between the shareholders of a the year of account cannot be included in the income of the Hindu undivided family.
As the whole of this dispute has arisen due to the different statements made by Sirdar Indra Singh deliberately before the Income Tax authorities, I would direct that each party should bear his own costs of this reference. The Commissioner of Income Tax will retain Rs. 100 which was deposited with him by the assessee under Section 66 of the Act.
HARRIES, C.J. - I entirely agree.
Reference answered accordingly