The Commissioner of Income Tax, Kerala
Vs. Smt. P.K. Kochammu Amma Peroke [1980] INSC 187 (23 September 1980)
BHAGWATI, P.N.
BHAGWATI, P.N.
VENKATARAMIAH, E.S. (J)
CITATION: 1980 AIR 2124 1981 SCC (1) 241
ACT:
Penalty, imposition of-Assessee failed to
include the income of the spouse and minor child in the return of income for
the assessment year 1964-65, though includible under s. 64(1) and (iii)-Whether
failure entails penalty under s. 271(1)(c) of the Income Tax Act, 1961, as the
unamended Rule 12 of the 1961 (prior to 31-3-1972) did not provide any column
in the prescribed form-Income Tax Act, 1961, ss.
2(45), 4, 5, 64(1)(i) and (iii), 139 and
271(1)(c) read with Rule 12 of the Income Tax Rules, 1962, scope of-Words and
phrases "his income" meaning of.
HEADNOTE:
The respondent assessee was a partner in the
partnership firms of M/s. Malabar Tile Works and M/s.
Malabar Plywood Works and alongwith her there
were other partners including her husband and minor daughter. In her returns
for the assessment year 1964-65 for which the relevant accounting year was the
calendar year ending 31st December, 1963, the assessee filed a return of income
omitting the amounts representing the shares of her husband and minor daughter
in the partnership firms from her income.
The Income Tax Officer, however, brought the
amounts, namely, Rs. 59,506 to tax and referred the case for taking action
under s. 271(1)(c) of the Act to the Assistant Appellate Commissioner who
imposed a penalty of namely, Rs. 7,000 on the assessee for having concealed her
income. In appeal the Tribunal set aside the order and the High Court on
reference affirmed the Tribunal's order. Hence the appeal by Revenue to this
Court after obtaining special leave.
Dismissing the appeal, the Court
HELD: (1) The assessee, in view of the fact
that the prescribed form for filing of returns under s. 139 of the Act, prior
to 31st March, 1972, did not contain separate column to show "income
arising to spouse/minor child or any other person referred to in Chapter V of
the Act", and in view of the decision of three Judges Bench reported in 74
I.T.R. 83 SC could not be said to have concealed her income by not disclosing
in the return filed by her the amounts representing the shares of her husband
and minor daughter in the two partnership firms. [788B] (2) The term "his
income" for the purpose of s. 271(1)(c) of the Act, is "his
income" which the assessee is liable to disclose for the purposes of
assessment and yet fails to do so. The return of income under s. 139(1) of the
Act is required to be filed in order to enable the Revenue Authorities to make
a proper assessment of tax on the assessee. A fortiorari, it follows that the
assessee must disclose in the return every item of income which is liable to be
taxed in his hands under ss. 4 & 5 of the Act. [785B;
F-H] 782 (3) The definition of "total
income" in s. 2(45), no doubt refers to s. 5 which lays down that all the
income profits and gains accrued or arisen to the assessee or received by or on
behalf of the assessee shall be liable to be included in his total income but
this provision is subject to the other provisions of the Act and therefore if
the income of any other person is declared by any provision of the Act to be
includible in computing the total income of the assessee, such income would
form part of the total income exigible to tax under s. 4 of the Act. S. 64(1)
is one such provision which provides for inclusion of the income of certain
other persons in computing the total income of the assessee. [785F-H] Section
64(1) makes it clear that though the share of the spouse or minor child in the
profits of a partnership firm in which the assessee is a partner is not the
income of the assessee but is the income of such spouse or minor child it is
liable to be included in computing the total income of the assessee and it
would be assessable to tax in the hands of the assessee. The total income of
the assessee chargeable to tax would include the amounts representing the
shares of the spouse and minor child in the profits of the partnership firm.
Obviously the words "his income" in s. 139 sub-s. (1) must include
every item of income which goes to make up his total income assessable under
the Act. The amounts representing the shares of the spouse and minor child in
the profits of the partnership firm would be part of "his income" for
the purpose of assessment to tax and would have to be shown in the return of
income filed by him. [786B-D] (4) It is true that the form of the return
prescribed by Rule 12 of the Income Tax Rules, 1962 which was in force during
the relevant assessment year did not contain any separate column for showing
the income of the spouse and minor child liable to be included in the total
income of the assessee, but it did contain a Note stating that if the income of
any other person is includible in the total income of the assessee under the
provisions, inter alia, of s. 64, such income should also be shown in the
return under the appropriate head. This Note clearly required the assessee to
show in the return under the appropriate head of income, namely, "profits
and gains of business or profession" the amounts representing the shares
of the husband and minor daughter of the assessee in the profits of the two
partnership firms. The assessee however failed to disclose these amounts in the
return submitted by her and there was plainly and manifestly a breach of the
obligation imposed by s. 139 sub-s. (1) requiring the assessee to furnish a
return of her income in the prescribed form. To accept the contention that
despite the Note the assessee was still not liable to show in the return the
amounts representing the shares of her husband and minor daughter in the two
partnership firms would render the Note meaningless and futile and turn it into
a dead-letter 783 and that would be contrary to all recognised canons of
construction. The assessee was guilty of concealment of this item of income
which plainly attracted the applicability of s. 271 sub-s. (1) clause (c).
[786G-787D] V.D.M.RM.M.RM. Muthiah Chettiar v. Commissioner of Income Tax, 74
ITR 183 (SC), doubted
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 1086 of 1973.
Appeal by Special Leave from the Judgment and
Order dated 8-12-1971 of the Kerala High Court in T.I.T. Reference No. 91/69.
S. C. Manchanda and Miss A. Subhashini for
the Appellants.
K. T. Harindranath and T. T. Kunhikannan for
the Respondent.
The Judgment of the Court was delivered by
BHAGWATI J.-This appeal arises out of proceedings initiated by the Revenue
authorities for levying penalty on the assessee. The assessee is a lady and
during the assessment year 1964-65 for which the relevant accounting year was
the calender year ended 31st December, 1963, the assessee was a partner in two
partnership firms, M/s. Malabar Tile Works and M/s. Malabar Plywood Works and
alongwith her there were other partners including her husband and minor
daughter. The assessee filed a return of income for the assessment year 1964-65
showing Rs. 4754 as income from property and Rs. 4748 as income from other
sources. The assessee stated in the return under the column "Profits and
Gains of Business and Profession" against item (b) which required share in
the profits of a registered firm to be shown "Please ascertain from the
firms' files the Malabar Tile Works and Malabar Plywood Works." The
assessee, however, did not show in the return the amounts representing the
shares of her husband and minor daughter in the firms of M/s. Malabar Tile
Works and M/s. Malabar Plywood Works though they were clearly includible in
computing the total income of the assessee under section 64 sub-section (1)
clauses (i) and (iii) of the Income Tax Act, 1961. The Income Tax Officer while
making the assessment included the amounts representing the shares of the
assessee's husband and minor daughter in the profits of these two firms in the
assessment of the assessee and taxed the assessee on a total income of Rs.
59,506 after including these amounts. Since the assessee had not shown these
amounts as forming part of her total income in the return submitted by her,
though they were clearly includible in her total income under section 64,
sub-section (1) clauses (i) and (iii), the Income Tax Officer was of the view
that the assessee had con- 784 cealed the particulars of her income and rendered
herself liable to penalty under section 271 sub-section (1) clause (c), and
since the minimum penalty leviable on the assessee was Rs. 1000, he referred
the case to the Assistant Appellate Commissioner who issued notice under
section 274 and after hearing the assessee, imposed a penalty of Rs. 1000. The
assessee appealed to the Tribunal against the order imposing penalty and one of
the arguments urged on behalf of the assessee in support of the appeal was that
there was no obligation of the assessee to show in her return the amounts
representing the shares of her husband and minor daughter in the two firms and
there was accordingly no concealment by her of the particulars of her income so
as to attract the penalty under section 271 sub- section (1) clause (c). The
Tribunal accepted this argument of the assessee and held that section 271
sub-section (1) clause (c) could be invoked only if there was concealment of
the "particulars of his income by the assessee" and the words
"his income" referred only to be the income of the assessee himself
and not to the income of any other person which might be liable to be included
in the income of the assessee by reason of section 64 sub-section (1) clauses
(i) and (iii). The Tribunal accordingly held that the omission or failure of
the assessee to disclose in her return the amounts representing the shares of
her husband and minor daughter in the two firms as forming part of her income
could not be visited with penalty under section 271 sub- section (1) clause (c)
and in this view, the Tribunal allowed the appeal and set aside the order
imposing penalty.
This led to the filing of an application for
a reference by the Revenue and on the application; the Tribunal referred the
following question of law for the opinion of the High Court:
"Whether on the facts and in the
circumstances of the case, the Tribunal is correct in law in cancelling the
penalty levied under section 271(1)(c)?" The High Court took the view that
the words used in section 271 sub-section (1) clause (c) were "his
income" and the amounts representing the shares of the assessee's husband
and minor daughter in the two firms could not be said to be the income of the
assessee, though in computing her total income these amounts were liable to be
included by reason of section 64 sub-section (1) clauses (i) and (iii) and
therefore, the assessee could not be said to have concealed her income when she
did not disclose these amounts as forming part of her income in the return
submitted by her.
The High Court accordingly answered the
question referred to it in favour of the assessee and against the Revenue. The
Revenue thereupon preferred the present appeal with special leave obtained from
this Court.
785 There is a decision of this court which
is directly in point and it concludes the determination of the question arising
in this appeal against the Revenue but before we refer to that decision, we
might first examine the question on principle as a matter of pure
interpretative exercise.
Section 271 sub-section (1) clause (c)
provides for imposition of penalty on an assessee if it is found inter alia
that the assessee has concealed the particulars of "his income." The
question is what is the scope and content of the words "his income"
occurring in this penal provision. Do they refer only to the income of the
assessee himself or do they also take in the income of others which is liable
to be included in the computation of the total income of the assessee by reason
of the relevant provisions of the Act, such as section 64 sub-section (1)
clauses (i) and (iii)? The answer to this question obviously depends upon as to
what is "his income" which the assessee is liable to disclose for the
purpose of assessment for concealment can only be of that which one is bound to
disclose and yet fails to do so. Section 139 provides for filing of a return of
income by an assessee and sub-section (1) of this section lays down that every
person whose total income during the previous year exceeds the maximum amount
which is not chargeable to income tax, shall furnish a return of his income in
the prescribed form and verified in the prescribed manner, and setting forth
such other particulars as may be prescribed. The return of income is required
to be filed in order to enable the Revenue Authorities to make a proper
assessment of tax on the assessee. It must therefore follow a fortiorari that
the assessee must disclose in the return every item of income which is liable
to be taxed in his hands as part of his total income. The charge of income tax
is levied by section 4 on the total income of the assessee, and 'total income'
is defined in section 2 sub-section (45) to mean "the total amount of
income referred to in section 5 computed in the manner laid down" in the
Act. It is no doubt true that the definition of 'total income' in Section 2
sub- section (45) refers to section 5 and this latter provision lays down that
all the income profits and gains accrued or arisen to the assessee or received
by or on behalf of the assessee shall be liable to be included in his total
income but this provision is subject to the other provisions of the Act and
therefore if the income of any other person is declared by any provision of the
Act to be includible in computing the total income of the assessee, such income
would form part of the total income exigible to tax under section 4 of the Act.
Now, section 64 subsection (1) is one such provision which provides for
inclusion of the income of certain other persons in computing the total income
of an assessee. Clauses (i) and (iii) of this sub-section provide that in
computing the total income of an assessee there shall be included all 786 such
income as arises directly or indirectly to the spouse of such assessee from the
partnership of the spouse in a firm carrying on a business in which such
individual is a partner as also to a minor child of such assessee from the
admission of the minor to the benefits of the partnership firm. It is clear
from this provision that though the share of the spouse or minor child in the
profits of a partnership firm in which the assessee is a partner is not the
income of the assessee but is the income of such spouse or minor child it is
liable to be included in computing the total income of the assessee and it
would be assessable to tax in the hands of the assessee. The total income of
the assessee chargeable to tax would include the amounts representing the
shares of the spouse and minor child in the profits of the partnership firm. If
this be the correct legal position, there can be no doubt that the assessee
must disclose in the return submitted by him, all amounts representing the
shares of the spouse and minor child in the profits of the partnership firm in
which he is a partner, since they form part of his total income chargeable to
tax. The words "his income" in section 139 sub-section (1) must
include every item of income which goes to make up his total income assessable
under the Act. The amounts representing the shares of the spouse and minor
child in the profits of the partnership firm would be part of "his
income" for the purpose of assessment to tax and would have to be shown in
the return of income filed by him.
The assessee then contended that the return
of income which was required to be filed by her under section 139 sub- section
(1) was a return in the prescribed form and the form of the return prescribed
by rule 12 of the Income Tax Rules, 1962 did not contain any column for showing
the income of the spouse and minor child which was liable to be included in the
total income of the assessee under section 64 sub- section (1) clauses (i) and
(iii) and there was therefore no obligation on the assessee to disclose this
income in the return filed by her. This contention is also, in our opinion,
fallacious and deserves to be rejected. It is true that the form of the return
prescribed by rule 12 which was in force during the relevant assessment year
did not contain any separate column for showing the income of the spouse and
minor child liable to be included in the total income of the assessee, but it
did contain a Note stating that if the income of any other person is includible
in the total income of the assessee under the provisions inter alia of section
64, such income should also bestow in the return under the appropriate head.
This Note clearly required the assessee to show in the return under the
appropriate head of income, namely, "Profits and Gains of Business of
Profession" the amounts representing the shares of the husband and minor
787 daughter of the assessee in the profits of the two partnership firms. But
even so, the assessee failed to disclose these amounts in the return submitted
by her and there was therefore plainly and manifestly a breach of the
obligation imposed by section 139 sub-section (1) requiring the assessee to
furnish a return of her income in the prescribed form. It is difficult to see
how the Note in the prescribed form of the return could be ignored by the
assessee and she could contend that despite the Note, she was not liable to
show in her return the amounts representing the shares of her husband and minor
daughter in the two partnership firms. The contention of the assessee, if
accepted, would render the Note meaningless and futile and turn it into dead
letter and that would be contrary to all recognised canons of construction.
There can be no doubt that the assessee was bound to show in her return the
amounts representing the shares of her husband and minor daughter in the two
partnership firms and in failing to do so, she was guilty of concealment of
this item of income which plainly attracted the applicability of section 271
sub-section (1) clause (c).
It is obvious that on this view the order
imposing penalty on the assessee would have to be sustained but there is a
decision of this Court in V.D.M.RM.M.RM. Muthiah Chettiar vs. Commissioner of
Income Tax Madras which is binding upon us and where we find that a different
view has been taken by a Bench of three Judges of this Court. It was held in
this case that even if there were any printed instructions in the form of the
return requiring the assessee to disclose the income received by his wife and
minor child from a firm of which the assessee was a partner, there was, in the
absence in the return of any head under which the income of the wife or minor
child could be shown, no obligation on the assessee to disclose this item of
income, the assessee could not be deemed to have failed or omitted to disclose
fully and truly all material facts necessary for his assessment within the
meaning of section 34(1) (a) of the Indian Income Tax Act, 1922. With the
greatest respect to the learned Judges who decided this case, we do not think,
for reasons already discussed, that this decision lays down the correct law on
the subject, and had it not been for the fact that since 1st April 1972 the
form of the return prescribed by rule 12 has been amended and since then, there
is a separate column providing the "income arising to spouse/minor child
or any other person as referred to in Chapter V of the Act" should be shown
separately under that column and consequently there is no longer any scope for
arguing that the assessee is not bound 788 to disclose such income in the
return to be furnished by him, we would have referred the present case to a
larger bench. But we do not propose to do so since the question has now become
academic in view of the amendment in the form of the return carried out with
effect from 1st April 1972. We would therefore follow this decision in Muthiah
Chettiar's case, which being a decision of a bench of three Judges of this
Court is binding upon us, and following that decision, we hold that the
assessee could not be said to have concealed her income by not disclosing in
the return filed by her the amounts representing the shares of her husband and
minor daughter in the two partnership firms.
We accordingly dismiss the appeal, but in the
peculiar circumstances of the present case, we think that the fair order of
costs would be that each party should bear and pay its own costs throughout.
S.R. Appeal dismissed.
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