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TMI Blog2004 (7) TMI 315X X X X Extracts X X X X X X X X Extracts X X X X ..... r admission to the benefits of the partnership firm was required to be included in appellant's total income as per the provisions of s. 64(1)(iii) but the appellant had not included such income while furnishing his return of income. The AO initiated reassessment proceedings under s. 147 and completed the assessment after including the share income of the minors amounting to Rs. 39,940. In response to notice under s. 148, the assessee himself included such an income of the minors in his hands. The AO also made additions on account of low withdrawals on household expenses which were further reduced by the Dy. CIT(A). The penalty proceedings were initiated for not including the income in the minors' hands. The learned CIT(A) decided this issue by following the decision of the Hon'ble Supreme Court in the case of CIT vs. Smt. P.K. Kochammu Amma Peroke (1980) 19 CTR (SC) 196 : (1980) 125 ITR 624 (SC), wherein it was held by the apex Court that the assessee's failure to include in his return taxable income under s. 64 attracts the applicability of s. 271(1)(c) of the Act. 5. The case of the learned Authorised Representative, Shri U.C. Jain, is that the assessee submitted the original re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we decide the issue in controversy, we will have to trace the history and intention of the legislation which enacted Chapter V of the IT Act, 1961. Secs. 60-65 of the Act fall under Chapter V of the Act and by virtue of these sections different types of income of other persons are included in assessee's total income. Sec. 64 (income of individual to include income of spouse and minor child, etc.) orders as under: Secs. 60 to 65 of the 1961 Act; ss. 16(1)(c) and 16(3) of the 1922 Act. In Chapter V, the income-tax law deviates from the general principle that an assessee has to be taxed in respect of his own income. The intention is to counteract a generally prevalent and growing tendency on the part of taxpayers to dispose of their property or income in such a way that a liability may be minimised or avoided. Sec. 60 makes transferred income assessable in the hands of the transferor where there is mere transfer of income but no transfer of assets. Sec. 61 makes income arising out of a revocable transfer of assets assessable in the hands of the transferor. Sec. 62 deals with transfers which are made irrevocable, not for all time but for a specified period. Sec. 64 defines the w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) It is clear from s. 64(1)(i) and (iii) that though the share of the spouse or minor child in the profits of a 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 firm. If this be the correct legal position, there can be child in the profits of the 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 firm in which he is a partner, since they form part of his total income chargeable to tax. The words "his income" in s. 139(1) must include every item of income which goes to make up his total income assessable under the Act. 8. Having discussed the relevant provisions, we would now see as to how far the Supreme Court decision in Smt. P.K. Kochammu Amma's case i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see. It must, therefore, follow a fortiori 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 s. 4 on the total income of the assessee and 'total income' is defined in s. 2, sub-s. (45), to mean 'the total amount of income referred to in s. 5 computed in the manner laid down' in the Act. It is no doubt true that the definition of 'total income' in s. 2, sub-s. (45), refers to s. 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 provisions 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. Now, s. 64, sub-s. (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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TO had only changed his opinion and reopened the assessment. We agree with that view. The order of reassessment was made well within four years from the date of the last day of the year of asst. yr. 1954-55. The notice was, therefore, competently issued by the ITO." 11. The Supreme Court two-Judges Bench followed the decision of Muthiah's case and dismissed the appeal of the Department, but passed certain 'obiter dictum'. The 'obiter' cannot override the main decision. So, the decision in P.K. Kochammu Amma, was that penalty cannot be levied under s. 271(1)(c) of the Act. The final decision was that penalty cannot be levied in such circumstances. 12. In the given case, as we have already narrated the relevant facts, the assessee did file returns of minors, etc. before the same ITO for the assessment year under consideration. There was a mistake in not filing the 'total income' in the light of s. 64(1) of the Act. The mistake, in our opinion, seems to be bona fide. This mistake has been attributed to the counsel who prepared the returns. This plea was taken by the assessee in his letter whose copy has been placed before us in A.P.B. (assessee's paper book). The income of the mino ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15. The Hon'ble Court held as under: "(i) That the Tribunal was right in holding that no obligation was cast on the assessee to include in his return of income, the income rising to his wife and minor sons which were includible in his income in terms of s. 64 of the Act. The failure of the assessee to do so did not attract the penal provisions of s. 271(1)(c) of the Act against him. (ii) That the amounts of income added as "income from other sources" were by mere estimate. The assessee denied having earned any such income and further stated that the estimate was faulty and should not give a handle to the Department to levy penalty on him. Once the assessee made out such a plea, it was incumbent on the IAC to indicate by some material that the estimated additions were not mere estimates but real and proper estimates of such income as the assessee had not returned. Further, the Tribunal's order showed that it was very much conscious of the provisions of the Explanation to s. 271(1)(c) of the Act. It was only thereafter that the Tribunal had dealt with the question of penalty under s. 271(1)(c) of the Act. Therefore, the additions made on estimate under the head 'income from other ..... X X X X Extracts X X X X X X X X Extracts X X X X
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