JUDGMENT
BOSE, J. – This is an application made by an assessee under Sec. 66(3) of the Indian Income-tax Act following upon an unsuccessful application asks that a mandamus do issue to the Commissioner calling upon him to state a case. It is conceded that the application fails unless there is some point of law for the Income-tax Commissioner to state. In our opinion it fails because there is no point of law.
The case raises two questions both of which, in our opinion are question of fact and neither of them is capable of forming the subject-matter of a case unless it is possible to say that the conclusions of fact arrived at by the assessing officer have been arrived at either without any evidence whatever or because he has misdirected himself. It is said that he has misdirected himself here by viewing the circumstances from a wrong angle due to the fact that he has persuaded himself that the various steps taken by the assessee, which will be mentioned hereafter, are steps taken simply to defraud the income-tax law; and it is as a consequence of this he has arrived at his conclusion.
The facts of the case are very clearly stated and at considerable length in the assessment order and we do not propose to recapitulate them at any length. Put broadly it may be said that we are concerned with two firms, Baghavandas Harikishandas, (the assessee) and Narayandas Kedarnath. The first major question that arises is whether the firm of Bagahvandas Harikishandas, as at present constituted, is entitled to be registered. Registration under the Income-tax Act has been refused on the ground that as at present constituted it is a fictitious firm comprising of a number of persons included for no bona fide reason but merely for the purpose of increasing the number of shares into which the profits can be divided for income-tax purposes. The question is : Is there evidence to support that conclusion ? The matter has already been the subject of a decision between the Income-tax authorities and the assessee, for when the constitution of the firm was exactly the same as at present, the income-tax authorities challenged the genuine nature of the firm, held that eleven of the members were mere names added to swell the number of shares simply for income-tax purposes, and refused to register the firm. The necessary objections were taken; the decision was contested, the matter got as far as an application to the Commissioner under Sec. 66(2) and the application failed. There was no application made for the stating of a case under Sec. 66(3). So far, therefore, as that year of assessment was concerned, the matter stood thus; that the income-tax authorities had held that this firm was not a genuine firm containing a large number of partners and could not be registered under the Income-tax Act. That decision had been contested as far as the Commissioner but the High Court had not been applied to for an order calling upon the Commissioner to state a case. So far as the next year of assessment, the one under consideration, is concerned, the same dispute was raised; the matter was further considered. The same conclusion was arrived at. The assessee now applies under Sec. 66(3).
The broad facts on which the Income-tax authorities came to the conclusion that the firm was not a genuine one can be stated as follows :
The firm had formerly consisted of the managing members of three joint Hindu families, the heads of those families having joined together to carry on business. That is a perfectly normal thing to find in this part of India. Next we find the number of the partners increased by eleven. The eleven new members are all women; one is the wife of one of the former partners, the others are wives of the various sons of the three managing members.
Bearing in mind the legal incidents which follow the membership of a joint Hindu family, bearing in mind the interest or the lack of interest which such women would have in the property of the joint Hindu families concerned, bearing in mind, the past history of this firm, we are clearly of the opinion not only that the income-tax authorities were justified in the view they took as to the nature of the alleged new firm but we fail to see how they could come to any other conclusion than the conclusion they have, viz., that the addition of the eleven names had no purpose or meaning except to enable the assessee to increase the number of share-holders for income-tax purposes. That disposes of the first point, for the conclusion reach amounts to this : that the finding of fact does not proceed on the evidence, nor does it proceed on a misdirection : and therefore no point of law arises.
The second point relates to a development of the manoeuvre which failed in the year of assessment 1931-32. The Income-tax authorities having held that the addition of these names to this firm was merely for purposes of evading liability under the income-tax laws, an attempt was made to get away from this income-tax authority and get assessed by the Bombay income-tax authorities. The plan of campaign appears to have been as follows : The firm that would have been assessed by the Nagpur authorities, viz., the assessee firm Baghavandas Harikrishandas, purported to transfer the business and all its assets and rights to the firm of Narayandas Kedarnath in Bombay. Section 26(2) of the Income-tax Act would operate to entitle the transferring assessee to resist assessment in Nagpur and have the assessment made in Bombay. The question thereupon arose whether that transfer was unreal or not. Again it is said that the Income-tax authorities have had their view coloured by the suspicion that the whole thing was simply an expedient to evade income-tax liability. It is said that it is a real transfer and the mere fact that it results in a lessened income tax liability does not make ineffective what is lawful. Granted the premises, we have no doubt about the conclusion.
There are two difficulties however, in the present applicants way either of which is alone fatal. The first is that Sec. 26(2) only applies if the transfer is before the assessment. All that took place before the assessment was an agreement to transfer and it is not disputed that at all relevant times there was no actual conveyance. There was nothing done to carry out the agreement. There has been some mention before us of Sec. 23-A of the Transfer of Property Act, but if one thing is clear about that much debated section, it is that it does not create a transfer where there is a completed transfer. It merely enables a person who is entitled to call for a transfer to raise certain defence. In our opinion, the fact that there was no transfer at all material times puts an end to the claim of this assessee to be relieved of assessment here and to have the assessment made in Bombay.
The second difficulty is that here again there is no point of law involved unless there is no evidence to support the finding of fact. The finding of fact is to the effect that the transfer is unreal. When one looks at the circumstances of the case it is apparent that the transfer is a mere expedient to evade assessment by an authority that has shown an intention to deal with the realities. Here the purchasing and transferring firm comprise the same interests. The transferor of firm consists of the three heads as above mentioned and the eleven women, and the transferee firm consists of the same three heads of the same families, together with the husbands of the ten of the ladies (one of the eleven ladies is the wife of one of the three managing members), and the three other persons (whose exact relationship has not been made clear) who are also members of one or the other of the three families. Again, bearing in mind the legal incidents of membership of a joint Hindu family, bearing in mind that in substance this is a firm comprised of the members of three Hindu families represented by their heads originally and that all these subsequent changes merely consist in adding names of other members which, so far as we can see, do not in the least alter the share in the profits coming into the various families, or the liabilities of the families, the transfer by the one firm comprising the three heads, the husbands of ten of the said women, and three other members of the family would have no reality at all. It is as though A.B.C. were transferring to A.B.C. This is the view the income-tax authorities have taken of the matter, and we think it is the right one. It is the sort of view that would be taken without any assumption that his was an attempt to evade income-tax law. It follows directly, once it is seen that this firm is really made managing members, mediately by the same three and a number of female members, and finally by the same three and a number of male members, the later additions making no practical difference.
It follows, in our opinion, that there is no point of law arising which would justify us in calling upon the Income-tax Commissioner to state a case. The application accordingly fails and is dismissed with costs which we fix at Rs. 75.
