V.D. M. R. M. M. R. M. Muthiah
Chettiar Vs. Commissioner of Income-Tax, Madras [1969] INSC 43 (14 February
1969)
14/02/1969 SHAH, J.C.
SHAH, J.C.
RAMASWAMI, V.
GROVER, A.N.
CITATION: 1970 AIR 10 1969 SCR (3) 715 1969
SCC (1) 675
CITATOR INFO:
D 1970 SC1982 (11) RF 1980 SC2114 (4) F 1987
SC1768 (4,5)
ACT:
Indian income-tax Act (11 of 1922), ss. 34
and 16(3)- Assessee's return of income as individual not showing that other
members of his firm were his minor sons-Income of minors separately assessed-S.
34(1) and s. 34(1)(b), applicability of income of a minor son whether can be
added under s. 16(3)-income of assessee after having been separately assessed.
HEADNOTE:
The assessee and his minor sons separately
held shares in a resident firm. For assessment years 1952-53 to 1954-55, the
assessee filed returns as an individual and therein stated under the head
business income that the profit should be ascertained from the Income-tax
Officer assessing the firm.
The names of the partners were stated, but it
was not stated in the return that some of the parties were his minor sons.
The minors, through their mother as guardian,
also filed returns for these assessment years, and they were assessed to tax.
The assessee was also assessed as an individual, in respect of his share in the
income of the firm and other sources, but the assessment order did not include
the share of the minors from the firm. The Income-tax Officer issued notices of
reassessment to the assessee under s. 34(1) (a) of the Indian Income-tax Act,
1922 for the years 1952-53 and 1953-54 and under s. 34(1) (b) for the year
1954-55. The Income-tax Officer took the view that the assessee had not
disclosed the fact that his sons were minors and the income of the sons which
should have been included under s. 16(3) (a) (ii) had escaped assessment in the
assessee's hands and accordingly he brought that income to tax. The Appellate
Assistant Commissioner confirmed this order. The Appellate Tribunal, in appeal
held that for the first two, years s. 34(1) (a) applied, that in respect of the
third year there was no change of opinion but the assessment was made on
information received within the meaning of s. 34(1) (b) and that the income of
the minors could be assessed in the hands of the assessee 'notwithstanding the
separate assessments already made on the minors. On reference, the High Court
answered the questions against the assessee. In appeal, this Court,
HELD : Section 16(3) of the Act imposed an
obligation upon the Income-tax Officer to compute the total income of any
individual for the purpose of assessment by including the items of income set
out in cls. (a)(i) to (iv) and (b), but thereby no obligation was imposed upon
the tax-payer to disclose the income liable to be included in his assessment under
s. 16(3). For failing or omitting to disclose that income proceedings for
reassessment could not be commenced under s. 34(1) (a). Section 22(5) required
the assessee to furnish particulars of the names of the shares of the partners
but imposed no obligation to mention or set out the income of the nature
mentioned in s. 16(3). In the relevant years there was no head in the form of
return prescribed under the rules under which income liable to be assessed to
tax under s. 16(3) (a) & (b) could be disclosed. These assessments under s.
34(1) (a) for the years 1952-53 and 1953-54 could not, therefore be upheld.
[721 A] (ii) The income of a minor can be included in the hands of an assessee
under s. 16(3) of the Act, notwithstanding that an assessment has been made on
the minor represented by his guardian. [718 G-H] 716 C.R. Nagappa v.
Commissioner of Income-tax, Mysore, [1969] 1 S.C.R. 979, followed.
(iii) In respect of the assessment years
1954-55, there was no basis for the argument that the Income-tax Officer had
only changed his opinion. The order of re-assessment was made well within four
years from the date of the last day of that assessment year. The notice was,
therefore, competently issued by the Income-tax Officer. L721 F]
CIVIL APPELLATE JURISDICTION: Civil Appeals
Nos. 1457 to 1459 of 1958.
Appeals from the judgment and order dated
August 21, 1964 of the Madras High Court in T.C. No. 75 of 1962 (Reference No. 50
of 1962).
M. C. Chagla and T. A. Ramachandran, for the
appellant (in all the appeals).
S. K. Aiyar add B. D. Sharma, for the
respondent (in all the appeals).
The Judgment of the Court was delivered by
Shah, J. Ramanathan Chettiar his son Muthiah Chettiar called hereinafter for
the sake of brevity, Muthiah--and Ramanathan, Annamalai and Alagappan, sons of
Muthiah, constituted a Hindu undivided family. The family owned a 3/5th share
in M.R.M.S. Firm, Seramban in Malaya. The firm was assessed under the Indian
income-tax Act, 1922, in the status of a firm resident within the taxable
territories.
On September 16, 1950, Muthiah separated from
the family taking his 1/5th share in the M.R.M.S. Firm. On April 13, 1951 the
status of the family became completely disrupted and the three sons of Muthiah
took in equal shares the remaining 2/5th share-the grandfather Ramanathan
taking no share in the M.R.M.S. Firm.
For the assessment year 1952-53 Muthiah
submitted a return of his income as an individual and stated under the head
business income "Kindly ascertain his (assessee's) share of profit and
remittances from the Income-tax officer, Second Additional Circle I, Karaikudi,
in F. 6098-m/1952-53". In Part III of the return Muthiah supplied the
following information about his partners Name and address of Name of each
partner Share the firm including assessee Messrs. R.RM.S. Firm 1. Assessee
(Muthiah Chettiar) 60/303 Seramban, F. M.S. 2. VD. M.RM. M. RM. M. Ramanathan
Chettiar (minor). 40/303 3. VD. M. RM. M. RM. M. Alagappan Chettiar (minor).
40/303 4. VD. M. RM. M. RM. M. Annamalai Chettiar (minor) 40/303
5. C.P.R. 60/303
6. M.S.S. 60/303
7. Charity 3/303 717 For the assessment year
1953-54 in column 3 in section B of the return Muthiah stated : "Kindly
ascertain the remittances from the Income-tax Officer, Fifth Additional,
Karaikudi in F. 6098-m", and at p. 3 of the return in column 3 of Section
F it was stated "Assessee has 60/303 share in Messrs. Joint Seramban
(Malaya). Kindly ascertain share of profit or loss from the Income-tax Officer,
Fifth Additional, Karaikudi in F. 6098." In Part III of the return he set
out the names of the partners as, were mentioned in the return for 1952-53.
Against the names. of Ramanathan Chettiar, Alagappan Chettiar and Annamalai
Chettiar it was not disclosed that they were minors.
For the assessment year 1954-55 at the foot
of page 1 of the return Muthiah stated :
"The assessee has a remittance of Rs. 6,188-12-0
from R.R.M.S. Firm, Seramban. His share of income may be taken from the firm's
file.', and in Part III the names of seven partners as mentioned in 1952-53
return were set-out--Ramanathan, Alagappan, were not shown as minors.
Ramanathan, Alagappan and Aannamalai--the
three minor sons of Muthiah represented by their mother and guardian also filed
returns of their respective income for the years 1952- 53, 1953-54 and 1954-55
and disclosed therein their shares in the profit from the 2/5th share in the
M.RM.S. Firm.
For the assessment years 1952-53, 1953-54 and
1954-55 the Income-tax officer completed the assessments separately on the
firm, on Muthiah as an individual and on the three minors represented by their
mother and guardian. Muthiah was assessed in respect of his share in the income
of the firm and from other sources. In his returns muthiah had not disclosed
the share received by his minor sons and the Income-tax officer did not in
making the assessments include shares of the minors from the firm under s. 16
(3) (a) (ii) of the Indian Income-tax Act, 1922. The Income-tax Officer issued
notices of reassessment to Muthiah under s. 34(1) (a) of the Income-tax Act,
1922 for the years 1952-53 and 1953- 54 and under s. 34(1) (b) for the year
1954-55. Muthiah, filed returns under protest declaring the same income as
originally assessed. In the view of the Income-tax Officer Muthiah had not
furnished in Part III clause (c) of the return full facts regarding the other
parties and in column 2 he had merely disclosed that Ramanathan, Alagappan and
Annamalai were minors: that "information was not full in the sense that he
had not stated that L10Sup./69-11 718 they were minors sons" of Muthiah.
Accordingly the Income- tax Officer held that the income of the sons of Muthiah
which should have been included under s. 16 (3) (a) (ii) of the Income-tax Act
had escaped assessment in Muthiah's hands and he brought that income to tax.
The Appellate Assistant Commissioner
confirmed the order made by the Income-tax Officer. In appeal to the Tribunal
it was contended by Muthiah that he had fully and truly disclosed all the
particulars he was required to disclose in the returns of his income for the
three years in question, and "s. 34 (a) (a) had no application to the
assessment years 1952-53 and 1953-54 and for 1954-55 the reopening was based
only on a change of opinion". Muthiah also contended that s. 40 of the
Income-tax Act was mandatory and since the Income-tax Officer had made separate
assessments on the minors represented by their mother, no further' assessment
under s. 16(3) could be made, the two sections being mutually exclusive.
The Tribunal observed that for the first two years
s. 34 (1) (a) applied, that in respect of the year 1954-55 there was no change
of opinion but the assessment was made on information received within the
meaning of s. 34 (1 ) (b) of the Income-tax Act and that separate assessment of
the minors did not stop the Income-tax Officer from assessing the income
received by the minor sons in the hands of Muthiah. The Appellate Tribunal
accordingly confirmed the order of the Appellate Assistant Commissioner.
At the instance of Muthiah the following
questions were referred to the High Court of Madras :
(i) Whether on the facts and in the
circumstances of the case, the re-assessment made on the assessee under s. 34
of the Act is valid in law for 1952-53 to 1954-55 ? (ii)Whether on the facts
and in the circumstances of the case, the inclusion of the share income of the
minor in the hands of the assessee by invoking the provisions of s. 16(3) of
the Act is valid in law notwithstanding that an assessment is made on the minor
represented by his guardian ?" The answer to the second question must, in
view of the recent judgment of this Court in C. R. Nagappa v. The Commissioner
of Income-tax, Mysore(1), be in the affirmative.
In considering the first question it is
necessary to refer to certain provisions of the Income-tax Act, 1922. By
section 3 (1) [1969] 1 S.C.R. 979.
719 the total income of the previous year of
every individual, Hindu undivided family, Company and local authority and of
every firm and other association of persons or the partners of the firm or the
members of the association individually was charged to tax for that year in
accordance with, and subject to the provisions of the act at any rate or rates
prescribed by the Finance Act. "Total income" was defined in s. 2(15)
as meaning "total amount of income, profits and gains referred to in
sub-s. (1) of section 4 computed in the manner laid down in this Act."
Section 4(1) set out the method of computation of total income : it enacted (1)
Subject to the provisions of this Act, the total income of any previous year of
any person includes all income, profits and gains from whatever source derived
which-- (a) are received or are deemed to be received in the taxable
territories in such year by or on behalf of such person or (b) if such person
is resident in the taxable territories during such year,- (i) accrue or arise
or are deemed to accrue or arise to him in the taxable territories during such
year, or Section 22 by sub-s. (1) required the Income-tax Officer to give
notice by publication in the press in the prescribed manner, requiring every
person whose total income during the previous year exceeds the maximum exempt
from tax, to furnish a return in the prescribed form setting forth his total
income. Sub-sectian (2) authority the Income-tax Officer to serve a notice upon
a person whose income in the opinion of the Income-tax Officer exceeded the
minimum free from tax. Section 23 dealt with the assessment. It conferred power
upon the Income-tax Officer to assess the total income of the assessee and to
determine the sum payable by him on the basis of such return, submitted by him.
Rule 19 framed under s. 59 of the Income-tax Act, 1922, required the assessee
to make a return in the form prescribed thereunder, and in Form A applicable to
an individual or a Hindu undivided family or an association of persons there
was no clause which required disclosure of income of Any person other than the
income of the assessee, which was liable to be included in his total income.
The Act and the Rules accordingly imposed no obligation upon the assessee to
disclose to the Income-tax Officer in his return information relating to income
of any other person by law taxable in his hands.
720 But s' 16 sub-s. (3) provided that in
computing the total income of any individual for the purpose of assessment
there shall be included the classes of income mentioned in cls.
(a) and (b). Sub-section (3) (a) (ii)
in-so-far as it is material provided "In computing the total income of any
individual for the purpose of assessment, there shall be included:
(a) so much of the income of a wife or minor
child of such individual as arises directly or indirectly-- (i) (ii) from the
admission of the minor to the benefits of partnership in a firm of which such
individual is a partner;" The assessee was bound to disclose under s.
22(5) the names and addresses of his partners, if any, engaged in business,
profession or vocation together 'with the location and style of the principal
place and branches thereof and the extent of the shares of all such partners in
the profits of the business, profession or vocation and any branches thereof,
but the as was not required in making a return to disclose that any income was
received by his wife or minor child admitted to the benefits of partnership of
a firm of which he was a partner.
Counsel for the Commissioner contended that
in the forms of returns prescribed in the "Notes of Guidance" for
drawing up the return were printed, and thereby the assessee was informed that
he had to disclose the income received by his wife and minor children from a
firm of which the assessee was a partner. Counsel has however not placed before
the Court the forms of return in vogue in the relevant year of assessment. In
the Income Tax Manual published under the authority of the Central Government
in 1945 under cl. (3) printed at p. 185 the assessee is advised to include the
return under the appropriate head certain classes of income which are liable to
be included in the assessment of an individual under s. 16, and income liable
to betaxed under ss. 41D, 44E and 44F. This instruction was repeated in the
Manual Parts II and III at pp. 344 and 345 in the 10th Edition published in
1950. But in the 11th Edition of the Manual published in 1954 no such
instructions were printed. About the date on which the instructions were
deleted Counsel for the Commissioner was unable to give any information.
Assuming that there were instructions printed in the Forms of return in the
relevant years', in the absence of any head under which the income of the wife or
minor child of a partner whose wife or a minor child was a partner in the same
firm, could be shown, by not showing that income the tax-payer cannot be deemed
to have failed or omitted to disclose fully and truly all material 721 facts
necessary for his assessment. Section 16(3) imposer, an obligation upon the
Income-tax Officer to compute the total income of any individual for the
purpose of assessment by including the items of income set out in cls. (a) (i)
to (iv) and (b), but thereby no obligation is un posed upon the tax-payer to
disclose the income liable to be included in his assessment under s. 16(3). For
failing or omitting to disclose that income proceedings for reassessment cannot
therefore be commenced under s. 34 (1) (a) Section 22(5) required the assessee
to furnish particulars of the names and shares of his partners, but imposes no
obligation to mention or set out the income of the nature mentioned in S.
16(3). In the relevant years there was no
head in the form under which income liable to be assessed to tax under s. 16(3)
(,a) and (b) could be disclosed.
We are in the circumstances unable to agree
with the High Court that s. 34 imposed an obligation upon the assessee to
disclose all income includable in his assessment by reason of s. 16(3) (a)
(ii). Section 34(1) (a) sets out the conditions in which the power may be
exercised : it did not give,-rise to an obligation to disclose information
which enabled the Income-tax Officer to exercise the power under s. 16(3) (a)
(ii), nor had the use of the expression "necessary for his
assessment" in s. 34(1)(a) that effect.
The High Court did not consider the question
whether in the year 1954-55 the notice under s. 34(1) (b) was properly issued
against Muthiah. The Tribunal in their judgment observed:
"There is no basis for the argument that
the Income-tax Officer had only changed his opinion and reopened the
assessment." We agree with that view. The order of re-assessment was made
well within four years from the date of the last day of the year of assessment
1954-55. The notice was therefore competently issued by the Income-tax Officer.
The order passed by the High Court,, in so
far as it relates to the years 1952-53 and 1953-54 is set aside and the answer
in the negative is recorded. For the year 1954-55 the answer recorded by the
High Court is confirmed. There will be no order as to costs throughout.
Y.P. Appeal partly allowed.
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