Jamnaprasad Kanhaiyalal Vs.
Commissioner of Income-Tax, M.P., Bhopal [1981] INSC 115 (8 May 1981)
SEN, A.P. (J) SEN, A.P. (J) PATHAK, R.S.
VENKATARAMIAH, E.S. (J)
CITATION: 1981 AIR 1759 1981 SCR (3) 849 1981
SCC (3) 441
CITATOR INFO :
R 1984 SC 989 (1,2) F 1984 SC1990 (2)
ACT:
Voluntary Disclosure Scheme under section 24
of the Finance (No. 2) Act, 1965, Scope and effect of-Whether the acceptance of
a disclosure statement made by a declarant under section 24 of the Finance Act,
1965 confers immunity on another person from tax liability in respect of the
same sum of money-Whether section 24 has an overriding effect over section 68
of the Income Tax Act, 1961-Bar of double taxation-Section 18 of the Voluntary
Disclosures of Income and Wealth Act, 1976 (Act 8 of 1976).
HEADNOTE:
During the course of the assessment
proceedings of the assessee-firm for the assessment year 1967-68, the Income
Tax officer noticed cash credits of Rs. 9,250 each in the names of five sons of
the Managing Partner, in the books of the assessee. The Income Tax officer
found that these creditors, who were minors, had no independent source of
income. The assessee contended before the ITO that the five creditors had
voluntarily disclosed the credits under section 24 of the Finance (No. 2) Act,
1965 and that the disclosures were accepted by the Commissioner. The ITO
rejected the contention of the assessee and held that the cash credits in
question were unexplained cash credits, that they represented the income of the
assessee from undisclosed source, and accordingly made an addition of Rs.
46,250. The appellate Assistant Commissioner held that the acceptance of the
voluntary disclosures under section 24(3) of the Act and the payment of tax
thereon precluded the Department from disputing the fact that the income
belonged to the creditors, and, as the same income could not be taxed twice
once in the hands of the creditors and again in the hands of the assessee, set
aside the order of the ITO. The Tribunal disagreed with the Appellate Assistant
Commissioner and upheld the order of the ITO. Hence the reference at the
instance of the assessee under section 257 of the Income Tax Act, 1961 .
Answering the reference against the assessee,
the Court ^ HELD: Per Sen, J.
1. Section 24 of the Finance (No. 2) Act,
1965 cannot be construed as conferring any benefit, concession or immunity on
any person other than the person making the declaration under the provisions of
the Act. The scheme of the Act makes it abundantly clear that it was to protect
only those who preferred to disclose the income they themselves had earned in
The past and which they had failed to disclose at the proper time. The scheme
only permitted the bringing 850 forward of income to tax; it did not require
investigation of the claim of the declarant. The Act granted immunity only to
the declarant and not to other persons to whom the income really belonged. [859
G-H, 860 A]
2. The legal fiction created by sub-s. (3) of
s. 24 of the Finance (No. 2) Act, 1965 by virtue of which the amount declared
by the declarant had to be charged to income-tax "as if such amount were
the total income of the declarant", was limited in scope and it cannot be
invoked in assessment proceedings relating to any person other than the person
making the declaration, and did not take away the power vested in the ITO under
section 68 of the Income Tax Act, 1961 to reject the' explanation of an
assessee for a cash credit on the ground that the explanation was not
satisfactory in the case of such other person. [861 F-G]
3. The finality under sub-s. (8) of section
24 of the Act was to the order of the Central Board of Revenue under sub-s. (6)
thereof and not to the assessment of tax made on the basis of a declaration
made by the creditors under the scheme. There was, therefore, nothing to
prevent an investigation into the true nature and source of the cash credits.
[861 B, D]
4. The acceptance of voluntary disclosures
under s 24 of the Act and the payment of tax thereon by the creditors could
not, in law, justify the deletion of the amount of Rs. 46,250 as it represented
the assessee's income from undisclosed sources. In a case of this description,
there was no question of double taxation which was a situation of assessee's
own making in getting false declarations made in the names of the creditors
with a view to avoid higher slab of taxation. once it was found that the income
declared by the creditors did not belong to them, there was nothing to prevent
the same being taxed in the hands of the assessee to which it actually
belonged. [861 H, 862 A-B, 863 C] Manilal Gafoorbhai Shah v. Commissioner of
Income Tax, (1974) 95 I.T.R. 624 Gujarat; Badri Prasad & Sons v.Commissioner
of Income Tax, (1975) 98 I.T.R. 657 Allahabad;
Pioneer Trading Syndicate v. Commissioner of
Income Tax, Lucknow, (1979) 120 I.T.R. 5 (Full Bench Allahabad) and Additional
Commissioner of Income Tax v. Samarathmal Santoshchand, (1980) 124 I.T.R. 297
Madhya Pradesh, approved.
Rattan Lal & Ors v. Income Tax officer,
98 I.T.R. 681 Delhi; Shakuntala Devi & Ors v. C.I.T, (1980) 125 I.T.R. 18
Delhi and Mohd. Ahsan Wani v. C.I.T., (1977) 106 I.T.R. 84 Jammu & Kashmir,
overruled.
5. The declaration made under sub-s. (2) of
s.24 of the Income Tax Act, 1961 had to relate to income actually earned by the
assessee. It did not require any investigation into the correctness of the
declarations or any determination of the amounts belonging to the declarant.
The mere charge to tax on the amounts under the Voluntary Disclosure Scheme
could not have the effect of converting the money from the deductions from the
books of the assessee into the income of The declarants if it did not belong to
it. It was, therefore, open to the Income Tax officer to investigate into the
source of the cash credit amounting to Rs. 46,250 standing in the books of the
assessee in the names of the sons of the Managing Partner. [859 C-D, 860 F-G]
851
1. The making of an assessment against a
declarant on his disclosure of statement under section 24 of the Finance (No.
2) Act, 1965 cannot deprive Income Tax officer of jurisdiction to assess the
same receipt in the hands of another person if, in a properly constituted
assessment proceeding under the Income Tax Act, the receipt can be regarded as
the taxable income of such other person. [852 G- H, 853 A]
2. The liability imposed under section 24 of
the Finance (No. 2) Act, 1965 is identifiable with the income tax liability
under the Income Tax Act. The scheme for voluntary disclosure of income and its
taxation is only another mode provided by law for imposing income tax and
recovering it. Consequently the general principles which apply to assessments
made under the Income Tax Act would, except for provision to the contrary, be
applicable to assessments made under section 24 of the Finance (No. 2) Act,
1965. Accordingly when the assessment to income tax is made under the latter
enactment, it will be governed by the general principle that a finding recorded
therein governs only the particular person assessed. [852 B-D]
3. The finality enacted by sub.s. (8) of
section 24 of the Finance (No. 2) Act, 1965 attaches to the assessment of the
declarant only. It cannot in law operate in favour of or against any other
person. [852 F] 3:1. The jurisdiction of an Income Tax officer when making an
assessment is concerned primarily with the issue whether the receipt under
consideration constitutes the income of the assessee before him. Any finding
reached by the Income Tax officer touching a person not the assessee in the
process of determining that issue cannot be regarded as an operative finding in
favour of or against such person.
The only exception of this rule centers on
the limited class, and for the limited purpose, defined by the Supreme Court in
Income Tax Officer, A-Ward, Sitapur v. Murlidhar Bhagwan Das, 52 I.T.R. 335 at
346. [852 D-F] Ahmed Ibrahim S. Dhoraji v. The Commissioner of Wealth Tax
Gujarat, [1981] 3 SCR p. 402 and Income Tax Officer, A- Ward, Sitapur v.
Murlidhar Bhagwan Das, 52 ITR 335 at 346, applied.
CIVIL APPELLATE JURISDICTION: Tax Reference
Case No. 19 of 1975.
Tax Reference u/s. 256 of the Income Tax Act,
1961 made by the Income Tax Appellate Tribunal, Jabalpur Bench, Jabalpur in
R.A. No. 221/Jab/73-74 arising out of I.T.A. No. 1560 (Jab)/1972-73 decided on
10-1-1974; Assessment Year 1967-68.
S. T. Desai, B.L. Noma and K.J. John for the
Petitioner 852 V.s. Desai, Champat Rai and Miss A. Subhashini for the
Respondent.
The Judgment of A.P. Sen and E. S.
Venkataramiah, JJ.
was delivered by Sen, J. R.S. Pathak, J. gave
a separate opinion.
PATHAK, J: I agree. The acceptance of a
disclosure statement made by a declarant under s.24 of the Finance (No. 2) Act,
1965 cannot confer immunity on another person from tax liability in respect of
the same sum of money. As was held by this Court in Ahmed Ibrahim S. Dhoraji v.
The Commissioner (of Wealth Tax Gujarat the liability imposed under s.24 of the
Finance (No. 2) Act, 1965 is identifiable with the income tax liability under
the Income-tax Act. The scheme for voluntary disclosure of income and its
taxation is only another mode provided by law for imposing income tax and
recovering it. Consequently, the general principles which apply to assessments
made under the Income-Tax Act would except for the provision to the contrary,
be applicable to assessments made under s.24 of the Finance (No. 2) Act, 1965.
Accordingly, when the assessment to income tax is made under the latter
enactment, it will be governed by the general principle that a finding recorded
therein governs only the particular person assessed. The jurisdiction of an
Income Tax officer when making an assessment is concerned primarily with the
issue whether the receipt under consideration constitutes the income of the
assessee before him. Any finding reached by the Income Tax officer touching a
person not the assessee in the process of determining that issue cannot be
regarded as an operative finding in favour of or against such person. The only
exception to this rule centres on the limited class, and for the limited
purpose, defined by this Court in Income-Tax Officer, A-Ward Sitapur v.
Murlidhar Bhagwan Das. Viewed in the light of that principle it is apparent
that the finality enacted by sub-section (8) of section 24 of the Finance (No. 2)
Act, 1965 attaches to the assessment of the declarant only. It cannot in law
operate in favour of or against any other person.
I am of opinion that the making of an
assessment against a declarant on his disclosure statement under s.24 of the
Finance (No. 2) Act, 1965 cannot deprive an Income Tax officer of jurisdiction
to assess the same receipt in the hands of another person if, in 853 a properly
constituted assessment proceeding under the Income Tax A Act, the receipt can
be regarded as the taxable income of such other person. I would answer the first
question in the affirmative, in favour of the Revenue and against the assessee.
That being so, no answer is necessary to the second question. The Commissioner
of Income-Tax is entitled to his costs of the reference.
SEN, J. This is a direct reference under s.
257 of the Income Tax Act, 1961 made by the Income Tax Appellate (Tribunal,
Jabalpur, for short, The Appellate Tribunal), at the instance of the assessee.
The reference is necessitated due to divergence of opinion, as reflected in the
various decisions of different High Courts, with respect to the scope and
effect of the Voluntary Disclosure Scheme under s. 24 of the Finance (No. 2)
Act, 1965 (the 'Act', for short).
The assessee, Messrs. Jamnaprasad
Kanhaiyalal, is a partnership firm. The firm consists of 4 partners, namely,
Kanhaiyalal and his 3 major sons, Rajkumar, Swatantrakumar and Santoshkumar
with his minor son Satishkumar admitted to the benefits of the partnership. In
the course of assessment proceedings for the assessment year 1967-68, the
relevant accounting year of which was the year ending Diwali, 1966, the Income
Tax officer (ITO, for short) noticed in the books of account of the asssesee
five Cash credits of Rs. 9,250 each in the names of five sons of Kanhaiyalal,
as detailed below:
Rs. Sailendrakumar 5 yrs. 9,250/- Satishkumar
9 yrs. 9,250/- Sunilkumar 7 yrs. 9,250/- Swatantrakumar 16 yrs. 9,250/-
Santoshkumar 18 yrs. 9,250/- -------- 46,250/- --------- The ITo accordingly
called upon the assessee to explain the genuineness as well as the source of
the cash credits. On being questioned, Kanhaiyalal the Managing Partner,
disavowed ail knowledge as to the capacity of the creditors to advance the
amounts in question.
854 On the contrary, he admitted that the
creditors had no independent source of income of their own. In fact, he further
stated that he could not explain the source of the cash credits.
It was contended before the to that the
creditors having made voluntary disclosures under the Voluntary Disclosure
Scheme and the disclosures made by them having been accepted by the
Commissioner of Income Tax and tax paid thereon, the amount of Rs. 46,250 could
not be treated as income of the assessee from undisclosed sources. To the,
however, held that the disclosures made under the scheme granted immunity from
further taxation only to the declarant, and not to person to whom the income
actually belonged. He further held that the assessee having failed to prove the
genuineness and source of the cash credits, the amount of Rs. 46,250 credited
in the books of account of the assessee in the names of the creditors, who had
no income of their own must be treated as the assessee's income from
undisclosed sources. According to him, such cash credits were treated in their
names after making false declarations under the Scheme, with a view to avoid a
higher rate of taxation. He accordingly made an addition of Rs. 46,250 as
assessee's income from undisclosed sources.
The Appellate Assistant Commissioner
disagreed with the ITO, holding that when an amount was disclosed by a person
under s. 24 of the Act, there was an immunity not only as regards the
declarant, but there was also a finality as to the assessment. In his view, the
entire statement of Kanhaiyalal had to be ignored, as it was not clear in what
capacity the questions were put to him and the answers elicited because any
investigation into the source of the deposits was prohibited and illegal under
the Act. He accordingly held that the acceptance of the voluntary disclosures
made by the creditors in question to the Commissioner and the payment of tax
thereon precluded the Department from disputing that the income belonged to the
said creditors-and as the same income cannot be taxed twice, once in the hands
of the creditors and again in the hands of the assessee, the order passed by
the ITO in that behalf was unsustainable. The Appellate Assistant Commissioner,
therefore, directed the deletion of Rs. 46,250. The Department went up in
appeal before the Appellate Tribunal.
The Appellate Tribunal, however, disagreed
with the Appellate Assistant Commissioner and upheld the decision of the ITO.
It was of the opinion that the ITO was justified in treating the cash credits
appearing in the books of account of the assessee in the names of 855 the
creditors as unexplained cash credits, since it was found that the A income
declared by the creditors did not belong to them, and there was nothing to
prevent the same being taxed in the hands of the assessee to which it actually
belonged. According to the Tribunal the immunity under s. 24 of the Act was
conferred on the declarant only, and there was nothing to preclude an
investigation into the true nature and source of the credits. The Appellate
Tribunal, after taking into consideration the statement of Kanhaiyalal, and
having regard to the age of the creditors and the fact that none of them had
any independent source of income at any time, held that the ITo was justified
in holding that the asssessee failed to discharge the burden of proof under s.
68 of the Income Tax Act, 1961 in regard to the nature and source of the cash
credits and, therefore, it had to be treated as the assessee's income from
undisclosed sources. Thereupon, the assessee applied to the Appellate Tribunal
under s. 256 of the Income Tax Act, 1961 to refer the question of law arising
out of its order, to the Madhya Pradesh High Court for its opinion.
There being a conflict of opinion between the
different High Courts as to the true nature of the immunity granted under s. 24
of the Act, the Appellate Tribunal has made a reference under s. 257 of the
Income Tax Act, 1961 to this Court, of the following questions of law, for its
opinion, namely:
1. Whether on the facts and in the
circumstances of the case, it was open to the Revenue authorities to
investigate into the genuineness of the five credits aggregating to Rs. 46,250
and records a finding in regard thereto, when the Disclosure petitions made by
the five creditors under Section 24 of the Finance (No. 2) Act, 1965, had been
acted upon by the Revenue authorities ?
2. If the answer to the first question is in
the negative and in favour of the assessee, whether the addition of Rs. 46,250
to the income of the assessee as representing its income from undisclosed
sources, for the assessment years 1967-68, is valid and justified in law ? The
main question in controversy lies within a narrow compass. The question, in
fact, is whether the provisions of s. 24 of the Act can be construed as
conferring any benefit, concession or 856 immunity on any person other than the
person making the declaration under the provisions of the Act. It may be
mentioned that to avoid any room for doubt, the legislature has introduced s.
18 in the Voluntary Disclosures of Income and Wealth Act, 1976 (Act No. 8 of
1976) which specifically provides that save as otherwise provided in the Act,
nothing contained in the Act shall be construed as conferring any benefit,
concession or immunity on any person other than the person making the
declaration under the provisions of the Act. The question for consideration is
whether the absence of such a provision as is found in Act No. 8 of 1976 leads
to the consequence that acceptance of a declaration under s.
24 of the Act confers a benefit which is not
provided by the Act on a person other than the declarants and takes away the
power of the ITO under s. 68 of the Income Tax Act, 1961 to make an
investigation as to the nature and source of a cash credit appearing in the
books of the assesssee to reject the explanation offered by the assessee as
unsatisfactory and to treat it as his income from undisclosed sources.
Section 24 of the Finance (No. 2) Act, 1965
provided for the making of voluntary disclosures in respect of amounts
representing income chargeable to tax under the Income Tax Act 1922 or the
Income tax Act, 1961, for any assessment year commencing on or before April 1,
1964. On such disclosure being made under sub-s. (I) thereof, in the manner
provided by sub-s. (2) the amount was to be charged to Income tax in accordance
with sub-s. (3) which provided by a legal fiction that income tax shall be
charged on the amounts of voluntarily disclosed income at certain specified
rates "as if such amount were the total income of the declarant".
There was a safeguard provided in sub-s. (4) that the benefit under the scheme
would be available only in respect of the voluntarily disclosed income and not
in respect of the amount detected or deemed to have been detected by the ITO
before the date of declaration. When the Commissioner of Income Tax passed an
order under sub-s. (4) there was an appeal provided to the Central Board of
Revenue under sub-s. (S) and the Board was empowered under sub-s. (6) to pass
such orders thereon as it deemed fit. There was a finality attached to the
order of the Board under sub-s. (8) In support of the reference, learned
counsel for the assessee has, in substance, put forth a three-fold contention.
It is submitted, firstly, that the ITO could not have treated the cash credits
standing 857 in the names of the sons of Kanhaiyalal, the Managing Partner as .
the assessee's income from undisclosed sources, having regard to the fact that
each one of them had made a declaration under sub-s. (I) and paid tax thereon
under sub- s. (3). The submission is that it is not permissible for the
Department to go into the question of the nature and source of the amount so
declared in a voluntary disclosure under s.24 of the Act, and to say that it
does not represent the income of the declarant. Secondly, it is urged that
sub-s. (I) read with sub-s. (3) of s.24 of the Act has a overriding effect over
s.68 of the Income Tax Act, 1961 and, therefore, the ITO could not make any
investigation as to the nature and source of the cash credits, and thirdly, it
is submitted that there cannot be double taxation of the same income, once in
the hands of the creditors and again in the hands of the assessee. These
submissions proceed on a wrongful assumption that there is a finality attached
under sub-s. (8) to the legal fiction created by sub-s. (3) for which there is
no basis whatever. The contentions cannot, in our opinion, prevail.
For an appreciations of the contentions
raised, it is necessary to set out the relevant provisions of s.24 of the Act.
Sub-s. (1), insofar as relevant reads .
(1) Subject to the provisions of this
section, where any person makes, on or after the 19th day of August, 1965, and
before the 1st day of April, 1966, a declaration in accordance with sub-section
(2) in respect of the amount representing income chargeable to tax under the
Indian Income-tax Act, 1922 (11 of 1922), or the Income-tax Act, 1961 (43 of
1961), for assessment year commencing on or before the 1st day of April, 1964-
(a) for which he has failed to furnish a return within the time allowed under
section 22 of the Indian Income-tax Act, 1922 (11 of 1922), or section 139 of
the Income-tax Act, 1961 (43 of 1961), or G (b) which he has failed to disclose
in a return of income filed by him on or before the 19th day of August, 1965,
under the Indian Income Tax Act, 1922 (11 of 1922) or the Income Tax Act, 1961
(43 of 1961), or 858 (c) which has escaped assessment by reason of the omission
or failure on the part of such person to make a return under either of the said
Acts to the Income-tax officer or to disclose fully and truly 11 material facts
necessary for his assessment.
he shall, notwithstanding anything contained
in the said Acts, be charged income-tax in accordance with sub-section (3) in
respect of the amount so declared or it more than one declaration has been made
by a person the aggregate of the amounts declared therein, as reduced by any
amount specified in any order made under sub-section (4) or, if such amount is
altered by an order of the Board under sub-section (6), then such altered
amount...............
Sub-s. (3) containing the legal fiction reads
as follows:
(3) Income-tax shall be charged on the amount
of the voluntarily disclosed income- (a) where the declarant is a person other
than a company, at the rates specified in paragraph A, and (b) where the
declarant is a company, at the rates specified in Paragraph F, of Part I of
First Schedule to the Finance Act (X of 1965) as if such amount were the total
income of the declarant Sub-s. (8) on which strong reliance is placed, runs
thus:
(8) An order under sub-section (6) shall be
final and shall not be called in question before any Court of law or any other
authority.
The crux of the matter is whether the
provisions of s.24 of the Act can be construed as conferring any benefit,
concession or immunity on any person other than the person making the
declaration under the provisions of the Act. The question is whether the
non-obstente clause contained in sub-s. (I) of s. 24 of the Act precludes the
Department from proceeding against the person to whom the income actually
belonged. The contention that there was an immunity not only as regards the
declarant, but there was also a finality as to the assessment under s.24 of the
Act stems from a misconception of the nature and scope of the Voluntary Disclosure
Scheme.
859 Under sub-s. (I) of s.24, a person was
required to make a voluntary disclosure in respect of the amount representing
the income chargeable to tax under the Indian Income Tax Act, 1922 or the
Income Tax Act, 1961 for any assessment year commencing on or before April 1,
1964. Sub s. (I) makes it clear that the declarations, which were expected to
be made in the manner provided by sub-s. (2), were with regard to the income
which was chargeable to tax under the Income Tax Acts of 1922 or 1961, but
which was not disclosed at the proper time. Neither under the Act of 1922 nor
under the Act of 1961, was a person required to submit a return with regard to
the income which was either not earned or deemed to have been earned by him.
It, therefore, follows that the declarations under sub-s. (2) of s.24 had to
relate to income actually earned by him. The scheme only permitted the bringing
forward of income to tax it did not require investigation of the claim of the
declarant. If a person made a declaration, the Commissioner was under an
obligation to assess him to tax.
In respect of the voluntary disclosures made,
a declarant acquired immunity from further investigation as to the nature and
source of the income. He also acquired certain benefits. One of the distinctive
features of the scheme was that tax was chargeable on the whole of the
disclosed income taken as a single block at rates prescribed for personal
income or for corporate income under the Act, and not at an ad hoc concessional
rate. Further, facilities were allowed to payment of tax in appropriate
instalments extending over a period not exceeding four years, subject to a down
payment of not less than 10% of the tax due and furnishing a security in
respect of the balance. Income which had already been detected on the material
available prior to the date of disclosure, was, however, to be assessed under
the regular provisions of the Income Tax Act and not under the scheme. Any
admissions made by a person in the declarations filed by him under the scheme
in respect of such income were not to be used in assessing that income under
the Income Tax Act. Under the scheme, the disclosed income was not to be
subject to any further proceedings of assessment. The identity of the declarant
was not to be revealed and he was also immune from penalty and prosecution for
the past concealment of the disclosed income. It is, therefore, obvious that
the Act granted immunity only to the declarant alone and not to other persons
to whom the income really belonged.
The scheme of the Act makes it abundantly
clear that it was to protect only those who preferred to disclose the income
they 860 themselves had earned in the past and which they had failed to
disclose at the appropriate time. It is undoubtedly true that the Act was
brought on the statute book to unearth the unaccounted money. But there is no
warrant for the proposition that by enacting the same, the legislature intended
to permit, or connive at, any fraud sought to be committed by making benami
declarations. If the contentions were to be accepted, it would follow that an
assessee in the higher income group could, with immunity, find out a few near
relatives who would oblige him by filing returns under s.24 of the Act
disclosing unaccounted income of the assessee as their own and claiming that
the said income was kept by them in deposit with the assessee.
That takes us to the contention based on the
legal fiction contained in sub-s. (3) of s.24 of the Act and the finality of
the assessment, by virtue of sub-s. (8) thereof.
The legal fiction contained in sub-s. (3) of
s.24 of the Act, construed in the light of the other provisions; must mean that
the income voluntarily disclosed shall be deemed to be the income of the
declarant. The words "as if such income were the total income of the
declarant" can only mean that even though the income did not actually
belong to the declarant lt would be treated to be his income for purposes of
payment of income tax under the scheme. If, therefore, a person made a false declaration
with regard to income not earned by him, it is difficult to comprehend how the
Department could be prevented from proceeding against the person to whom the
income actually belonged and during the course of whose assessment the
concealed income is detected.
It, therefore, logically follows that on a
disclosure being made, the amount was not to be charged to income tax in
accordance with sub-s. (3) of s.24 of the Act, taking the disclosed income as
the taxable income of the declarant.
The immunity under s. 24 of the Act was
conferred on the declarant only and there was nothing to preclude an
investigation into the true nature and source of the credits. The ITO was,
therefore, justified in treating the cash credits in the books of account of
the assessee in the names of the creditors as unexplained cash credits. The
finality under sub-s. (8) is to the order of the Central Board of Revenue under
sub-s. (6). Under sub-s. (4) the Commissioner of Income Tax was required,
within thirty days, if satisfied that the whole or any part of the income
declared had been detected or deemed to have been detected by the ITO prior to
the 861 date of declaration, to make an order in writing to that effect and
forward a copy thereof to the declarant. Any person who objected to such an
order could appeal under sub- s. (5) to the Central Board of Revenue stating
the grounds for such an objection. The Board was empowered to pass such orders
as it thought fit under sub-s. (6). this order of the Board under sub-s. (6) Was
final and conclusive by reason of sub-s. (8). Thus, the finality under sub-s.
(8) Was to the order of the Board under sub-s. (6) of s. 24 and not to the
assessment of tax made on the declarations furnished by the creditors under the
scheme, by virtue of the legal fiction contained in sub-s. (3) of s. 24 of the
Act.
The next question that calls for
determination is whether the non-obstante clause contained in sub-s. (1) of s.
24 of the Act precludes the Department from proceeding against the person to
whom the income actually belonged.
Under sub-s. (1) of s. 24 the declaration was
required to be made in respect of the amount which represented the income of
the declarant. The declaration could not be made in respect of an amount which
was not the income of the declarant. If, therefore, a person made a false
declaration with respect to an amount which was not his income, but was the
income of somebody else, then there was nothing to prevent an investigation
into the true nature and sources of the said amount. There was nothing in s. 24
of the Act which prevented the ITO, if he was not satisfied with the
explanation of an assessee about the genuineness or source of an amount found
credited in his books, in spite of its having already been made the subject of
a declaration by the creditor and then taxed under the scheme. We find no
warrant for the submission that s. 24 had an overriding effect over s. 68 of
the Income Tax Act, 1961, insofar as the persons other than the declarants were
concerned.
In our judgment, the legal fiction created by
sub-s. (3) of s. 24 of the Act by virtue of which the amount declared by the
declarant was to be charged to income tax "as if such amount were the
total income of the declarant" was limited in its scope, and it cannot be
invoked in assessment proceedings relating to any person other than the person
making the declaration under the Act so as to rule out the applicability of s.
68 of the Income Tax Act, 1961.
The last question that remains is whether the
same income cannot be taxed twice, once in the hands of the creditors and again
in the hands of the assessee. In a case of this description, there is 862 no
question of double taxation. The situation is of the assessee's own making in
getting false declarations filed in the names of the creditors with a view to
avoid higher slab of taxation. Once it was found that the income declared by
the creditors did not belong to them, there was nothing to prevent the same
being taxed in the hands of the assessee to which it actually belonged.
It follows that the decisions of the Gujarat
High Court in Manilal Gafoorbhai Shah v. Commissioner of Income Tax, of the
Allahabad High Court in Badri Prasad & Sons v. Commissioner of Income Tax,
and Pioneer Trading Syndicate v. Commissioner of Income Tax, Lucknow and of the
Madhya Pradesh High Court in Addl. Commissioner of Income Tax v.
Samrathmal Santoshchand which lay down the
true scope of the Voluntary Disclosure Scheme under s. 24 of the Act must be
upheld. The decisions of the Delhi High Court in Rattan Lal & Ors v. Income
Tax Officer and Shakuntala Devi & ors. v. C.I.T. and of the Jammu &
Kashmir High Court in Mohd. Ahsan Wani v. C.I.T., taking a view to the
contrary, are overruled.
The Income Tax officer was entitled to
determine whether the amount disclosed was or was not the income of the
declarant, while dealing with the case of another assessee under s. 68 of the
Income Tax Act, 1961. The legal fiction created by sub-s. (3) of s. 24 was
restricted to the Voluntary Disclosure Scheme itself. The protection enjoyed by
the declarant under that scheme extended only to the amounts so declared being
not liable to be added, in any assessment, of the declarant. There was no
absolute finality attached to the declaration especially when the nature and
source of the sum declared was being determined for the purpose of its
inclusion in the income of an assessee other than the declarant. There was,
therefore, nothing which prevented the Income Tax officer from investigating
into the nature and source of the sums credited in the books of account of an
assessee and reject his explanation to the effect that 863 the sums belonged to
the persons who had made declarations about them under s. 24 of the Act.
Accordingly, the reference must be answered
in favour of the Revenue and against the assessee. Our answer to the first
question is that the legal fiction created by sub-s. (3) of s. 24 of the
Finance (No.2) Act, 1965 by virtue of which the amounts disclosed by the
declarants had to be charged to income tax "as if such amount were the
total income of the declarants" was limited in its scope and could not be
invoked in the assessment proceedings relating to the assessee in whose books
of account the cash credits appear.
The answer to the first question is
sufficient to dispose of the second. On the construction placed on sub-s. (3)
of s. 24 of the Act, it must also be held that the ITO was justified in
treating the cash credits appearing in the books of account of the assessee,
amounting to Rs. 46,250 as the assessee's income from undisclosed sources,
since the assessee failed to discharge the burden of proof placed upon him
under s. 68 of the Income Tax Act, 1961. The Commissioner of Income Tax shall
be entitled to his costs of the reference.
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