ADDISON, J.:
1. In the matter of the 1933-34 assessment of income-tax of M/s. Tara Chand Pohu Mal of Tarn Taran the CIT, Punjab, has stated the case and formulated the following questions for the opinion of this Court :
(1) Whether in the circumstances of this case the petitioners could rightly be assessed under law as an HUF
(2) Has the registration of the firm rightly been refused
(3) Whether, having regard to the facts of the case inclusion of Rs. 10,000 is based on any legal data or proper material
(4) Whether inclusion of Rs. 3,840 (correctly 3640) representing the cess credit brought into British India from Bikaner is justifiable under law in the circumstances of the present case
2. The facts of the case are fully stated in the reference. The assessee up till 1928-29 were assessed as a joint Hindu family but during the 1929-30 proceedings a member of the family applied on the 17th May, 1929, for the registration of the family as a firm, alleged to have been constituted under an instrument of partnership, dt. 4th Jan., 1929. A separate claim was not put into the effect that the Hindu undivided family had disrupted. In that year the ITO registered the firm, apparently only on the ground that the document was in proper form. He held no enquiry under s. 25-A (1) as to whether the family had actually effected a partition. The Officer continued to register the firm up to and including the asst. yr. 1932-33. His successor, who dealt with the 1933-34 assessment found that the status of the assessees was in fact that of a joint Hindu family. The only evidence against this was the partnership deed, already referred to, which was very brief. He held that he was entitled to go behind the deed and find as a fact that it did not represent the real thing.
3. The deed confined itself to the business of money-lending and agriculture. It did not cover the family's house property, which was very extensive, or shares in other firms. Further, the family's large estate consisting of house and landed property, and its considerable investments in money-lending and other firms had never been added or classified, much less divided amongst its members. The IT authorities therefore were of opinion that the family could not have separated without some documentary or other evidence on these points. Another circumstance was that though the family is alleged to have disrupted in January 1928, all legal proceedings on its behalf continued to be taken by Chaman Lal on the basis of a power-of-attorney signed by the members of the joint Hindu family as such. The IT authorities further found that the so-called crediting of each member's share of income to his account in the books was fictitious. The profits so credited were those returned for income-tax purposes. These, of course, should be different from the actual profits as some items of expenditure cannot be deducted from the income for tax assessment. Again, the only debits to accounts represented income-tax paid on behalf of each person while the actual expenditure, personal or otherwise, incurred by the four members or their families was indiscriminately charged to a common account. These circumstances (and especially the last) clearly established that this family is still a joint Hindu family and the decision of the ITO on the point is supported by ample evidence. It is open to him to go into this question which is an issue of fact (see 5 ITC 150 and 7 ITC 31 etc.). It has long been held that a wrong decision in the previous year by an ITO can be corrected in a subsequent year. For the reasons given we answer the first question in the affirmative.
4. The second question does not therefore arise but we might add that we are in agreement with the opinion of the CIT that there was no valid application for registration.
5. As regards the 5th question the difference between the money received from a shop in Bikaner State and the amount sent there was taken to be profits accruing in British India. This amount was Rs. 3,640. The case for the assessees as regards this question is that they are taking the capital out of the shop in Bikaner State into British India and leaving the profit there to be converted into capital in the State. It is clear that the assessees's books are unreliable in that they are designed to prevent a proper determination of their income and the mere fact that they show this state of affairs in the Bikaner books is not therefore important. These are said to show that the profits of the Bikaner shop are utilised in purchase and upkeep of house property in the state but that is obviously in the present case merely a fiction in order to show what is taken out of the State as capital in British India. The ordinary presumption is that money remitted to the headquarters of a firm in British India from a branch situated in a foreign country is presumed to be profits and not capital unless the assessee proves the contrary. In the present case he has not done so. (See I. L. R. 49 Mad. 465 [LQ/MadHC/1925/403] and I. L. R. 53 Mad. 510) [LQ/MadHC/1930/8] . We therefore answer the fifth question in the affirmative.
6. The third and fourth questions relate to the same matter. The ITO found an omission of Rs. 200 in the return as regards interest. It is alleged that this was due to an oversight. There were other omissions as well and as the total value of these could not be accurately determined he added a sum of Rs. 10,000 to the income shown in the books. The finding in fact was that the account did not represent a complete and correct version of the actual business. The account books are kept in a special script for the deciphering of which the assessee's word has to be accepted. Interest items were not shown in the cash books; nor was an interest account maintained, though a list was prepared at the end of the year from the personal accounts of the debtors. For these reasons the ITO held that the books did not give a complete and correct version of the actual business and though he accepted them to a certain extent, he added a sum of Rs. 10,000 to represent the amount of omissions. In making an assessment it is correct that the ITO shall proceed on judicial principles but in the present case there was evidence before him to show that the books could not be relied upon. We are therefore of opinion that the third and fourth questions should also be answered in the affirmative.
7. The CIT will get his costs.
Reference answered accordingly.
