TMI Blog1981 (4) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... 963-64 and 1964-65 ? (2) Whether the Tribunal was right in holding that the liability to pay tax on the amount disclosed under section 68 of the Finance Act, 1965, arose not under that Finance Act but under section 3 of the Indian Income-tax Act, 1922 ? " Having regard to the assessment years in question, the second question should be read as including within its scope also the question whether the Tribunal was right in holding that the liability to pay tax on the amount disclosed under s. 68 of the Finance Act, 1965, arose not under that Finance Act but under s. 4 of the I.T. Act, 1961. The assessee, who is the appellant in these appeals, hail been assessed on the basis of His returns of net wealth and the statements filed therewith in the status of an individual to wealth-tax under s. 16(3) of the Act during the assessment years 1957-58 to 1964-65 on various dates between January 15, 1960, and July 14, 1964. Subsequently, the assessee made disclosure under s. 68 of the Finance Act, 1965 (hereinafter referred to as " the Finance Act "), of Rs. 7,00,000 which had been shown as having been covered by some hundi transactions with a concern known as M/s. Abdul Razack Co. in hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioned in the above statement in the net wealth of the respective assessment years and determined the wealth-tax payable by the assessee. The appeals filed by the assessee against the orders of the WTO before the AAC were dismissed. On further appeal to to the Income-tax Appellate Tribunal, the Tribunal held that the deduction claimed in respect of each assessment year was in truth and substance a liability under the Indian I.T. Act, 1922, or the I.T. Act, 1961, as the case may be, and not a new liability created by the Finance Act, and, therefore, it constituted a " debt owed " by the assessee on the respective valuation dates within the meaning of s. 2(m) of the Act and that the deduction claimed should be allowed while computing the net wealth of the assessee. Accordingly, the Tribunal allowed the appeals of the assessee. Thereafter, at the instance of the CWT, the Tribunal referred under s. 27 of the Act the two questions mentioned above to the High Court. After hearing the parties, the High Court answered both the questions in the negative and in favour of the revenue by its judgment dated December 21, 1972. On a certificate granted by the High Court under s. 29(1) of the Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Acts has been taken before the 1st day of March, 1965, he shall, notwithstanding anything contained in the said Acts, be charged income-tax at the rate specified in sub-section (3) in respect of the amount so declared if he,- (i) pays the amount of income-tax as computed at the said rate, or (ii) furnishes adequate security for the payment thereof in accordance with sub-section (4) and undertakes to pay such income-tax within period, not exceeding six months, from the date of the declaration as may be specified by him therein, or (iii) on or before the 31st day of May, 1965, pays such amount as is not less than one-half of the amount of income-tax as computed at the said rate or furnishes adequate security for the payment thereof in accordance with sub-section (4), and in either case assigns any shares in, or debentures of, a joint stock company or mortgages any immovable property, in favour of the President of India by way of security for the payment of the balance, and undertakes to pay such balance within the period referred to in clause (ii). (2) The declaration shall be made to the Commissioner, and shall specify the period required to be specified under clause (ii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), or claim any set-off or relief in any appeal, reference, revision or other proceeding in relation to any such assessment or reassessment. (6) (a) Any amount declared by any person under this section in respect of which the tax referred to in sub-section (3) is paid shall not be included in his total income for any assessment under any of the Acts mentioned in sub-section (5) if he credits in the books of account, if any, maintained by him for any source of income or in any other record, the amount declared as reduced by the tax paid thereon under this section..." Section 68(1) of the Finance Act provides that where any person makes a declaration in accordance with s. 68(2) in respect of any amount representing income which he has failed to disclose in his return or which has escaped assessment for any assessment year for which an assessment has been made before March 1, 1965, under either of the two Acts, namely, the Indian I.T. Act, 1922, and the I.T. Act, 1961, or for the assessment of which no proceeding is taken before March 1, 1965, he shall, notwithstanding anything contained in the said Acts, be charged income-tax at the rate specified in sub-s. (3) thereof in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son under s. 68 is about an amount representing his income earned in an earlier accounting period which has not been subjected to tax in the ordinary course although income-tax was payable in respect of it. If the declarant pays tax at the rate specified in sub-s. (3) of s. 68 he would be absolved from any further liability to tax on such income. The declaration has to be made before the Commissioner and it should contain full information, namely, whether he was assessed to income-tax or not and if assessed, the name of the I.T. Circle in which he was assessed, the amount of income declared giving, where available, details of the financial year or years in which the income was earned and the amount pertaining to each such year and whether the amount declared is represented by cash (including bank deposits), bullion, investment in shares, debts due from other persons, commodities or any other assets and the name in which it is held and the location thereof. Section 68 also states at more than one place that what is payable pursuant to a declaration is income-tax. Section 68(1) contains words such as, " he shall, notwithstanding anything contained in the said Acts be charged income-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year it cannot be ordinary income-tax, and (iii) the disclosed income is chargeable to tax without allowing usual deductions and without providing for any procedure for quantification. The High Court proceeded to hold that s. 68 enacted a new charge of tax, on an ad hoc basis, on disclosed income irrespective of the assessment year in which it was earned. The disclosure of concealed income coupled with the payment of tax as contemplated in cl. (i) of sub-s. (1), according to the High Court, not only created a charge of tax but also satisfied it. In its view, the disclosure of concealed income coupled with furnishing of security and undertaking as contemplated in cl. (ii) created a new charge of tax and when the undertaking wag carried out by the payment of tax, the liability arising from the charge of tax was satisfied. One basic fallacy underlying the conclusion of the High Court that new charge is being levied under s. 68 appears to be the assumption that the amount in question in respect of which tax is payable under that provision was not liable to income-tax earlier. It should be borne in mind that the declaration contemplated under s. 68 is a declaration in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng year, whichever is more favourable to the assessee. All the, ingredients of a debt are present. It is a present liability of an ascertainable amount. " It is thus clear that if the assessee had brought to the notice of the department in the usual course the existence of incomes which were later on declared under s. 68, they would have been taxed during the relevant assessment year. Hence merely because they are disclosed in a declaration filed under s. 68, they cannot cease to be incomes not already charged for income-tax. It is true that the Finance Act in question merely levied fixed rate of income-tax in respect of all the income disclosed without allowing deductions, exemptions and set-offs under the relevant income-tax law. Yet its function was no more than that of a Finance Act passed annually even though it made certain alterations with regard to filing of declaration and computation of taxable income. It was, however, urged on behalf of the department that the nature of the declaration which was dependent upon the volition of the declarant and the fact that the liability to tax the amount mentioned therein was contingent upon the willingness of the declarant to discl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was in possession of unaccounted funds represented by non-genuine hundis which had progressively reached the level of Rs. 7,01,578 during the assessment year 1964-65, from the level of Rs. 4,57,465 in 1959-60, by gradual accumulation of income. But for this assumption, in the absence of any other material, reassessment under the Act would have been possible only in the last year in which the disclosure was made. That, however, is not the case here. The High Court in support of its view has relied on the decision of the Kerala High Court, though not on the reasoning given in support of that decision in C. K. Babu Naidu v. WTO [1971] 82 ITR 410 (Ker). That decision has since been reversed in appeal by a Division Bench of that court in C. K. Babu Naidu v. WTO [1978] 112 ITR 341 (Ker) in which the Kerala High Court has held that the liability for tax arising under s. 68 of the Finance Act was nothing other than the liability under the I.T. Act, 1961, itself and accordingly has allowed the deduction of tax paid under s. 68 as a " debt owed " on the valuation date. In CWT v. Girdhari Lal [1975] 99 ITR 79 (Delhi), CWT v. B.K. Sharma [1977] 110 ITR 902 (All), CWT v. Bansidhar Poddar [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year 1953-54 by the Finance Act, 1953. This court held that income-tax was tax on the income of the previous year and it would not cover something which was not the income of the previous year or made fictionally so and according to the scheme of that provision it was impossible to say that the additional income-tax was properly levied upon the total income because what was actually taxed was never a part of the total income of the previous year. This decision is clearly distinguishable from the present case where what is taxed is the income which was ordinarily liable to tax but which had not been included in the return of the assessee, or which had escaped assessment or which was still to be assessed to income-tax under the relevant I.T. Act. It was in fact a part of the total income though not assessed till the declaration was made. Merely because it is stated that the rate of tax charged on the amount declared is sixty per cent. or fifty-seven per cent., as the case may be, it does not cease to be part of the total income. This is not a case where what was not in fact income had been converted into income by s. 68. For the same reason, the department cannot derive any support ..... X X X X Extracts X X X X X X X X Extracts X X X X
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