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Commissioner of Wealth-tax, Gujarat-i Vs. Ahmed Ibrahim Sahigara - Court Judgment

LegalCrystal Citation
SubjectExcise
CourtGujarat High Court
Decided On
Case NumberWealth-tax Reference No. 2 of 1969
Judge
Reported in[1974]93ITR288(Guj)
ActsIncome Tax Act 1961 - Sections 4; Finance Act, 1965 - Sections 68; ;Wealth Tax Act, 1957 - Sections 2
AppellantCommissioner of Wealth-tax, Gujarat-i
RespondentAhmed Ibrahim Sahigara
Appellant Advocate K.H. Kaji, Adv.
Respondent Advocate J.P. Shah, Adv.
Cases ReferredC. K. Babu Naidu v. Wealth
Excerpt:
.....income - section 68 of finance act, 1965 and sections 3 and 4 of income tax act, 1961 - concealed income disclosed by assessee under section 68 - tax as per section 68 (3) paid on concealed income - it shall not again be taxed as part of total income for any assessment under act of 1961 - for purpose of computing net wealth of assessee tax paid on such income cannot be deducted as debt owed by him on last day of relevant accounting year in which such concealed income earned. - - 1. this reference raises a short but interesting question of law relating to the construction of section 68 of the finance act, 1965. the question is not free from difficulty and it has caused us some anxiety to reach our conclusion. that section, omitting portions immaterial, provide :68. (1) where any..........declaration. the amount of income-tax computed at the rate of sixty percent of the total concealed income disclosed by the assessee was paid by him as contemplated under clause (i) of section 68(1). the wealth-tax officer, thereafter, reopened the assessments of the assessee to wealth-tax for the assessment years 1959-60 to 1964-65, on the ground that he had reason to believe that wealth of the assessee had escaped assessment for these assessment years. the belief of the wealth-tax officer was founded on the fact that, as disclosed by the assessee, the hundi transactions appearing in the books of account of the assessee were not genuine and they represented cash amounts with the assessee and, on the basis of the peak cash credits in each relevant previous year, the wealth-tax officer.....
Judgment:

Bhagwati, C.J.

1. This reference raises a short but interesting question of law relating to the construction of section 68 of the Finance Act, 1965. The question is not free from difficulty and it has caused us some anxiety to reach our conclusion. To appreciate the question, it is necessary to state a few facts giving rise to the reference.

2. The assessee is an individual and during the account years relevant to the assessment years 1959-60 to 1964-65, the assessee carried on business at Bombay, Dhoraji, Veraval and several other places. The assessments of the assessee to wealth-tax for the assessment years 1959-60 to 1964-65 were completed by the Wealth-tax Officer in due course on the basis of the returns submitted by the assessee. Now, it appears that there was a considerable amount of unaccounted income in circulation which was concealed from revenue authorities and this unaccounted income was a source of great mischief in the economy. The question as to how to mitigate this evil was a difficult and baffling question and it was seriously engaging the attention of the Government. The legislature had taken several measures to encourage voluntary disclosures of concealed income and these measures were partially successful in inducing voluntary disclosures particularly by persons having comparatively small and medium incomes to disclose. But they were not enough. The legislature, therefore, introduced section 68 in the Finance Act, 1965, with a view to encouraging voluntary disclosures of concealed income on a large scale. That section, omitting portions immaterial, provide :

' 68. (1) Where any person makes a declaration in accordance with sub-section (2) in respect of the amount representing Income -

(a) which he has failed to disclose in a return of income for any assessment year filed by him before the March 1, 1965, under the Indian Income-tax Act, 1922 (XI of 1922), or the Income-tax Act, 1961 (XLIII of 1961), or

(b) which has escaped assessment for any assessment year for which an assessment has been made before the March 1, 1965, under either of the said Acts, or

(c) for the assessment of which no proceeding under either of the said Acts has been taken before the March 1, 1965,

he shall, notwithstanding anything contained in the said Acts, be charged income-tax at the rate specified in sub-section (3) in respect of the amount so declared if he -

(i) pays the amount of income-tax as computed at the said rate, or

(ii) furnishes adequate security for the payment thereof in accordance with sub-section (4) and undertakes to pay such income-tax within a period, not exceeding six months, from the date of the declaration as may be specified by him therein, or

(iii) on or before the May 31, 1965, pays such amount as is not less than one-half of the amount of income-tax as computed at the said rate or furnishes adequate security for the payment thereof in accordance with sub-section (4), and in either case assigns any shares in, or debentures of a joint stock company or mortgages any immovable property, in favour of the President of India by way of security for the payment of the balance, and undertakes to pay such balance within the period referred to in clause (ii).

(2) The declaration shall be made to the Commissioner, and shall specify the period required to be specified under clause (ii) of sub-section (1), contain the name, address and signature of the person making the declaration and also full information in respect of the following matters, namel :-....

(b) The amount of income declared, giving where available, details of the financial year or years in which the income was earned and the amount pertaining to each such year.

(c) Whether the amount declared is represented by cash (including bank deposits), bullion, investments in shares, debts due from other persons, commodities, or any other assets, and the name in which it is held and location thereo :

Provided that the declaration shall be of no effect unless it is made after the February 28, 1965, and before the June 1, 1965.

(3) The rate of income-tax chargeable in respect of the amount referred to in sub-section (1) shall be sixty percent of such amoun :

(5) Any amount of income-tax paid in pursuance of a declaration made under this section shall not be refundable in any circumstances, and no person who has made the declaration shall be entitled, in respect of any amount so declared or any amount of tax so paid, to reopen any assessment or reassessment made under the Indian Income-tax Act, 1922 (XI of 1922), or the Income-tax Act, 1961 (XLIII of 1961), or the Excess Profits Tax Act, 1940 (XV of 1940), or the Business Profits Tax Act, 1947 (XXI of 1947), or the Super Profits Tax Act, 1963 (XIV of 1963), or the Companies (Profits) Surtax Act, 1964 (VII of 1964), or claim any set-off or relief in any appeal, reference, revision or other proceeding in relation to any such assessment or reassessment.

(6)(a) Any amount declared by any person under this section in respect of which the tax referred to in sub-section (3) is paid shall not be included in his total income for any assessment under any of the Acts mentioned in sub-section (5) if he credits in the books of account, if any, maintained by him for any source of income or in any other record, the amount declared as reduced by the tax paid thereon under this section...'

3. Taking advantage of this section, the assessee made a declaration voluntarily disclosing concealed income of Rs. 7,00,000 on May 31, 1965. The declaration contained a statement by the assessee that this concealed income was earned during the previous years relevant to the assessment years 1957-58 to 1964-65 and it was to be found in hundi transactions appearing in the books of account of the Bombay branch of the assessee. The assessee did not allocate the total concealed income amongst different assessment years but showed it in a lump-sum figure in the declaration. The amount of income-tax computed at the rate of sixty percent of the total concealed income disclosed by the assessee was paid by him as contemplated under clause (i) of section 68(1). The Wealth-tax Officer, thereafter, reopened the assessments of the assessee to wealth-tax for the assessment years 1959-60 to 1964-65, on the ground that he had reason to believe that wealth of the assessee had escaped assessment for these assessment years. The belief of the Wealth-tax Officer was founded on the fact that, as disclosed by the assessee, the hundi transactions appearing in the books of account of the assessee were not genuine and they represented cash amounts with the assessee and, on the basis of the peak cash credits in each relevant previous year, the Wealth-tax Officer sought to include progressively increasing amounts in the net wealth of the assessee in the assessment years 1959-60 to 1964-65. The assessee contended before the Wealth-tax Officer that the peak cash credits, which were sought to be included in the net wealth as concealed wealth of the assessee which had escaped assessment, represented concealed income which had been voluntarily disclosed by the assessee and if this concealed income was to be included in the computation of net wealth, the liability for income-tax in respect of such concealed income which was settled and paid at the rate of sixty percent under section 68 must be deducted in arriving at the real wealth of the assessee. This claim was, however, negatived by the Wealth-tax Officer and, on appeal, the Appellate Assistant Commissioner also rejected it. The assessee thereupon carried the matter higher in appeal to the Tribunal. The Tribunal took the view that the liability to pay income-tax on the concealed income arose by reason of the charging provision contained in section 3 of the Indian Income-tax Act, 1922, or section 4 of the Income-tax Act, 1961, and the latest date on which it must be said to have arisen was the last day of the relevant accounting year in which the concealed income was earned. There was nothing in section 68 of the Finance Act, 1965, said the Tribunal, which displaced this liability under section 3 of the Indian Income-tax Act, 1922, or section 4 of the Income-tax Act, 1961, or created a new liability for payment of income-tax which does not exist prior to the enactment of the Finance Act, 1965. The Tribunal pointed out that the liability to pay income-tax was always there by reason of section 3 of the Indian Income-tax Act, 1922, or section 4 of the Income-tax Act, 1961, and it was only in order to induce assessees to come forward to make voluntary disclosures of concealed income so that this existing liability to pay income-tax could be realised, that the legislature gave certain concessions to the assessees by enacting section 68 of the Finance Act, 1965. No new liability to pay income-tax was created by section 68 of the Finance Act, 196 : it merely provided for a concessional quantification of the existing tax liability with a view to bringing black money representing concealed income on the surface. The Tribunal accordingly accepted the contention of the assessee and held that 'in computing the net wealth of the assessee, income-tax paid by him on the disclosed income should be deducted from his total wealth during the respective previous years'. This view taken by the Tribunal is challenged in the present reference at the instance of the revenue.

4. There are two questions referred to us for our opinion but they deal with the same point, namely, whether in computing net wealth, the assessee is entitled to claim that the amount of tax paid by him on concealed income under section 68 of the Finance Act, 1965, is deductible as 'debt owed' by him on the relevant valuation date. The determination of this point depends on the true interpretation of the provisions of section 68 of the Finance Act, 1965, and their interaction with the provisions of the Income-tax Act. It is no doubt true that the charge to income-tax is imposed by section 3 of the Indian Income-tax Act, 1922, or section 4 of the Income-tax Act, 1961, and the liability to pay income-tax arises under that provision at the latest on the last day of the relevant account yea : Vide Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth-tax. But when the assessee voluntarily disclosed concealed income and pays income-tax on it under section 68 of the Finance Act, 1965, does he discharge this liability under section 3 of the Indian Income-tax, 1922, or section 4 of the Income-tax Act, 1961 Is the payment of income-tax on disclosed income under section 68 of the Finance Act, 1965, nothing else than a process of quantification of the liability charged under section 3 of the Income-tax Act, 1922, or section 4 of the Income-tax Act, 1961 If it is, the quantified amount of the liability measured by the amount of tax paid under section 68 of the Finance Act, 1965, would be 'debt owed' by the assessee on the last day of the relevant account year, that is, on the relevant valuation date. But we do not think that it is so.

5. If we examine the language of section 68 of the Finance Act, 1965, it is clear that it does not provide for quantification, at a concessional rate, of the liability under section 3 of the Indian Income-tax Act, 1922, or section 4 of the Income-tax Act, 1961, and payment of income-tax under section 68 is not in satisfaction of that liability. Sub-section (1) of section 68 provides that where any person makes a declaration in respect of the concealed income, he shall, notwithstanding anything contained in the Income-tax Act, be charged income-tax at the rate specified in sub-section (3) in respect of the concealed income so declared, if one of the three conditions specified in clauses (i) to (iii) is satisfied. The important words in sub-section (1) are 'charged income-tax'. These words show that sub-section (1) imposes a charge to income-tax on the concealed income disclosed by the assessee. Now, it may be argued that these words are used in the same sense in which the words 'income-tax shall be charged' are used in the various Finance Acts. They have reference to charge of income-tax under the Income-tax Act but that charge has to be made in accordance with the rate specified in sub-section (3). What sub-section (1) seeks to provide is that the disclosed income shall be charged to tax under the Income-tax Act not at the rate laid down in the Finance Act but at the rate specified in sub-section (3). The emphasis in sub-section (1) is on the prescription of the rate at which the income-tax is to be charged and not on charging, which is done by the Income-tax Act. But this argument cannot prevail because i is contrary to the provision of section 68 as also against the scheme of the Income-tax Act. In the first place, the charge under the Income-tax Act is on the total income of the previous year and not on any particular item of income. Section 3 of the Indian Income-tax Act, 1922, as also section 4 of the Income-tax Act, 1961, do not levy the charge of income-tax on a particular item of income. The concept of a charge on a particular item of income is completely alien to the Income-tax Act. In fact, it would be wholly inappropriate under the Income-tax Act to speak of quantification of tax liability on a particular item of income. The charge of income-tax referred to in sub-section (1) of section 68 cannot, therefore, be construed to mean charge of income-tax under the Income-tax Act. Secondly, payment of income-tax under section 68 has no reference to any assessment year. It is outside the pale of assessment for any particular assessment year. Clause (b) of sub-section (2) does contemplate that the assessee may give details of the financial year or years in which the disclosed income was earned and the amount pertaining to each year but that is expected to be given only 'where available' and, therefore, there may be cases - the present being one of them-where the disclosed income may not be related to any particular financial year or years. The chargeability to income-tax under the Income-tax Act would break down in such cases, because the whole basis of the charge under the Income-tax Act is the total income of the previous year and if the disclosed income is not related to any particular year or years, it cannot be included as part of the total income of a particular previous year so as to be brought to tax. Yet, under section 68, it would be chargeable to income-tax irrespective of the financial year or years in which it was earned. Thirdly, the disclosed income is chargeable to income-tax under section 68 without taking into account any deductions or allowances which would be permissible, if the charge were under the Income-tax Act. These three circumstances clearly show that section 68 is not intended to lay down a concessional rate at which income-tax may be charged under the Income-tax Act. It does not provide a method of quantification of the liability to income-tax under the Income-tax Act. It enacts a new charge to tax, on an ad hoc basis, on disclosed income irrespective of the assessment year in which it was earned. The disclosure of concealed income coupled with the payment of tax as contemplated in clause (i) of sub-section (1) not only creates a charge of tax but also satisfies it. So also, the disclosure of concealed income coupled with furnishing of security and undertaking as contemplated in clause (ii) creates a charge of tax and when the undertaking is carried out by payment of tax, the liability arising from the charge of tax is satisfied. And, similarly, the disclosure of concealed income coupled with payment of part of the tax or furnishing security for payment of the same and giving security and undertaking for payment of the balance as contemplated in clause (iii) creates a change of tax and when the amount of the tax is fully paid off, the liability arising from the charge of tax is satisfied.

6. Now, under the Income-tax Act, the disclosed income, when it comes to light, would be liable to be assessed as part of the total income for the assessment year in which it was earned. But once the disclosed income has borne tax under section 68, it would not be fair and just that it should be allowed to be taxed once again as part of the total income under the Income-tax Act. Sub-section (6) of section 68, therefore, provides that concealed income disclosed by an assessee under that section in respect of which tax referred to in sub-section (3) is paid shall not be included in his total income for any assessment under the Income-tax Act, provided he credits in the books of account maintained by him for any source of income or any other record, the amount of concealed income so disclosed as reduced by the tax paid on it. The condition requiring the assessee to credit the amount of concealed income disclosed by him minus the tax paid on it in the books of account is introduced so that the amount of concealed income disclosed by the assessee is brought to the surface by inclusion in the books of account and becomes easily identifiable. If this condition is satisfied, the concealed income disclosed by the assessee ceases to be liable to be included in his total income for the purpose of assessment under the Income-tax Act, because it has already borne tax under section 68. This item of income having been subjected to a distinct and separate process of assessment under section 68 is taken out of the purview of assessment under the Income-tax Act. This is emphasized again in sub-section (5) of section 68 which provides that income-tax paid on disclosed income under section 68 shall not be refundable in any circumstances, and the assessee shall not be entitled, in respect of any amount of disclosed income or any amount of tax so paid, to reopen any assessment or reassessment made under the Income-tax Act and other similar fiscal statutes or claim any set off or relief in any appeal, reference, revision or other proceeding in relation to any such assessment or reassessment. The concealed income disclosed by the assessee which has been subjected to tax under section 68 is wholly withdrawn from assessability under the Income-tax Act. It is to be treated as if it were not part of the total income assessable under the Income-tax Act. It is charged to tax separately under the distinct machinery provided by section 68 and when that happens, it ceases to be assessable as part of the total income of the previous year under the Income-tax Act. The tax paid on concealed income disclosed by the assessee under section 68 is, therefore, not in satisfaction of any liability under section 3 of the Indian Income-tax Act, 1922, or section 4 of the Income-tax Act, 1961. It is in satisfaction of a new liability to tax in respect of a particular item of income, namely, concealed income disclosed by the assessee, which arises for the first time under section 68 and, therefore, for the purpose of computing the net wealth of the assessee, it cannot be deducted as debt owed by him on the last day of the relevant account year in which such concealed income was earned. We find that the view we are taking is supported by a decision given by a single judge of the Kerala High Court in C. K. Babu Naidu v. Wealth-tax Officer, but we are unable to agree with the reasoning on which this decision is based. The problem does not appear to have been presented before the learned judge in its proper perspective and, therefore, with great respect to the learned judge, though we agree with the final conclusion reached by him, we do so far different reasons.

7. We accordingly answer both the questions referred to us for our opinion in the negative. The assessee will pay the costs of the reference to the Commissioner.


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