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1971 (2) TMI 27
Issues Involved:
1. Applicability of Section 23A of the Indian Income-tax Act, 1922.
2. Definition and interpretation of the term "investment" in the context of the assessee's business.
3. Whether the assessee's business consists wholly or mainly in the dealing in or holding of investments.
Issue-wise Detailed Analysis:
1. Applicability of Section 23A of the Indian Income-tax Act, 1922:
The judgment revolves around the applicability of Section 23A, which empowers the Income-tax Officer to assess companies to super-tax on undistributed income in certain cases. The provision mandates that a company must declare dividends at the appropriate statutory percentage of the total income after taxes. The statutory percentage varies depending on the type of company, with a company "whose business consists wholly or mainly in the dealing in or holding of investments" required to declare 100% of the distributable balance as dividends. The Income-tax Officer levied super-tax on the balance of the distributable profits, as the assessee declared more than 60% but less than 100% of its income as dividends.
2. Definition and Interpretation of the Term "Investment":
The court examined the term "investment" in the context of the assessee's business. It was observed that the word "investment" should be understood in its ordinary popular sense as used by businessmen, rather than as a term of art with a defined or technical meaning. The court cited several English cases to support this interpretation, including:
- Inland Revenue Commissioners v. Desoutter Bros. Ltd.: The term "investment" was interpreted in a popular sense, not as a technical term.
- Commissioners of Inland Revenue v. Gas Lighting Improvement Co. Ltd.: Investments were understood as money put out in shares and securities with the expectation of receiving dividends or interest.
- Inland Revenue Commissioners v. Broadway Car Co. (Wimbledon) Ltd.: The court held that rents from leases could be considered as income from investments.
- Commissioners of Inland Revenue v. Tootal Broadhurst Lee Co. Ltd.: Investments were defined as income-yielding property in the vernacular of a business man.
Based on these precedents, the court concluded that laying out money in houses and immovable properties with a view to earning income regularly could be regarded as investments.
3. Whether the Assessee's Business Consists Wholly or Mainly in the Dealing in or Holding of Investments:
The court scrutinized whether the assessee's business consisted mainly in holding investments. The assessee's main source of income was from properties assessed under Section 9 of the Act. The tax authorities found that the assessee's major income every year was derived from house properties, indicating that its main activity was investing in house properties and earning incomes from them. The court noted that the assessee's memorandum of association included objectives such as the purchase and leasing of lands and buildings, reinforcing the notion that the assessee's business involved holding investments in house properties.
The court rejected the assessee's argument that dealing in or holding of investments should be limited to shares, securities, debentures, loans, or bonds. It was held that the term "investment" in Section 23A should not be interpreted in a technical sense but in its popular sense, as supported by English case law.
Conclusion:
The court concluded that the assessee was a company whose business consisted mainly in the holding of investments in house properties. Therefore, Explanation 2(1) to Section 23A was applicable, and the assessee was required to declare 100% of the distributable balance as dividends to avoid the super-tax. The court answered the reference question in the affirmative, in favor of the department, and held that each party would bear its own costs.
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1971 (2) TMI 26
Issue of Tax Clearance Certificate - refusal to grant the tax clearance certificate - writ petition seeking directions to ITO to issue Tax Clearance Certificate - matter of issuing TCC is an executive matter, so no legal obligation on the Income-tax Officer to issue such a certificate which could be enforced by a writ – writ petition not entertainable so dismissed
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1971 (2) TMI 25
Business of clearing and forwarding agents, selling agents and commission agents - from the various amounts received by the company from a number of constituents a total sum of Rs. 29,643 was lying in the books of the company to the credit of those constituents - those amounts were not claimed by the respective constituents – held that such amounts can be treated as assessee's income
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1971 (2) TMI 24
Whether Tribunal is correct in holding that the liability for payment of bonus accrued due on the dates on which the provision was made in the balance-sheet of the assessee-company for the three years under appeal irrespective of the fact that the same was actually paid in subsequent years
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1971 (2) TMI 23
Estate Duty Act, 1953 - interest on amount paid in excess when the assessment is reduced on reference to HC - Assistant Controller of Estate Duty holding that petitioner is not entitled to interest as there is not provision for payment of interest in the Estate Duty Act prior to its amendment in 1958, which came into force with effect from July 1, 1960 - held that order of Assistant Controller was not justified
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1971 (2) TMI 22
Issues Involved:
1. Whether the Central Board of Revenue's order was vitiated in law based on wrong assumptions and erroneous inferences.
2. Whether the Central Board erred in the application of relevant principles of law in determining the status of the deceased.
3. Whether there was any material or warrant in law for assigning the deceased the status of an individual.
Issue-Wise Detailed Analysis:
1. Whether the Central Board of Revenue's order was vitiated in law based on wrong assumptions and erroneous inferences:
The accountable persons contended that the Central Board of Revenue did not consider all the material evidence, rendering the order by Shri Jamna Pershad Singh vitiated. They requested the court to refer to additional documents and reconsider the case. However, the court noted that under section 64(5) of the Estate Duty Act, it is the High Court's prerogative to determine if the case stated is sufficient to resolve the legal question. The court emphasized that it is not a court of fact but a court of law, and it cannot review evidence not presented before the estate duty authorities. The court concluded that the application under section 64(5) was misconceived and rejected it.
2. Whether the Central Board erred in the application of relevant principles of law in determining the status of the deceased:
The accountable persons argued that the estate should be considered Hindu joint family property based on the facts found by the Board. The court examined the Board's findings, which included the partition between the deceased and his brother in 1903, the acquisition of house property and debts, and the start of the deceased's contractor business in 1907. The Board concluded that there was no evidence that the joint family nucleus was used to start the business. The court agreed with the Board's analysis, noting that the deceased had consistently filed income-tax returns as an individual and declared his properties as self-acquired in his will. The court upheld the Board's conclusion that the estate was not joint family property.
3. Whether there was any material or warrant in law for assigning the deceased the status of an individual:
The court considered the accountable persons' argument that the deceased's self-acquired property had been thrown into the common stock, thus becoming joint family property. The Board had summarized evidence such as the use of family names in business, supervision by Brij Mohan, and the issuance of receipts by Brij Mohan. However, the Board concluded that these actions did not demonstrate a clear renunciation of the deceased's separate rights over the property. The court supported this view, citing legal principles that require a clear intention to waive separate rights to establish joint family property. The court found no evidence of such an intention and upheld the Board's decision.
Conclusion:
The court answered the question of law in the affirmative, in favor of the revenue, concluding that the Central Board of Revenue was justified in treating the properties as belonging to the deceased in his individual capacity. The Controller of Estate Duty was awarded costs in the court, with counsel's fee set at Rs. 250.
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1971 (2) TMI 21
Whether there was any material evidence to justify the findings of the Tribunal that the amount remitted by an employee of the Madras branch to an employee of the Bombay branch was the income of the assessee-firm, Kishinchand Chellaram, from undisclosed sources - since no explanation regarding the remittance was given, Question is answered in the affirmative
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1971 (2) TMI 20
Sugar Industry - extra price debited in assessee's accounts additional price is paid for purchase of sugarcane from co-operative society - whether such amount can be claimed as deduction for computing the assessee-firm's income of the previous year
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1971 (2) TMI 19
Issues:
1. Validity of transfer or gift of amounts to daughters-in-law in March 1953.
2. Necessity of a fresh gift after the Hindu Succession Act in 1956 and its impact on entitlement to benefits.
Analysis:
The case involved the widow of a deceased partner who inherited a substantial amount from the partnership. In March 1953, she transferred a significant sum to each of her sons' wives and claimed no assessable income for the subsequent year. The Income-tax Officer assessed the wives for the interest income and disallowed the interest in the firm's hands. The Tribunal initially ruled in favor of the firm, stating that the widow retained interest in the money until her death, and the sons did not acquire any interest. Subsequently, the Income-tax Officer included the interest income in the widow's total income for multiple assessment years under section 34 of the Income-tax Act, 1922. However, the Appellate Assistant Commissioner overturned this decision, emphasizing that the transfers to daughters-in-law were valid and no interest was received by the widow on the transferred amounts.
The Tribunal, on appeal by the Income-tax Officer, held that the widow was not legally allowed to alienate inherited property without legal necessity or consent of reversioners. Additionally, the Tribunal stated that the Hindu Succession Act, 1956, could not validate the transfers and fresh transfers might be required post the Act's enactment. The Supreme Court's precedent clarified that alienations by widows, even if not binding on reversioners, pass the widow's interest to the alienee. The Tribunal's decision was deemed erroneous as the transfers to daughters-in-law were valid and binding on the widow, precluding the interest on transferred amounts from being considered her income.
Ultimately, the High Court answered the first question negatively, in favor of the assessee, indicating that the transfers to daughters-in-law were valid. Consequently, the second question regarding the necessity of a fresh gift post the Hindu Succession Act did not arise. The assessee was awarded costs, assessed at Rs. 200, with the counsel's fee set at the same amount.
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1971 (2) TMI 18
Assessee is a federation of co-operative societies in the State of U. P - Whether Tribunal was right in holding that the income derived by the assessee-federation from the supply of coal to the nominees of the, Development Commissioner was not exempt under section 14(3)(i)(d) of the Act - it cannot be said that it was directly required in connection with any process of agriculture. Coal, therefore, is not an article which can be described as an article intended for agriculture - question referred is answered in the affirmative and against the assessee
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1971 (2) TMI 17
Dissolution of firm - retiring partner receives value of his share from the fourth partner who took over the entire partnership concern - credit of Rs. 30,000 was given to the assessee on October 1, 1964, being the share in the increase on the revaluation of the building and land - whether on a proper interpretation of section 47 of the Income-tax Act, 1961, the Tribunal was right in holding that the sum could be correctly taxed as capital gain in the hands of the assessee
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1971 (2) TMI 16
Issues:
Jurisdiction of Income-tax Officer to impose penalty under section 28(1)(c) based on income discovered during appellate proceedings.
Analysis:
The case involved a question regarding the validity of the cancellation of a penalty imposed under section 28(1)(c) of the Indian Income-tax Act, 1922. The Income-tax Officer discovered cash credits in the assessee's account books during the assessment proceedings for the year 1954-55. The assessee explained a portion of the cash credits but surrendered the remaining balance for taxation in a revised return. Subsequently, the Appellate Assistant Commissioner detected further cash credits during the appellate proceedings and included them as income from undisclosed sources. The Income-tax Officer then imposed a penalty of Rs. 10,000 under section 28(1)(c), taking into account both the concealed income found by him and the additional income discovered during the appellate proceedings.
The primary issue was whether the Income-tax Officer had the jurisdiction to impose a penalty based on the income discovered during the appellate proceedings. The Tribunal held that the Income-tax Officer lacked the authority to penalize the additional income found during the appellate proceedings. The Tribunal emphasized that the satisfaction required for imposing a penalty must be in the course of proceedings under the Act before the respective authority. In this case, since the additional income was discovered during the appellate proceedings by the Appellate Assistant Commissioner, it fell under his jurisdiction to impose any penalty if deemed necessary.
Furthermore, the Tribunal noted that the penalty order was indivisible and not severable. The Income-tax Officer's order was based on various concealed income items, making the penalty amount a single sum. As such, it could not be apportioned to specific concealed income items falling under different jurisdictions. Therefore, the Tribunal concluded that the penalty order was legally flawed.
In conclusion, the High Court affirmed the Tribunal's decision, stating that the Income-tax Officer did not have the jurisdiction to impose a penalty based on income discovered during the appellate proceedings. The Court held that the penalty order was invalid in law. Additionally, the Court agreed with the Tribunal that the penalty amount was indivisible and not severable. The Court answered the question in favor of the assessee and dismissed the application under section 66(4) of the Act, with no order as to costs.
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1971 (2) TMI 15
Issues Involved:
1. Whether the Income-tax Officer (respondent No. 1) had a genuine belief that the petitioner's income for the assessment year 1961-62 had escaped assessment.
2. Whether there was any material before the respondent No. 1 to induce such belief.
3. Whether the material, if any, could reasonably lead to such belief.
4. Whether the finding of the Income-tax Officer, "J" Ward, District III(2), Calcutta, in the proceeding under section 26A of the old Act was valid and within jurisdiction.
5. Whether the respondent No. 1 disclosed the material leading to his belief in the affidavit filed in opposition to the petition.
Detailed Analysis:
1. Genuine Belief of Income Escaping Assessment:
The petitioner challenged the notice dated 28th March, 1970, issued under section 148 of the Income-tax Act, 1961, arguing that the Income-tax Officer (respondent No. 1) did not genuinely believe that the income for the assessment year 1961-62 had escaped assessment. The court examined whether the Income-tax Officer had a bona fide belief. It was noted that the respondent No. 1's belief seemed to be based on the information provided by the Income-tax Officer, "J" Ward, District III(2), regarding the benami transactions involving the petitioner's wife. However, the court found that respondent No. 1 did not independently consider or apply his mind to any facts to form such a belief. The court concluded that the belief was not genuinely held by respondent No. 1.
2. Material Inducing Belief:
The petitioner argued that respondent No. 1 had no material before him to induce the belief that the income had escaped assessment. The court reviewed the affidavit-in-opposition and found that while the proceedings and findings under section 26A of the old Act were mentioned, no specific particulars of the material were provided. The court noted that the records of the proceedings under section 26A did not clearly lead respondent No. 1 to the belief necessary for issuing the notice under section 148. The court concluded that there was no sufficient material before respondent No. 1 to induce such belief.
3. Reasonableness of the Belief:
Assuming that some material was present, the petitioner contended that such material could not reasonably lead to the belief that income had escaped assessment. The court referred to the principles laid down by the Supreme Court in Calcutta Discount Co. Ltd. v. Income-tax Officer and Narayanappa v. Commissioner of Income-tax. It was held that the belief must have a rational connection to the formation of the belief and not be based on extraneous or irrelevant factors. The court found that the information provided by the Income-tax Officer, "J" Ward, District III(2), was not sufficient to reasonably lead to the belief that the income had escaped assessment.
4. Validity of the Finding under Section 26A:
The petitioner argued that the finding of the Income-tax Officer, "J" Ward, District III(2), regarding the benami transaction was not arrived at on any issue involved in the proceedings under section 26A and was beyond jurisdiction. The court noted that even if the finding was beyond jurisdiction, it could still be considered as information. However, the court found that the respondent No. 1 did not independently verify or consider this information to form a belief. Therefore, the court did not delve deeply into the validity of the finding under section 26A but focused on the lack of independent consideration by respondent No. 1.
5. Disclosure of Material in Affidavit:
The petitioner contended that respondent No. 1 did not disclose the material leading to his belief in the affidavit filed in opposition to the petition. The court reviewed the affidavit and found that it did not provide specific particulars of the material. The court concluded that the conditions precedent for issuing the notice under section 148 were not fulfilled as the material leading to the belief was not adequately disclosed.
Conclusion:
The court held that respondent No. 1 did not genuinely believe that the income had escaped assessment, had no sufficient material to induce such belief, and did not reasonably form such belief. The court struck down the notice dated 28th March, 1970, and the proceedings initiated by it. However, the court clarified that respondent No. 1 could initiate reassessment proceedings on proper materials as per section 147 of the new Act, and the petitioner would have all legal rights and remedies available. The rule was made absolute, and no order for costs was made. A stay of operation of the order was granted for six weeks.
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1971 (2) TMI 14
Issues Involved:
1. Justification of the Income-tax Officer in issuing notices under section 148 of the Income-tax Act, 1961.
2. Vagueness of the notices issued under section 148 of the Income-tax Act, 1961.
3. Existence of Hindu undivided family (HUF) for the relevant assessment years.
Issue-wise Detailed Analysis:
1. Justification of the Income-tax Officer in issuing notices under section 148 of the Income-tax Act, 1961:
The primary issue was whether the Income-tax Officer was justified in issuing notices under section 148 of the Income-tax Act, 1961, for the relevant assessment years. The petitioner contended that the Hindu undivided family (HUF) had disrupted after the institution of the partition suit and that the notices could not be issued to the HUF. The petitioner argued that there was no reason for the Income-tax Officer to believe that there was an HUF for the relevant assessment years or that any income belonging to the HUF had escaped assessment or been under-assessed.
The court examined the affidavit-in-opposition, which stated that there had been no actual partition by metes and bounds, and therefore, the coparceners did not become co-owners of the properties. The court noted that the Income-tax Officer's reasons for starting proceedings under section 147 were based on the assumption that an actual partition by metes and bounds had not taken place. However, the court highlighted that the law, as settled by the Privy Council and the Supreme Court, states that the disruption of an HUF occurs upon the institution of a suit for partition, and the joint status ends without needing a division by metes and bounds.
The court concluded that since there was no evidence or grounds to believe that the partition suit was filed fraudulently or as a make-belief, it could not be said that there was an HUF during the relevant assessment years. Therefore, the Income-tax Officer's basis for issuing the notices was erroneous, and the notices were liable to be quashed.
2. Vagueness of the notices issued under section 148 of the Income-tax Act, 1961:
The petitioner argued that the notices issued under section 148 were vague as they did not specify whose income was alleged to have escaped assessment. The notices were addressed to "Bijoy Kumar Burman and others," without indicating the status of the HUF or specifying the individuals involved. The petitioner contended that such vagueness made it unclear to whom the notices referred, especially since there was an HUF consisting of Bijoy Kumar Burman, his wife, and sons.
The court, however, did not delve deeply into this issue, as it had already decided in favor of the petitioner on the first point regarding the justification of the notices. Therefore, the court did not find it necessary to discuss the aspect of the vagueness of the notices further.
3. Existence of Hindu undivided family (HUF) for the relevant assessment years:
The revenue contended that the question of whether the HUF existed was a question of fact and should not be entertained by the court. However, the court emphasized that when the reasons for the formation of the belief are disclosed and it appears that they are not legally tenable or lack a rational nexus, the petitioner is entitled to seek relief under article 226 of the Constitution.
The court reiterated that the law is well-settled that the disruption of an HUF occurs upon the institution of a suit for partition, and the joint status ends without needing a division by metes and bounds. Since there was no evidence or grounds to believe that the partition suit was filed fraudulently or as a make-belief, it could not be said that there was an HUF during the relevant assessment years. Therefore, the court held that the department's assumption that the joint status continued until an actual division by metes and bounds was erroneous.
Conclusion:
In conclusion, the court directed the respondents to cancel, withdraw, and rescind the notices issued under section 148 of the Income-tax Act, 1961, for the assessment years 1960-61 to 1963-64 and 1956-57 to 1959-60. The court issued writs in the nature of mandamus accordingly and made the rule absolute to the extent indicated. The court also ordered a stay of operation of this order for six weeks from the date. There was no order as to costs.
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1971 (2) TMI 13
Issues:
1. Whether certain shares purchased by the assessee were its stock-in-trade or by way of investment.
Analysis:
The judgment of the High Court of Allahabad involved the consideration of whether shares purchased by the assessee were stock-in-trade or investments for the assessment years 1951-52 and 1952-53. The assessee, a partnership firm dealing in shares, claimed losses on shares of Maheshwari Devi Jute Mills Co. Ltd. and Muir Mills Co. Ltd. The Income-tax Officer and the Appellate Assistant Commissioner treated the losses as capital losses, while the Appellate Tribunal ruled in favor of the assessee, stating that the shares were stock-in-trade. The matter was referred to the High Court to determine whether the shares were indeed stock-in-trade or investments.
The first set of shares discussed were those of the jute mills. The Appellate Assistant Commissioner highlighted various circumstances to support the view that the shares were purchased as investments. However, the High Court found that the circumstances raised only suspicion and were not conclusive in establishing that the shares were not stock-in-trade. The nature of the business of the assessee, supported by an affidavit filed, indicated that the shares were indeed stock-in-trade. The Court held that the department failed to prove that the shares were not stock-in-trade, and thus accepted the assessee's claim.
Moving on to the shares of Muir Mills, the Appellate Assistant Commissioner suggested that the shares were purchased to gain control over the company. However, the High Court found that the circumstances presented were not sufficient to prove that the shares were acquired as investments. The Court concluded that the assessee had successfully demonstrated that the shares in both transactions were stock-in-trade, and the department had not substantiated their claim that the shares were purchased as investments.
In conclusion, the High Court answered the question in favor of the assessee, stating that the shares in question were indeed stock-in-trade. The Commissioner of Income-tax, U.P., was directed to pay the assessee costs of the reference.
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1971 (2) TMI 12
Notices under section 148 proposing to reopen the assessment - petitioner moved this Court in writ jurisdiction after a lapse of about five years - delay and laches on part of petition - petitioner cannot be granted writ as it would undoubtedly "cause prejudice" to the respondents
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1971 (2) TMI 11
Issues Involved:
1. Taxability of the unpaid balance of the sale price of bungalows.
2. Assessability of rental income from bungalows in possession of purchasers without transfer of ownership.
3. Taxability of interest credited to the interest account for properties in possession of purchasers without transfer of ownership.
4. Inclusion of realized sale proceeds of properties sold prior to April 1, 1956, in the total income for subsequent assessment years.
Detailed Analysis:
Issue 1: Taxability of the Unpaid Balance of the Sale Price of Bungalows
The primary issue was whether the unpaid balance of Rs. 1,38,868 from the sale of bungalows should be included in the assessee's income for the assessment year 1957-58. The assessee argued that this amount was not receivable in the accounting year but at a future date. The Tribunal, however, held that the entire balance was rightly included in the income as the assessee had switched from a cash basis to a mercantile system of accounting. The court agreed, stating that under the mercantile system, income is taxable when it accrues, not when it is received. Thus, the entire amount had accrued to the assessee in the relevant year of account.
Issue 2: Assessability of Rental Income from Bungalows in Possession of Purchasers Without Transfer of Ownership
The second issue was whether rental income from bungalows, where possession had been handed over to purchasers but ownership had not been transferred, was assessable in the hands of the assessee. The Tribunal held that the assessee remained the owner of the properties as no formal conveyance was executed. The court agreed, emphasizing that under Section 9 of the Income-tax Act, the term "owner" refers to the legal owner. Since the purchasers were only in possession without a formal transfer of ownership, the rental income was rightly assessed in the hands of the assessee.
Issue 3: Taxability of Interest Credited to the Interest Account for Properties in Possession of Purchasers Without Transfer of Ownership
The third issue related to whether the interest credited to the interest account for properties in possession of purchasers without ownership transfer was rightly excluded from the assessee's income. The Tribunal had excluded this interest from the assessee's income, but the court disagreed. It held that since the assessee remained the owner of the properties, the interest was legitimately due to the assessee and should be included in the income. Therefore, the interest credited to the interest account was taxable in the hands of the assessee.
Issue 4: Inclusion of Realized Sale Proceeds of Properties Sold Prior to April 1, 1956, in the Total Income for Subsequent Assessment Years
The fourth issue was whether the sums of Rs. 12,866 and Rs. 14,598, being realizations of the sale proceeds of properties sold prior to April 1, 1956, should be included in the total income for the assessment years 1958-59 and 1960-61, respectively. The assessee argued that these amounts accrued earlier and should not be taxed in the relevant assessment years. However, the court noted that the assessee had shown these amounts as received in the income-tax years relevant to the assessment years in question. Therefore, these amounts were rightly included in the income for the assessment years 1958-59 and 1960-61.
Conclusion:
- Question 1: Affirmative - The addition of Rs. 1,38,868 was justified.
- Question 2: Affirmative - The rental income was assessable in the hands of the assessee.
- Question 3: Negative - The interest credited to the interest account should be included in the income.
- Question 4: Affirmative - The sums of Rs. 12,866 and Rs. 14,598 were rightly included in the total income for the relevant assessment years.
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1971 (2) TMI 10
Income assessed arise from unsurveyed lands - Liability to pay tax under the Kerala Land Tax Act - agricultural income liable to agricultural income tax - Word "assess" - Interpretation of the term "assessed to land revenue in the State" in the context of the Kerala Land Tax Act -HELD THAT:- Though all lands in the State are subject to land tax, the income from lands in respect of which the tax payable has been determined by the revenue would be charged to agricultural income-tax; and income from lands in respect of which the tax payable has not been determined, would not be liable for agricultural income-tax. I am unable to see any justification for such a differentiation.
The word "assess" has got the meaning "to tax", and in my view the word "assessed" is used in the definition of "agricultural income" in that sense. It follows that the income derived from land subject to land revenue under the Kerala Land Tax Act, 1961, would be agricultural income liable to agricultural income-tax. In the result these writ petitions are dismissed. There will be no order as to costs.
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1971 (2) TMI 9
Issues Involved:
1. Validity of the assessment order under Section 143(3) of the Income-tax Act, 1961.
2. Compliance with the principles of natural justice under Section 142(3) of the Income-tax Act, 1961.
3. Effect of failure to raise the issue of natural justice before appellate and revisional authorities.
4. Impact of appellate and revisional orders on the original assessment order.
5. Discretion of the court under Article 226 of the Constitution of India.
Detailed Analysis:
1. Validity of the Assessment Order under Section 143(3) of the Income-tax Act, 1961:
The petitioner, a dealer in hill produce, was assessed to income-tax for the year 1964-65. The Income-tax Officer (ITO) rejected the accounts produced by the petitioner and made a best judgment assessment under Section 143(3) of the Income-tax Act, 1961, adding Rs. 10,000 to the income from dry ginger and Rs. 1,000 from pepper transactions. The ITO estimated the profit in dry ginger at 12% and in pepper at 2% of the turnover. The petitioner appealed, but the Appellate Assistant Commissioner dismissed the appeal. The Commissioner of Income-tax, in revision, upheld the ITO's finding for dry ginger but deleted the Rs. 1,000 addition for pepper.
2. Compliance with the Principles of Natural Justice under Section 142(3) of the Income-tax Act, 1961:
The petitioner contended that he was entitled to notice under Section 142(3) of the Act regarding the materials gathered by the ITO and to have his say about them. The ITO had gathered materials from sources other than the records relevant to the year of assessment, which required giving the petitioner an opportunity to be heard. The court held that an ITO must give an opportunity to the assessee in respect of materials gathered from sources other than the records relevant to the year of assessment.
3. Effect of Failure to Raise the Issue of Natural Justice Before Appellate and Revisional Authorities:
The revenue argued that the petitioner did not raise the issue of non-compliance with natural justice before the appellate or revisional authorities and should not be allowed to raise it in the court. However, the court noted that the failure to conform to the principle of natural justice of audi alteram partem would make a judicial or quasi-judicial order void. The petitioner had no opportunity before the ITO to raise the objection, and thus, it could not be said that he acquiesced or waived his objection.
4. Impact of Appellate and Revisional Orders on the Original Assessment Order:
The revenue contended that the original order had merged into the appellate and revisional orders, which were passed after giving the petitioner an opportunity of being heard. However, the court held that where a decision is null by reason of want of jurisdiction, it cannot be cured by any appellate proceedings. The appellate and revisional orders could not validate the original order if it was void due to non-compliance with natural justice.
5. Discretion of the Court under Article 226 of the Constitution of India:
The court emphasized that it is only in exceptional circumstances that it would decline to issue a writ when an order of an administrative authority performing a quasi-judicial function is a nullity for failure to conform to the principle of natural justice. The court found that the petitioner had no opportunity to object to the ITO's procedure and thus had not waived his right to challenge it. The court quashed the orders of the Commissioner, the ITO, and the appellate authority to the extent they assessed the petitioner to income-tax on the income from transactions in dry ginger and pepper.
Conclusion:
The court quashed the assessment order and the subsequent appellate and revisional orders due to non-compliance with the principles of natural justice, specifically the failure to provide the petitioner an opportunity to be heard on the materials gathered by the ITO. The court emphasized the importance of adhering to natural justice principles and held that appellate and revisional proceedings could not cure the original order's invalidity.
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1971 (2) TMI 8
Whether Tribunal has been correct in finding that the Appellate Assistant Commissioner went wrong in holding that it was not open to the Agricultural Income-tax Officer to include the value of pepper alleged to have been carried over to the subsequent year in the assessable income for the year in question
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9911796707
