TMI Blog1974 (5) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... in the circumstances of the case, the amount of Rs. 2,84,658 claimed by the assessee in respect of the amount of unassessed income disclosed voluntarily by it under section 68 of the Act of 1965 is a permissible deduction in the computation of the Finance net wealth of the assessee as on the valuation dates corresponding to the assessment years 1959-60 to 1964-65, particularly in view of the fact that the assessee's share of the undisclosed income, namely, Rs. 4,74,429, has been included as part of the net wealth of the assessee for each of these assessment years ? " Although the questions referred in each of the cases are differently worded, in substance, they are the same questions and the facts out of which these questions arose are also the same in both the cases. Therefore, both these wealth-tax references are disposed of by a common judgment. Shri Nath Mal and Girdhari Lal (who will be hereinafter referred to as "the assessees") are partners of the firm of M/s. Nath Mal Girdhari Lal having equal shares. On May 31, 1965, the firm of Nath Mal Girdhari Lal made a voluntary disclosure of its income under section 68 of the Finance Act of 1965 in the following terms : " We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missioner of Wealth-tax and H. H. Setu Parvati Bayi v. Commissioner of Wealth-tax . The assessees' claim was opposed by the department on the ground that in respect of the amount which was voluntarily declared by the firm under section 68 of the Finance Act of 1965, the tax liability did not arise under the normal provisions of the Income-tax Act and that the tax liability arose only under the provisions of section 68 of the Finance Act of 1965. The Tribunal accepted the contention of the department to the extent that the tax liability in respect of the amount declared by the firm could not be said to have arisen before March 1, 1965, and that the Finance Act of 1965 provided for a machinery and also a tax liability in respect of certain items which were quite independent of the provisions of the Income-tax Act. The Tribunal, however, did not accept the further contention of the department that for that reason the deductions claimed by the assessees did not represent a debt owed within the meaning of section 2(m) of the Act on each of the valuation dates relevant to the assessment years under reference. The Tribunal held that though the declaration was made by the firm in May, 1965 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amount pertaining to each such year ; .... Provided that the declaration shall be of no effect unless it is made after the 28th day of February, 1965, and before the 1st day of June, 1965. (3) The rate of income-tax chargeable in respect of the amount referred to in sub-section (1) shall be sixty per cent. of such amount : Provided that if before the 1st day of April, 1965, the tax on the amount declared is paid by the declarant at the rate of fifty-seven per cent. of such amount he shall not be liable to pay any further tax on such amount. (5) Any amount of income-tax paid in pursuance of a declaration made under this section shall not be refundable in any circumstances, and no person who has made the declaration shall be entitled, in respect of any amount so declared or any amount of tax so paid, to reopen any assessment or reassessment made under the Indian Income-tax Act, 1922 (11of 1922), or the Income-tax Act, 1961 (43 of 1961), . . . . 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Officer calculated additional income-tax on it at 5 annas in the rupee after deducting income-tax borne by the profits of the previous year at 4 annas per rupee, a surcharge of 5 per cent. less rebate of one anna in the rupee as allowed by the Finance Act, 1951. This additional tax amounted to Rs. 21,115-4-0. This additional tax was levied under the provisions of the Finance Act, 1951, the tax was levied on the total income, but two provisos modified the rate under certain circumstances. By the first proviso, a rebate of one anna per rupee was given to a company which paid dividends less than 9 annas in the rupee out of its profits. By the second proviso, the rebate disappeared and an additional income-tax had to be paid on dividends in excess of that limit, paid in the year. There was also an Explanation in the said Act according to which, " the excess dividend shall be, deemed to be out of the whole or such portion of the undistributed profits of one or more years immediately preceding the previous year, as would be just sufficient to cover the amount of the excess dividend and as have not likewise been taken into account to cover an excess dividend of a preceding year ". ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax Act but also to the provisions of the Finance Act through which Parliament could impose a new tax, if it so pleased. The Supreme Court rejected this contention with the following observations : " The learned Chief Justice, with respect, very rightly pointed out that the Income-tax Act puts the tax on income or something which it deems to be income. In other words, the tax deals with income and income only. It further provides that this tax shall be collected at a particular rate on the total income for which provision shall be made in an yearly Central Act." After referring to the provisions of the Finance Act, 1951, the Supreme Court pointed out that : " What the Finance Act fails to do is to make them 'total income', so as to take in the rate which is prescribed for the total income in the proviso. Unless the Finance Act stated that after the working out of the fiction the profits of the back year or years shall be deemed to be a part of the total income of the previous year under assessment, the purpose of the Act clearly fails. Income-tax is a tax on income of the previous year, and it would not cover something which is not the income of the previous year, or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the amount representing income chargeable to tax under the Indian Income Tax Act, 1922, or the Income Tax Act, 1961" appearing in sub-section (1) of section 24 of the Finance (No. 2) Act, 1965, and the words "as if such amount were the total income of the declarant" appearing in sub-section (3) of section 24 of the said Act are intended to bring section 24 in conformity with the rule laid down by the Supreme Court in the case of Khatau Makanji Spinning and Weaving Co. Ltd. referred to above. Although the words quoted by us appearing in sub-sections (1) and (3) of section 24 of the Finance (No. 2) Act of 1965 are not present in section 68 of the Finance Act, 1965, the absence of these words does not, in our opinion, make any difference to the character of the amount declared in section 68 of the latter Act. These words which have been introduced in sub-sections (1) and (3) of section 24 of the Finance (No. 2) Act of 1965, in our opinion, only clarify the position which existed even under section 68 of the Finance Act, 1965. We cannot construe section 68 of the Finance Act, 1965 as not being in conformity with the rule laid down by the Supreme Court in Khatau Makanji Spinning and W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nilal Gafoorbhai Shah v. Commissioner of Income-tax, in which it was held that : " Sub-section (1) of section 24 (of the Finance (No. 2) Act of 1965) makes it clear that the declarations which are expected to be made under sub-section (2) are with regard to the income which was chargeable to tax either under the Income-tax Act of 1922 or under the Income-tax Act of 1961, but which was not disclosed at the proper time." The High Court, however, proceeded to observe that the assessment of the declared income in the hands of the declarant did not prevent the department from assessing the same income in the hands of another person if it was subsequently discovered that the income so declared was really not the income of the declarant but was the income of the other person. While agreeing with the view of the Gujarat High Court that the amount declared in sub-section (1) of section 24 of the Finance (No. 2) Act of 1965 represented income which was chargeable either under the Indian Income-tax Act of 1922 or the Income-tax Act of 1961, we, however, did not agree with the further observations of the High Court that the assessment of such income in the hands of the declarant did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unts to a debt owed on the relevant valuation dates within the meaning of section 2(m) of the Act. But the learned judge proceeds to draw a different conclusion. He observed : " The amount of tax so paid is not a debt owed by him on the valuation date for the purpose of determining the net wealth under the Wealth- tax Act. It may happen that the assessee borrowed the whole or part of the amount of tax paid under the above scheme, then it would be a debt owed by him on the valuation date, to the extent it is outstanding on that date." We have to confess, and we do so with the utmost respect, that we are wholly unable to see how this conclusion can be reached from the reasons already given by the learned judge. The learned judge proceeded to observe as follows : " If the assessee, after making the disclosure, does not comply with the conditions of section 68 of the Finance Act, 1965, and avail of the concession thereunder, he would be assessed in respect of that income for the relevant assessment years under the relevant Income-tax Act. If he did not make any disclosure at all, the undisclosed income may be discovered and assessed in accordance with the relevant Income-tax A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assistant Commissioner. The assessee, thereupon, carried the matter further in appeal to the Tribunal. The Tribunal took the view that the liability to pay income-tax on the concealed income arose by reason of the charging provisions contained in section 3 of the Indian Income-tax Act, 1922, or section 4 of the Income-tax Act, 1961, and the latest date on which it must be said to have arisen was the last day of the relevant accounting year in which the concealed income was earned. There was nothing in section 68 of the Finance Act, 1965, said the Tribunal, which displaced this liability under section 3 of the Indian Income-tax Act, 1922, or section 4 of the Income-tax Act, 1961, or created a new liability for payment of income-tax which did not exist prior to the enactment of the Finance Act, 1965. The Tribunal pointed out that the liability to pay income-tax was always there by reason of section 3 of the Indian Income-tax Act, 1922, or section 4 of the Income-tax Act, 1961, and it was only in order to induce assessees to come forward to make voluntary disclosures of concealed income so that this existing liability to pay income-tax could be realised, that the legislature gave ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te specified in sub-section (3). What sub-section (1) seeks to provide is that the disclosed income shall be charged to tax under the Income-tax Act not at the rate laid down in the Finance Act but at the rate specified in sub-section (3). The emphasis in sub-section (1) is on the prescription of the rate at which the income-tax is to be charged and not on charging, which is done by the Income-tax Act. But this argument cannot prevail because it is contrary to the provisions of section 68 as also against the scheme of the Income-tax Act. In the first place, the charge under the Income-tax Act is on the total income of the previous year and not on any particular item of income. Section 3 of the Indian Income-tax Act, 1922, as also section 4 of the Income-tax Act, 1961, do not levy the charge of income-tax on a particular item of income. The concept of a charge on a particular item of income is completely alien to the Income-tax Act. In fact, it would be wholly inappropriate under the Income-tax Act to speak of quantification of tax liability on a particular item of income. The charge of income-tax referred to in sub-section (1) of section 68 cannot, therefore, be construed to mean c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tionality rather than against it. If the provisions of section 68 of the Finance Act, 1965, are construed in the manner we have construed them, namely, that the amount declared under section 68(1) represents the income of the assessee which in the ordinary course is assessable under the Indian Income-tax Act, 1922, or the Income-tax Act, 1961, and that the tax which is charged on the said amount under section 68(3) of the Finance Act, 1965, partakes the character of income-tax which is charged under section 3 of the Indian Income-tax Act, 1922, or section 4 of the Income-tax Act, 1961, then section 68 of the Finance Act, 1965, will not suffer from the vice of unconstitutionality. As we have observed earlier, the provisions of section 68 of the Finance Act, 1965, are, in substance, similar to the provisions of section 24 of the Finance (No. 2) Act of 1965. The amount declared by the assessee in the present case under section 68(1) of the Finance Act, 1965, has the same character as that of the total income assessable under the Income-tax Acts and the tax paid by him at the rate prescribed by sub-section (3) of section 68 of the Finance Act has the character of income-tax which is pa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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