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Sushila Devi JaIn Vs. Commissioner of Income-tax, Delhi-i - Court Judgment

LegalCrystal Citation
Subject Direct Taxation
CourtDelhi High Court
Decided On
Case NumberIncome-tax Reference No. 118 of 1974
Judge
Reported in(1982)27CTR(Del)48; [1982]138ITR551(Delhi)
Acts Income Tax Act, 1961 - Sections 3, 4, 22, 27(1), 34(1), 64, 64(1), 139, 139(1), 139(6), 147(A) and 271(1)
AppellantSushila Devi Jain
RespondentCommissioner of Income-tax, Delhi-i
Cases ReferredAhmedabad Cotton Mfg. Co. Ltd. v. Union of India
Excerpt:
direct taxation - assessment - sections 3, 4, 22, 27 (1), 34 (1), 64, 64 (1), 139, 139 (1)139 (6), 147 (a), 271 of income tax act, 1961 - whether provisions of section 147 (a) applicable to present case - minor child of assessed admitted to benefit of firm of which assessed was partner was material fact for assessment which was not disclosed by assessed - failure on part of assessed to disclose all material facts necessary for assessment - held, action under section 147 (a) justified. - - 147(a) that action under the above clause was taken 'as the assessed had not furnished in part iii of the return full facts regarding the other partners and failed to disclose the relationships of the partners inter se and there was thus an omission on the part of the assessed to disclose fully and.....ranganathan, j.1. the assessed, smt. sushila devi jain, was a partner in a firm known as 'm/s. raj motors' which was constituted under an instrument of partnership dated 1st april, 1961. she was a partner till 31st august, 1961. the other partners were, shri p. s. jain, smt. sukhari devi, smt. sushila devi, master raj kumar, master ravi kumar and kumari renu. for the assessment year 1962-63 (for which the previous year ended on march 31, 1962, the assessed filed her return at calcutta on march 21, 1963. part iii of the return at p. 4 required the following details to be given in a case where the assessed filing the return was a partner in a firm : '1. name and address of the firm. 2. name of each partner including the assessed. 3. relationship with the assessed. 4. residential address.....
Judgment:

Ranganathan, J.

1. The assessed, Smt. Sushila Devi Jain, was a partner in a firm known as 'M/s. Raj Motors' which was constituted under an instrument of partnership dated 1st April, 1961. She was a partner till 31st August, 1961. The other partners were, Shri P. S. Jain, Smt. Sukhari Devi, Smt. Sushila Devi, Master Raj Kumar, Master Ravi Kumar and Kumari Renu. For the assessment year 1962-63 (for which the previous year ended on March 31, 1962, the assessed filed her return at Calcutta on March 21, 1963. Part III of the return at p. 4 required the following details to be given in a case where the assessed filing the return was a partner in a firm :

'1. Name and address of the firm.

2. Name of each partner including the assessed.

3. Relationship with the assessed.

4. Residential address of the partners, and

5. Shares of partners.'

2. In the return filed by the assessed the name and address of the firm was given; the names of all the partners including the assessed was mentioned but without any indication as to whether Master Ravi Kumar, Master Raj Kumar and Kumari Renu were major partners or minors admitted to the benefits of the partnership; the residential address of all the partners was given as 7-A, Rajpur Road, Delhi; and the individual shares of the several partners were specified. But the column which required the assessed to state the relationship of the partners with the assessed was left bank. It appears that at the time of the assessment a copy of the partnership deed dated April 1, 1961, had also been filed before the ITO, Calcutta. The original assessment of the assessed for 1962-63 was completed on March 30, 1963, including in the assessment, her share income from the firm above mentioned.

3. Earlier, on June 11, 1962, the assessed had filed a return in Delhi on behalf of Master Ravi Kumar as his guardian as he was a minor. In this return was shown the share income of the minor from the firm of M/s. Raj Motors for the financial year 1961-62. The ITO who completed the assessment on March 21, 1964, excluded the share income from the firm referable to the period from April 1, 1961, to August 31, 1961, from the assessment of Master Ravi Kumar on the ground that since he was the minor son of Smt. Sushila Devi who was also a partner in the firm during the said period, his share of income referable to this period was liable to be included in the hands of the present assessede on account of the provisions of s. 64(ii) of the I.T. Act, 1961. The same thing happened in the case of Master Raj Kumar and Kumari Renu in whose cases returns had been filed on their behalf by their father, Shri R. C. Jain.

When this came to the knowledge of the ITO assessing the present assessed, he initiated proceedings for reopening her assessment to include the share income of the minors referable to the above period in the hands of the present assessed, for, he had discovered that Master Raj Kumar, Master Ravi Kumar and Kumari Renu were the minor children of the present assessed and had been admitted to the benefits of the partnership in which she was a partner. The ITO mentioned in the reassessment order made in pursuance of a notice under s. 147(a) that action under the above clause was taken 'as the assessed had not furnished in Part III of the return full facts regarding the other partners and failed to disclose the relationships of the partners inter se and there was thus an omission on the part of the assessed to disclose fully and truly all material facts necessary for her assessment'. The assessed did not file any reply to the letter with which the ITO followed up his notice under s. 147(a). The ITO referred to the decision of the Madras High Court in the case, Muthiah Chettiar v. CIT : [1965]55ITR147(Mad) , where in similar circumstances it had been held by the Madras High Court that action under s. 34(1)(a) of the 1922 Act corresponding to s. 147(a) would be justified. In view of the decision referred to above and in view of the fact that the assessed had not filed any objections, the ITO completed the reassessment after including the share income of the three minor children referred to for the period above mentioned, in the assessment of the present assessed. The officer's action was upheld by the AAC and on further appeal by the Tribunal. Aggrieved by the order of the Tribunal the assessed required the Tribunal to state a case and refer certain questions of law for the opinion of this court. It is these circumstances that the I.T. Appellate Tribunal has made the present reference and referred the following question of law for our opinion :

'Whether, on the facts and in the circumstances of the case, the provisions of section 147(a) of the Act are applicable and have been rightly invoked ?'

Before proceeding to discuss the arguments of the learned counsel for the assessed one factual position should be cleared up. In para. 3 of the statement of case it it stated :

'On going through the assessment record it was observed that a copy of the partnership deed dated April 1, 1961, was filed before the Income-tax Officer, Calcutta, showing the appellant as partner and admitting her three children to the benefits of partnership. Nowhere in the said deed the relationship of the appellant with Master Raj Kumar, Ravi Kumar, and Kumari Renu was mentioned nor their father's name was given.'

4. The first part of this sentence gives the impression that the partnership deed had mentioned that the three children of the assessed had been admitted to the benefits of the partnership. At the same time the second sentence of the above extract contradicts the first and seems to say that the partnership deed did not give any indication of the relationship between the appellant and the three minors. In these circumstances, to clear up the ambiguity and having regard to the fact that the partnership deed had been looked into by all the authorities we directed the standing counsel for the department to produce the partnership deed before us. We have looked into the partnership deed dated April 1, 1961, that was placed on record before the ITO at the time of the original assessment. We find that the partnership deed does not mention that the three minors were the children of the present assessed. There is also no indication in the partnership deed either by way of reference to the name of the father of the children or otherwise from which the ITO could have gathered that the firm in which the assessed was a partner had the three minor children of hers admitted to the benefits of the benefits of the partnership. We have, thereforee, to proceed in disposing of this case, on the footing that there was no information before the ITO at the time of the original assessment to show that Master Raj Kumar, Master Ravi Kumar and Kumari Renu were the minor children of the present assessed.

5. On behalf of the assessed, it is contended that the proceedings under s. 147(a) in the present case were without jurisdiction and in support of the contention it is pointed out that the decision in Muthiah Chettiar's case : [1965]55ITR147(Mad) , on which the ITO had relied, has been reversed by the Supreme Court in the decision reported as Muthiah Chettiar v. CIT : [1969]74ITR183(SC) . We shall refer to this decision presently but to continue with the arguments of the learned counsel for the assessed it has been contended that though the Supreme Court had decided the case under the 1622 Act the position was on different under the 1961 Act. In support were cited the decisions of the Calcutta High Court in Radheshyam Ladia v. ITO : [1971]82ITR247(Cal) , Madanlal Maheshwari v. ITO : [1973]87ITR295(Cal) and Ramesh Ch. Sood v. A.S.O. Sub-Division, Ranaghat, : AIR1972Cal455 . On the strength of these decisions it is contended that the assessed was under no obligation to include in her return the share income of the minor children and that the proceedings under s. 147(a) were, thereforee, uncalled for. The second argument put forward on behalf of the assessed is that even assuming that the assessed had omitted to indicate the relationship between herself and the minor children that would not constitute a failure to disclose fully and truly all material facts necessary for her assessment and in support of this contention reliance is placed on the decision of the Bombay High Court in D. R. Dhanwate v. CIT : [1961]42ITR253(Bom) . Thirdly, it is contended that even assuming that the assessed was bound to return the share income of the minors and had failed to do so and thus failed or omitted to disclose fully or truly all material facts it could not be said in the present case that the escapement of the share income of the minors from assessment was as a result of the assessed's failure or omission. It is suggested, relying on a decision of the Gujarat High Court in Ahmedabad Cotton Mfg. Co. Ltd. v. Union of India : [1974]95ITR639(Guj) , that the escapement of the income from assessment, if any, was the result of a combined dereliction of duty partly on the part of the assessed and partly on the part of the ITO and that, thereforee, it could not be said that income had escaped assessment by reason of the omission or failure on the part of the assessed.

7. The principal argument addressed on behalf of the assessed is based on the decision of the Supreme Court in the case of Muthiah Chettiar case [1969] 74 ITR 183. That case arose under the 1922 Act. The assessed had submitted a return of income. Part III of the return required information to be supplied in respect of the name and address of the firm, the name of each partner including the assessed and his share income. The assessed for the assessment year 1952-53 set out all the particulars required by this return and also indicated that three of the persons were minors. For the subsequent two assessment years 1953-54 and 1954-55, similar details were given but without any indication that the three persons above referred to were minors. The ITO completed the assessments on the assessed including only his share income from the firm. Subsequently, he issued notices of reassessment to the assessed under s. 34(1)(a) of the Indian I.T. Act, 1922, for the years 1952-53 and 1953-54. The question before the Supreme Court was whether the reassessment made on the assessed under s. 34(1)(a) of the Act for the three assessment years in question were valid in law of which we are concerned here only with the answers for 1952-53 and 1953-54. The Supreme Court answered the question in the negative. After referring to the provisions of ss. 3, 4 and 22 of the terms of r. 19 of the Indian I.T. Rules and the contents of the form of returns of prescribed for the case in question, the court came to the conclusion that the Act and the Rules imposed no obligation upon the assessed to disclose to the ITO in his return an information relating to the income of any other person, by law taxable in this hands. The inclusion of the minors' share income in the hands of the parents, it was pointed out, was the duty imposed upon the ITO. The department relied upon certain notes of guidance contained in the return which indicated or instructed the assessed to disclose the income received by his wife or minor children from a firm of which the assessed was a partner. Apart from the fact that there was some doubt regarding the exact form of return in vogue at the relevant time, and this was not clarified, the Supreme Court pointed out that even assuming that there were instructions printed in the form of return in the relevant years, in the absence of any head under which the income of the wife or minor child of the partner whose wife or minor child was a partner in the same firm could be shown, the taxpayer, by not showing that income, cannot be deemed to have failed or omitted to disclose fully and truly all material facts necessary for his assessment. The Supreme Court, thereforee, held that the conditions set out in s. 34(1)(a) were not satisfied, and, thereforee, the reassessments for 1952-53 and 1953-54 were set aside.

8. The present case arises under the provisions of the 1961 Act. The learned counsel for the assessed submits that there is no material distinction in the relevant provisions between the 1922 Act and the 1961 Act. The contention is correct but only to a limited extent because, in our opinion, there is one material distinction to which we shall advert later. Learned counsel for the assessed, however, is right in pointing out that under s. 139 an assessed is required to furnish a return only of his total income or the total income of any other person in respect of which he is assessable under under the Act. Though there are words in s. 139 to the effect that an assessed has to file a return of his income or 'the income of such other person' which at first sight appear to be comprehensive enough to include the income of a minor child admitted to the benefits of a partnership in which the assessed is a partner, learned counsel may be right in stating that 'the other person' referred to in this sub-section is only a person in respect of whom or whose income the assessed happens to be a 'representative assessed'. This is the interpretation placed on the above provision by the Calcutta High Court in the case Madan Lal Maheswari v. ITO : [1973]87ITR295(Cal) and for the purpose of the present case we may assume that this interpretation is correct and that s. 139(1), like s. 22 of the 1922 Act, does not impose an obligation on the part of the assessed to include in his return the share income of her minor child. The next provision in the statute, which is relevant, is s. 139(6). As it stood at the relevant time, this corresponded to s. 22(5) of the old Act. It stated that the prescribed form of returns 'in the case of an assessed engaged in business or profession shall require him to furnish particulars of the location and style of the principal place where he carries on the business or profession and all the branches thereof, the names and addresses of his partners, if any, in such business or profession and the extent of the shares of the assessed and the shares of all such partners or the members, as the case may be, in the profits of the business or profession and any branches thereof.' Learned counsel for the assessed is right in pointing out that s. 139(6), like s. 22(5), does not contain any direction that the prescribed form of returns should include particulars regarding the relationship of the partners of the firm in which the assessed is a partner. So far, the position is the same as under the 1922 Act. However, while prescribing forms of return in order to give effect to the provisions of the Act, a very substantial variation has taken place. We have already indicated this difference in the earlier portion of our judgment but it may now be emphasised. In the form of return filed under the old Act, Part III required an assessed to give details only regarding the name of the firm, the names of the partners and the shares of the various partners. There was no column in Part III which required the assessed to mention the relationship between the partners. But subsequently when a new form of return was prescribed under the 1961 Act, the contents of Part III were revised and, as already mentioned, Part III of the return which the assessed in this case filed before the ITO, contained a column in which the assessed was required to mention the relationship among the various persons shown as partners. The minor children were shown as partners (and this was correct because under the I.T. Act the definition of partner also includes the minor admitted to benefits of the partnership), but significantly the column regarding the relationship between the partners was not mentioned. There is, thereforee, a fundamental difference between the position considered by the Supreme Court and the circumstances of the present case. Whereas, according to the form prescribed under the old Act, there was no place where the assessed could or should have shown the relationship between himself or herself and the other partners of the firm, there is in the form prescribed under the new Act a specific column to this effect. It is no doubt true that even under the new Act, until the amendment in 1972, there was no particular place in which an assessed could include the share income of the minor admitted to the benefits of the partnership. But there was a column which required mention of the relationship between the partners and that column the assessed had failed to fill up. In short, whereas in the case before the Supreme Court the position was that the assessed had fully complied with all the requirement of the statute, the Rules and the form of return, the position in the present case is that the assessed had failed to mention a very important fact which he was bound to disclose in the return made in the form prescribed under the Act.

9. We are unable to appreciate the suggestion made by the counsel that this requirement in the form was bad because s. 139(6) only : provided for matters which had to be included while prescribing a form of return and did not curtail the powers of the Central Board to prescribe forms with appropriate columns to give effect to the various provisions of the Act. There can be no doubt that the fact to which reference has been made is a very material fact. The assessed is a partner in a firm and if the ITO was aware that there were minors admitted to the benefits of the partnership and that these minors were the children of the assessed, then he would have completed the assessment by applying the provisions of s. 64. The fact that the minor child of the assessed was also admitted to the benefits of the firm of which the assessed was a partner was clearly a very material fact necessary for the purpose of her assessment and this material fact the assessed did not disclose. In our opinion, thereforee, the decision of the Supreme Court in the case of Muthiah Chettiar : [1969]74ITR183(SC) , is clearly distinguishable having regard to the provisions of the 1961 Act along with the rules and the forms prescribed under the 1962 Rules. There was, thereforee, a failure on the part of the assessed to disclose fully all material facts necessary for the assessment and, thereforee, action under s. 147(a) was justified.

10. The learned counsel for the respondent invited our attention to the decision of the Supreme Court in the case of CIT v. Smt. P. K. Kochammu Amma : [1980]125ITR624(SC) . In this case the question was whether a penalty under s. 271(1)(c) could be levied for the failure on the part of the assessed, who was a partner in a firm, to include in her return, the share income of her husband and minor daughter. The court came to the conclusion that the amounts representing the share of the husband and the minor daughter from the firm were part of the assessed's income for purposes of tax, and had to be shown in the return filed by her. Referring to a note in the form of return prescribed under the Act, the Supreme Court held that the respondent-assessed had failed to disclose those two amounts in the return submitted by her and there was plainly and manifestly a breach of the obligation imposed by s. 139(1) requiring the assessed to furnish a return of her income in the prescribed form and, in failing to do so, she was guilty of concealment of those amounts which attracted the applicability of s. 27(1)(c). The attention of the court was drawn to the earlier decision in Muthiah Chettiar's case : [1969]74ITR183(SC) and their Lordships made the following observations in dealing with the above decisions (p. 629);

'It is difficult to see how the note in the prescribed form of the return could be ignored by the assessed and she could contend that, despite the note, she was not liable to show in her return the amounts representing the shares of her husband and minor daughter in the two partnership firms. The contention of the assessed, if accepted, would render the note meaningless and futile and turn it into dead letter and that would be contrary to all recognised canone of construction. There can be no doubt that the assessed was bound to show in her return the amounts representing the shares of her husband and minor daughter in the two partnership firms and in failing to do so, she was guilty of concealment of this item of income which plainly attracted the applicability of s. 271, sub-s. (1), clause (c).

It is obvious that on this view the order imposing penalty or the assessed would have to be sustained but there is a decision of this court in Muthiah Chattiar v. CIT : [1969]74ITR183(SC) , which is binding upon us and where we find that a different view has been taken by a Bench of three judges of this court. It was held in this case that even if there were any printed instructions in the form of the return requiring the assessed to disclose the income received by his wife and minor child from a firm of which the assessed was a partner, there was, in the absence in the return of any head under which the income of the wife or minor child could be shown, no obligation on the assessed to disclose this item of income, and the assessed could not be deemed to have failed or omitted to disclose fully and truly all material facts necessary for his assessment within the meaning of s. 34(1)(a) of the Indian I.T. Act, 1922. With the greatest respect to the learned judges who decided this case, we do not think, for reasons already discussed, that this decision lays down the correct law on the subject, and had it not been for the fact since 1st April, 1972, the form of the return prescribed by r. 12 has been amended and since then, there is a separate column providing that 'income arising to spouse/minor child or any other person as referred to in Chap. V of the Act' should be shown separately under that column and consequently there is no longer any scope for arguing that the assessed is not bound to disclose such income in the return to be furnished by him, we would have referred the present case to a larger Bench. But we do not propose to do so since the question has now become academic in view of the amendment in the form of the return carried out with effect from 1st April, 1972. We would, thereforee, follow this decision in Muthiah Chettiar's case : [1969]74ITR183(SC) , which being a decision of a Bench of three judges of this court, is binding upon us, and following that decision, we hold that the assessed could not be said to have concealed her income by not disclosing in the return filed by her the amounts representing the shares of her husband and minor daughter in the two partnership firms.'

11. We are unable to agree with the learned counsel for the respondent that this decision of the Supreme Court (74 ITR 183), must be taken to have overruled the earlier decision in Muthiah Chettiar's case [1965] 55 ITR 147 (Mad), for obvious reasons, though it is clear that their Lordships have doubted the correctness of the earlier decision. But, as we have already pointed out, for the purposes of this case, we are of the opinion that the position is entirely different from that which prevailed in Muthiah Chettiar's case for the reasons already mentioned and that the present case is not governed by the decision in that case.

12. The second argument addressed by the learned counsel for the assessed was based on the decision of the Bombay High Court in D. R. Dhanwate's case [1961] 42 ITR 253. In that case also the question that arose was whether action under s. 34(1)(a) could be taken for bringing to assessment the share income of a minor in the hands of the parent where such parent had omitted to include the share income while filing a return of his total income. At p. 263, their Lordships observed :

'We would, however, for the sake of argument, assume that it is obligatory on the assessed in making a return to include in his total income the income of his wife and minor child. The question that next arises for determination is whether failure on his part to do so would amount to a failure to disclose fully and truly all material facts necessary for his assessment for that year. As already stated, it is Mr. Joshi's contention that that would amount to a failure to disclose fully and truly all material facts within the meaning of section 34. We find it difficult to accept this contention of Mr. Joshi's also. To accept this contention we will have to read in the section, 'failure to disclose fully and truly in his return all material facts necessary for his assessment for that year.''

13. The above observations were made by the court in the context of the facts of the particular case wherein it had been found that though the share income of the minor child had not been included in the return of the assessed there was a disclosure at the time of the original assessment of the firm that the assessed's wife and minor sons were also members of the partnership. These facts had been known to the ITO at the time he make the assessment of the firm as well as the assessment on the assessed, his wife and the minor son. All the assessments had been made on one and the same day and by the same ITO. It was in those circumstances that the court pointed out that, though the share income had not been returned by the assessed, there had been no failure to disclose fully and truly all material facts. In the present case, on the other hand, as we have pointed out earlier, the assessed had not at all disclosed to the ITO at any stage during the assessment proceedings the fact that her minor children had already been admitted to the benefits of the partnership. This contention of the learned counsel, thereforee, fails.

14. The last argument of the learned counsel was that even if there was any escapement of income it was due to the negligence of the ITO and not on account of dereliction of duty on the part of the assessed. It is pointed out that in Part III of the return the names of the minor children have been mentioned as Master Ravi Kumar, Master Raj Kumar and Kumari Renu and it was stated that this was sufficient for the ITO to take notice that these persons were minors. Further, it is stated that the residential addresses of all the partners had been given as 7-A, Rajpur Road, Delhi, and this, it is suggested, must have made the ITO aware that the minors must be the minor children of one of the other partners. Referring to the decision of the Gujarat High Court in Ahmedabad Cotton Mfg. Co. Ltd. v. Union of India : [1974]95ITR639(Guj) , it is submitted that the escapement of the share income was attributable to the negligence of the ITO. We are unable to agree. The disclosures made in the return were not sufficient to make the ITO aware of the relationship between the assessed and the minor children. The use of the words 'Master' and 'Kumari' does not necessarily mean that they were minor children. But even assuming that this was so there was nothing to show that they were the minor children of one of the other partners. The fact that they were all shown to be living at the same address does not mean that there was some relationship between them and it cannot be assumed that the minors must have been the minor children (of the assessed as) relied upon by the learned counsel, (which) has no relevance to the present case. In that case, the assessed had failed to point out to the ITO that the total depreciation allowed to him in respect of certain assets exceeded the original cost of the assets. Action was taken to rectify the position by reference to s. 34(1)(a). It may be pointed out that the full details regarding the depreciation allowed earlier were available in the assessment records. The court also pointed out that if the ITO had calculated the written down value in the manner enjoined by the statute, such excessive depreciation would not have been allowed. In the circumstances, thereforee, the escapement of assessment by an allowance of excessive depreciation could not be attributed to the assessed's default which was also there. It is in this context that the observations were made at pp. 651, 652 and 654, upon which learned counsel for the assessed strongly relied. It is clear that the position is totally different in the present case. As we have already pointed out, the ITO could not be visited with the knowledge of the relationship between the assessed and the minor children. If there had been some indication of the relationship between the assessed and the minor children and still the ITO had failed to apply s. 64 it could be said that the escapement was due to his negligence but that is not the situation in the present case.

15. For the reasons mentioned above, we are of the opinion that the contentions put forward by the learned counsel for the assessed have no force and that the Tribunal was justified in coming to the conclusion that the provisions of s. 147(a) were rightly invoked. The question referred to us, is, thereforee, answered in the affirmative and in favor of the department. As the assessed has failed he will pay the costs. Counsel's fee Rs. 350.


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