Skip to content


Fifth Income-tax Officer Vs. Master Bankimchandra Sumanlal. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberI. T. APPEAL NO. 1094 (BOM.) OF 1982 [ASSESSMENT YEAR 1978-79]
Reported in[1986]17ITD931(Mum)
AppellantFifth Income-tax Officer
RespondentMaster Bankimchandra Sumanlal.
Excerpt:
.....laws (amendment) act, 1975, with effect from 1-4-1976, clearly lays down that in computing the total income of any individual, the income of a minor child of such individual from the admission of the minor to the benefits of the partnership in a firm will be included in his or her total income. on this issue, therefore, the order of the aac appears to be perfectly justified and is upheld. rule 46a of the income-tax rules, 1962, clearly lays down that in the first place no additional evidence will be admitted unless reasons in writing are recorded for its admission and in any case the additional evidence produced will not be taken into consideration unless the ito has been allowed a reasonable opportunity to examine the evidence and make such submissions as the ito considered..........from interest amounting to rs. 13,379. which included interest of rs. 10,531 received from the firm bankimchandra & co. in which the assessee had invested rs. 20,000 by way of capital and in which he was admitted to the benefits of partnership. for default of statutory notices under section 143(2) of the income-tax act, 1961 (the act). the assessment was made by the ito ex parte under section 144 of the act. in this ex parte assessment, the ito held that the nature and source of investment of rs. 20,000 in the firm bankimchandra & co. in which the assessee was admitted to the benefits of the partnership was not satisfactorily explained and similarly the nature and source of investments by way of interest bearing advances to various parties, interest income of which was disclosed in.....
Judgment:
ORDER

Per Shri I. S. Nigam, Accountant Member - This is an appeal filed by the revenue against the order of the AAC.

2. The assessee is a minor represented by his father and natural guardian Shri Sumanlal Goverdhandas. Return was filed showing income from interest amounting to Rs. 13,379. which included interest of Rs. 10,531 received from the firm Bankimchandra & Co. in which the assessee had invested Rs. 20,000 by way of capital and in which he was admitted to the benefits of partnership. For default of statutory notices under section 143(2) of the Income-tax Act, 1961 (the Act). the assessment was made by the ITO ex parte under section 144 of the Act. In this ex parte assessment, the ITO held that the nature and source of investment of Rs. 20,000 in the firm Bankimchandra & Co. in which the assessee was admitted to the benefits of the partnership was not satisfactorily explained and similarly the nature and source of investments by way of interest bearing advances to various parties, interest income of which was disclosed in the return was not forthcoming. He, therefore, while completing the assessment not only subjected the assessee to tax on the interest income of Rs. 13,379 shown in the return but also on the share from the firm Rs. 13,379 shown in the return but also on the share from the firm Bankimchandra & Co. amount to Rs. 17,787. Besides, the ITO added Rs. 20,000 on account of unexplained investment in the firm Bankimchandra & Co. and another estimated Rs. 28,480 on account of unexplained investments on interest bearing advances to various parties. When the matter went up in appeal, the AAC held that the ITO should examine the terms and conditions of the partnership deed of the firm Bankimchandra & Co. for determining whether or not the interest received from the said firm by the assessee, who was a minor, was assessable as his income. In the interest of justice, therefore, so that the assessee can be properly heard and sufficient opportunity is given, the AAC set aside the assessment. The AAC further held that the share of the assessee-minor from the firm Bankimchandra & Co., had already been assessed and included in the total income of the assessees father Shri fBankimchandrain the assessment made on the assessees father on 7-10-1978, and, therefore, this share of profit cannot be included in the total income of the assessee-minor. The AAC further found that the assessees grandmother had made a gift of Rs. 15,000 on 17-6-1968, to the assessee which was invested in various firms, banks, etc., and this amount, according to the details given before the ITO, swelled up to more than Rs. 20,000 out of which Rs. 20,000 was withdrawn by cheque and deposited with the firm Bankimchandra & Co. where the assessee was admitted to the benefits of the partnership. The AAC further found that the assessees grandmother had already been subjected to gift-tax on this amount of gift of Rs. 15,000 to the assessee on 17-6-1968 by order dated 18-1-1970 of the GTO. The AAC, therefore, came to the conclusion that the nature and source of the investment of Rs. 20,000 in the firm Bankimchandra & Co. was satisfactorily explained and the addition of this amount as unexplained investment in the assessees total income was not justified. Coming to the last item of Rs. 28,480, the AAC held that apart from the investment in the firm Bankimchandra & Co. in which he was admitted to the benefits of the partnership, the investments on interest bearing advances to other parties were also out of the assessees capital in the firm which had been increasing in the absence of any withdrawals and, therefore, the addition of Rs. 28,480 for unexplained investments in interest bearing advances to various parties was also not justified. The revenue is aggrieved and has, therefore, come up in the present appeal before us.

3. The learned departmental representative Shri Krishnan at the outset pointed out that the assessee himself in the return of income had disclosed income from interest amounting to Rs. 13,379 which included interest of Rs. 10,531 from the firm Bankimchandra & Co., where he was admitted to the benefits of the partnership. Proceeding further Shri Krishnan pointed out that it was never the assessees case that what was shown in the return was not correct or the assessee wanted to back out of what had been offered for assessment and was ultimately assessed by way of interest amounting to Rs. 13,379. In these circumstances, according to Shri Krishnan, the AAC was not justified in directing the ITO to examine the terms and conditions of the partnership deed of the firm Bankimchandra & Co. for determining whether or not the interest received from the firm was assessable in his hands.

4. Shri Krishnan submitted that the assessment order in the case of the assessees father was not before the ITO when the assessment was made by him ex parte and, therefore, on the basis of this assessment order the AAC wrongly came to the conclusion that the assessees share of income from the firm Bankimchandra & Co. could not be included in the assessees total income.

5. Shri Krishnan further pointed out that the gift-tax assessment order subjecting the assessees grandmother to gift-tax was not before the ITO and, therefore, the AAC ought not to have considered this additional material which was not before the ITO for the purpose of holding that this amount together with the income accrued therefrom was satisfactorily explained, and the investment of Rs. 20,000 by the assessee in the firm Bankimchandra & Co.

6. Shri Krishnan vehemently argued before us that the material which was filed before the AAC regarding the nature and source of investment in interest bearing loans to various parties was not before the ITO in the course of assessment proceedings, and this material ought not, therefore, to have been considered by the AAC unless it was put to the ITO and the ITO was given a specific and reasonable opportunity to examine this material and make such submissions in this connection as the ITO considered necessary.

7. Summing up Shri Krishnan justified the assessment order and submitted to us that order of the AAC on the various issues raised in the grounds of appeal before us was incorrect and should be reversed.

8. On the other hand, the assessees learned counsel Shri Mulla was frank enough to concede that the interest income of Rs. 13,379 which included the interest income of Rs. 10,531 received from the firm Bankimchandra & Co. where the assessee was admitted to the benefits of the partnership was shown in the return and offered for the assessment and the assessee does not want to retract or go back upon what was shown in the return and offered for assessment.

9. Shri Mulla submitted that under section 64 of the Act, the income of a minor child from the admission to the benefits of partnership in a firm was includible in the total income of the father or the mother whosoevers income was higher and there was no discretion vested in the ITO on this issue. He, therefore, submitted that the assessment order including the assessees share from the firm Bankimchandra & Co. where he was admitted to the benefits of the partnership in the total income of the father only reinforced what was enjoined on the ITO by the provisions of the Act and even without the assessment order it was not open to the ITO to include this income in the total income of the assessee-individual who was a minor.

10. Our attention was invited to the details furnished before the ITO in the course of the assessment proceedings where it was mentioned that the assessee received a gift of Rs. 15,000 from his grandmother on 12-6-1968 and details were given of how this amount was invested from time to time so that by 22-4-1975 the total amount available to the assessee was Rs. 20,377 out of which the investment of Rs. 20,000 was made by cheque in the firm Bankimchandra & Co. where he was admitted to the benefits of the partnership. Proceeding further Shri Mulla submitted that even in the assessment order the ITO has referred to the assessees claim of gift of Rs. 15,000 from the grandmother in 1968 and the accumulated interest earned depositing this amount with various parties. Here again Shri Mulla submitted that the gift-tax assessment order subjecting the assessees grandmother to gift-tax only proved beyond doubt that even according to the revenue authorities the gift was valid and genuine and there was no justification for disbelieving the gift. Shri Mulla also pointed out that there was no mention in the assessment order why the assessees claim of gift from the grandmothers as well as the income from investment of these amounts, the total of which amounted to more than Rs. 20,000 in this year was not accepted by the ITO. He further, vehemently argued before us that the nature and source of investment of Rs. 20,000 in the firm Bankimchandra & Co. was satisfactorily explained and the treatment of this amount as unexplained and, consequently, as the assessees income was unjustified. On this basis Shri Mulla submitted that the addition of Rs. 20,000 made by the ITO on this account was rightly deleted in appeal by the AAC.

11. Coming to the other item of Rs. 28,480 for unexplained investment in interest bearing deposits with various parties, Shri Mulla admitted that the material filed before the AAC was not before the ITO but was filed before him from the first time. He, however, hasten to point out that the material was capable of verification and had been verified by the AAC, and, therefore, the addition of Rs. 28,480 for unexplained investment in interest bearing deposits with various parties was not justified and was rightly deleted in appeal by the AAC.

12. We have carefully considered the rival submissions. There is no dispute that the income of Rs. 13,379 which included the interest of Rs. 10,531 on account of interest received from the firm Bankimchandra & Co. was shown under the head Interest in the return of total income. It is even now not the assessees case before that this income was shown under any misunderstanding or that the assessee wants to retract or back out of this income from interest shown in the return and offered for assessment. The AAC was, therefore, obviously not justified in holding that out of this interest income, Rs. 10,531 received from the firm Bankimchandra & Co. where the assessee was admitted to the benefits of the partnership may not be assessable in the assessees hands and in setting aside the assessment on this issue with the direction to the ITO to examine the terms and conditions of the partnership deed of Bankimchandra & Co., for the purpose of determining whether or not this interest income could be included in the total income of the assessee-minor. On this issue, therefore, the order of the AAC is reversed while the order of the ITO is restored.

13. Clause (iii) of sub-section (1) of section 64 as substituted by the Taxation Laws (Amendment) Act, 1975, with effect from 1-4-1976, clearly lays down that in computing the total income of any individual, the income of a minor child of such individual from the admission of the minor to the benefits of the partnership in a firm will be included in his or her total income. The ITO in the assessment order itself has mentioned in the title that the assessee is a minor. In these circumstances, the share of the assessee-minor from the firm Bankimchandra & Co. where he was admitted to the benefits of the partnership, could only be included in the total income of his father or mother whosoever income was higher and there was no discretion vested in the ITO to the contrary. The assessment of the assessees father where this share was included in the total income of the assessees father only clarified that this share income was to be included in the total income of the assessees father. Even if this assessment order was not before the revenue authorities, this share income could only be included either in the total income of the assessees father or the total income of the assessees mother depending upon whosoevers other income was greater and in any case this share income could not be included or assessed in the hands of the assessee-minor. The AAC, therefore, rightly came to the conclusion that the share of the assessee-minor from the Bankimchandra & Co., where he was admitted to the benefits of the partnership could not be included in his total income and in deleting the addition made on this account by the ITO. On this issue, therefore, the order of the AAC appears to be perfectly justified and is upheld.

14. In the details which were filed before the ITO and copy of which was filed also before us in the assessees paper book and as mentioned in the assessment order the assessee claimed to have received a gift of Rs. 15,000 on 17-6-1968 from his grandmother which was invested in various firms, banks etc., and which swelled up to more than Rs. 20,000 before the investment of Rs. 20,000 was made in the firm Bankimchandra & Co. The ITO in the assessment order has not mentioned any material to show that the assessees claim of investments out of the gift on 17-6-1968 to various parties in the earlier years was in any way incorrect. On the other hand, in the assessment of the assessees grandmother, the gift has been accepted and the assessees grandmother had been subjected to gift-tax on the gift of Rs. 15,000 on 17-6-1968. Considering all this and looking to the totality of the facts and circumstances, we have no hesitation in coming to the conclusion that the nature and source of the investment of Rs. 20,000 with the firm Bankimchandra & Co., was satisfactorily explained. It automatically follows, therefore, that the addition on this account made by the ITO was not justified and was rightly deleted in appeal by the AAC.

15. The claim of the learned departmental representative Shri Krishnan that on the issue of the nature and source of Rs. 28,480 invested in interest bearing deposits with other parties, material was furnished to the AAC for the first time which was not before the ITO in the course of the assessment proceedings is not disputed even by the assessees learned counsel Shri Mulla. Rule 46A of the Income-tax Rules, 1962, clearly lays down that in the first place no additional evidence will be admitted unless reasons in writing are recorded for its admission and in any case the additional evidence produced will not be taken into consideration unless the ITO has been allowed a reasonable opportunity to examine the evidence and make such submissions as the ITO considered necessary. The order of the AAC, therefore, on the issue of the addition of Rs. 28,480 was in violation of the provisions of rule 46A. On this issue, therefore, the order of the AAC is set aside and the matter is sent back to him for a decision afresh keeping in view our observations in this order.

16. The appeal is partly allowed.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //