JUDGMENT
R.N. Misra, C.J.
1. The revenue moved this court under Section 256(2) of the I.T. Act of 1961, for a direction to the Income-tax Appellate Tribunal, Cuttack Bench, to state a case and refer three questions said to be of law in relation to live assessment years being 1970-71 to 1973-74 and 1974-75. On January 15, 1979, a Bench of this court, to which one of us was a party, called upon the Tribunal to state a case in respect of each of the assessment years and refer the following common question :
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the action of the Commissioner in vacating the orders of the Income-tax Officer was not justified ?”
2. One Chunilal Joshi died on July 23, 1969, leaving behind him his only son, Babulal, as successor to his self-acquired properties which consisted of one house and the share capital in a firm consisting of Chunilal and Babulal. Upon the death of Chunilal, Babulal treated the partnership business as a proprietary one and the share capital of his father was treated as a loan from the HUF consisting of Babulal and his children, until, on October 18, 1971, the said capital was withdrawn and invested in the firm styled as M/s. Chunilal Babulal. On November 4, 1972, the said business was partitioned. Babulal filed a return showing his status as an HUF in respect of the income from the house property and the income earned from the capital left by Chunilal. For the assessment year 1974-75, a claim was laid for registration of the firm, Chunilal Babulal. The ITO treated the assessee as an HUF for the assessment years 1970-71 to 1973-74, allowed the claim of partition and granted registration of the firm in the last of the assessment years under consideration.
3. The Commissioner in exercise of the powers under Section 263 of the Act
cancelled the assessments treating the status of the assessee as an HUF as
also the order recognising partition and granting registration to the firm
and directed the ITO to reassess the income by treating the assessee as an
individual.
4. Against the consolidated common order of the Commissioner, the assessee appealed before the Tribunal and maintained that in the returns filed by the assessee there was sufficient declaration of the intention of blending of the individual assets of the assessee with that of the HUF. Reliance was placed on the ratio of the decision of this court in the case of Autoways (India) v. CIT [1976] 102 ITR 761. The revenue claimed that the declarations were not clear and unambiguous, to support the assessee’s contention of blending. Reference was made on behalf of the revenue to an application of the assessee dated January 19, 1974, where it had been stated that the property had been inherited from Chunilal and under a misconception of law the properties had been shown to belong to the HUF. The Tribunal came to hold that the property inherited by Babulal was initially his own but in view of the consistent declarations in the returns that they had blended the property by putting it into the common hotchpot, it was enough for holding that the property following the blending belonged to the HUF. Once blending had taken place, the subsequent letter of 1974 could not take away its effect. Accordingly, the Tribunal came to the conclusion that the Commissioner had gone wrong in vacating the ITO’s orders in respect of the various years under consideration. The revisional orders of the Commissioner were vacated and the original assessment order for each of the years was restored.
5. The Commissioner in his revisional order came to hold :
“The argument advanced by the learned counsel (for the assessee) was that although no fresh coparcenary could be formed after 1956 on the inheritance of self-acquired or separate property of an intestate Mitakshara male by his son, Sri Babulal Joshi, by declaring the income from these properties in the return as belonging to the HUF, had, out of his own volition, impressed the properties inherited by him with the character of joint family property and he, therefore, abandoned his absolute interest in the property. In support of the argument, he relied on a petition filed in this regard on January 19, 1974, before the Income-tax Officer, C-Ward, Cuttack, wherein it was stated that–‘after the death of Chunilal Joshi, the house property as well as the capital in the firm Cuttack, Chandi Dal and Flour Mills, belonged to the HUF of Babulal Joshi’. The learned counsel was unable to produce any other circumstantial evidence in support of the stand taken. The petition dated January 19, 1974, filed before the ITO on which reliance is placed by the advocate in support of his argument docs not indicate that the assessee intended to impress the properties with the character of joint family property. It appears that he assumed presumably under a misconception of law that they were HUF properties merely because they were received by inheritance. I am of the view that it is necessary if the properties are to be impressed with the character of joint family property that there should be a clear declaration to this effect. This view of mine derives support from the decision of the Gujarat High Court in the case of CED v. Kantilal Bhailal Dave [1975] 100 ITR 577, in which the hon’ble High Court has observed that:
‘Whenever a blinding of self-acquired property with family property
is alleged, a clear intention of such a member to waive his personal claims
and exclusive rights from such a property must be established.’
Considering the facts and circumstances of the case, I am not convinced that the assessee has been able, to establish that he intended to waive his exclusive right from the properties inherited from his father.”
6. Indisputably, year after year, the assessee in his verified declaration
appended to the returns declared the property inherited by him to belong
to the HUF. Blending, as has been pointed out by a series of high authorities, is a mental act and no declaration in a formal manner is necessary.
This court examined that question in Autoways (India)’s case [1976] 102
ITR 764 and in a recent unreported decision in S.J.Cs. Nos. 182 and 183 of
1976 (CIT v. Harish Chandra Gupta) disposed of on February 2, 1981–[since,
reported in [1981] 132 ITR 799 (Orissa)], where the view expressed by the
Andhra Pradesh High Court in G. Mohan Rao v. Gundlapalli Satyanarayana
[1972] 84 ITR 685, has in terms been approved. If the declarations by them
selves in the returns were enough evidence of blending, the application of
January, 1974, was not open to the construction put by the Commissioner
and there was nothing in the application which supported the stand of the
of the revenue.
7. We would, accordingly, answer the question referred to us by holding :
On the facts and in the circumstances of the case, the Tribunal was right in holding that the action of the Commissioner in vacating the orders of the ITO was not justified.
8. Assessee is entitled to costs of these references. Consolidated hearing fee is assessed at rupees two hundred and fifty. B.N. Misra, J. 9. I agree.