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V.N.S. Sockalingam Chettiar (Decd.) by L.R. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case Nos. 212 and 213 of 1966 (Reference Nos. 56 and 57 of 1966)
Judge
Reported in[1973]91ITR224(Mad)
ActsIndian Income Tax Act, 1922 - Sections 34 and 34(1); Wealth Tax Act
AppellantV.N.S. Sockalingam Chettiar (Decd.) by L.R.
RespondentCommissioner of Income-tax
Appellant AdvocateK. Srinivasan, ;D.S. Meenakshisundaram and ;K.C. Rajappa, Advs.
Respondent AdvocateV. Balasubrahmanyan and ;J. Jayaraman, Advs.
Cases ReferredS. Narayanappa v. Commissioner of Income
Excerpt:
direct taxation - assessment - sections 34 and 34 (1) of indian income tax act, 1922 and wealth tax act - in case there are in fact some reasonable grounds for income-tax officer (ito) to believe that there had been any non disclosure of any fact having material bearing ito justified in issuing notice under section 34 - whether such grounds adequate or not is not matter for court to investigate - existence of such belief can be challenged by assessee but not sufficiency of reasons for such belief - court at liberty to examine question whether reasons for belief have rational connection or relevant bearing to formation of belief - to limited extent action of ito in starting proceedings under section 34 is open to challenge in court of law. - - it derives income from property,.....ramaswami, j.1. the following five questions have been referred to us under section 66(1) of the income-tax act and section 27(1) of the wealth-tax act:' 1. whether, on the facts' and circumstances of the case, the reassessment made on the assessee-family for the assessment years 1951-52 to 1953-54, under section 34(1)(a) of the indian income-tax act, 1922, are valid in law ? 2. whether, on the facts and circumstances of the case, the inclusion and assessment to tax of the share income of rs. 37,374, rs. 52,203 and rs. 28,369 from kaloogala estate in ceylon in the hands of the assessee-family for the assessment years 1951-52, 1952-53 and 1953-54, respectively, are justified in law ? 3. whether, on the facts and in the circumstances of the case, the inclusion and assessment of the interest.....
Judgment:

Ramaswami, J.

1. The following five questions have been referred to us under Section 66(1) of the Income-tax Act and Section 27(1) of the Wealth-tax Act:

' 1. Whether, on the facts' and circumstances of the case, the reassessment made on the assessee-family for the assessment years 1951-52 to 1953-54, under Section 34(1)(a) of the Indian Income-tax Act, 1922, are valid in law ?

2. Whether, on the facts and circumstances of the case, the inclusion and assessment to tax of the share income of Rs. 37,374, Rs. 52,203 and Rs. 28,369 from Kaloogala Estate in Ceylon in the hands of the assessee-family for the assessment years 1951-52, 1952-53 and 1953-54, respectively, are justified in law ?

3. Whether, on the facts and in the circumstances of the case, the inclusion and assessment of the interest income of Rs. 9,839, Rs. 7,345 and Rs. 4,721 in the hands of the assessee-family for the assessment years 1959-60, 1960-61 and 1961-62, respectively, is justified in law ?

4. Whether, on the facts and in the circumstances of the case, the inclusion and assessment to wealth-tax of sums of Rs. 3,47,793, Rs. 3,18,667 and Rs. 3,57,826, respectively, the value of the share in Kaloogala Estate in the net wealth of the assessee's family, for the assessment years 1958-59, 1959-60 and 1960-61, respectively, is valid in law ?

5. Whether, on the facts and in the circumstances of the case, the inclusion of the share from the Kaloogala Estate with that of the assessee-family in the assessment of 1950-51 was not justified '

The first four questions have been referred at the instance of the assessee and the fifth question at the instance of the Commissioner of Income-tax, Madras.

2. The assessee is a Hindu undivided family, and V. N. S. Sockalingam Chettiar is the karta of the family. It derives income from property, money-lending business at Rangiem in India and dividends from shares in companies as well as from business carried at Muar, Bathupahat, Kulakang-sar in Malaya and at Kyanapyaw and Basein in Burma. In the course of assessment proceedings of Sockalingam Chettiar as individual for the assessment year 1949-50, an enquiry was made by the Income-tax Officer as to the ownership of 5/16th share in an Estate called Kaloogala in Ceylon. The estate was purchased in 1941 by three partners of which Karuppan Chettiar and Nagappan Chettiar, who are the son-in-law and brother's son respectively, of Sockalingam Chettiar are two partners. In the books of Kaloogala Estate there was a credit in the name of Sockalingam Chettiarfor Rs. 1,03,750 as towards his 5/16th share with the narration that the said amount was received through Karuppan Chettiar, his son-in-law. Since one of the questions in this case relates to whether the assessee, the Hindu undivided family, was the 3rd partner or whether Sockalingam Chettiar was shown as a partner representing his wife, Meenakshi Achi, we will not refer at this stage as to who the 3rd partner is.

3. In response to the Income-tax Officer's letter, Sockalingam Chettiar filed an affidavit, dated March 28, 1951, in which he stated that the capital of the partnership of Kaloogala Estate was contributed out of his wife, Meenakshi Achi's own funds, and that no part of the family funds had been used for the investment in this partnership business. He further stated that his wife had been lending monies out of her streedhanam and seermurai monies and that out of these monies the capital was contributed. He added that he was not willing to join as a partner when his son-in-law, Karuppan Chettiar, enquired of him and that since his wife showed willingness to have a share in the partnership he thought it better to invest the money of his wife in the partnership. The reason he gave for investing the monies of his wife in his own name in the partnership instead of in his wife's name was that at that time there were some difficulties in purchasing properties in the name of women or taking women as partners under the Ceylon law. In the end he stated that the share in the Kaloogala Estate and the income thereof belonged to his wife, Meenakshi Achi, only. The following further materials were also placed before the Income-tax Officer to show that Meenakshi Achi was possessed of adequate resources of her own and that the share in the estate belonged to her :

1. A cadjan leaf inscription recording that her father, Palaniappa Chettiar, had gifted her a sum of Rs. 15,043-8-0 on the 8th Ani, Pingala (June 21, 1916):

2. Testimony of the two other sons-in-law of Palaniappa Chettiar that Meenakshi Achi was given a dowry of Rs. 15,000.

3. A copy of the account of Meenakshi Achi in the books of a firm by name, N. V. N. Firm, Kyanapyaw, Burma, for the year Sukla (1929-30) showing a credit balance in her favour of Rs. 24,713.

4. Acknowledgment for money lent by her to certain parties in Rangiem Taluq,

5. Affidavit by Karuppan Chettiar and Nagappan Chettiar that the investments in Kaloogala Estate had come out of Meenakshi Achi's resources and that she had given money to them personally.

6. An affidavit dated April 29, 1951, signed by Sockalingam Chettiar's second wife, Chintamani Achi, stating that she and her daughters had no title or interest in the Kaloogala Estate, that Meenakshi Achi along with Nagappan Chettiar and Karuppan Chettiar purchased the Kaloogala Estate,that Meenakshi Achi paid for her share out of the streedhanam money and that the share income of Kaloogala Estate belonged to the sons of Meenakshi Achi.

7. A letter of the assessee's auditor, dated November 19, 1951, in reply to an enquiry made by the Income-tax Officer dated October 24, 1951, in which it had been stated that as per the custom prevailing among Nattukottai Chettiars even in respect of streedhanam properties only the sons are entitled to inherit and not daughters. It was further stated in this letter that as the streedhanam monies were kept by Meenakshi Achi and had been handled by her during her lifetime Sockalingam Chettiar had no occasion to maintain any account for this.

8. Affidavits signed by the four daughters of Sockalingam Chettiar affirming that they have no interest in the Kaloogala Estate and that Meenakshi Achi's streedhanam amount was invested for the purchase of Kaloogala Estate; and

9. Ceylon assessment orders of Sockalingam Chettiar for the years 1945-46 to 1947-48.

The Income-tax Officer was satisfied with the evidence produced by the assessee and accepting the contention of the assessee assessed the share income from Kaloogala Estate in the hands of Sockalingam Chettiar as individual for the years 1949-50 to 1953-54. The assessment of the Hindu undivided family for 1949-50 was completed on November 25, 1952, but the share income from Kaloogala Estate was not included therein. Similar assessments were made for the subsequent years up to and including 1958-59.

4. In September, 1956, the Kaloogala Estate was sold. The assessee's share of the sale proceeds was invested in fixed deposit in the Indian Overseas Bank, Colombo. Interest income from the fixed deposit in the previous years relevant for the assessment years 1959-60 to 1961-62 was Rs. 9,839, Rs. 7,345 and Rs. 4,721, respectively. On September 22, 1958, the Income-tax Officer once again examined on oath Nagappan Chettiar, the brother of Sockalingam Chettiar. In that evidence he stated that Sockalingam Chettiar was the partner and owner of the 5/16th share in the Kaloogala Estate and not Meenakshi Achi. He further deposed that Meenakshi Achi came from a very ordinary family and with not much of resources and that, therefore, Meenakshi Achi could not have contributed any money for the purchase of the estate. The Income-tax Officer also examined on the same day, Chidambaram Chettiar, son of Nagappan Chettiar, who also confirmed the evidence of Nagappan Chettiar. On September 25, 1958, Karuppan Chettiar, the other partner in Kaloogala Estate, was examined by the Income-tax Officer. He also affirmed the evidence of Nagappan Chettiar. Both Nagappan Chettiar and ChidambaramChettiar, were cross-examined by the assessee on November 20, 1958, through his counsel and elicited that their statements that the share in Kaloogala Estate belonged to Sockalingam Chettiar was only a hearsay and that they did not know it personally. When the earlier statement dated June 23, 1951, made by Nagappan Chettiar was put to him in cross-examination he had stated that he said so because Sockalingam Chettiar required him to state like that and that since he was his paternal uncle he had obliged him. He asserted that there was no misunderstanding between him and Sockalingam Chettiar. The assessee was examined on December 6, 1958. He was not able to give any definite information as to the extent of the business carried on by his father-in-law but asserted that his wife was given Rs. 7,000 and odd as streedhanam and Rs. 5,000 as seermurai and that his wife invested the same in some firms through- the assessee's elder brother, Valliappa Chettiar. On February 26, 1959, Karuppan Chettiar, who was a partner in Kaloogala Estate and who was also the son in-law of the assessee was again examined. In his evidence he stated that Sockalingam Chettiar paid the share capital for the purchase of the share in Kaloogala Estate by means of a draft for Rs. 50,000 from Muar on Hong-kong and Shanghai Bank and another sum of Rs. 31,250 by means of a draft on the State Bank from Tiruchirapalli through Nagappan Chettiar, brother of the assessee. He was specifically asked whether he received cash for the purchase of Kaloogala Estate. But he denied having received any cash and asserted that he received the money only by drafts and that his account book would prove the same. It may be remembered that in the earlier statement of Karuppan Chettiar given by him on July 2, 1951, he had stated that at the time of purchase of the Kaloogala Estate his mother-in-law (Meenakshi Achi) gave him money telling him to give ashare and that the money was given in cash. In spite of an opportunity given to the assessee he did not cross-examine Karuppan Chettiar on this statement that he received only drafts from Sockalingam Chettiar and not cash from Meenakshi Achi.

5. On the above fresh evidence available, the Income-tax Officer issued a notice on March 19, 1959, under Section 34 of the Income-tax Act to Sockalingam Chettiar as representing his family proposing to reopen the assessment for 1950-51 to 1953-54. In response to the notice the assessee filed returns showing the income as originally assessed. In Schedule D of the returns he had shown the share income from Kaloogala Estate. The Income-tax Officer completed the assessment for 1950-51 alone and passed a revised assessment order under Section 34 on February 29, 1960, probably because the period of limitation was about to end. In this assessment order, the Income-tax Officer came to the conclusion that Meenakshi Achi never carried on any money-lending business in her lifetime, that the assesseewas not able to prove the financial status of Meenakshi Achi and that no proof had been adduced that the funds alleged to have been loaned to several parties belonged to her and not to Sockalingam Chettiar. He also held that the money sent from Muar to India must have come out of the Hindu undivided family as Sockalingam Chettiar did not have any individual business of his own abroad. The Income-tax Officer further relied on the fact that the assessee never disclosed the important material relating to the despatch of the two drafts from Muar to Ceylon for the purchase of the share in Kaloogala Estate and that Karuppan Chettiar, the son-in-law, had deposed that he never took money personally from India from his mother-in-law and he received the money only in Ceylon by drafts as stated above. He also referred to the circumstance that no estate duty had been paid in Ceylon on the death of Meenakshi Achi.

6. The Income-tax Officer continued the investigation and some time in March, 1961, got the Oor account and the Muar account of Nagappan Chettiar, the brother of Sockalingam Chettiar. It was seen from these accounts that from the firm of Nagappan Chettiar at Muar some monies were remitted from and out of the amounts payable to the assessee and these amounts were sent by two drafts for Rs. 46,750 and Rs. 31,250. These accounts also showed the contribution of Nagappan Chettiar himself of a sum of Rs. 1,24,500 towards the cost of Kaloogala Estate. The account books produced also were produced before the Income-tax Officer, Pudukottai, on March 4, 1951, and they bear the seal of the Income-tax Officer. These facts were put to the assessee and he was given an opportunity to examine Nagappan Chettiar but the assessee did not avail of the opportunity. By a letter dated March 26, 1961, signed by his authorised representative, Sockalingam Chettiar denied that any draft drawn on Hongkong and Shanghai Bank was sent by him from Muar or that he took any loan from Nagappan Chettiar through Muar firm in connection with the purchase of Kaloogala Estate and that since the books relating to the foreign business for the years 1939-41 were not available it would not be possible for him to assert whether as a fact any demand draft was sent or any loan was taken from Nagappan Chettiar. The Income-tax Officer came to a finding that the account books of Nagappan Chettiar and the other evidence proved that the assessee's family advanced the consideration required for the purchase of a share in the Kaloogala Estate and that, therefore, the income arising therefrom had to be assessed in the name of the Hindu undivided family. He, accordingly, reopened the assessments for the years 1951-52 to 1953-54 and included the share income from Kaloogala Estate in the assessments of the assessee-family. For the same reasons in the assessments for 1959-60 to 1961-62 the interest from the sale proceeds of Kaloogala Estate were also included inthe assessments of the assessee-family. The value of the share was included in the net wealth of the assessee-family for the assessment years 1958-59 to 1960-61.

7. The assessee preferred appeals to the Appellate Assistant Commissioner against the said assessments challenging the validity of inclusion of the assessee's income from Kaloogala Estate and interest on fixed deposits and the value of the shares in the net wealth in the hands of the assessee-family. The Appellate Assistant Commissioner held that the latter statements of Karuppan Chettiar and Nagappan Chettiar were supported by the extracts from the books of Nagappan Chettiar and that these constituted fresh information which had come into the possession of the Income-tax Officer and that, therefore, the action of the Income-tax Officer in invoking the provisions of Section 34(1)(a) was justified. He was also of the view that the latter statement of Karuppan Chettiar and the entries in the books of Nagappan Chettiar proved that the contribution towards Sockalingam Chettiar's share in Kaloogala Estate must have come from the assessee-family and that, therefore, the inclusion of the share income from Kaloogala Estate and the interest from the fixed deposits, which represent the sale proceeds of the share in Kaloogala Estate, in the assessment of the assessee-family was justified. For the same reasons, he also dismissed the appeals filed against the wealth-tax assessment orders. The assessee preferred further appeals to the Appellate Tribunal which disposed of all the appeals by a common order dated September 21, 1964. The Tribunal held that the assessee did not disclose all the primary facts in connection with the original assessments for the years 1950-51 to 1953-54, that Socka-lingam Chettiar studiously kept back the facts as to how the payments were made for this purchase and that Karuppan Chettiar knew that the payments were made by drafts from Muar from and out of the amounts belonging to the family of the assessee, but he was made to say that he received the amount in cash from Meenakshi Achi. Thus, in the view of the Tribunal, the assessee put the department on a wrong scent altogether. The Tribunal was also of the view that the assessee could have proved his version by production of his foreign books, but he had satisfied himself by stating that the books were not available. On these facts, the Tribunal came to the conclusion that the assessee failed to disclose very material facts which had a bearing on the assessment and, therefore, the Income-tax Officer was justified in reopening the assessment under Section 34. On the question whether there was any evidence to show that the amount utilised for the purchase of the share in Kaloogala Estate came from the funds of the family, the Tribunal was of the view that there was paucity of evidence to support the case that the consideration for the purchase came from Meenakshi Achi's funds and that the evidence now available stronglyindicated that it should have come out of the funds of the assessee-family. The Tribunal relied on the fact that there are entries in the headquarters account books of Nagappan Chettiar and his account books at Muar which corroborated the latter statement of Karuppan Chettiar and proved that the consideration came from the family funds of the assessee and that the same was remitted to Karuppan Chettiar by drafts and not cash. The Tribunal was also not satisfied with the explanation of the assessee that the books of the assessee-family maintained at Muar had been lost. On these findings, the Tribunal held that the funds of the joint family represented by Sockalingam Chettiar had been used in the purchase of the share in Kaloogala Estate and that, therefore, the inclusion of the share income and the interests from fixed deposit in the assessments of the assessee-family was justified in respect of the assessment years 1951-52 to 1953-54 and 1959-60 to 1961-62.

8. In respect of the assessment year 1950-51, though the Tribunal held that the initiation of the proceedings under Section 34 was justified, since the material by way of entries in the account books of Nagappan Chettiar which corroborated and clinched the latter statement of Karuppan Chettiar was not available at the time of completion of the assessment on February 29, 1960, the inclusion of the share income from the Kaloogala Estate for the assessment year 1950-51 could not be sustained. In that view the Tribunal ordered the deletion of the share income in the revised assessment for the year 1950-51. In view of the above findings of the Tribunal, the appeals filed against the wealth-tax assessments were also dismissed.

9. In these references, the learned counsel for the assessee strenuously contended that the assessee had placed all the primary and material facts before the Income-tax Officer in the course of the original assessment proceedings for 1949-50. The material fact that was necessary for the determination of the question was : ' What was the source of money for the purchase of the share in Kaloogala Estate ' The assessee had stated that Meenakshi Achi's money was utilised for the purchase and not the joint family funds and in support of that statement he had produced evidence to show that Meenakshi Achi was possessed of means and also affidavits from the partners of Kaloogala Estate, the daughters and the second wife of Sockalingam Chettiar and two other sons-in-law of Palaniappa Chettiar, the father of Meenakshi Achi. The assessee also produced the Ceylon assessment orders in the name of Sockalingam Chettiar as ' individual ' for the assessment years 1945-46 to 1947-48. Sockalingam Chettiar was also not required to produce the account books of Kaloogala Estate at that time if the Income-tax Officer was not satisfied with his statements. The fact as to whether the amount was sent by cash or draft was immaterial. Further, Karuppan Chettiar and Nagappan Chettiar are not expectedto know from which source the purchase consideration came and even the latter statements of these two individuals were not clear and unequivocal. Nagappan Chettiar and Karuppan Chettiar who filed the earlier statements could have been cross-examined by the department in 1951, if the department did not want to rely on their statements. Therefore, the assessee had not failed to place all the material facts before the original assessing authority and there is no justification for reopening the assessment, on the basis of contradictory statements now made by Karuppan Chettiar and Nagappan Chettiar. This, in short, is the argument of the learned counsel for the assessee against invoking the provisions of Section 34(1)(a) of the Indian Income-tax Act, 1922.

10. In the original assessment proceedings, the assessee pleaded that it was with Meenakshi Achi's funds the share in Kaloogala Estate was purchased, in spite of the fact that the assessee was shown as a partner of the Kaloogala Estate and Sockalingam Chettiar had no separate source of income of his own apart from the joint family income. He produced evidence in support of his case by way of affidavits from Karuppan Chettiar and Nagappan Chettiar, the other two partners of the firm, and supporting affidavits from his second wife and her four daughters. He also produced some affidavits and documents to show that Meenakshi Achi was doing money-lending business and she had enough funds from and out of which she could have contributed for the purchase of the share in the Kaloogala Estate. The Income-tax Officer believed these affidavits and statements. There was no need for him to suspect at that time that the statements and affidavits were not true. But the subsequent statements dated September 25, 1958, and February 26, 1959, of Karuppan Chettiar showed that the consideration for the sale was received by him by drafts through Nagappan Chettiar from Muar firm and not by cash from Meenakshi Achi. To a specific question as to whether he received any amount by way of cash, he asserted that he did not receive cash and stated that his account books are the proof for receipt of the money by drafts from Nagappan Chettiar. In particular, Karuppan Chettiar stated that a draft for Rs. 50,000 from Muar on Hongkong and Shanghai Bank, and another draft for Rs. 31,250 on the State Bank, Tiruchirapalli, were received by him through Nagappan Chettiar and the draft for Rs. 31,250 represented a sum of 20,000 Muar dollars given to Nagappan Chettiar by Sockalingam Chettiar in Muar. No explanation was offered by Sockalingam Chettiar in respect of this statement. Karuppan Chettiar was also not cross-examined on these statements by Sockalingam Chettiar, This fact was within the knowledge of the assessee at the time of the original assessment proceedings but he kept it back and, according to Karuppan Chettiar, he was asked by Sockalingam Chettiar to state in the original assessment proceedings that he receivedmoney in cash from Meenakshi Achi. The assessee also did not produce his account books to disprove the statement of Karuppan Chettiar. The evidence that the consideration was received by Karuppan Chettiar from Muar by way of drafts and not in cash from Meenakshi Achi had a very important bearing on the question whether the share in the Kaloogala Estate was purchased from and out of Meenakshi Achi's funds, because, admittedly, Sockalingam Chettiar had no individual business or account of his own in any foreign place and all the business done by Sockalingam Chettiar in foreign parts belonged to the joint family of the assessee. Therefore, the funds remitted from Muar could not have come from and out of the individual account of Sockalingam Chettiar or the monies belonging to Meenakshi Achi.

11. The statement of the other partner, Nagappan Chettiar, in the original assessment proceedings was that the share in the Kaloogala Estate belonged to Meenakshi Achi. But in the present statement given by him on September 22, 1958, he had stated that the share belonged to Sockalingam Chettiar and not Meenakshi Achi. In cross-examination, Nagappan Chettiar stated that he was asked by Sockalingam Chettiar to state that the share in the Kaloogala Estate belonged to Meenakshi Achi and that the present statement that it belonged to Sockalingam Chettiar was also hearsay. The truthfulness of the evidence relating to the financial status of Meenakshi Achi and her doing money-lending business given at the time of original proceedings has been made doubtful by the subsequent evidence of Nagappan Chettiar and Karuppan Chettiar, who are the brother's son and son-in-law of Sockalingam Chettiar. The evidence of Sockalingam Chettiar given on Decemoer 6, 1958, was also not very helpful because he stated first that he did not know whether Meenakshi Achi had kept any account of her own, but later asserted that she never kept any account of her own, though it was claimed that she had large business to the tune of Rs. 70,000 to Rs. 80,000. The Income-tax Officer also referred to another circumstance that no evidence has been produced to show that any estate duty had been paid in Ceylon on the death of Meenakshi Achi. The above facts certainly constituted fresh information or new material which showed that the original information given by the assessee was not full or fully true. Section 34 of the Income-tax Act clearly casts a duty on the assessee to disclose all the material facts which would help the Income-tax Officer in coming to a correct conclusion. If the original statements were not true in full or in part it is certainly not a disclosure much less a true and full disclosure. Such disclosure as had been made in the original assessment proceedings would only tend to mislead the authorities. Further, the Income-tax Officer considered on these facts that there had been an omission or failure on the part of the assessee to disclose fully and trulyall material facts necessary for the assessment. It is not open to the courts to question the adequacy of the grounds. In this connection, we may usefully refer to the following passage in Calcutta Discount Co, v. Income-tax Officer, : [1961]41ITR191(SC) :

'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 ' under assessment', 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 non-disclosure 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 nondisclosure 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 nondisclosure.'

Again, the Supreme Court reiterated the same principle in the decision in S. Narayanappa v. Commissioner of Income-tax, : [1967]63ITR219(SC) and held :

'But the legal position is that if there are in fact some reasonablegrounds for the Income-tax Officer to believe that there had been any nondisclosure as regards any fact, which could have a material bearing onthe question of under assessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under Section 34.Whether these grounds are adequate or not is not a matter for the courtto investigate. In other words, the sufficiency of the grounds whichinduced the Income-tax Officer to act is not a justiciable issue. It is ofcourse open for the assessee to contend that the Income-tax Officer did nothold the belief that there had been such non-disclosure. In other words,the existence of the belief can be challenged by the assessee but not thesufficiency of the reasons for the belief. Again, the expression ' reason tobelieve' in Section 34 of the Income-tax Act does not mean a purelysubjective satisfaction on the part of the Income-tax Officer. The beliefmust be held in good faith; it cannot be merely a pretence. To put itdifferently, it is open to the court to examine the question whether thereasons for the belief have a rational connection or a relevant bearing tothe formation of the belief and are not extraneous or irrelevant to thepurpose of the section. To this limited extent, the action of the Income-tax Officer in starting proceedings under Section 34 of the Act is open to challenge in a court of law.'

In the foregoing circumstances, we are of the view that the Income-tax Officer was justified in reopening the assessment under Section 34 of the Act.

12. The next question for consideration is whether the evidence now available disclose that the share of Kaloogala Estate belonged to the assessee-family and the inclusion of the share income therefrom in the assessment of the joint family for the assessment years 1951-52 to 1953-54 was justified. The findings of the Tribunal on facts were these : Meenakshi Achi might or might not have had large sums of money. But there is paucity of evidence to support the case of the assessee that with Meenakshi Achi's funds only the share in the estate was purchased. Karuppan Chettiar's subsequent statements, dated September 25, 1958, and February 26, 1959, were acceptable in preference to his earlier statement in the original assessment proceedings and this evidence of Karuppan Chettiar strongly indicates that the consideration for the purchase of the share in the estate should have come out of the funds of the assessee-family. The entries in the Oor account (headquarters account) and the Muar account of Nagappan Chettiar which were produced before the Income-tax Officer in March, 1961, disclosed that a sum of Rs. 31,250 equivalent to 20,000 Muar dollars was given to Sockalingam Chettiar by Nagappan Chettiar's firm at Muar and the same was sent by Nagappan Chettiar's firm at Muar and the same was sent to Karuppan Chettiar by Nagappan Chettiar himself by draft. Another sum of Rs. 46,750 on account of Sockalingam Chettiar was sent by a draft on the Imperial Bank, Tiruchirapalli, from Muar, to Karuppan Chettiar at Ceylon. There are corresponding entries both in the Oor account and the Muar account. It was admitted that there was no individual account in any foreign parts and that all the business in the foreign parts belonged to the assessee-family. The books of Nagappan Chettiar were produced before the income-tax department in March. 1951, and they bear the seal of that department. The assessee also had not categorically impugned these entries and had not also offered any explanation for the same. These entries corroborate the statement of Karuppan Chettiar that he received consideration for the purchase of the share in the estate by drafts from Muar. The Tribunal was also of the view that the explanation of the assessee for non-production of his account books on the ground that they had been lost was not acceptable and that they were withheld as the production would go contrary to the assessee's version. On these facts found by the Tribunal which are not open to question in the hearing of a reference under Section 66 of the Act, the inference follows that the funds of the joint family represented by Sockalingam Chettiarhad been used in the purchase of a share in Kaloogala Estate. Therefore, the inclusion and the assessment to tax of the share income from Kaloogala Estate in Ceylon in the hands of the assessee-family for the assessment years 1951-52 to 1953-54, the inclusion and assessment of the interest from the fixed deposits which represented the sale consideration of the estate in the hands of the assessee-family for the assessment years 1959-60 to 1961-62 and the inclusion and assessment to wealth-tax of the value of the share in Kaloogala Estate in the net wealth of the assessee-family for the assessment years 1958-59 to 1960-61 are all justified and valid in law.

13. So far as the assessment for the year 1950-51 is concerned, though the Tribunal held that the initiation of the proceedings under Section 34 in respect of that year was justified there was no material at the time of completion of the assessment to show that the money had come out of the coffers of the family. As seen already, the account books of Nagappan Chettiar's business at Muar and in India were available to the department only in March, 1961. These account books were not available on February 29, 1960, when the reassessment under Section 34 was completed in respect of the assessment year 1950-51. Of course, the evidence of Karuppan Chettiar was available even at the time of assessment for the year 1950-51. But a reading of the order of the Tribunal shows that that evidence of Karuppan Chettiar strongly indicated that the consideration for the purchase of the share in the Kaloogala Estate should have come out of the funds of the assessee-family. This evidence, by itself, probably, the Tribunal thought, was not enough to conclude that the consideration came only from the joint family funds. It is because of this, the Tribunal thought that complete evidence was not available on the day when the assessment for 1950-51 was completed and that, therefore, the share income from Kaloogala Estate could not be included in the assessment for the assessment year 1950-51. We are not persuaded to hold that the Tribunal was wrong in this finding. We, therefore, hold that the inclusion of the share income from the Kaloogala Estate with that of the assessee-family in the assessment year 1950-51 was not justified.

14. In the result, we answer the first four questions set out in the beginning of our judgment in the affirmative and in favour of the revenue andthe last question against the revenue. The Commissioner of Income-taxwill be entitled to his costs in T.C. 212/66 and the assessee will be entitledto his costs in T.C. 213/66. Counsel's fee is fixed at Rs. 250 in each of thesecases.


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