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Lala Pannalal Vs. Commissioner of Income-tax, U.P. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberCivil Miscellaneous Case No. 47 of 1950
Reported in[1958]33ITR145(All)
AppellantLala Pannalal
RespondentCommissioner of Income-tax, U.P.
Excerpt:
- .....j.k. distributors, kanpur, was not included in the assessment of the income of the hindu undivided family. pannalal also filed a return of his individual income for the assessment year 1942-43 and on its basis the commission which was received from messrs. j.k. distributors, kanpur, was assessed as the income of pannalal in his individual capacity. that assessment was made on 22nd october, 1943. for the next assessment year 1943-44, no notice was issued under section 22(2) to pannalal in his individual capacity, nor did pannalal of his own accord file any return. only a return of the income of the hindu undivided family was filed in the proceedings for the income of the hindu undivided family for the assessment year 1943-44. the income received as commission from messrs. j.k......
Judgment:

BHARGAVA, J. - The assessee, Pannalal, is an individual who was also the karta of a Hindu undivided family known as Kashi Ram Kanhaiyalal. The family was earning income from various sources including commission from Messrs. J.K. Distributors, Kanpur. The whole income of the family including this commission was assessed as the income of the Hindu undivided family up to the assessment year 1941-42. When the assessment for the year 1942-43 came up, it was claimed by the Hindu undivided family that the agency for the jute mills which was held by the family had been terminated and instead Pannalal in his individual capacity had become the commission agent of Messrs. J.K. Distributors, Kanpur, so that the commission earned was the individual income of Pannalal and not the income of the Hindu undivided family. This plea was accepted and the commission received from Messrs. J.K. Distributors, Kanpur, was not included in the assessment of the income of the Hindu undivided family. Pannalal also filed a return of his individual income for the assessment year 1942-43 and on its basis the commission which was received from Messrs. J.K. Distributors, Kanpur, was assessed as the income of Pannalal in his individual capacity. That assessment was made on 22nd October, 1943. For the next assessment year 1943-44, no notice was issued under section 22(2) to Pannalal in his individual capacity, nor did Pannalal of his own accord file any return. Only a return of the income of the Hindu undivided family was filed in the proceedings for the income of the Hindu undivided family for the assessment year 1943-44. The income received as commission from Messrs. J.K. Distributors was not included in the return as income of the Hindu undivided family. These proceedings remained pending before the Income-tax Officer, Kanpur, and were transferred on the 9th March, 1944, to the Excess Profits Tax cum Income-tax Officer, Kanpur. After the transfer of those proceedings the Income-tax Officer, Kanpur, issued a notice under section 22(2) on 31st July, 1944, to Pannalal calling upon him to file a return of his income in his individual capacity for the assessment year 1944-45. Pannalal field the return. While the case of assessment of Pannalal as an individual for the assessment year 1944-45 was still pending, the other case for the assessment of the Hindu undivided family for the year 1943-44 was decided by the Excess Profits Tax cum Income-tax Officer on the 28 the November, 1944, holding that the income received as commission from Messrs. J.K. Distributors was the income of the Hindu undivided family and on this finding the Excess Profit Tax cum Income-tax Officer further proceeded to reopen the assessment of the Hindu undivided family for the year 1942-43 and revised that assessment including within it the income from commission received from Messrs. J.K. Distributors, Kanpur. Thereupon the Hindu undivided family preferred two appeals one against the revised assessment for the year 1942-43 and the other against the assessment for the year 1943-44 in both the cases challenging the inclusion of the commission in the income of the family. On 17th April, 1945, the Appellate Assistant Commissioner accepted both the appeals and held that the commission income did not belong to the family and excluded that income from the assessment of the family for both the assessment years 1942-43 and 1943-44. In the meantime the proceedings for assessment of Pannalal for the year 1944-45 had also been transferred to the Excess Profits Tax cum Income-tax Officer on 29th March, 1945. When the Appellate Assistant Commissioner had decided the appeals filed by the family, the Excess Profits Tax cum Income-tax Officer wrote a letter on the 28th August, 1945, transferring back to the Income-tax Officer the proceedings for the assessment of Pannalal as an individual for the assessment year 1944-45 and informing him that the commission income had been held by the Appellate Commissioner to belong to Pannalal. Thereupon the Income-tax Officer issued a notice under section 34 read with section 22 on the 28th January, 1946, to Pannalal asking him to file a return for the purposes of assessing the income of Pannalal received by him as an individual from Messrs. J.K. Distributors, Kanpur, in respect of the assessment year 1943-44. On the service of the notice, Pannalal filed a return which was accepted and he was assessed. Pannalal then appealed and claimed that the proceedings under section 34 of the Income-tax Act had been wrongly taken as the Income-tax Officer when starting those proceedings had received no definite information leading to the discovery that his income had escaped assessment. The plea was rejected by the Appellate Assistant Commissioner and also by the Income-tax Appellate Tribunal when Pannalal went up in a further appeal. At the request of Pannalal the following question has been referred by the Tribunal for opinion to this court :

'Where in the circumstances of the case as stated above, section 34 of the Income-tax Act was legally applicable ?'

The contention on behalf of the assessee in this case is that, when the proceedings under section 34 were started by the Income-tax Officer against Pannalal in respect of the assessment year 1943-44, he had received no definite information leading to the discovery that his income had escaped assessment which was not already available to him earlier when he should have taken proceedings for the original assessment under section 22 of the Income-tax Act. The facts founds show that the Income-tax Officer assessed Pannalal as an individual in the assessment year 1942-43 after holding that the commission income from Messrs. J.K. Distributors, Kanpur, was income received by Pannalal as an individual and was not the income of the Hindu undivided family. That material was available to the Income-tax Officer when he started proceedings for the assessment year in question in 1943-44, and gave notice to the Hindu undivided family only. For the year 1943-44, the Income-tax Officer refrained from giving any notice under section 22(2) to Pannalal as an individual. The proceedings for the assessment of the Hindu undivided family continued to remain pending before the Income-tax Officer, up to 31st March, 1944, i.e., up to a date very close to the end of the assessment year 1943-44 which point is of importance because, if the Income-tax Officer had intended taking proceedings for assessment of Pannalal as an individual the notice had to be issued by him by the 31st March, 1944. Even after the file of the Hindu undivided family was transferred to the Excess Profits Tax cum Income-tax Officer, the Income-tax Officer continued his course of refraining from giving a notice to Pannalal to file a return in his individual capacity. Later still, on 31st July, 1944, he did issue a notice calling upon Pannalal to file a return in his individual capacity but restricted it to the subsequent assessment year 1944-45, so that the omission to give the notice for the assessment year 1943-44 continued to exist. On these facts, the only inference that can be drawn is that, when taking proceedings for assessment for the year 1943-44, the Income-tax Officer was of the view that the commission income received from Messrs. J.K. Distributors was income of the family and not the income of Pannalal as an individual. He refrained from issuing the notice to Pannalal in spite of the fact that, in the preceding year 1942-43, the income from this very source had been held by the Department to be income of Pannalal as an individual. The act of refraining from issuing the notice must, therefore, have been a conscious act after taking the view that this income was not the income of Pannalal as an individual but the income as income of the Hindu undivided family. It appears to us that by treating that income as income of the Hindu undivided family, the Department stood to gain because, if this income was held to be that of the Hindu undivided family, the tax on this amount would have been payable at a higher rate and this amount would also have been chargeable with excess profits tax. It appears that it was as a consequence of this view that the proceedings for the Hindu undivided family were transferred by the Income-tax Officer to the Excess Profits cum Income-tax Officer. In the circumstances, we are led to the conclusion that all the facts relating to the assessment of the preceding year and the claim made by Pannalal as an individual and the Hindu undivided family as such were before the Income-tax Officer and it was on those facts that the Income-tax Officer came to the view that this income was not the income of Pannalal as an individual but it was the income of the Hindu undivided family. It was as a consequence of this view held by him that no proceedings were taken for assessment of Pannalal as an individual for the year 1943-44 and were instead taken against the Hindu undivided family only. Subsequently, the decision which was given by the Appellate Assistant Commissioner was a view held by him on the same facts which were before the Income-tax Officer also. In any case, the mere decision of the Appellate Assistant Commissioner that the commission income was not the income of the Hindu undivided family but the income of Pannalal as an individual was not a new fact at all. It was merely a decision arrived at on the basis of the same facts and when the Income-tax Officer received information of this decision, what he received was not definite information about any fact but merely the view which the Appellate Assistant Commissioner held on those facts. Because of the view of the view of the Appellate Assistant Commissioner, it appears that the Income-tax Officer also then changed his view and decided to assess this income as the income of Pannalal as an individual. Such a change of view by the Income-tax Officer is not a sufficient ground justifying proceedings under section 34 of the Income-tax Act. No definite information having been received by the Income-tax Officer about any facts leading to the discovery that the income had escaped assessment, the proceedings taken were incompetent. Our view is supported by two earlier decisions of this court in New Victoria Mills Co. Ltd. v. Commissioner of Income-tax and Shubhkaran Seksaria v. Commissioner of Income-tax.

In the result we answer the question referred to us in the negative. The assessee will be entitled to his costs which we fix at Rs. 200.

Question answered in the negative.


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