Income-tax---

----Reference---Penalty---Concealment of income-tax---Finding in assessment proceedings that income was earned by assessee-HUF .in a benami name-- Penalty for concealment of income imposed on HUF---Tribunal whether justified in cancelling penalty is a question of law---Income Tax Act, 1961, Ss.256, 271(1)(c).

The assessee was the Karta of a Hindu undivided family. During the assessment proceedings, the Income Tax Officer found that the income earned from an insurance agency in the name of P belonged to the assessee. The income was assessed in the hands of the assessee and subsequently penalty was imposed. The Tribunal cancelled the penalty. On an application for reference:

Held, that the question whether the Tribunal was justified in cancelling the penalty was a question of law which had to be referred.

G. S. Bapna for the Commissioner

N. M. Ranka with S. R. Yadav for Respondent.

JUDGMENT

V. K. SINGHAL, J---The Revenue by an application under section 256(2) of the Income Tax Act, 1961, has prayed for giving an appropriate direction to the Income Tax Appellate Tribunal to refer the following questions of law which arise out of its order, dated July 22, 1983, in respect of the assessment years 1967-68 to 1970-71:

"(i) Whether, on the facts and in the circumstances of the instant case, the Tribunal was justified in holding that the view taken by it in the quantum appeal cannot be adopted as such in the penalty proceedings and no penalty can be sustained on that account?

(ii) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that there is no conclusive proof and convincing evidence to hold that the insurance income belonged to the assessee Hindu undivided family in total disregard of its own finding in the quantum appeal, vide order dated November 28, 1975, that the whole theory of earning of income from insurance agency by Shri Prabhu Dayal Sharma was a concocted one and the said income was earned, received and enjoyed by Shri Roop Kishore Goyal as Karta of his Hindu undivided family?

(iii) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in cancelling the penalty imposed by the Inspecting Assistant Commissioner under section 271(1)(c) of the Income Tax Act, 1961, upon the assessee-Hindu undivided family?

(iv) Whether, on the facts and in the circumstances of the case, the order of the Tribunal passed on July 22, 1983, is not perverse?"

Arguments of learned counsel for both the parties have-been heard. We need not discuss the question which may affect the merits of the case.

The brief facts of the case are that the assessee is the Karta of a Hindu undivided family known as Roop Kishore Goyal. During the assessment proceedings, the Income Tax Officer found that the income earned from insurance agency in the name of Prabhu Dayal Sharma belonged to the assessee and he was only a benami. Prabhu Dayal was an employee at a dharmshala owned by Seva Ram Hansraj, Hindu undivided family, of which Shri Durga Prasad Agrawal was the Karta. Shri DurgA Prasad was father-in-law of Roop Kishore Goyal. Prabhu Dayal Sharma was drawing a salary of Rs. 40 per month. Income of Rs.6,993, Rs.7,490, Rs.11,930 and Rs.13,335 was declared from insurance agency during the years 1967-68 to 1970-71, respectively. The Income Tax Officer found that Prabhu Dayal Sharma was making gifts to the assessee or his wife, Smt. Bhagwati Devi, and in the year 1968-69 gift of Rs.11,000 was made to Smt. Bhagwati Devi. In the year 1969-70, a gift of Rs.10,500 was made to Roop Kishore Goyal. The balance of the income of Rs.22,075 was lying deposited with the Hindu undivided family at the close of the accounting year relevant to the assessment year. The statement of Prabhu Dayal Sharma was recorded and it was found that he was ignorant about the insurance business and he was only to sign red/yellow papers. The fact of the insurance income being deposited with Roop Kishore Goyal was admitted by him. It was stated that his son, Mohanlal, was helping him in the insurance business but in examination he also expressed his ignorance. The Income-tax Appellate Tribunal in its order dated November 28, 1975, found that the theory of earning the commission income by Shri Prabhu Dayal Sharma and making gift by him to Roop Kishore Goyal and his wife was a story which did not accord with human probabilities. The theory was also found to lie against the facts of life. The income was held to be actually earned by Roop Kishore Goyal. The said order has become final.

When the matter was brought before and considered by the Inspecting Assistant Commissioner of Income-tax in the proceedings under section 271(1)(c) read with section 274 of the Income-tax Act, it was found that the assessee has knowingly and intentionally concealed the particulars of the income and penalty was levied. The Income-tax Appellate Tribunal observed that Shri Roop Kishore Goyal may be a partner in a representative capacity in the truck financing firm, but it does not mean that he carried on insurance business also on behalf of the Hindu undivided family. A Karta is free to carry on any business. Unless there is some evidence to prove a linkage between the Hindu undivided family and the insurance business, it cannot be held that such business belonged to the Hindu undivided family. From a reading of the judgment of the Income-tax Appellate Tribunal in respect of the quantum appeal and various evidence collected by the Revenue, we are of the opinion that the following question of law arises out of the order of the Tribunal:

"Whether the Income Tax Appellate Tribunal was justified in holding that no offence has been committed under section 271(1)(c) of the Income Tax Act, 1961, by the assessee-Hindu undivided family and whether the order of the Tribunal is perverse?"

Consequently, the reference applications are allowed and the Income tax Appellate Tribunal is directed to draw up a statement of the case and refer the above question of law to this Court. No order as to costs.

M.B.A./1083/FApplications allowed.