JUDGMENT
1. By this reference under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”), the Income-tax Appellate Tribunal, Indore Bench, has referred the following questions of law to this court for its opinion :
“(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the family arrangement was a fictitious and sham transaction and that the business of the Hindu undivided family continued to belong to it as before, in the assessment years in question and whether there was no evidence in support of the finding of the Tribunal that the family arrangement dated August 17, 1961, was a sham and fictitious transaction ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in treating the entire income of the business of the Hindu undivided family for the assessment years in question ?
(3) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the income of Vijay Kumar
and Narendrakumar was earned with Hindu undivided family assets and, therefore, was liable to be included in the hands of the Hindu undivided family ?”
2. The material facts giving rise to this reference, briefly, are as follows :
3. The assessee is a Hindu undivided family. In the assessment proceedings for the assessment year 1962-63, the assessee claimed that there was a partial partition between the karta of the Hindu undivided family, S. R. Kalani, and his adoptive mother on August 17, 1961, and that on the same day the Hindu undivided family business had been converted into a partnership business as a result of partnership entered into between S. R. Kalani and his adoptive mother, Smt. Badamibai. It was contended that as a result of the partial partition of the Hindu undivided family made on August 17, 1961, Smt. Badamibai received a sum of Rs. 1,00,000 as her share and that amount was invested by her in the partnership business. It was also contended by the assessee that Smt. Badamibai had made certain gifts to her minor grandchildren, Vijay Kumar and Narendrakumar, that the said gifts were offered for assessment under the Gift-tax Act, 1958, and that the amount so gifted was invested in the partnership business and the minor grandchildren were admitted to the benefits of the partnership. The Income-tax Officer held that there was no family arrangement and that as Smt. Badamibai had not received any amount, as claimed by the assessee, she could not make any gift to her grandchildren. The contention that a sum of Rs. 43,000 belonged to Smt. Badamibai as her streedhan was also rejected by the Income-tax Officer. The Income-tax Officer, therefore, treated the income arising to the minors from admission to the benefits of the partnership as income of the assessee Hindu undivided family. On appeal, it was held that the gifts from out of the amount of streedhan by Smt. Badamibai were valid and that income connected with those gifts could not be assessed in the hands of the assessee-Hindu undivided family. The Commissioner of Income-tax (Appeals), however, held that income relatable to the gifts made by Smt. Badamibai out of funds alleged to have been received by her as a result of a family settlement, was liable to be taxed in the hands of the Hindu undivided family. Aggrieved by the order passed by the Commissioner of Income-tax (Appeals), the assessee preferred appeal before the Tribunal. As there was difference of opinion between the members of the Tribunal on certain points, the matter was referred to the learned vice-president, who held that except for the income which arose from the gifts made by Smt. Badamibai out of her streedhan, other income was assessable in the hands of the Hindu undivided family.
4. Aggrieved by the order passed by the Tribunal, the assessee sought reference and it is at the instance of the assessee that the aforesaid questions of law have been referred to this court for its opinion.
5. Now, so far as questions Nos. 1 and. 2 are concerned, identical questions were referred to this court in the case of the assessee for different assessment years in Miscellaneous Case No. 70 of 1986–S. R. Kalani (HUF) v. CIT [1989] 177 ITR 259 (MP). In view of the judgment delivered in that case, our answer to questions Nos. 1 and 2 is in the affirmative and against the assessee. As regards question No. 3, learned counsel, for the assessee contended that in view of the fact that the transaction of gift had not been found by the Tribunal to be sham, the income of the minors could not be assessed in the hands of the assessee-Hindu undivided family. The contention deserves to be upheld. Learned counsel for the Revenue was unable to point out as to how, in the absence of any finding that the gifts made to the minors Vijaykumar and Narendrakumar, of the property of the Hindu undivided family were not genuine, the income of Vijaykumar and Narendrakumar from out of investments made from the amount received by them by way of gifts was includible in the hands of the assessee-Hindu undivided family. In our opinion, therefore, the Tribunal was not justified in holding that the income of Vijaykumar and Narendrakumar was liable to be included in the hands of the Hindu undivided family.
6. For all these reasons, our answers to questions Nos. 1 and 2 are in the affirmative and in favour of the Revenue, while our answer to question No. 3 is in the negative and against the Revenue. In the circumstances of the case, parties shall bear their own costs of this reference.