As a non-resident married individual the assessee was charged to income-tax for the assessment year 1954-55, the previous year ending on April 12, 1954, on a total income arising to him within the taxable territory. On the ground that a sum of Rs. 4,805 credited to his wife as interest due to her on certain deposits made by her with a firm called P. P.M. Thangiah Nadar at Tuticorin was not disclosed by the assessee, the assessment was reopened under section 34 (1) (a) of the Income-tax Act, 1922, and the amount become final and is no longer in question. Proceedings under section 28 (1) (c) against the assessee followed with the result a penalty of Rs. 1,000 was levied. Various objections were raised by the assessee which were all overruled in the first instance as well as in the further appeals. Pursuant to the directions of this court, a statement of the case has been submitted to us under section 66 (2) on the following question :
'Whether, on the facts and in the circumstances of the case, the failure of the assessee to include the income receipt of his return or returns justifies the imposition of the penalty under section 28 (1) (c) ?'
The question so framed in effect raises the point as to whether the income that falls within the ambit of section 16 (3) (a) (iii) is required to be included by the assessee as part of his total income in his return under section 22 (1). There is no dispute at any time that the wifes income does fall within the ambit of section 16 (3) (a) (iii). 'Total income' is defined by to in sub-section (1) of section 4, computed in the manner laid down in the Act. Section 4 (1) (c) directs that the total income of the previous year of any person shall include all income, profits and gains from whatever source derived, which, if such person is not a resident in the taxable territories during such year, accrue, or arise or are deemed to accrue or arise to him in the taxable territories during such year. The charge under section 3 is in respect of the total income of the previous year. It is manifest from these provisions that what is contemplated by them is the total income that accrues or arises or is deemed to accrue or arise to the assessee in the taxable territory in the previous year. In other words, it is the total income of the assessee as such that is brought to charge by section 3. The scheme of these provisions is also carried into section 22 (1) which requires an individual having a chargeable total income in the previous year to return it in the prescribed form. The sub-section requires every person 'whose total income during the previous year exceeded the maximum amount which is not chargeable to income-tax' to furnish a return in the prescribed form. The form of return prescribed also indicates that it is the total income of the individual as such in terms of its definition that is required to be returned. But as we noticed, total income referred to in sub-section (1) but computed in the manner laid down in the Act. The total income as defined is not stated as of as a particular individual or as his own total income. But, it is, however, implied in this provision because of sub-section (1) of section 4 that the total income will consist of what is referred to in section 4 (1). That means the total income must be referable to income that accrues or arises or is deemed to accrue or arises or is deemed to accrue or arise to the individual. The Act contains a series of sections which provide as to how to compute the total income of an individual under different heads. In addition to them, there is section 16, which provided for certain exemptions and exclusions in determining the total income, as it originally stood, but actually, as it stood at the relevant time, it contains certain inclusions. Sub-section (3) was introduced into the Act by section 2 of the Indian Income-tax Act (Amendment) Act, 1937. This sub-section so far as is relevant for the present purpose says that, in computing the total income of any individual for the purpose of assessment, there shall be included so much of the income of the wife as transferred from assets directly or indirectly to the wife by the husband otherwise than for adequate consideration or in connection with an agreement to live apart. This provision itself makes it clear that but for it such an income of the wife of an individual will not be liable to be included in the total income of the latter. The underlying assumption of the provision is that the income is of the wife, but, for purposes of assessment, it shall be included in the total income of the husband. That is not to say that thereby the income of the wife becomes the income of the husband. The view we take is supported by D. R. Dhanwate v. Commissioner of Income-tax and Akula Venkatasubbaiah v. Commissioner of Income-tax.
The question then is whether there is anything in section 16 (3) (a) (iii) which obliges the husband to include the wifes income in the return of his total income. If, as we said earlier, the obligation under section 22 (1) is but to return the total income of the assessee, that is to say, as the total income that has accrued or deemed to have accrued or arisen to him, there is nothing in section 16 (3) (a) (iii) which casts an obligation on the assessee, reading section 16 (3) (a) (iii) literally, that he should include the wifes income in his return of his total income. D. R. Dhanwate v. Commissioner of Income-tax took that view. We are, with respect, inclined to accept it as correct. Akula Venkatasubbaiah v. Commissioner of Income-tax also construed the provisions that way. In the Bombay case, after referring to the relevant provisions including section 16 (3), the court observed :
'it... cannot be said that is the income of the assessee as such in the strict sense though it may be chargeable to tax in his (husbands) hand.'
The court also referred to and followed an earlier judgment which had also held that it was not obligatory upon the assessee to include in his assessment the deemed income which arose by reason of section 16. The second case was actually concerned with the scope of section 34 (1) (a) and in considering that question in the light of the facts there, the High Court of Andhra Pradesh, observed :
'We are unable to find anything in the language of either section 34 or of section 16 which warrants the conclusion that it is incumbent on the assessee to include the income of the minor partners in his total income.'
The court was inclined to think that what section 16 does is to authorise and even case a duty on the officer concerned to include all the artificial incomes in the total income of the assessee. We are not in the instant case concerned with the actual scope of section 34 (1) (a), for, as we said, the order made under that section has become final and is not and cannot be canvassed in these proceedings. We may in passing mention that VD. M. RM. M. RM. Muthiah Chettiar v. Commissioner of Income-tax, decided by a Division Bench of this court, did not entirely accord with the reasoning of Akula Venkatasubbaiah v. Commissioner of Income-tax so far as the scope of section 34 (1) (a) is concerned in the context of section 16 (3). The court was not concerned with the scope of section 22 (1) in regard to income that falls within the ambit of section 16 (a) (iii); nor was it concerned with the scope of section 28 (1) (c).
Section 28 (1) (c) speaks of concealment of the particulars 'of his income'. To our minds this indication is unmistakable that the income there referred to is the income of the assessee himself and not the income of someone else which, because of the specific provision in that regard, is to be included by the Income-tax Officer for purpose of assessment in the total income of the assessee. In our opinion section 28 (1) (c) does not cover a wifes income not included by the husband in his return of his total income.
What then is the effect of the direction in section 16 (3) (a) that income which falls under any one of the categories mentioned in it shall be included in the total income of the individual The answer, to our minds, is that, in view of this provision, the assessee is expected to give particulars of the wifes income in his return; but this does not imply any legal obligation on him, for a breach of which he can be penalised under any of the provisions of the Act. R. Ganesan v. Commissioner of Income-tax Officer visualised that there was such a duty. But we do not think that a failure to mention the particulars of the wifes income can, having regard to the language of section 28 (1) (c), be brought under its mischief. We do not think that Calcutta Discount Co. Ltd. v. Income-tax Officer cited to us for the revenue is of much help in deciding the question before us. The question there considered was as to the scope of the words 'omission or failure to disclose there considered was as to the scope of the words 'omission or failure to disclose fully and truly all material facts' in section 34 (1) (a). The majority of the learned judges were of the view that on the view that on the facts in that case there was no omission or failure.
There is one other matter which perhaps we may advert to. The Appellate Assistant Commissioner proceeded in his order on the basis that there was a concession on the part of the assessee that he was liable under section 28 (1) (c). This concession was repudiated by the assessee in his grounds of appeal to the Tribunal. We ourselves do not find anything on record to find, other than the order of the Appellate Assistant Commissioner, that there was such a concession. In any case, it is purely a question of law relating to the liability of the assessee under section 28 (1) (c) which he is entitled to raise at any stage.
The question referred to us is answered in favour of the assessee with costs. Counsels fee Rs. 250.
Question answered in favour of the assessee.