1969 (2) TMI 16 - SC - Income Tax

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 - reassessment made on the assessee under s. 34 of the Act was not valid

Summary

Issues Involved:
1. Validity of reassessment under Section 34 of the Income-tax Act, 1922, for the assessment years 1952-53 to 1954-55.
2. Inclusion of minor's share income in the hands of the assessee under Section 16(3) of the Income-tax Act, 1922, despite separate assessments on the minor.

Issue-Wise Detailed Analysis:

1. Validity of Reassessment under Section 34:
The primary issue was whether the reassessment notices issued to Muthiah under Section 34(1)(a) for the years 1952-53 and 1953-54 and under Section 34(1)(b) for the year 1954-55 were valid. The Income-tax Officer contended that Muthiah had not fully and truly disclosed all material facts necessary for his assessment, particularly the income of his minor sons which should have been included under Section 16(3)(a)(ii). The Tribunal and the High Court initially upheld the reassessment, but the Supreme Court disagreed for the years 1952-53 and 1953-54. The Court emphasized that the Income-tax Act and the prescribed forms did not obligate the assessee to disclose income of other persons taxable in his hands. Specifically, the forms did not have any head under which such income could be disclosed. Consequently, the Supreme Court held that proceedings for reassessment under Section 34(1)(a) could not be initiated for failing to disclose income under Section 16(3)(a)(ii).

For the year 1954-55, the Supreme Court found that the reassessment was based on information received, not merely a change of opinion, and was initiated within the permissible period. Therefore, the reassessment notice under Section 34(1)(b) was valid.

2. Inclusion of Minor's Share Income:
The second issue was whether the Income-tax Officer could include the share income of Muthiah's minor sons in his assessment under Section 16(3) despite having made separate assessments on the minors. The Supreme Court affirmed the High Court's decision, referencing the judgment in C. R. Nagappa v. Commissioner of Income-tax, which allowed such inclusion. The Court clarified that Section 16(3) mandated the inclusion of the minor's income arising from their admission to the benefits of a partnership in which the assessee was a partner, irrespective of separate assessments on the minors.

Conclusion:
The Supreme Court set aside the High Court's order for the assessment years 1952-53 and 1953-54, ruling that reassessment under Section 34(1)(a) was not valid due to the absence of an obligation on the assessee to disclose minor's income under the prescribed forms. For the year 1954-55, the reassessment under Section 34(1)(b) was upheld as valid. The inclusion of the minor's share income in the assessee's hands under Section 16(3) was affirmed across all relevant years. The appeal was thus partly allowed, with no order as to costs throughout.