Full Judgment Text
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PETITIONER:
THE COMMISSIONER OF INCOME TAX, KERALA
Vs.
RESPONDENT:
SMT. P.K. KOCHAMMU AMMA PEROKE
DATE OF JUDGMENT23/09/1980
BENCH:
BHAGWATI, P.N.
BENCH:
BHAGWATI, P.N.
VENKATARAMIAH, E.S. (J)
CITATION:
1980 AIR 2124 1981 SCC (1) 241
ACT:
Penalty, imposition of-Assessee failed to include the
income of the spouse and minor child in the return of income
for the assessment year 1964-65, though includible under s.
64(1) and (iii)-Whether failure entails penalty under s.
271(1)(c) of the Income Tax Act, 1961, as the unamended Rule
12 of the 1961 (prior to 31-3-1972) did not provide any
column in the prescribed form-Income Tax Act, 1961, ss.
2(45), 4, 5, 64(1)(i) and (iii), 139 and 271(1)(c) read with
Rule 12 of the Income Tax Rules, 1962, scope of-Words and
phrases "his income" meaning of.
HEADNOTE:
The respondent assessee was a partner in the
partnership firms of M/s. Malabar Tile Works and M/s.
Malabar Plywood Works and alongwith her there were other
partners including her husband and minor daughter. In her
returns for the assessment year 1964-65 for which the
relevant accounting year was the calendar year ending 31st
December, 1963, the assessee filed a return of income
omitting the amounts representing the shares of her husband
and minor daughter in the partnership firms from her income.
The Income Tax Officer, however, brought the amounts,
namely, Rs. 59,506 to tax and referred the case for taking
action under s. 271(1)(c) of the Act to the Assistant
Appellate Commissioner who imposed a penalty of namely, Rs.
7,000 on the assessee for having concealed her income. In
appeal the Tribunal set aside the order and the High Court
on reference affirmed the Tribunal’s order. Hence the appeal
by Revenue to this Court after obtaining special leave.
Dismissing the appeal, the Court
^
HELD: (1) The assessee, in view of the fact that the
prescribed form for filing of returns under s. 139 of the
Act, prior to 31st March, 1972, did not contain separate
column to show "income arising to spouse/minor child or any
other person referred to in Chapter V of the Act", and in
view of the decision of three Judges Bench reported in 74
I.T.R. 83 SC could not be said to have concealed her income
by not disclosing in the return filed by her the amounts
representing the shares of her husband and minor daughter in
the two partnership firms. [788B]
(2) The term "his income" for the purpose of s.
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271(1)(c) of the Act, is "his income" which the assessee is
liable to disclose for the purposes of assessment and yet
fails to do so. The return of income under s. 139(1) of the
Act is required to be filed in order to enable the Revenue
Authorities to make a proper assessment of tax on the
assessee. A fortiorari, it follows that the assessee must
disclose in the return every item of income which is liable
to be taxed in his hands under ss. 4 & 5 of the Act. [785B;
F-H]
782
(3) The definition of "total income" in s. 2(45), no
doubt refers to s. 5 which 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 provision
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. S. 64(1) is
one such provision which provides for inclusion of the
income of certain other persons in computing the total
income of the assessee. [785F-H]
Section 64(1) makes it clear that though the share of
the spouse or minor child in the profits of a partnership
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 partnership
firm. Obviously the words "his income" in s. 139 sub-s. (1)
must include every item of income which goes to make up his
total income assessable under the Act. The amounts
representing the shares of the spouse and minor child in the
profits of the partnership firm would be part of "his
income" for the purpose of assessment to tax and would have
to be shown in the return of income filed by him. [786B-D]
(4) It is true that the form of the return prescribed
by Rule 12 of the Income Tax Rules, 1962 which was in force
during the relevant assessment year did not contain any
separate column for showing the income of the spouse and
minor child liable to be included in the total income of the
assessee, but it did contain a Note stating that if the
income of any other person is includible in the total income
of the assessee under the provisions, inter alia, of s. 64,
such income should also be shown in the return under the
appropriate head. This Note clearly required the assessee to
show in the return under the appropriate head of income,
namely, "profits and gains of business or profession" the
amounts representing the shares of the husband and minor
daughter of the assessee in the profits of the two
partnership firms. The assessee however failed to disclose
these amounts in the return submitted by her and there was
plainly and manifestly a breach of the obligation imposed by
s. 139 sub-s. (1) requiring the assessee to furnish a return
of her income in the prescribed form. To accept the
contention that despite the Note the assessee was still not
liable to show in the return the amounts representing the
shares of her husband and minor daughter in the two
partnership firms would render the Note meaningless and
futile and turn it into a dead-letter
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and that would be contrary to all recognised canons of
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construction. The assessee was guilty of concealment of this
item of income which plainly attracted the applicability of
s. 271 sub-s. (1) clause (c). [786G-787D]
V.D.M.RM.M.RM. Muthiah Chettiar v. Commissioner of
Income Tax, 74 ITR 183 (SC), doubted
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1086 of
1973.
Appeal by Special Leave from the Judgment and Order
dated 8-12-1971 of the Kerala High Court in T.I.T. Reference
No. 91/69.
S. C. Manchanda and Miss A. Subhashini for the
Appellants.
K. T. Harindranath and T. T. Kunhikannan for the
Respondent.
The Judgment of the Court was delivered by
BHAGWATI J.-This appeal arises out of proceedings
initiated by the Revenue authorities for levying penalty on
the assessee. The assessee is a lady and during the
assessment year 1964-65 for which the relevant accounting
year was the calender year ended 31st December, 1963, the
assessee was a partner in two partnership firms, M/s.
Malabar Tile Works and M/s. Malabar Plywood Works and
alongwith her there were other partners including her
husband and minor daughter. The assessee filed a return of
income for the assessment year 1964-65 showing Rs. 4754 as
income from property and Rs. 4748 as income from other
sources. The assessee stated in the return under the column
"Profits and Gains of Business and Profession" against item
(b) which required share in the profits of a registered firm
to be shown "Please ascertain from the firms’ files the
Malabar Tile Works and Malabar Plywood Works." The assessee,
however, did not show in the return the amounts representing
the shares of her husband and minor daughter in the firms of
M/s. Malabar Tile Works and M/s. Malabar Plywood Works
though they were clearly includible in computing the total
income of the assessee under section 64 sub-section (1)
clauses (i) and (iii) of the Income Tax Act, 1961. The
Income Tax Officer while making the assessment included the
amounts representing the shares of the assessee’s husband
and minor daughter in the profits of these two firms in the
assessment of the assessee and taxed the assessee on a total
income of Rs. 59,506 after including these amounts. Since
the assessee had not shown these amounts as forming part of
her total income in the return submitted by her, though they
were clearly includible in her total income under section
64, sub-section (1) clauses (i) and (iii), the Income Tax
Officer was of the view that the assessee had con-
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cealed the particulars of her income and rendered herself
liable to penalty under section 271 sub-section (1) clause
(c), and since the minimum penalty leviable on the assessee
was Rs. 1000, he referred the case to the Assistant
Appellate Commissioner who issued notice under section 274
and after hearing the assessee, imposed a penalty of Rs.
1000. The assessee appealed to the Tribunal against the
order imposing penalty and one of the arguments urged on
behalf of the assessee in support of the appeal was that
there was no obligation of the assessee to show in her
return the amounts representing the shares of her husband
and minor daughter in the two firms and there was
accordingly no concealment by her of the particulars of her
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income so as to attract the penalty under section 271 sub-
section (1) clause (c). The Tribunal accepted this argument
of the assessee and held that section 271 sub-section (1)
clause (c) could be invoked only if there was concealment of
the "particulars of his income by the assessee" and the
words "his income" referred only to be the income of the
assessee himself and not to the income of any other person
which might be liable to be included in the income of the
assessee by reason of section 64 sub-section (1) clauses (i)
and (iii). The Tribunal accordingly held that the omission
or failure of the assessee to disclose in her return the
amounts representing the shares of her husband and minor
daughter in the two firms as forming part of her income
could not be visited with penalty under section 271 sub-
section (1) clause (c) and in this view, the Tribunal
allowed the appeal and set aside the order imposing penalty.
This led to the filing of an application for a reference by
the Revenue and on the application, the Tribunal referred
the following question of law for the opinion of the High
Court:
"Whether on the facts and in the circumstances of
the case, the Tribunal is correct in law in cancelling
the penalty levied under section 271(1)(c)?"
The High Court took the view that the words used in section
271 sub-section (1) clause (c) were "his income" and the
amounts representing the shares of the assessee’s husband
and minor daughter in the two firms could not be said to be
the income of the assessee, though in computing her total
income these amounts were liable to be included by reason of
section 64 sub-section (1) clauses (i) and (iii) and
therefore, the assessee could not be said to have concealed
her income when she did not disclose these amounts as
forming part of her income in the return submitted by her.
The High Court accordingly answered the question referred to
it in favour of the assessee and against the Revenue. The
Revenue thereupon preferred the present appeal with special
leave obtained from this Court.
785
There is a decision of this court which is directly in
point and it concludes the determination of the question
arising in this appeal against the Revenue but before we
refer to that decision, we might first examine the question
on principle as a matter of pure interpretative exercise.
Section 271 sub-section (1) clause (c) provides for
imposition of penalty on an assessee if it is found inter
alia that the assessee has concealed the particulars of "his
income." The question is what is the scope and content of
the words "his income" occurring in this penal provision. Do
they refer only to the income of the assessee himself or do
they also take in the income of others which is liable to be
included in the computation of the total income of the
assessee by reason of the relevant provisions of the Act,
such as section 64 sub-section (1) clauses (i) and (iii)?
The answer to this question obviously depends upon as to
what is "his income" which the assessee is liable to
disclose for the purpose of assessment for concealment can
only be of that which one is bound to disclose and yet fails
to do so. Section 139 provides for filing of a return of
income by an assessee and sub-section (1) of this section
lays down that every person whose total income during the
previous year exceeds the maximum amount which is not
chargeable to income tax, shall furnish a return of his
income in the prescribed form and verified in the prescribed
manner, and setting forth such other particulars as may be
prescribed. The return of income is required to be filed in
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order to enable the Revenue Authorities to make a proper
assessment of tax on the assessee. It must therefore follow
a fortiorari 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 section 4 on the total income of the assessee,
and ’total income’ is defined in section 2 sub-section (45)
to mean "the total amount of income referred to in section 5
computed in the manner laid down" in the Act. It is no doubt
true that the definition of ’total income’ in Section 2 sub-
section (45) refers to section 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 provision 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
section 4 of the Act. Now, section 64 subsection (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) of this sub-section provide
that in computing the total income of an assessee there
shall be included all
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such income as arises directly or indirectly to the spouse
of such assessee from the partnership of the spouse in a
firm carrying on a business in which such individual is a
partner as also to a minor child of such assessee from the
admission of the minor to the benefits of the partnership
firm. It is clear from this provision that though the share
of the spouse or minor child in the profits of a partnership
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 partnership
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 partnership
firm in which he is a partner, since they form part of his
total income chargeable to tax. The words "his income" in
section 139 sub-section (1) must include every item of
income which goes to make up his total income assessable
under the Act. The amounts representing the shares of the
spouse and minor child in the profits of the partnership
firm would be part of "his income" for the purpose of
assessment to tax and would have to be shown in the return
of income filed by him.
The assessee then contended that the return of income
which was required to be filed by her under section 139 sub-
section (1) was a return in the prescribed form and the form
of the return prescribed by rule 12 of the Income Tax Rules,
1962 did not contain any column for showing the income of
the spouse and minor child which was liable to be included
in the total income of the assessee under section 64 sub-
section (1) clauses (i) and (iii) and there was therefore no
obligation on the assessee to disclose this income in the
return filed by her. This contention is also, in our
opinion, fallacious and deserves to be rejected. It is true
that the form of the return prescribed by rule 12 which was
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in force during the relevant assessment year did not contain
any separate column for showing the income of the spouse and
minor child liable to be included in the total income of the
assessee, but it did contain a Note stating that if the
income of any other person is includible in the total income
of the assessee under the provisions inter alia of section
64, such income should also bestow in the return under the
appropriate head. This Note clearly required the assessee to
show in the return under the appropriate head of income,
namely, "Profits and Gains of Business of Profession" the
amounts representing the shares of the husband and minor
787
daughter of the assessee in the profits of the two
partnership firms. But even so, the assessee failed to
disclose these amounts in the return submitted by her and
there was therefore plainly and manifestly a breach of the
obligation imposed by section 139 sub-section (1) requiring
the assessee to furnish a return of her income in the
prescribed form. It is difficult to see how the Note in the
prescribed form of the return could be ignored by the
assessee and she could contend that despite the Note, she
was not liable to show in her return the amounts
representing the shares of her husband and minor daughter in
the two partnership firms. The contention of the assessee,
if accepted, would render the Note meaningless and futile
and turn it into dead letter and that would be contrary to
all recognised canons of construction. There can be no doubt
that the assessee was bound to show in her return the
amounts representing the shares of her husband and minor
daughter in the two partnership firms and in failing to do
so, she was guilty of concealment of this item of income
which plainly attracted the applicability of section 271
sub-section (1) clause (c).
It is obvious that on this view the order imposing
penalty on the assessee would have to be sustained but there
is a decision of this Court in V.D.M.RM.M.RM. Muthiah
Chettiar vs. Commissioner of Income Tax Madras which is
binding upon us and where we find that a different view has
been taken by a Bench of three Judges of this Court. It was
held in this case that even if there were any printed
instructions in the form of the return requiring the
assessee to disclose the income received by his wife and
minor child from a firm of which the assessee was a
partner, there was, in the absence in the return of any head
under which the income of the wife or minor child could be
shown, no obligation on the assessee to disclose this item
of income, the assessee could not be deemed to have failed
or omitted to disclose fully and truly all material facts
necessary for his assessment within the meaning of section
34(1) (a) of the Indian Income Tax Act, 1922. With the
greatest respect to the learned Judges who decided this
case, we do not think, for reasons already discussed, that
this decision lays down the correct law on the subject, and
had it not been for the fact that since 1st April 1972 the
form of the return prescribed by rule 12 has been amended
and since then, there is a separate column providing the
"income arising to spouse/minor child or any other person as
referred to in Chapter V of the Act" should be shown
separately under that column and consequently there is no
longer any scope for arguing that the assessee is not bound
788
to disclose such income in the return to be furnished by
him, we would have referred the present case to a larger
bench. But we do not propose to do so since the question has
now become academic in view of the amendment in the form of
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the return carried out with effect from 1st April 1972. We
would therefore follow this decision in Muthiah Chettiar’s
case, which being a decision of a bench of three Judges of
this Court is binding upon us, and following that decision,
we hold that the assessee could not be said to have
concealed her income by not disclosing in the return filed
by her the amounts representing the shares of her husband
and minor daughter in the two partnership firms.
We accordingly dismiss the appeal, but in the peculiar
circumstances of the present case, we think that the fair
order of costs would be that each party should bear and pay
its own costs throughout.
S.R. Appeal dismissed.
789