SRINIVASAN J. - The assessee in the present case is a non-resident. In the previous years relevant to the assessment years 1942-43, 1945-46 and 1946-47, he was a permanent resident of the former Hyderabad State. He was in receipt of income from the taxable territories and it is common ground that this income was being duly assessed. It would appear that the assessee was carrying on a business in abkari contracts, oil mills, etc., in the Hyderabad State. The original assessment for the year 1942-43 was completed on March 29, 1943, on a total income of Rs. 43,454 and the total world income of Rs. 1,18,286. The exact figures of the original assessments in respect of the other two assessment years are not on record, but, as stated already, that he was assessed on the basis of the income derived from the taxable territories at the rate applicable to him total world income as disclosed is not denied. It would appear that, subsequently, examination of his account books, which, it may be mentioned, had been submitted in connection with the original assessments, resulted in the disclosure that certain items of income, to which reference will presently be made, had been omitted to be shown and included. These incomes were incomes derived outside the taxable territories and their inclusion has relevance only for the purpose of fixing the rate of tax. Accordingly notice was issued to the assessee section 28(3) of the Act calling upon him to show cause why penalty proceedings under section 28(1)(c) of the Act should not be taken. The assessee submitted his explanation and his principal contention was that in respect of these sources of income, he did not actually receive those incomes in the relevant years of account but only long afterwards. He pointed out that the existence of these sources of income was apparent from the accounts that he submitted and that in fact he had returned such of those incomes as arose outside the taxable territories for the purpose of fixing the rate of tax. He claimed that there was no concealment of the particulars of his income or deliberate furnishing of inaccurate particulars of his income which would justify action under section 28(1)(c). The Income-tax Officer however took the view that the assessee could and should have disclosed his income from the sources in question. The explanation for failure to furnish particulars of those incomes was not accepted. The result was that the Income-tax Officer imposed penalties of Rs. 600, Rs. 4,000 Rs. 8,000 for the three assessment years in question.
There were appeals to the Appellate Assistant Commissioner. The appellate authority held that the appellant 'had not been successful in establishing that he had not concealed the above sources deliberately for the years under appeal'. In the further appeals to the Tribunal, the Tribunal concluded that the explanations advanced by the assessee were not adequate enough to justify the failure to include the incomes in the returns and that there was definite concealment of the items in question. But the Tribunal thought that there were certain extenuating facts, inasmuch as all the ex-India sources 'appear in the very books of the various years which had been produced before the income-tax authorities in support of the returns and it is only from those very books that the items of concealment have been detected.' In the result, while penalty for the year 1942-43 was sustained at Rs. 600, the penalties for the other two years were reduced to Rs. 2,000 and Rs. 4,000 respectively.
The application of the assessee under section 66(1) of the Act failing, on an application to this court under section 66(2) of the Act, the Tribunal was directed to state a case and refer the following questio : 'Whether, on the facts and the circumstances in the case, the imposition of the penalties of Rs. 600, Rs. 2,000 and Rs. 4,000 was valid?' for the determination of this court.
At the outset Mr. Srinivasan, learned counsel for the assessee, contended that the incomes which are changed with having been concealed are incomes which arose outside the taxable territories and would not form part of the total income of the assessee. According to the learned counsel, the Income-tax Officer is competent only to compute the total income of the assessee, that is, the income which arises in the taxable territories, and that he is not competent to make a computation of the total world income. In this view, it is claimed that even the non-inclusion of certain items of income arising outside the taxable territories would not amount to concealment attracting section 28 of the Indian Income-tax Act. It seems to us that this contention cannot be accepted. It is undeniable that in the case of a person who is in receipt of income both within and without the taxable territories, though the latter part of the income is not subjected to tax under the Indian Income-tax Act, the income derived within the taxable territories is liable to tax at a rate dependent upon the total world income. While section 28(1)(a) deals with the failure to furnish the return of his total income section 28(1)(c) does not qualify the expression 'income' by the word 'total'. It only states 'has concealed particulars of such income'. It would, therefore, appear that the expression 'income', which is not qualified in any manner indicated, occurring in section 28(1)(c), is capable of a larger construction so as to include the total world income. The quantum of penalty prescribed by the section also refers to the amount of income-tax and super-tax, if any, which would be avoided if the income as returned by such person had been accepted as the correct income. In the case of a non-resident, the income which calls for computation for the assessment of the correct amount of tax falls under two heads - total income and total world income. It is true that under section 17 of the Act, a non-resident can be taxed on his total income at the maximum rate, failing the exercise of the option given to the non-resident by the proviso under section 17(1) of the Act to have his income assessed with reference to his total world income. But when a non-resident submits a return of his total income and also furnishes particulars of his total world income, the assessing authority cannot leavy the tax and the super-tax upon such person at the maximum rate in the one case or at the rate of nineteen per cent. in the other. There is an invitation on the part of the assessee to assess the total income on the basis of the total income, particulars of which he purports to furnish, and if that be the position, it should follow that any concealment of particulars of the total world income is an much a concealment of his income for the purpose of section 28(1)(c) as a concealment of any particular of his total income. We are not therefore disposed to accept this argument that the Income-tax Officer has no right to compute the total world income and, consequently, there can be no question of any concealment of any part of the total world income.
We shall now deal with the particular items of omission charged against the assessee. With regard to the assessment year 1942-43, the alleged concealment is in respect of interest on Government securities - Rs. 2,926, and the share income in two factories of Khammampet and Nizampet - Rs. 17,275. These two items also figure in the other two assessment years as deliberate omissions and what we say with regard to these items in this connection are applicable to the other years as well.
The assessee was carrying on abkari contracts in the Hyderabad State. He held certain Government promissory notes. These promissory notes had been furnished as security to the abkari department for the due and proper compliance with the terms of the contract. The income in question was received by the assessee only in 1947, and this interest was the accumulated interest for the several preceding years. In his explanation the assessee stated that he was asked about his income from outside British India for being included in the world income for determining the rate of tax and that he gave particulars of income which the actually received. He was maintaining the accounts in the accustomed manner of crediting or debiting when sums are received from parties and when accounts are settled in partnership. In the case of the interest on securities, he stated that the securities had been given over to the Excise Commissioner and were duly endorsed in his favour as security for due performance of the abkari contracts. The interest that he actually received was Rs. 1,717-9-6 in Fasli 1347. This was included in the 1939-40 assessment. In the subsequent years, on interest was paid to him. He was not even aware whether the Excise Commissioner had collected the interest at the end of each year. It was only in Fasli 1356 that the Excise Commissioner informed him that he had collected interest. Such interest as was paid to him was accordingly brought to account only on the date of receipt, that is, in the year 1947. He stated also that this amount is included in his return of income submitted for 1947-48, even on the a date before the notice under section 28 was issued to the assessee.
We are unable to find anywhere in the orders of the officers and the Tribunal anything that goes to discredit the above explanation. It is not apparently denied by the department that this interest was received by the assessee only some time in the year 1947. The Income-tax Officer, while apparently not denying the truth of the assessees explanation, state :
'Whether this may be, the assessee was the owner of the securities and the interest accrued to him at the end of each half year. It was therefore unnecessary for him to wait for any accounts being rendered by the Excise Commissioner. He could and should have disclosed his income from interest on securities......'
Nor did the Appellate Assistant Commissioner examine the contention of the assessee with any greater care. Before the Tribunal it was pointed out that by virtue of the endorsement in favour of the abkari department, the abkari department collected the interest - it is not even known when such interest was collected - and that it was only in 1947 that they paid the interest collected to the assessee. It was also urged before the Tribunal that the assessee was maintaining the accounts on the cash basis and could not conceivably under the circumstances stated display in his accounts any portion of the income. The Tribunal characterised this argument as untenable and only state :
'The assessee more or less has admitted the omission when he promised to return the interest in the later years which he actually did on July 23, 1947. There has been concealment on this score in all the three years presently under appeal.'
We are not satisfied that this is the proper method of approach or that there has been proper evaluation of the real position, the more so in a proceeding where penal consequences are involved. The assessee pointed out that he had endorsed the securities in favour of the abkari department. Obviously, the endorsement creates a right in the endorsee to recover both the principal and interest on the promissory notes. Actually it would be within the powers of the abkari department by way of penalty for any breach of the contract to forfeit the securities. The endorsement created a right in the abkari department to recover the interest. Unless and until the abkari department paid over the interest to the assessee, whatever claims the assessee might have got in respect of the interest, it cannot be said that he received that amount of interest. Nor under the circumstances are we able to hold that this interest had accrued to the assessee by way of income. It really accrued to the endorsee, the abkari department. It was also pointed out by the assessee in his explanation that even in 1947, when the interest was paid over to him, the department did not furnish him with any details of deduction of tax at source. Having regard to all these circumstances, we are not satisfied that the assessee, whatever rights he might have had to this amount of interest in the hands of the abkari department, was guilty of concealment of this income. There has been to our minds a gross misappreciation of the surrounding circumstances by the Tribunal.
The next item relates to the share income of the assessee in certain factories in the Hyderabad State. The assessee was a member of a partnership. One of the partners was his late father-in-law. It is not denied that in 1942, one of the daughters of the other partner filed a suit in the Bombay High Court for taking accounts of the partnership. In his explanation, the assessee stated that one of the prayers sought in the suit was for the issue of an injunction against the other partners of the firm including the assessee from disposing of or dealing with any of the properties and also with regard to the withdrawal of moneys. It was only on September 12, 1946, when there was a compromise in the suit that this injunction was dissolved. The assessee accordingly claimed that though he was undoubtedly entitled to his proper share of the profits of the partnership during the years in question, he was prevented from receiving any portion of those profits. There was in fact no settlement determining the quantum of his share. The injunction also prevented him from receiving any amounts. We find that this statement of facts by the assessee stands undisputed by the department. The Income-tax Officer state :
'There is not much force in the assessees argument. The suit by the heirs of one of the deceased partners and the injunctions given by the High Court cannot in any way affect the assessees share of income in the partnership. His omission to disclose such income deserves penalty.'
The Tribunal, while accepting the fact that the injunction restrained the appropriation of the profits by the partners and further that the share of the profits was not capable of ascertainment, proceeded to observ :
'It is admitted that there has been no let or hindrance for the partnership to be carried on and for the profits to be earned which in fact was continued to be done. The injunction was only against the distribution of the amounts due on the deceased father-in-laws account which was the subject-matter of the dispute before the courts. This cannot clearly be a reason for the assessees failure to declare his share of the profits...... There is definite concealment of this item.'
We are really unable to follow the reasoning. That there was an injunction restraining the division of the profits seems to be beyond dispute. It is true that the plaintiff in the suit sought for a share as the heir of one of the deceased partners of the firm. But what we should have regard to is the order of injunction of the court, which specifically prevented any withdrawal of the moneys. It does not appear to be disputed that till the matters were settled by a compromise, the share of profits to which the assessee was entitled was not even ascertained. The mere circumstances that the partnership business was allowed to be carried on does not take away the effect of these restraints. We are unable to see how the assessee could have declared any specific amount as his share of the profits when the accounts were not settled. It is impossible to hold that there was an accrual of any specific amount as income of the assessee. No amount could possibly accrue to the share of a partner unless the quantum of his share is determined and that was apparently not done till the date on which the injunction was dissolved. The whole tenor of the evidence in this regard is against any possible inference that there was deliberate concealment. Unless the concealment is of a wilful nature, it is impossible to invoke the machinery of section 28. The view taken by the Tribunal can hardly be supported by the facts and proceeds only on a failure to examine the entire material before it.
The third item is the share income from the Deccan Fertiliser and Glue Products. This is relevant only for the assessment year 1945-46. The only excuse offered by the assessee in this regard was that there was a delay in the audit and that was why the profits for the assessment year 1945-46 could not be returned. These profits were brought into account in the succeeding assessment year 1946-47. In this regard, in any event, we are unable to hold that the Tribunal was not justified in the view that it took that there was a concealment.
The next item is the managing agency remuneration received by the assessee from the Deccan Porcelain Enamel Works Ltd. The assessee does not deny that he received or was entitled to receive the income indicated in the order of the Tribunal. But his plea was that the company being in difficulties, the sum due by way of interest on the advance made by him to the company and the commission were not received by him. It was only in the succeeding year that it was received. The Tribunal was not satisfied with this explanation, the view it took being that the business of managing agency was conducted by the assessee himself, who was keeping the books of the managed company as well. There was nothing to indicate in the explanation of the assessee that the interest and the commission did not accrue to him during the year of assessment. We agree with the Tribunal that there was sufficient material to hold that the assessee concealed this amount.
In the view that we have taken, there is clearly no scope for invoking section 28 of the Act in respect of the assessment year 1942-43. There is, however, concealment in respect of two items of income - Rs. 17,891 from the Deccan Fertilisers and Rs. 5,686 from the managing agency - in the assessment year 1945-46, and Rs. 6,842 only, from the managing agency relevant to the assessment year 1946-47. It follows, therefore, that in this regard action under section 28(1)(c) was proper. Nevertheless, since in regard to the major portion of the amounts, on the basis of which the penalties of Rs. 2,000 and Rs. 4,000 were imposed in respect of these two assessment years, it has been held there was no concealment, it seems to us that the order of imposition of the penalty was improper. But it would be open to the department to impose the correct penalty in respect only of those amounts which we have now held to have been concealed. The question referred to us is answered accordingly.
In the circumstances, there will be no order as to costs.
Question answered accordingly.