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Commissioner of Income-tax Vs. Kallu Babu Lalchand - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 44 of 1965
Judge
Reported in[1969]73ITR138(Cal)
ActsIncome Tax Act, 1922 - Sections 34(1) and 34(3)
AppellantCommissioner of Income-tax
RespondentKallu Babu Lalchand
Appellant AdvocateB.L. Pal and ;N. Pal, Advs.
Respondent AdvocateD. Pal and ;R.N. Dutta, Advs.
Cases ReferredSitapur v. Murlidhar Bhagwan Das
Excerpt:
- sabyasachi mukharji, j.1. the relevant corresponding previous years for assessment years 1951-52, 1952-53 and 1953-54 are dewali years 2007, 2008 and 2009 respectively. the assessee is a hindu undivided familyconsisting of two brothers, sri b. k. rohatgi and sri r.k. rohatgi, and their families. a limited company called the india electric works ltd. was incorporated some time in 1930. under article 132 of the articles of association of the aforesaid company, sri r. k. rohatgi was appointed the first managing director of the company and in accordance with the aforesaid article an agreement was entered into between the company and mr. rohatgi on the 31st january, 1934, under which mr. rohatgi was appointed the managing director, at an annual remuneration or a commission whichever might be.....
Judgment:

Sabyasachi Mukharji, J.

1. The relevant corresponding previous years for assessment years 1951-52, 1952-53 and 1953-54 are Dewali years 2007, 2008 and 2009 respectively. The assessee is a Hindu undivided familyconsisting of two brothers, Sri B. K. Rohatgi and Sri R.K. Rohatgi, and their families. A limited company called the India Electric Works Ltd. was incorporated some time in 1930. Under Article 132 of the articles of association of the aforesaid company, Sri R. K. Rohatgi was appointed the first managing director of the company and in accordance with the aforesaid article an agreement was entered into between the company and Mr. Rohatgi on the 31st January, 1934, under which Mr. Rohatgi was appointed the managing director, at an annual remuneration or a commission whichever might be higher. Until the assessment year 1943-44 the assessee-Hindu undivided family included the remuneration of Sri Rohatgi as managing director in its total income and was assessed accordingly. For the assessment year 1943-44 it was contended by the assessee that the remuneration earned by Mr. Rohatgi was his personal income and was not liable to be included in the assessable income of the family. .This contention was rejected by the Income-tax Officer and the Appellate Assistant Commissioner. On appeal, the Tribunal held that a 'part of the remuneration was attributable to the personal services rendered by Mr. Rohatgi and as such was his personal income and the balance was assessable as income of the Hindu undivided family. On a reference, this court held that the managing director's remuneration was earned by Mr. Rohatgi under contract of service and should not be treated as the income of the family. The decision of the High Court was pronounced on the 8th September, 1955, Kalu Babu Lalchand v. Commissioner of Income-tax [1956] 29 I.T.R. 281. . The assessments of the assessee-Hindu undivided family for 1951-52, 1952-53 and 1953-54 were completed after the High Court's decision on 17th December, 1955, 31st October, 1956, and 30th July, 1957, respectively. In accordance with the decision of the High Court, the managing director's remuneration from the company was excluded from assessment of the Hindu undivided family for all these years. There was an application for leave to appeal to the Supreme Court and, as this court refused to grant leave, the Commissioner of Income-tax made an application and obtained special leave from the Supreme Court to appeal from such decision of the High Court. The Supreme Court, on hearing the appeal, allowed the Commissioner's appeal and held that the managing director's remuneration received by Mr. B. K. Rohatgi was, as between him and the Hindu undivided family, the income of the family and should be assessed in its hands. The decision of the Supreme Court was pronounced on the 15th May, 1959, Commissioner of Income-tax v. Kalu Babu Lalchand : [1959]37ITR123(SC) . Thereafter, the Income-tax Officer initiated proceedings under Section 34(1)(a) of the Indian Income-tax Act, 1922, after obtaining the necessary sanction of the Commissioner of Income-tax and served the requisite notices on the assessee on the 3rd March, 1960, 13th March, 1961, and 23rd March, 1962, for the assessment years 1951-52, 1952-53 and 1953-54 respectively. It appears, therefore, that the said notices were issued and served beyond four years but within eight years from the end of the respective assessment years. Thereafter, the assessments were made under Section 34(1)(a) of the said Act on the 28th February, 1961, 4th August, 1961, and 21st May, 1962, respectively, including the total income of the assessee's managing director's remuneration received from M/s. India Electric Works Ltd. for each of the said years.

2. The assessee preferred appeals before the Appellate Assistant Commissioner against the said assessment orders of the Income-tax Officer. The Appellate Assistant Commissioner held that, as the assessee had not shown the managing director's remuneration from the company for any of these years, there was an omission or failure on the part of the assessee to disclose material facts necessary for its assessment. He was therefore of the opinion that the reassessment proceedings had been properly initiated under Section 34(1)(a) of the Indian Income-tax Act, 1922, and accordingly dismissed the appeals.

3. The assessee thereupon preferred appeals to the Tribunal, The Tribunal came to the conclusion that all the material facts, namely, the payment of the remuneration by the company and receipt of the same by the assessee, were in the possession of the Income-tax Officer at the time the original assessments were made. There was according to the Tribunal, therefore, no failure or omission on the part of the assessee to disclose any material fact which could attract the provisions of Section 34(1)(a) of the Indian Income-tax Act, 1922. The Tribunal further held that the escapement of income was due to the change in the judicial decision. The Tribunal, in the premises, came to the conclusion that there was no valid reason for issuing notices under Section 34(1)(a) of the Indian Income-tax Act, 1922. The Tribunal further observed that, inasmuch as the reassessment proceedings were started beyond 4 years from the end of the respective assessment years, they were barred and the Tribunal was of the opinion that this bar of limitation could not be saved under the second proviso to Section 34(3) of the Income-tax Act as the order of the Supreme Court was not, according to the Tribunal, an order under Section 66A of the Indian Income-tax Act, 1922. In that view of the matter the Tribunal allowed the appeals in respect of these years.

4. On an application being made, the Tribunal has referred to this court under Section 66(1) of the Income-tax Act the following questions:

'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the reassessment proceedings instituted under Section 34(1)(a) for the assessment years 1951-52, 1952-53 and 1953-54 were barred by limitation ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the bar of limitation could not be saved under the second proviso to Section 34(3) of the Indian Income-tax Act, 1922 '

5. Before us Mr. B.L. Pal, learned advocate for the revenue, contended that in view of the decision of the Supreme Court that this is the income of the assessee it must be held that it has always been the income of the assessee and as such the assessee had a statutory obligation to disclose this income in its returns to the income-tax authorities at the time of the original assessments. Failure to disclose this would attract, according to Mr. Pal, the provisions of Section 34(1)(a) inasmuch as there will be ground for contending that there has been escapement of the income due to such failure. Mr. Pal drew our attention to the decision of the Supreme Court in the case of Calcutta Discount Co. Ltd. v. Income-tax Officer, Calcutta, : [1961]41ITR191(SC) and the decision of the Supreme Court in the case of S. Narayanappa v. Commissioner of Income-tax, : [1967]63ITR219(SC) .

6. It is necessary to bear in mind that in the original order of assessment for 1951-52 the Income-tax Officer observed as follows :

'Income from managing agency remuneration from India Electric Works was held to be assessed in the hands of the Hindu undivided family. This has now been held by the High Court in the appeal against the assessment for 1943-44 as the personal income of Sri Rohatgi and as such be assessed in his hands. The entire managing agency remuneration of India Electric Works has accordingly been left out as per decision of the High Court. This income has, however, been assessed in the hands of Sri B. K. Rohatgi. '

7. There are similar observations in the assessment order for 1952-53. It appears, therefore, that the Income-tax Officer had knowledge about this income and the order specifically states that it has been left out because of the decision of the High Court. In the decision of Calcutta Discount Co. Ltd. v. Income-tax Officer, Calcutta, the Supreme Court, analysing Section 34(1)(a) of the Indian Income-tax Act, 1922, observed as follows:

'It postulates a duty on every assessee to disclose fully and truly allmaterial facts necessary for his assessment. What facts are material andnecessary for assessment will differ from case to case. In every assessmentproceeding, the assessing authority will, for the purpose of computing ordetermining the proper tax due from an assessee, require to know all thefacts which help him in coming to the correct conclusion. From the primaryfacts in his possession, whether on disclosure by the assessee, or discoveredby him on the basis of the facts disclosed or otherwise, the assessing authority has to draw inferences as regards certain other facts ; and ultimately,from the primary facts and the further facts inferred from them, theauthority has to draw the proper legal inferences, and ascertain on a correct interpretation of the taxing enactment, the proper tax leviable. '

8. It is clear, therefore, that even though there might not have been a disclosure by the assessee of this income in its return, inasmuch as the assessee was contending at that time that it was not the income of the Hindu undivided family, all the primary facts relating to this income were known to the Income-tax Officer. These were in his possession, either on disclosure by the assessee or by discovery by him on the basis of the facts disclosed or otherwise. That is clear from the original assessment order itself. If that is the position, then the question arises, has there been an omission in this case to disclose fully and truly all primary facts necessary for the purpose of assessment It was contended before us by Mr. B. L. Pal that there has been such an omission inasmuch as the assessee could have, if it so wanted, included this item in Part VII in its returns. Dr. Debi Prasad Pal, learned advocate for the assessee, on the other hand, contends that there is no such statutory obligation on the part of the assessee to include it in Part VII of its return. He draws our attention to the decision of this court in the case of Sudhir Kumar Bhose v. Income-tax Officer, [1968] 69 I.T.R. 446, 459. It is not necessary for us to decide in this case whether it was obligatory or necessary for the assessee to disclose this income in Part VII of its return. For our purpose it suffices to hold that these facts were known to the Income-tax Officer at the time of the original assessment. In that view of the matter there has been no omission or failure to disclose in terms of Section 34(1)(a) of the Income-tax Act, 1922. Even assuming, however, that there has been omission or failure in terms of Section 34(1)(a), inasmuch as the statute imposes an obligation on the assessee to disclose certain facts, which the assessee had not disclosed, in order to attract the provisions of Section 34(1)(a) of the Income-tax Act, 1922, it has further to be established that the Income-tax Officer had reason to believe that the escapement had been due to such omission or failure. In the paid case of Calcutta Discount Co. Ltd, v. Income-tax Officer, the Supreme Court observed as follows :

' 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 'underassessment', that would be sufficient to give jurisdiction to the Income-tax Officer to issue notices under Section 34. '

9. In view of the facts mentioned in the original assessment, where theIncome-tax Officer has clearly stated that this income of Mr. Rohatgi hasbeen excluded from the assessment of the Hindu undivided family in viewof the decision of the High Court, it is clear that the escapement, if any,has taken place due to the decision of the High Court and not due to any omission on the part of the assessee. In that view of the matter the second condition necessary for attracting the provisions of Section 34(1)(a) of the Indian Income-tax Act, 1922, is not present in this case. As was observed by the Supreme Court in the case of S. Narayanappa v. Commissioner of Income-tax, that in order to attract jurisdiction for the issue of notice under Section 34(1) two conditions must be satisfied--(i) the Income-tax Officer must have reason to believe that the income, profits or gains chargeable to income-tax had been under-assessed or escaped assessment and (ii) he must have reason to believe that such under-assessment or escapement had occurred by reason of either (a) omission or failure on the part of the assessee to make a return of his income under Section 22 or (b) by omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year. It is open for the court, the Supreme Court further observed, to examine Whether the reasons for the belief have a rational connection or a relevant bearing to the formation of the belief. In view of the fact, that the Income-tax Officer had stated in his original assessment that the facts were known and the income Was not being included because of the High Court decision, it is not possible to accept the position that the Income-tax Officer could have reasonably held the belief that the escapement was due to any alleged omission on the part of the assessee. In 'that view of the matter we are of the opinion that the Tribunal was right in its decision on the first question and question No. 1 referred to this court must be answered in the affirmative.

10. So far as the second question is concerned, Mr. B. L. Pal, learned advocate for the revenue, first made an interesting argument that special leave to appeal to the Supreme Court was really a continuation of the proceedings under Section 66A and as such any order made by the Supreme Court would also enjoy the same benefit as Section 66A so as to attract the second proviso to Section 34(3) of the Indian Income-tax Act, 1922, but in view of the fact that the said decision of the Supreme Court was given in respect of a year other than the years involved in the present reference. Mr. B. L. Pal, in his fairness, drew our attention to the decision of the Supreme Court in the case of Income-tax Officer, 'A' Ward, Sitapur v. Murlidhar Bhagwan Das, : [1964]52ITR335(SC) . where the Supreme Court has held that the assessment or reassessment made in consequence of or to give effect to any finding or direction contained in an order under Section 31, 33, 33A, 33B, 66 or Section 66A must relate to the assessment of the year under appeal, revision or reference as the case may be. In that view of the matter the second question must also be answered in the affirmative and againstthe revenue. In the facts and circumstances of this case, each party will pay and bear its own costs.

Deb, J.

11. I agree.


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