TMI Blog1956 (1) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax Officer (Shri P.N. Das Gupta) at first took the return as of the right person and drafted an assessment order dated 31st May, 1948, assessing Srimati Lila Devi for 1947-48 in the sum of ₹ 11,835 (made up of ₹ 385 income from property and ₹ 11,500 business profits). But he seems to have later entertained a doubt about the correctness of such an assessment. He scored off the direction to issue demand notice and challan to the lady and issued a notice to her on 9th June, 1948, as follows: Madam, I have the honour to request you to explain the source from which the funds came for your capital contribution, with necessary documentary evidence, on 14th June, 1948, at 11 A.M. I have, etc. (Sd.) P.N. Das Gupta. The lady replied by letter dated 22nd June, 1948, that the capital of the Cinema business came from dowry money given by her father, whose name and address were also furnished. The capital referred to was the sum of ₹ 25,381-10 shown as capital in the balance sheet of the Cinema business as at 31st March, 1947, which had been filed before the Income-tax Officer. The latter was not satisfied with the truth of this explanation. He obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome as already assessed. After further inquiry, a supplemental assessment was made by a new Income-tax Officer (Shri S.C. Chakravarty) on 30th May, 1950, including the sum of ₹ 25,381 also in the assessee's income. The only reason that he gave was in these sentences: In the absence of any evidence (in support of the plea that the money was gifted to Shrimati Lila Devi by her father), I consider the sum of ₹ 25,381-10 as money advanced by Mr. P.R. Mukherjee, husband of Shrimati Lila Devi, for the construction and equipment of Shyama Sree Cinema. As the origin and source of the money has not been proved, I treat the amount as income of Mr. P.R. Mukherjee from some undisclosed sources. 6. The assessee's appeal to the Appellate Assistant Commissioner against the supplemental assessment was dismissed. The Appellate Assistant Commissioner held that section 34 was rightly applied, and that even if under the ordinary law the sum of ₹ 25,381 would be the income of the wife, under section 16(3), such income was the assessee's income. The assessee thereupon appealed to the Tribunal. It was contended for him that the Income-tax Officer when he issued n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the lady and which has been functioning since March, 1946. In February, 1948, Lila Devi voluntarily submitted a return of her income for the accounting year 1946-47 which, in her case, was the usual financial year. The return showed an income of ₹ 334-13-0 from property and ₹ 5,682-7-0 as income from the cinema business. The Income-tax Officer accepted the lady's figure as regards her income from property, but thought that the true income from the cinema business should be ₹ 11,500 and not the amount shown by her. He did not, however, complete the assessment. He was about to do so when his mind appears to have been assailed by doubts as to whether the capital on which the business was being run was the lady's own and, if not, whether she would be the right person to be assessed. For the removal of that doubt he issued a notice to the lady on the 9th of June, 1948, and asked her to explain the source from which the capital introduced by her into the business had come. The amount, it appears, was ₹ 25,381. By a letter, dated the 22nd June, 1948, the lady replied to the notice served on her and stated that the capital of the cinema business had come ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied with the fruits, he seems to have forgotten the tree. But the Income-tax Officer had not yet done with the assessee. Apparently, his mind continued to dwell on the assessment and on the 17th of October, 1948, he recorded a note to the effect that the assessee had not disclosed, in the course of his assessment, the fact that it was he who had advanced to his wife the capital for the cinema business. This, the Income-tax Officer added, he had already found to be a fact and since the fact had not been disclosed by the assessee, it was a case to be dealt with under section 34(1)(a) of the Act. The Income-tax Officer next proceeded to obtain the Commissioner's sanction under the proviso to sub-section (1) of section 34 and having obtained it, directed on the 9th of January, 1950, that a notice do issue to the assessee. Actually, the notice was issued on the 11th of January, 1950, and it was a notice under section 34 of the Act, not specifying whether it was under clause (a) or clause (b) of the sub-section. By the time the stage of assessment was reached the Income-tax Officer who had so long been dealing with the case had apparently been transferred to some other charge. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee as an income amount. Before the Tribunal, it appears to have been contended that the Appellate Assistant Commissioner had not been right in holding that the question, whether or not the capital had been contributed by the assessee, stood concluded by the order of the original assessment which had become final. The Tribunal thought that the view taken by the Appellate Assistant Commissioner was right. They pointed out-a fact which I had forgotten to mention-that in the return filed by the assessee in compliance with the present notice under section 34, he showed his income as the amount already assessed, thus including therein the wife's income and making no protest as to the same. Two other points were urged before the Tribunal. It was contended that the Income-tax Officer had no jurisdiction in the facts of the case to issue a notice under section 34 and consequently, the assessment was invalid. It was next contended that even assuming that the assessment was grounded in a valid notice, it was still bad on the merits, inasmuch as the lady's explanation as to the source from which the capital amount had come ought to have been accepted. The Tribunal overruled both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rame of the question before the Tribunal, but it appears to me that whether or not any objection was taken would be immaterial, if indeed the actual notice issued in the case had been described in the question inaccurately. It appears, however, from a reference to the office copy of the notice which is on the record that, actually, it did not mention clause (a) of section 34(1) and indeed did not even mention sub-section (1) of the section, but simply mentioned section 34. There can thus be no valid objection to the form of the first question. Taking the first question now on the merits, the Tribunal has found, as I have already pointed out, that the facts of the case brought it both under clause (a) of section 34(1) and clause (b). Mr. Pal's first contention was that neither of the clauses was attracted, but I did not hear him advance any substantial ground in support of that contention. Clause (a) of section 34(1) contemplates a case where there has been omission or failure on the part of an assessee to make a return of his income under section 22 for any year or to disclose fully and truly all material facts necessary for his assessment for that year and where, by reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... still, it could not be that the escape from assessment had been due to such omission or failure-the Income-tax Officer having discovered the contribution-because what the Income-tax Officer had found positively was only that the money had been paid by the assessee but not also that it had been paid out of his income. The latter, the Income-tax Officer might well have come to believe latter. In my view, the case comes clearly under clause (a) of section 34(1) and if that be so, it does not appear that it is necessary to consider the first question further. But the Tribunal has held that the case came under clause (b) as well and we had some argument before us on that alternative view. The important words with which clause (b) opens are: Notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee. The clause, therefore, presupposes the absence of some conduct on the part of the assessee of which clause (a) contemplates presence. What is such conduct? The words of clause (a) are: omission or failure.........................to disclose fully and truly all material facts --I am leaving out the case of an omission or failure to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstances, I find it difficult to agree with the Tribunal that clause (b) also might apply to the case. I am not forgetting that the matter has got to be looked at from the Income-tax Officer's point of view or, to put it more accurately, by reference to the state of his mind at the relevant time and the aspect which the facts might appear to bear in his view. Regarded from that stand point as well, I do not think that the position is any different. The Income-tax Officer had himself found in the earlier assessment that the assessee had advanced to his wife the capital of the Shyamasree business. In the order recorded on the 17th of October, 1949, he referred to that finding and went on to say this fact was not disclosed by the husband in his assessment. This is therefore a case under section 34(1)(a). I cannot, therefore, see how, even regarded from the Income-tax Officer's point of view, it could be said that this was a case where there had been no omission or failure as mentioned in clause (a) of section 34(1). In my opinion, the case came clearly under clause (a) of section 34(1) and the issue of the notice, taken as a notice under that clause, and the assessment b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... new points which had never been raised or investigated before the authorities below. I do not therefore feel called upon to deal even with the second of the new points sought to be raised by Mr. Pal. I may, however, observe in passing that it does not appear to me to have any substance. The statute does not prescribe any form in which the notice contemplated by section 34 should be issued. The principal fact in both clause (a) and clause (b) of section 34(1) is that income has escaped assessment for any year or has been under-assessed or assessed at too low a rate. That fact is common to both the clauses. The difference between the two clauses is that clause (a) contemplates a case where the assessment or under-assessment was caused by an omission or failure on the part of the assessee to do certain things and clause (b) contemplates a case where such escape from assessment or under-assessment occurred in spite of there having been no such omission or failure. The practical consequence of the presence of such omission or failure in one case and the absence thereof in the other is that, in the first case, the period within which the notice contemplated by the section can be issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplanation. Can it be said that in such a case as that, if the explanation is accepted, the Income-tax Officer will be prevented from making an assessment on the basis that the case comes under clause (b) of section 34(1) provided he is within time for the purposes of that clause? Whether or not there had been an omission or failure to disclose the income, the fact that the income had escaped assessment will remain and if income which ought to have been assessed is discovered as having remained unassessed, that will be a sufficient ground for proceeding to its assessment, provided, however, the period of limitation has not already expired. I am giving that illustration only for the purpose of pointing out that the Income-tax Officer cannot possibly be tied down to the section or the clause which he mentioned in the notice and if he be free to make an assessment, provided there is some escaped or under-assessed income and provided that the time for making an assessment has not run out, it cannot be essential to the validity of a notice that a particular clause of section 34(1) should be specified. I do not wish to say anything further on this point, as I have already held that not h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e income of ₹ 11,500. The conclusion, therefore, seems to me to be inescapable that the assessee was accepting the ownership or the prior ownership of the amount. If then he did so, it must now be treated in the first instance as an amount of money which had gone from him to the wife's business, although it is theoretically possible that it might have been paid by him as much out of some capital fund in his possession or out of borrowed money or out of his income. It does not appear from the materials before us that the assessee ever contended that this amount, although contributed by him, had not been contributed out of his income or that he had claimed to have contributed it out of borrowings or out of some capital fund. It is also to be remembered that in the return filed in compliance with the second notice under section 34, the assessee included the wife's income from business and house property in his own assessment and when confronted by a threatened assessment on the capital amount contributed by him on the basis that it had been paid out of his income, he does not seem to have offered any explanation. In those circumstances, I find it impossible to hold that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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