BRIJLAL GUPTA J. - The above Civil Misc. Application No. 172 of 1962 was not listed for hearing before us yesterday when we took up I.T. Reference No. 287 of 1960 for hearing. At the request of learned counsel for the assessee we had the papers of Civil Misc. Application No. 172 of 1962 called from the office and accepted the request of the learned counsel to hear this application also along with the reference. Sri Gopal Behari, learned counsel for the department, raised no objection to the adoption of this course.
The reference has been made under section 66(1) of the Income-tax Act. The questions referred to this court are :
'(1) Whether, on the facts and circumstances of the case, the initiation of proceedings under section 34 was valid in law ?
(2) Whether, on the facts and in the circumstances of the case, the sum of Rs. 1,16,259 was a revenue receipt assessable to income-tax ?'
The facts giving rise to the reference are that a sum of Rs. 18 lakhs stood in several banks in the joint names of Rani Chhatra Kumari Devi and Bhagirath Malla alias Amrit Bahadur Malla, husband of the applicant, in this reference, Rani Chhatra Kumari Devi was the last holder of Ram Nagar Raj in the State of Bihar. Bhagirath Malla was the sisters son of Rani Chhatra Kumari Devi. In 1937 the Rani died and one Ram Raja succeeded to the Raj. In that very year, namely, 1937, he filed a suit in the Bombay High Court against Bhagirath Malla, impleading therein the various banks in which the amount of Rs. 18 lakhs was in deposit, for a declaration of title to the deposits and for the recovery of the same. This suit was decided by the Bombay High Court by a compromise which was incorporated in the decree dated July 14, 1947. The compromise was that Ram Raja and Bhagirath Malla were to have a half share each in the deposits and in the interest which had accrued thereon in the meanwhile. The share of Bhagirath Malla in the interest came to Rs. 1,16,259 and the amount was paid to him in August, 1947. It remains to be stated that in the suit the Bombay High Court had issued an injunction restraining the banks from paying out the principle amount or the interest accruing thereon, either to Ram Raja or to Bhagirath Malla during the pendency of the suit.
It appears that from 1938-39 to 1947-48 no portion of the interest income was assessed against Bhagirath Malla. He appears to have stated, when the attempt to assess him in respect of the interest income was made, that no interest had been received by him and that when the actually received it he might be assessed thereon. It may be stated that it was never his case at any stage that even though he might not have actually revived the interest, interest was accruing all the same, and that on the accrual basis the interest might be assessable year after year in the years in which it accrued. His case always appears to have been that as he had actually not received the interest in the years earlier than the assessment year, 1948-49, he could not be assessed in respect thereof, and this position appears to have been accepted by the income-tax authorities.
Then we come to the assessment year 1948-49. In that year Bhagirath Malla filed a return of his income showing therein an income of Rs. 10,687. There is nothing to show how this figure of Rs. 10,687 was arrived at. It may be that it represents the amount of interest which might have accrued on his share of the deposit in that year. After filing this return he appears to have made a representation to the Income-tax Officer that the return had been filed by him by mistake, whereupon the Income-tax Officer made the following note :
'It is noted that the return filed by him is wrongly done. He did not have any interest income in the previous year for 1948-49. Proceedings, therefore, filed.'
From this note one thing appears to be quite clear, namely, that Bhagirath Malla neither included in his return the amount of Rs. 1,16,259, which he had received as his share of interest in August, 1947, nor independently of the return he disclosed the fact of the receipt to the Income-tax Officer, otherwise in this note the Income-tax Officer could not have observed : 'He did not have any interest income in the previous year for 1948-49.' Subsequently, when the Income-tax Officer came to know of the receipt of Rs. 1,16,259 as interest Income of the assessee, he issued a notice to Bhagirath Malla on March 29, 1952, and assessed the amount to income-tax by order dated March 31, 1953. Against the assessment Bhagirath Malla went up in appeal to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner upheld the assessment both on the ground that the amount of interest assessed had been received by Bhagirath Malla in the accounting period relevant to the assessment year 1948-49 and on the ground that his title to the deposits came to be settled only under the decree dated July 14, 1947. Thus the interest income also accrued to him in the relevant accounting period. An alternative argument appears to have been addressed to the Appellate Assistant Commissioner that the sum of Rs. 1,16,259 represented a capital receipt and not a revenue receipt and as such it was not assessable. This argument was also overruled. The assessee could not show how the amount was a capital receipt. Another claim raised by Bhagirath Malla before the Appellate Assistant Commissioner was in respect of a sum of Rs. 1,03,000 as litigation expenses incurred by him in defending the suit in the Bombay High Court and asking it to be allowed as a deduction under section 12(2). This claim was also negatived by the Appellate Assistant Commissioner on the ground that if at all amount was spent in establishing his title to the deposit and not in earning the interest income. Bhagirath Malla then went up in further appeal to the Income-tax Appellate Tribunal. The Tribunal upheld the assessment under section 34(1)(a). It took the view that, as the assessee had not filed a return for the assessment year 1948-49, the case properly fell within the purview of section 34(1)(a) and the order was justified. It also appears to have justified the order on the alternative ground, though it did not very clearly express itself in this behalf that in any case the assessee had not shown the receipt of Rs, 1,16,259 in the return which he filed. The requirement in section 34(1)(a) is not merely the omission or failure of an assessee to file a return but also his omission or failure to disclose fully and truly the particulars of his income. Thus, even where an assessee might file a return, if he does not show in that return fully and truly his entire income, he exposes himself to action being taken against him under section 34(1)(a). The period of limitation for making an assessment under section 34(1)(a) is eight years from the end of the assessment year in question. In this case the order under section 34(1)(a) was made within this period. So far as the first question referred to this court is concerned it should be answered in the affirmative and against the assessee.
The other point which was argued before the Income-tax Tribunal was that the so-called interest was compensation or damages for wrongful detention of the money by the banks in which it was deposited. As seen above this contention was negatived by the Appellate Assistant Commissioner and it was similarly negatived by the Income-tax Appellate Tribunal. The banks had never wrongfully detained the money. All that the banks had done was that, having been restrained by the injunction order of the Bombay High Court, they did not make the payment in contravention of the injunction. The money was, therefore, not compensation or damages for wrongful detention but interest. Interest income on a bank deposit is undisputedly a revenue, and not a capital, receipt. The view taken by the Tribunal on this point also was correct and the second question referred to this court must be answered in the affirmative.
The only other point which was argued before the Tribunal was with respect to the allowability of the sum of Rs. 1,03,000 as litigation expenses alleged to have been incurred by Bhagirath Malla in defending the Bombay suit. The Tribunal took the view that the claim was in respect of a revenue expense and, holding that the amount of the expenditure had not been established by proper evidence and resorting to estimate, allowed a sum of Rs. 10,000 only by way of deduction. The assessee asked for reference of a question in respect of Rs. 93,000, the balance of the expenditure, but the Tribunal refused to refer a question to this court on that point. Accordingly, in the connected application No. 172 of 1962 one of the questions which has been raised is in respect of the disallowance of the balance. We are of the view that the Tribunal did not take a correct view of the law as to the allowability of an expense of this kind. In the suit in the Bombay High Court a question of title to the sum of Rs. 18 lakhs was involved and that sum was in the nature of a capital asset. Expenditure incurred for establishment of title to a capital asset is not allowable expenditure under section 10(2)(xv). The Tribunal was, therefore, clearly wrong in treating the expenditure as an allowable expenditure. In this view even the sum of Rs. 10,000 which was allowed by it was wrongly allowed and no question of allowing the balance arises in this case.
Another question which is raised in Civil Misc. Application No. 172 of 1962 is in respect of the sum of Rs. 17,499 awarded as penal interest under section 18A. This point was not raised by the assessee in appeal before the Income-tax Appellate Tribunal and nothing is mentioned in the order of the Tribunal in regard to that point. It follows that the question does not arise out of the appellate order of the Tribunal and cannot be required by us to be stated to this court.
The last question raised in the application is with respect to the assessability of the sum of Rs. 1,16,259 not in one lump sum in the assessment year in question but in smaller sums of money in different assessment years from 1938-39 to 1947-48. This question also does not appear to have been raised before the Tribunal and, therefore, does not arise out of its order. In any case the title of the assessee having been established only in the assessment year 1948-49 and the entire sum also having been received in the accounting period relevant to that assessment year the whole amount was properly assessable in the year 1948-49. This disposes of the application No. 172 of 1962. Our answer to each of the questions in the reference is in the negative. A copy of this order should be sent to the Income-tax Appellate Tribunal, Allahabad. The department should get the costs of this reference which we assess at Rs. 200. Application No. 172 of 1962 is dismissed.
Reference answered in the negative.