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Commissioner of Income-tax, Bombay Vs. Bai Bhagirathibai (Deceased) - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 43 of 1961
Judge
Reported in[1963]49ITR892(Bom)
ActsIncome Tax Act, 1922 - Sections 16(1)
AppellantCommissioner of Income-tax, Bombay
RespondentBai Bhagirathibai (Deceased)
Appellant AdvocateG.N. Joshi, Adv.
Respondent AdvocateDilip Dwarkadas, Adv.
Excerpt:
.....deed assessee received rs. 1,10,749 from her husband and son - assessee filed return showing her total income rs. 1,22,911 - difference amount was taxed in her hands at rate applicable to rs. 1,22911 - appeal challenging rate at which tax was computed - in view of precedent fact that amount received by assessee from her husband and son did not take character of income of assessee in her hands cannot be sustained - record showed that said amount had been included by income tax officer in computing total income of assessee - cannot be said that said amount was included only for rate purpose - held, open for income tax officer to compute tax at rate applicable to rs. 122,911. - - 1,22,911. both the payers as well as bhagirathibai went in appeal to the appellate assistant..........revenue, contends that the income-tax officer had included the sum of rs. 1,10,749 and odd in the total income of the assessee and had computed her total income at rs. 1,22,882 but in view of the findings recorded in the case of payers seth motilal manekchand v. commissioner of income-tax and in view of the fact that the said amount of rs. 1,10,749-6-10 was taxed in the hands of the payers, the income-tax officer did not levy any tax on the said amount. he, however, had made an order that the balance of the assessee's income of rs. 11,632 be taxed at the rate applicable to rs. 1,22,882. according to mr. joshi, thus the sum of rs. 1,10,749 and odd having been included by the income-tax officer in the total income of assessee and the said inclusion being right in the light of the judgment.....
Judgment:

Tambe, J.

1. This is a reference under sub-section (1) of section 66 of the Income-tax Act. Assessee Bhagirathibai (deceased) is now represented before us by her legal representatives, Motilal Manakchand, her husband, and Maganlal Motilal, her son. We are here concerned with the assessment year 1950-51. Assessee Bhagirathibai, her husband, Motilal, and son, Maganlal, were members of a Hindu joint family. Motilal and Maganlal were doing business under the name and style of Motilal Manakchand each having 8 annas' share therein. One of the businesses carried on by them was the managing agency business. On 29th June, 1949, there was a partition of the joint family property and the terms and conditions agreed between the members were reduced to writing in a partition deed. As a result of this partition, Bhagirathibai became entitled to receive 0-2-8 share from here husband, Motilal, and 0-2-8 share from her son, Maganlal, out of their respective shares of 8 annas in the managing agency business. In the relevant previous year to the assessment year 1950-51 the assessee received Rs. 1,10,749-6-10 (Rs. 55,374-11-5 from each) as her share of 0-2-8 in pursuance of the aforesaid partition. In the said assessment year she filed a return and therein disclosed Rs. 1,22,911 as her income, which included the aforesaid sum of Rs. 1,10,749. Now, it may be stated that both Maganlal and Motilal in their respective assessments claimed the said sum of Rs. 55,347-11-5 paid to Bhagirathibai as her share as an allowable deduction. In the statement of the case, Motilal and Maganlal have been referred to as payers and Bhagirathibai has been referred to as a recipient. We would also refer to them similarly. Now, in the assessment of the payers, their claim for deduction was disallowed with the result that the said amounts were included in their respective incomes and it was taxed in their hands. In the case of the recipient, i.e. Bhagirathibai, no tax was levied on the said amount of Rs. 1,10,749-6-10, but the difference between Rs. 1,22,911 and Rs. 1,10,749-6-10, was taxed in her hands at the rate applicable to Rs. 1,22,911. Both the payers as well as Bhagirathibai went in appeal to the Appellate Assistant Commissioner, the payers challenging the inclusion of the said sums in their incomes and the recipient, Bhagirathibai, challenging the rate at which tax was levied. The Appellate Assistant Commissioner affirmed the orders of the Income-tax Officer and the appeals were dismissed. Payers as well as Bhagirathibai took further appeals to the Tribunal. In the appeals of the payers, the Tribunal held that the amounts paid were not admissible deductions. In the case of Bhagirathibai the Tribunal held the Rs. 1,10,749-6-10, the amount received by her from the payers, was not includible even for rate purposes. The payers thereafter made an application under sub-section (1) of section 66 to refer to this court certain questions of law arising out of the Tribunal's order. The Commissioner of Income-tax also made an application under sub-section (1) of section 66 of the Income-tax Act to refer to this court the question of law arising out its orders in Bhagirathibai's appeal. Now, it appears, that the Tribunal referred the following question of law as arising out of its order in payers' case :

'Whether, on the facts and in the circumstances of the case, the payment made to Bhagirathibai by virtue of the deed of dissolution dated the 29th June, 1949, could be allowed as a deduction against the profits of the firm styled as Motilal Manakchand & Sons or against the share income from the firm in the hands of the partners ?'

2. This court, on a proper construction of the deed of partition, held that what the parties really intended was that only a portion of the managing agency commission should be the income of Motilal and Maganlal and the remaining portion should be the income of Bhagirathibai. In this view of the matter, this court held that Motilal and Maganlal were entitled to claim deductions in respect of the amounts paid by them to Bhagirathibai as her share of 0-2-8 of the income from the managing agency business. The Income-tax Officer, thereafter, initiated action under section 34(1) (a) against Bhagirathibai with a view to reassess the sum of Rs. 1,10,749-6-10 which had not been taxed in the hands of Bhagirathibai. In the said proceedings the Income-tax Officer actually levied tax on the aforesaid amount of Rs. 1,10,749-6-10 under section 34(1) (a). Against this order of the Income-tax Officer Bhagirathibai preferred an appeal before the Appellate Assistant Commissioner, who held that Bhagirathibai had declared the aforesaid amount of Rs. 1,10,749 and odd in her return and, therefore, section 34(1) (a) had no application to the facts of the case. In this view of the matter, the Appellate Assistant Commissioner set aside the order of the Income-tax Officer made by him under section 34(1) (a) of the Act. The department accepted this finding of the Appellate Assistant Commissioner and did not take the matter further. It is after this stage that the Tribunal has taken up the aforesaid application of the Commissioner of Income-tax made by him under sub-section (1) of section 66 of the Act. It appears that an attempt was made on behalf of the Commissioner to enlarge the scope of the reference by asking the Tribunal to refer to this court a question whether tax could be levied on the assessee in respect of Rs. 1,10,749-6-10. The Tribunal, however, has not accepted the prayer of the Commissioner, but, after drawing up a statement of the case, has referred the following question of law as arising of its order to this court :

'Whether, on the facts and circumstances of the case, it is open to the income-tax authorities to included the sum of Rs. 1,10,750 in the assessment of the assessee for the assessment year 1950-51 for rate purposes

3. Mr. Joshi, learned counsel for the revenue, contends that the Income-tax Officer had included the sum of Rs. 1,10,749 and odd in the total income of the assessee and had computed her total income at Rs. 1,22,882 but in view of the findings recorded in the case of payers Seth Motilal Manekchand v. Commissioner of income-tax and in view of the fact that the said amount of Rs. 1,10,749-6-10 was taxed in the hands of the payers, the Income-tax Officer did not levy any tax on the said amount. He, however, had made an order that the balance of the assessee's income of Rs. 11,632 be taxed at the rate applicable to Rs. 1,22,882. According to Mr. Joshi, thus the sum of Rs. 1,10,749 and odd having been included by the Income-tax Officer in the total income of assessee and the said inclusion being right in the light of the judgment of this court in Seth Motilal Manekchand v. Commissioner of Income-tax, the levy of tax on Rs. 11,632 at the rate applicable to Rs. 1,22,882 is a valid levy.

4. Mr. Dwarkadas, learned counsel for the assessee, on the other hand, contends that the sum of Rs. 1,10,749 and odd had not been included in the total income of the assessee by the Income-tax Officer. The sum of Rs. 1,10,749-6-10, not being part of the assessee's income, cannot be merely included for purposes of rate save and except in accordance with the provisions of the Income-tax Act. Sub-section (1) of section 16 is the only provision which enables the Income-tax Officer to included certain income for purposes of rate, which may not be included for purpose of computation of the total income. Mr. Dwarkadas in the alternative contends that at any rate the Income-tax Officer, not having levied any income-tax on Rs. 1,10,749-6-10 in the hands of the assessee, it must be assumed that the Income-tax Officer had not included the said sum in the total income of the assessee. In the further alternative Mr. Dwarkadas argues that after the decision by this court of the reference in payer's case, the Income-tax Officer had taken action under section 34(1) (a) of the Act on the ground that the said sum had stood untaxed. It must, therefore, be assumed that the Income-tax Officer had to included the said amount of Rs. 1,10,749-6-10 in the total income of the assessee, though it was the case of the department that the said sum of Rs. 1,10,749-6-10 could be included by the Income-tax Officer in the total income of the assessee. Mr. Dwarkadas placed reliance on a decision in Commissioner of Income-tax v. N. M. Raiji.

5. The reason given by the Income-tax Officer for including the sum of Rs. 1,10,749-6-10 for purposes of rate has not been stated in the statement of the case. The relevant portion is in the following terms :

'The Income-tax Officer completed the assessment, but he included these receipts only for rate purposes. He did so because these payments were disallowed by him in the case of the payers.'

6. The statement of the case is not clear as to whether the Income-tax officer, who completed the assessment of Bhagirathibai, had included the aforesaid sum of Rs. 1,10,749-6-10 in the total income of the assessee or not. The arguments of counsel for parties reproduced above turn on this vital fact as to what really the order of the Income-tax Officer was. We asked the counsel for parties as to whether we should direct the Tribunal to submit a supplementary statement on this aspect of the case and to include a copy of the Income-tax Officer's order as part of the statement of the case. Counsel for the parties stated before us that there was no necessity of calling a supplementary statement of case from the Tribunal, but the copy of the Income-tax Officer's order be accepted on record. Mr. Joshi has supplied us with a copy of the Income-tax Officer's order. There is no dispute about its correctness. We direct that this be accepted on the record and be included in the statement of the case as forming part of it.

7. There is no difficulty in accepting Mr. Dwarkadas's contention that if a particular income has not been included in the computation of the total income of an assessee, then that income cannot be included or taken into account merely for purposes of fixing the rate at which the other income of the assessee has to be taxed, save and except as provided in sub-section (1) of section 16 of the Act. The court has taken that view in Commissioner of Income-tax v. N. M. Raiji, on which reliance has been placed by Mr. Dwarkadas. There is also no difficulty in holding that the said amount of Rs. 1,10,749-6-10 is to one of the amounts, which could be included for purposes of rate under sub-section (1) of section 16 of the Act. The question, however, is whether the said amount of Rs. 1,10,749-6-10 has been included by the Income-tax Officer in the computation of the total income of the assessee. The order of the Income-tax Officer is a short on and we may as well reproduce the material part of it :

'2. In this case, the assessee filed a return of income of March 20, 1951, declaring the income of Rs. 1,22,911. As per the statement filed this income consists of the following :

Amount received from Mr. Maganlal and Rs.Mr. Motilal Manakchand of their respectiveshares from managing agency commissionof Amalner and Bhulia Mills ... 1,10,750Rs.Interest as per the detailedstatements 12,161Less : Expenses claimed 528----------- 11,633-----------1,22,383 3. Out of the above amounts, the amount of Rs. 1,10,750 has not been allowed as a deduction in the cases of the firm for the assessment year 1950-51, and the assessment has been confirmed in appeal. This amount of Rs. 1,10,750 has, therefore, been taxed in the hands of the partners in their individual cases. This income, however, has to be included in the total income of the assessee.

4. With the above remarks, the income is worked out as under :

Rs.Income as per accounts ... 1,22,383Less : Amounts received as remarkedabove treated separately ... 1,10,750-----------------11,632Add : Disallowance ...Legal expenses not proved ... 500----------------12,132Add : Share from the managingagency commission ... 1,10,750---------------Total income 1,22,882Assessed under section 23(3) to income-tax and under section 55 to super-tax at appropriate rate. No. E. I. R. is admissible. Rupees 11,633 are to be taxed at the rate applicable to Rs. 1,22,882. Issue D. N....'

8. The aforesaid order of the Income-tax Officer clearly shows that the amount of Rs. 1,10,750 has been included in the computation of the total income of the assessee and the total income of the assessee has been computed at Rs. 1,22,882, but tax, however, was not levied or computed on the amount of Rs. 1,10,750 because the said amount had already been taxed in the hands of the payers by the Income-tax Officer who dealt with the assessment cases of the payers. It is, therefore, clear that the tax was not levied on Rs. 1,10,749-6-10 not because it was not part of the total income of the assessment but because the same amount having been taxed in the hands of the payers the Income-tax Officer did not proceed to tax it again in the hands of the assessee. That being the position emerging from the order of the Income-tax Officer, it is not possible to accept Mr. Dwarkadas's contention that the said amount of Rs. 1,10,749 and odd had not been included in the total income of the assessee. section 3 of the Income-tax Act provides :

'3. Where any Central Act enacts that income-tax shall be charged for at any rate or rates, tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, this Act in respect of the total income of the previous year of every individual.....'

9. The total income of the assessee having been computed at Rs. 1,22,882, the entire amount attracted tax in the hands of the assessee at the rate applicable to the said total income Rs. 1,22,882. It thus follows that the tax on the sum of Rs. 11,632, which forms part of the total income of Rs. 1,22,882 is payable at the rate applicable to the total income of Rs. 1,22,882. The Income-tax Officer, therefore, in our opinion, was not in error in taxing the sum of Rs. 11,632 at the rate applicable to Rs. 1,22,882. It is difficult to accept the alternate contention of Mr. Dwarkadas that because no tax was computed on the said amount of Rs. 1,10,749-6-10 by the Income-tax Officer, we must assume that the Income-tax Officer had not included that amount in the total income of the assessee when the order in express terms says that that amount has been included in the total income of the assessee. Similarly, it is also not possible to accept the other contention of Mr. Dwarkadas that because that because the Income-tax Officer has taken proceedings under section 34(1) (a) of the Act, we must assume that the Income-tax Officer had not included the said amount of Rs. 1,10,749-6-10 in the total income of the assessee for the same reasons.

10. Mr. Dwarkadas further contended that even assuming that the Income-tax Officer had included the said amount of Rs. 1,10,749 and odd in the total income of the assessee, the inclusion was wrong inasmuch as the said amount had been held to be the income of the payers. We are here not concerned whether the Income-tax Officer had then erroneously included the said amount in the total income of the assessee. We are only concerned with what he has done, and as it now transpires the inclusion of the said amount in the total income of the assessee was not erroneous. This is what follows from the decision of this court in the reference arising out of the assessment cases of the payers in Seth Motilal Manekchand v. Commissioner of Income-tax. No doubt tax on the said amount of Rs. 1,10,749 and odd in the hands of the assessee has escaped and that was because of the erroneous view taken by the Income-tax Officer in the assessment cases of the payers and the failure on the part of the Income-tax Officer to take proper steps under section 34 of the Indian Income-tax Act. But the errors and failures on the part of the Income-tax Officers, in our view, would not entitle the assessee to say that tax payable by her on Rs. 11,632 should not be levied on her by reason of these errors and failures, in view of the fact that the Income-tax Officer has, in fact, included the said amount in the total income of the assessee.

11. At the concluding stages of his argument, Mr. Dwarkadas also wanted to urge that the reference made is incompetent. The contention which Mr. Dwarkadas wanted to raise is in the nature of a preliminary objection. In our opinion, if Mr. Dwarkadas wanted to raise such a question, he should have raised it at the commencement of the arguments before Mr. Joshi had opened his case. He, not having done so, we did not allow Mr. Dwarkadas to urge that contention before us. In our view, in a reference application, after taking a chance and arguing the case on merits, a party to the case should not allowed to urge an objection of a preliminary nature at the concluding stages of arguments on its behalf.

12. As already stated, the order of the Income-tax Officer had been affirmed by the Appellate Assistant Commissioner and the assessee had taken further appeal to the Tribunal challenging the rate at which tax was computed on the aforesaid amount of Rs. 11,632. The contention raised by the assessee before the Tribunal was that the Income-tax Officer could not take into account the income of another person as the income of the assessee for rate purpose and it appears that the Tribunal has taken a view that the Income-tax Officer had excluded the said amount of Rs. 1,10,749-6-10 from the total income of the assessee but only treated it as her income for rate purposes. In paragraph 2 of the order, Tribunal observed :

'While making the assessment on the appellant, the Income-tax Officer excluded the income from the managing agency firm but treated it as income of the assessee for rate purposes.'

13. The Tribunal further, relying on its view that the income from the managing agency commission was of the partnership, observed that it was liable to be taxed in the hands of the partners and it did not take the character of income in the hands of the assessee and, therefore, was not liable to be included in the total income of the assessee for rate purposes. The fact assumed by the Tribunal that the Income-tax Officer had excluded the income or had not taken that income into account in computing the total income of the assessee, was not a correct assumption. The view taken by the Tribunal, that the said amount did not take the character of income of the assessee in her hands, has not been sustained by this court in Seth Motilal Manekchand v. Commissioner of Income-tax. It is, therefore, not possible to accept the view taken by the Tribunal that the said amount could not be taken into account in determining the rate at which the aforesaid amount of Rs. 11,632 is to be taxed. The position thus that emerges on record is that the said amount had been included by the Income-tax Officer in computing the total income of the assessee and not that the he had only included the said sum in the assessment of the assessee for rate purposes. The question thus that has been formulated by the Tribunal does not, in our view, bring out the real controversy between the parties and the question as arising out of its order. We, therefore, reframe the question as follows :

'Whether, on the facts and circumstances of the case, it is open to the income-tax authorities to compute tax on Rs. 11,632 at the rate applicable to Rs. 1,22,882.'

14. Mr. Dwarkadas wanted us to note that he objects to the reframing of the question on the ground that the income-tax authorities had not raised any contention before the Tribunal that the said amount of Rs. 1,10,749-6-10 was included by the Income-tax Officer in the total income of the assessee. The Tribunal has not summarised anywhere or stated the contentions raised before it on behalf of the department. The Income-tax Officer was a respondent to the appeal before the Tribunal; the order of the Income-tax Officer was challenged before the Tribunal by the assessee and in the absence of any statement otherwise in the order of the Tribunal, it will have to be assumed that the Income-tax Officer was justifying his order before the Tribunal. He had included that the amount in the total income of the assessee. It must, therefore, be assumed that he was justifying that inclusion.

15. For reasons stated above, our answer to the reframed question is in the affirmative. Assessee shall pay the costs of the Commissioner.

16. Before paying with the case, it may be stated that there is some discrepancy in the figures mentioned in the statement of the case and the order of the Income-tax Officer. In the statement of the case, it has been stated that the income disclosed by the assessee in the return amounted to Rs. 1,22,911, while in the assessment order, the figure is mentioned at Rs. 1,22,882. The amount paid to the assessee by the payers is mentioned in the statement of the case as Rs. 1,10,749-6-10 but in the assessment order it is mentioned as Rs. 1,10,750. The discrepancy, however, is minor.

17. Question answered in the affirmative.


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