M/S. LAKSHMICHAND BAIJNATH vs. THE COMMISSIONER OF INCOME-TAX, WEST BENGAL

CIVIL APPEAL No. 271/1955Supreme Court1958 INSC 9713 November 1958Bench: 3 JudgesAuthor: T.L. VENKATARAMA AIYYAR, P.B. GAJENDRAGADKAR, A.K. SARKAR S.C.R. SUPREME COURT REPORTS11 pages
AI SummaryDismissed

What were the facts?

For the assessment year 1946-47, the appellant, a Hindu Undivided Family (HUF) carrying on business, filed a petition under Section 25A of the Indian Income-tax Act, 1922, claiming a family partition on April 24, 1945. The Income-tax Officer (ITO) accepted the partition into five groups. However, regarding Rs. 2,30,346 shown as sale proceeds of ornaments, the appellant contended these were family jewels sold at partition and the proceeds invested in business. The ITO rejected this, finding discrepancies in weight and purity, and concluded the amount represented concealed business profits, including it in taxable income. The Appellate Assistant Commissioner and the Appellate Tribunal upheld the ITO's findings, rejecting the appellant's explanations and evidence, including a proceedings book, as not satisfactorily proving the nature of the receipts.

What did the Supreme Court hold?

The Tribunal held that proceedings under Section 25A of the Indian Income-tax Act, 1922, are limited to determining whether a partition has occurred and the shares of the members. The scope of such an inquiry does not extend to deciding the income assessable under Section 23, and any finding on income in a Section 25A proceeding is not conclusive for assessment purposes. Therefore, the ITO was not precluded from examining the nature of the Rs. 2,30,346. Regarding the second issue, the Tribunal found that the assessee had failed to satisfactorily explain the credit entries in its business accounts. The discrepancies in weight, purity, and the nature of sales, coupled with the inconsistent explanations provided by the assessee over time, led the Income-tax authorities to reasonably infer that the amount represented receipts of an assessable nature, specifically concealed business profits. The Tribunal also noted that the proceedings book, crucial to the assessee's argument, was not properly relied upon or produced before the lower authorities, and its exclusion by the Appellate Tribunal was not perverse. Consequently, the appeals were dismissed.

What were the issues?

1. Whether the proceedings under Section 25A of the Indian Income-tax Act, 1922, which accepted the partition of the Hindu Undivided Family, also conclusively decided the nature and value of the jewels sold as claimed by the assessee, thereby precluding the Revenue from treating the sale proceeds as concealed business profits? (Question of law turning on Section 25A). Assessee's contention: The order under Section 25A determined the factum of partition and the possession/division of jewels, making it impermissible for the Department to dispute the nature of the amount as representing the value of family jewels. Revenue's contention: Not recorded. 2. Whether, in the absence of satisfactory explanation for the credit entries of Rs. 2,30,346 in the business accounts, the Income-tax Officer was justified in inferring that these amounts represented receipts of an assessable nature, specifically concealed business profits? (Question of mixed law and fact turning on Section 23(3)). Assessee's contention: There was no evidence to show that the amount represented undisclosed profits, and the proceedings book, which was sought to be relied upon, supported their claim. Revenue's contention: The assessee failed to provide a satisfactory explanation for the credit entries, and the discrepancies in weight and purity indicated the sale proceeds were not from family jewels but concealed business profits.

Which sections of the Income-tax Act were involved?

Section 25A,Section 23,Section 23(3),Section 66(2)

AI-generated summary — verify with the full judgment below

(1) S.C.R. SUPREME COURT REPORTS 415 M/S. LAKSHMICHAND BAIJNATH v. THE COMMISSIONER OF INCOME-TAX, WEST BENGAL (T.L.VENKATARAMAAIYAR,P.B.GAJENDRAGADKAR and A. K. SARKAR, JJ.)

Income Tax-Partition in Hindu undivided-family-Proceed- ings under s. 25A of the Indian Income-tax Act-Scope-Receipt of amount in accounting year-Assessee's plea of capital receipt rejected -Liability to tax as business receipt-Indian Income-tax Act, I922 (XI of I922), s. 25A.

For the assessment year 1946-47 the appellant, a Hindu undivided family carrying on business, filed a petition before the Income-tax Officer, under s. 25A of the Indian Income-tax Act, 1922, claiming that there had been a partition in the family on April 24, 1945. As regards the income assessable under s. 23 of the Act, the appellant's case regarding six sums aggregating to Rs. 2,30,346 shown in the accounts as the sale proceeds of orna- ments, was that at the partition the jewels of the family were sold and that the price realised therefrom was invested in the business. The Income-tax Officer held that the partition was true and that the family had become divided into five groups, but as regards the amount of Rs. 2

The order continues below.

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