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Dr. Surmukh Singh Uppal Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtPunjab and Haryana High Court
Decided On
Case NumberIncome-tax Reference No. 1 of 1976
Judge
Reported in[1983]144ITR191(P& H)
ActsIncome Tax Act, 1922 - Sections 4(1), 4A, 34 and 34(1)
AppellantDr. Surmukh Singh Uppal
RespondentCommissioner of Income-tax
Appellant Advocate G.C. Sharma,; E.D. Helms and; S.S. Mahajan, Advs.
Respondent Advocate D.N. Awasthi and; B.K. Jhingan, Advs.
Excerpt:
.....of the said order. - that there has been no failure on the part of the assessee to disclose any material facts as a result of which there may have been an escapement of income and that in the instant case, the ito had no jurisdiction to initiate reassessment proceedings against the assessee. in other words, as the assessee had failed to disclose fully and truly all material facts, action under section 34 of the act, after obtaining the approval of the commissioner, was initiated. clearly, it is the duty of the assessee who wants the court to hold that jurisdiction was lacking, to establish that the income-tax officer had no material at all before him for believing that there had been such non-disclosure. if that be so, section 34(1) would immediately be attracted and the notice issued..........status of an assessee; that there has been no failure on the part of the assessee to disclose any material facts as a result of which there may have been an escapement of income and that in the instant case, the ito had no jurisdiction to initiate reassessment proceedings against the assessee. according to the learned counsel, what was required of the assessee was to disclose material facts and it was for the ito to draw an inference on the basis of those material facts and if a wrong inference was drawn by the ito, then no proceedings could be initiated under section 34 of the act.5. on the other hand, mr. awasthy, learned counsel for the revenue, very forcefully contended that the assessee had intentionally withheld the material facts and had not disclosed them fully and truly.....
Judgment:

Prem Chand Jain, J.

1. The assessee, late Dr. Surmukh Singh Uppal, son of late S. Narain Singh Uppal, was originally assessed to tax for the assessment year 1946-47, on a total income of Rs. 31,444. Later on, it came to the notice of the ITO that during the relevant accounting period, the assessee had made huge investments by way of fixed deposits in banks, purchase of agricultural land, purchase of house properly, etc.,which was not disclosed at the time of the earlier assessment. Action under Section 34 of the Indian I.T. Act, 1922 (hereinafter referred to as 'the Act') was taken by the ITO. In the course of the reassessment proceedings, the ITO required the assessee to explain and prove the nature and source of various deposits and investments made by the assessee during the relevant accounting period. After examining the evidence produced by the assessee, the ITO included a sum of Rs. 3,58,314 as income from undisclosed sources. The ITO in the reassessment proceedings held the status of the assessee as 'Resident but not ordinarily resident', as against the status of 'non-resident' assigned in the original assessment proceedings and further included a sum of Rs. 40,000 which was brought by the assessee at the time of his arrival in India from Africa in January, 1946, under the provisions of Section 4(1)(b)(iii) of the Act. The ITO completed the assessment on a total income of Rs. 4,17,464.

2. Dissatisfied with the order of the ITO, the assessee preferred an appeal. One of the points agitated was that the status of the assessee could not be changed from 'non-resident' to 'resident but not ordinarily resident', The AAC on a consideration of the matter on this point, found that the status of the assessee could not be changed from 'nonresident 'to' resident but not ordinarily resident'. Consequently, the addition of Rs. 40,000 was deleted. Aggrieved by the aforesaid finding of the AAC, the Department filed an appeal before the Income-tax Appellate Tribunal, On review of the whole matter, the Tribunal held that the correct residential status of the assessee was 'resident but not ordinarily resident', with the result that the addition of an amount of Rs. 40,000 was restored.

3. Aggrieved with the view taken by the Tribunal, the assessee filed an application under Section 256(1) of the I.T. Act, 1961, requiring the Tribunal to refer to the High Court certain questions of law, which arise out of its order. Finding merit in the application, the Tribunal has referred the following questions for our opinion :

'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the residential status of the assessee under Section 4A of the Indian Income-tax Act, 1922, was 'resident but not ordinarily resident' ?

(2) Whether, on the facts and in the circumstances of the case, the finding of the Tribunal that the sum of Rs. 40,000 brought by the assessee from East Africa in January, 1946, was assessable in the assessment year 1946-47 under Section 4(1)(b)(iii) of the Indian Income-tax Act, 1922, is legally correct?'

4. It was contended by Mr. Sharma, learned counsel for the assesses, that proceedings under Section 34 of the Act could be initiated only if there was escapement of income, that in the instant case the provisions of Section 34 are not attracted as there is no escapement of income ; that for finding out the status of an assessee the provisions of Section 34 could not be pressed into service ; that in the reassessment proceedings what is first sought to be determined is the status of an assessee; that there has been no failure on the part of the assessee to disclose any material facts as a result of which there may have been an escapement of income and that in the instant case, the ITO had no jurisdiction to initiate reassessment proceedings against the assessee. According to the learned counsel, what was required of the assessee was to disclose material facts and it was for the ITO to draw an inference on the basis of those material facts and if a wrong inference was drawn by the ITO, then no proceedings could be initiated under Section 34 of the Act.

5. On the other hand, Mr. Awasthy, learned counsel for the Revenue, very forcefully contended that the assessee had intentionally withheld the material facts and had not disclosed them fully and truly inasmuch as he did not correctly give his status as 'resident but not ordinarily resident' ; that it was within the knowledge of the assessee that he was not a 'non-resident', that under the law, the assessee was required to state correctly, whether he was a resident and ordinarily resident, or resident but not ordinarily resident, or non-resident, that intentionally with a view to escape assessment he wrongly described himself as nonresident, and that, in the circumstances of the case, the ITO had jurisdiction to initiate proceedings under Section 34 of the Act.

6. After giving my thoughtful consideration to the entire matter, I find sufficient merit in the contention of the learned counsel for the Revenue. The original assessment in the case of the assessee for 1946-47, relevant to the accounting period ending on 31st March, 1946, was made on a total income of Rs. 31,444. Later on, it came to the notice of the ITO that during the relevant period the assessee had made huge investments by way of fixed deposits in banks, purchase of agricultural land, purchase of house property, etc., which were not disclosed at the time of the original assessment. In other words, as the assessee had failed to disclose fully and truly all material facts, action under Section 34 of the Act, after obtaining the approval of the Commissioner, was initiated. As to what is the nature or duty of an assessee to disclose fully and truly all material facts, we have the judgment of the Supreme Court in Calcutta Discount Co. Ltd. v. ITO : [1961]41ITR191(SC) , wherein the following observations were made (p. 200):

'There can be no doubt that the duty of disclosing all the primary facts relevant to the decision of the question before the assessing authority lies on the assessee. To meet the possible contention that when some account books or other evidence has been produced, there is no duty on the assessee to disclose further facts, which on due diligence, the Income-tax Officer might have discovered, the Legislature has put in the Explanation, which has been set out above. In view of the Explanation, it will not be open to the assessee to say, for example--'I have produced the account books and the documents : You, the assessing officer, examine them, and find out the facts necessary for your purpose : My duty is done with disclosing these account books and the documents'. His omission to bring to the assessing authority's attention those particular items in the account books, or the particular portions of the documents, which are relevant, will amount to 'omission to disclose fully and truly all material facts necessary for his assessment'. Nor will he be able to contend successfully that by disclosing certain evidence, he should be deemed to have disclosed other evidence, which might have been discovered by the assessing authority if he had pursued investigation on the basis of what has been disclosed. The Explanation to the section gives a quietus to all such contentions and the position remains that so far as primary facts are concerned, it is the assessee's duty to disclose all of them--including particular entries in account books, particular portions of documents, and documents and other evidence which could have been discovered by the assessing authority, from the documents and other evidence disclosed...... The position,therefore, is that if there were in fact some reasonable grounds for thinking that there had been any non-disclosure as regards any primary fact, which could have a material bearing on the question of 'underassessment', that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notices under Section 34. Whether these grounds were adequate or not for arriving at the conclusion that there was a nondisclosure of material facts would not be open for the court's investigation. In other words, all that is necessary to give this special jurisdiction is that the Income-tax Officer had when he assumed jurisdiction some prima facie grounds for thinking that there had been some non-disclosure of material facts.

Clearly, it is the duty of the assessee who wants the court to hold that jurisdiction was lacking, to establish that the Income-tax Officer had no material at all before him for believing that there had been such non-disclosure.'

7. Keeping in view the aforesaid observations, if the facts of the present case are seen, then it becomes crystal clear that the assessee didnot disclose at the time of the original assessment that he had made huge investments in banks and in the purchase of other assets. It is true that the assessee came to India in January, 1946, from Africa and his affairs were being looked after by his authorised agent and father, late S, Narain Singh, At the same time, it was the duty of the assessee to bring to the notice of the ITO the various fixed deposits and other investments which were made in the name of the assessee during the relevant accounting period. If correct facts had been disclosed at the time of the original assessment, the ITO would have certainly enquired into the nature and source of the various deposits and investments made by the assessee during the relevant accounting period. The assessee had purchased a couple of houses during the years 1944-45. Soon after the arrival in February, 1946, he had purchased another property known as 'Rani Ki Haveli' jointly with his father and brother. He also purchased agricultural land immediately after his arrival in India. The assessee had already taken retirement from the service of the Kenya Govt. on medical grounds and had no intention of going back to that country. Thus, there was no justification on the part of the assessee to have disclosed his residential status as a non-resident. If all these facts had been disclosed, then certainly the ITO would have even scrutinised the status of the petitioner. When true facts were not disclosed, there was no occasion for the ITO to disbelieve the assertion of the assessee about his status as non-resident. Moreover, the description of status is a material fact, because if the same is not truly disclosed, then it can result in escapement of income. The real test is whether there has been escapement of income as a result of non-disclosure of a material fact. If so, then action under Section 34 of the Act is protected. There is a case of the Supreme Court in ITO v. Bachu Lal Kapoor : [1966]60ITR74(SC) , wherein the ITO had initiated proceedings under Section 34 of the Act on the ground that the assessment on the saying of the assessee had been made on an individual, when it should have been made as the income of an HUF. On challenge, the action of the ITO was upheld. The relevant observations read as under (p. 79):

'In the counter-affidavit filed by the Income-tax Officer in the High Court, it was stated that he had reason to believe, in consequence of information in his possession, that income, profits or gains chargeable to income-tax had escaped assessment. His information was that, notwithstanding the compromise decree, the members of the family were living together, had joint mess and the business was run by the respondent. In short, the case of the Revenue was that the compromise was a make-believe one and the family in fact continued to be a joint Hindu family. If the case of the Revenue was true--on which we do not express anyopinion--and the fact of the continuance of the joint Hindu family was kept back from the knowledge of the Income-tax Officer, it would be a clear case of the said family escaping assessment during the relevant year. If that be so, Section 34(1) would immediately be attracted and the notice issued would be good.'

8. Reference may also be made to a recent judgment of the Calcutta High Court in Rajiner Mohan Ehandavi v. ITO : [1978]111ITR407(Cal) , wherein it has been observed thus (p. 409):

'Counsel for the assessee contended that, on the facts, it cannot be said that the income has escaped assessment. It was argued that income had been assessed in the hands of the Hindu undivided family. The selfsame income is being sought to be assessed in the hands of the individual. Therefore, it was argued that it could not be urged that income had escaped assessment in terms of Clause (a) of Section 147 of the Income-tax Act. It was secondly urged that escapement, if there has been any, that was by reason of not the omission or failure on the part of the assessee to make a return in this case or to disclose fully or truly the material or relevant facts. Escapement, if any, was due to the failure of the Income-tax Officer to determine the correct status at the time of assessment. It was submitted that the status was a factor which might be and should have been determined in the assessment proceedings. In aid of this submission, reliance had been placed on the decisions in the case of Gordon Woudroffe and Co. Ltd. v. ITO : [1964]51ITR12(Mad) in the case of Estate of Late A.M.K.M. Karuppan Chettiar v. CIT : [1969]72ITR403(SC) , in the case of Shea Nath Singh v. AAC : [1971]82ITR147(SC) , in the case of Mahabir Prasad Paddar v. ITO : [1976]102ITR478(Cal) and in the case of Anil Kumar Roy Chowdhury v. CIT : [1976]102ITR12(SC) . I am unable to accept this contention. If the individual income really belonged to the individual, the income of that individual has escaped assessment and furthermore that individual has failed to file any return which it was his duty to file. The fact that the income might have been assessed in the hands of a different entity about whom more information is now available does not detract from the decision that the income has escaped assessment, furthermore, as it is evident that the income if it properly belonged to any individual would have been subjected to tax, portion of which might have earned the benefit of exemption in the case of Hindu undivided family because the exemption limits of a Hindu undivided family are a little higher for the purpose, if the income has been assessed wrongly at the hands of an assessable unit to which it did not belong, that does not prevent from properly assessing in the hands of a unit to which it belonged by process of reopening under Section 148 of the Income-tax Act, 1961.'

9. Mr. Sharma, learned counsel for the assessee, had invited our attention to the judgments in Dwarka Dass and Brothers v. ITO : [1979]118ITR958(Delhi) , Sujir Ganesh Nayak & Co. v. ITO : [1976]104ITR524(Ker) , R. Dalmia v. ITO , Gordon Woodroffe and Co. Ltd, v. ITO : [1964]51ITR12(Mad) In our view, all these judgments have no applicability to the facts of the case in hand and are distinguishable. There is no similarity of the facts of these cases with the facts of the case in hand.

10. In this view of the matter, on the facts found and in the circumstances of the case, there can be no escape from the conclusion that the assessee failed to disclose fully and truly material facts at the time of the original assessment; that the case in hand is not one of drawing inference only on the basis of all the facts fully and truly disclosed by the assessee and that the question of status could certainly be determined in reassessment proceedings if on account of the non-disclosure of the facts fully and truly, there has been escapement of income.

11. This brings us to question No. 2, In the view we have taken on question No. 1, the answer to this question has to be against the assessee as in the event of his being a 'resident but not ordinarily resident' the sum of Rs. 40,000 brought by him from East Africa in January, 1946 was assessable in the assessment year 1946-47. The Tribunal has dealt with this matter thus :

'Now, in the present case, the assessee did not disclose at the time of original assessment, that he had made huge investments in banks and in the purchase of other assets. It is true that the assessee came to India in January, 1946, from Africa and his affairs were being looked after by his authorised agent and father, late Sardar Narain Singh. At the same time, it was the duty of the assessee to bring to the notice of the Income-tax Officer about the various fixed deposits and other investments which were made in the name of the assessee during the relevant accounting period. Further, we find that the assessee came to India in January, 1946, while his original assessment was completed by the Income-tax Officer, Special Circle, on 16th December, 1948, i.e., after a period of nearly three years of the arrival of the assessee in India. Even at this stage, when the assessee had already taken retirement from the service of the Kenya Government on medical grounds and had no intention of going back to that country, the residential status was disclosed as 'non-resident'. If correct facts had been disclosed at the time of the original assessment, the Income-tax Officer would have certainly enquired into the nature and source of the various deposits and investment made by the assessee during the relevant accounting period and would havealso examined the question of the chargeability of tax of a sum of Rs. 40,000 brought by the assessee to India in January, 1946.'

12. The aforesaid observations of the Tribunal justify the conclusion of the Tribunal that a sum of Rs. 40,000 was assessable.

13. At this stage another argument of Mr. Sharina may also be noticed that any event or material not existing up to the date of previous assessment could not be taken into consideration at the time of reassessment proceedings and that as certain events and material which came into existence after the closing of the accounting period, had been taken into consideration, the order of reassessment was bad. This contention of the learned counsel is liable to be rejected on the short ground that the conclusion of the Tribunal has also been arrived at on the basis of the events existing during the accounting period, as is evident from the following observations :

'We find from the records that even if facts at the close of the accounting period are considered as has been pleaded by the learned counsel of the assessee, it was apparent that the assessee had no intention of leaving India after arriving in January, 1946. The Income-tax Officer found that the assessee had already purchased a couple of residential houses during the year 1944-45, at Majitha Road, Amritsar, one in the name of his son and another in his own name. The purchase of the house property clearly indicated the assessee's intention to stay in India. Then, soon after the arrival, i.e., in February, 1946, he purchased another property known as 'Rani-Ki-Haveli' jointly with his father and brother. He also purchased agricultural land immediately after his arrival in India. Before the assessee came to India himself, his sons had already reached India and one of them Shri Bhupal Singh had already set up business known as Chheharta Button Factory in partnership with his cousins. The assessee had liquidated the bulk of his investments in Africa and brought cash with him. All these facts clearly indicated that after arriving in India in January, 1946, the assessee had no intention to return and in fact he did not go back to Africa. Thus, the Income-tax Officer has given detailed reasons for coming to the conclusion that the residential status of the assessee was 'resident but not ordinarily resident' in the reassessment proceedings even on the basis of the facts as existed at the close of the accounting period.'

14. In view of the aforesaid discussion, both the questions are answered in favour of the Revenue and against the assessee. In the circumstances of the case, we make no order as to costs.

Surinder Singh, J.

15. I agree.


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