Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 7
PETITIONER:
BALADIN RAM
Vs.
RESPONDENT:
COMMISSIONER OF INCOME-TAX, U.P.
DATE OF JUDGMENT:
21/08/1968
BENCH:
GROVER, A.N.
BENCH:
GROVER, A.N.
SHAH, J.C.
RAMASWAMI, V.
CITATION:
1969 AIR 351 1969 SCR (1) 800
ACT:
Indian Income-tax Act, 1922, s. 2(1) and 34(1)(a)-
Assessment of income escaping assessment-Applicability of s.
34(1)(a)-Deposits assessed as representing income from
undisclosed sources-Previous year for.
HEADNOTE:
The assessee-a Hindu undivided family (--) was assessed in
1944-45 for the income of its previous year ending October
30, 1943. The income shown in the return was from iron
foundry business and property, and income from these
sources only was taken into account in the original
assessment. The assessee through a son of the karta was
also a partner in the firm Raj Narain Durga Prasad. The
accounting year of the firm ended on April 1, 1944 and
the assessee’s return,did not show any income as share of
profit in the firm nor was mention made in the return of the
existence of the partnership. In December, 1943 the
assessee along with Raj Narain Durga Prasad started a
joint venture of supplying Sarpat and bamboo to the
Government. Between the commencement of the joint venture
and February 18, 1944, the assessee made investments in the
Sarpat and bamboo business to the tune of Rs. 27,000 (as
found by the Tribunal).. The Income-tax Officer, when he
discovered the assessee’s connection with the firm Rajnarain
Durga Prasad gave a notice under s. 34 of the Indian Income-
tax Act, 1922 and made in 1952 a revised assessment for
1944-45, assessment year, in which he added the income of
the assessee as found in the books of the firm to the income
already assessed. Later, he discovered the assessee’s
investments in the Sarpat and bamboo business and in 1954 he
made another revised assessment for the assessment year
1944-45 treating the said investments as representing
income from undisclosed sources. The assessee challenged
both the assessments on the ground that s. 34(1)(a) was
not attracted. The assessee’s plea was rejected by the
Appellate Assistant Commissioner and the Tribunal. The High
Court in ’reference also held against the assessee
who by special leave appealed to this Court. The
contentions on behalf of the appellant were; (i) As regards
income from firm Rajnarain Durga Prasad it was submitted
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 7
that the accounting year of that firm ended on April 1, 1944
which was well after the close of the assessee’s previous
year which ended on October 28, 1943. Neither the. income
of the firm, nor the share of assessee had been determined
till then, and it was not possible for the assessee to show
the said income in the return for 1944-45. Moreover the full
facts came to the knowledge of the Income-tax Officer when
the assessment for the next assessment year was made.
Therefore s. 34(1)(a) was not attracted. (ii) As regards
investments in the Sarpat and bamboo business the assessee
submitted that the business itself commenced in December,
1943 and having regard to the definition of previous year’
in s. 2(11) as it existed at the relevant time, the income
from this -source could not be shown as income of his
previous year which ended on October 28. 1943. The income
from this source was duly disclosed to the Income-tax
Officer and was actually assessed in 1945-46. Therefore in
the case of the 1954 revised assessment also ’s. 34(1)(a)
was not attracted.
801
HELD: (i) The High Court had rightly observed in dealing
with the 1952 assessment that there was no finding of the
appellate tribunal that the share of income from the firm
was not known at the time when the return was filed. In
view of the admitted fact that the return filed by the
assessee did not disclose the fact of partnership in the
firm Raj Narain Durga Prasad it was no longer open to the
assessee to urge that s. 34(1)(a) was not attracted,
particularly when the burden lay upon the assessee to
show that the Income-tax Officer was aware of the income
received from the firm. [804 G-H]
(ii) It is now weD-settled that the only way in which income
from undisclosed sources can be taxed is to take it as the
income of the relevant financial year. Therefore the
investments made by the assessee in Sarpat and bamboo
business between December, 1943 and February, 1944 were
rightly taxed by the Income-tax Officer in the year 1944-45.
The disclosure of the investments by assessee in the
proceedings for 1945-46 cannot be treated as a disclosure
for the purpose of assessment year 194445. The plea that
the revised assessment made in 1954 was not covered by s.
34(1)(a) could not therefore be accepted. [806 B-C]
Section 68 of the Indian Income-tax Act, 1961 which provides
that amounts credited. in the account books of the assessee
and not satisfactorily explained by him should be treated as
income of the ’previous year’, does not alter the position
under the old Act. Even under the new Act the position,
except where the credits are found in the assessee’s account
books, is probably not different from that laid down in the
cases under the old Act. [806 D-F]
Commissioner of Income-tax, Bihar and orissa v.P. Darolia &
Sons, 27 I.T.R. 515 and Bishan Dutt v. Commissioner of
Income-tax, U.P. & V.P. 39 I.T.R. 534, applied.
Jethmal v. Commissioner of Income-tax, 49 I.T.R. 633,
approved.
P.R. Mukherjee v. Commissioner of Income-tax, West Bengal.
30 I.T.R. 535. referred to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 663 and 664
of 1966.
Appeals by special leave from the judgment ,and order dated
January 2, 1964 of the Allahabad High Court in I.T.
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 7
Reference No. 244 of 1959.
S.C. Manchanda and J.P. Goyal, for the appellant (in both
the appeals ).
D. Narsaraju, T. A. Ramachandran and 8. P. Nayar, for the
respondent (in both the appeals).
The Judgment of the Court was delivered by
Grover, J. In these appeals by special leave the facts may
be stated: The assessee at the material time was a Hindu
Undivided Family. The relevant assessment year is 1944-45
corresponding to the accounting year ending on Diwala
Samvat 2,000 (October 28, 1943). On February 20, 1945 the
Income
802
tax Officer made an assessment on a total income of Rs.
26,800 odd which comprised income from the share in the
business of Kasi Iron Foundry and the income from the
property. This order was revised under s. 34 of the Indian
Income tax Act, 1922 hereinafter called the Act. In the
revised assessment order the total income of the assessee
was computed at Rs. 71,731. In this amount a sum of Rs.
40,000 was included as income from undisclosed sources.
This assessment was challenged before the Appellate Tribunal
and was set aside on the ground that there had -not been
proper service of a notice under s. 34. A fresh notice
under s. 34 was issued in October 1951. On October 16, 1952
a revised assessment order was passed and the total income
of the assessee was computed at Rs. 85,817 which included a
sum of Rs. 49,696 as income from undisclosed sources. On
March 31, 1953 the Income tax Officer served on the
assessee another notice under s. 34 in respect of the same
assessment year 1944-45. On March 18, 1954 a revised
assessment was made in which was included a sum of Rs.
32,000 as the assessee’s income from undisclosed sources,
being the alleged investment of the assessee in the Satpat
and bamboo. business prior to February 18, 1944. The total
income of the assessee was computed at Rs. ’1,17,817.
The income from undisclosed source which came to be included
in this computation amounted to Rs. 81,696. The assessee
filed appeals against the assessment order dated October 16,
1952 contending inter alia that there had been no escapement
of any income and that in any case the first revised
assessment dated October 16, 1952 was barred by time under
s. 34(1)(b) of the Act as the provisions of s. 34(1)(a) did
not apply. The second revised assessment was challenged on
the ground, inter alia, that the Income tax Officer had no
jurisdiction to issue the notice under s. 34 as the material
facts necessary for making the assessment were fully and
truly disclosed to the Income tax Officer during the
assessment proceedings for the year 1945-46. That appeal
was also dismissed. Thereafter the assessee filed two
appeals before the Income Tax Appellate Tribunal. Before
the tribunal it was contended by the assessee that the first
revised assessment dated October 16, 1952 was barred by
limitation and that the period of limitation was four years
under s. 34(1)(b) and not eight years under s. 34(1)(a).
The second revised assessment was challenged on the ground
that the Income tax Officer had no jurisdiction to issue a
notice and make assessment under s. 34. It was argued that
the investment, expenditure and the profits earned from the
business of Sarpat and bamboo had been duly shown. As
regards the first revised assessment the tribunal held that
the income of the assessee from the firm Rajnarain Durga
Prasad had escaped assessment by failure on the part of the
assessee to disclose fully and truly all the facts necessary
for making the assessment and that the provisions of
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 7
803
s. 34( 1 )(a) were attracted and therefore the period of
limitation was eight years and not four years. With regard
to the second revised assessment it was urged that all the
materials necessary for making the assessment were before
the Income tax Officer and by issuing a notice under s. 34
the Income tax Officer had changed his opinion and a mere
change of opinion did not authorise the Income tax Officer
to take recourse to s. 34. The tribunal disposed of the
argument with regard to the second revised assessment in the
following words:
"The Income tax Officer who made the
assessment for 1945-46 might have had all the
accounts of the business in Satpat and bamboos
before him and might have known the
investments made by the assessee in that
business;. The question for consideration is
whether the Income tax Officer had reason to
believe that by the failure on the part of the
assessee to fully and truly disclose all the
material facts necessary for the making of the
assessment for the year 1944-45, income had
escaped assessment. Surely, even if the
Income tax Officer had known that the
investment made by the assessee in that
business were his revenue income, he could not
have proceeded u/s 34 because the income could
not have been assessed in the assessment year
1945-46. It could be assessed in the
assessment year 1944-45. The income appearing
by way of deposits in the Sarpat business
could be assessed only as income from some
undisclosed source and the previous year for
income from undisposed source for which the
assessee had not elected any previous year
would be the financial year. The investments
were made in the financial year relevant for
the assessment year 1944-45 and were not made
in the financial year relevant for the
assessment year 1945-46. The Income tax
Officer had, therefore, no choice but to
resort to section 34 of the Act."
The tribunal, however, found as is apparent from its ’order
dated March 21, 1957 that the unexplained investment which
was really the income of the assessee from undisclosed
source was Rs. 27,875 instead of Rs. 32,000. The tribunal
called for a report on certain other matters with which we
are not concerned and which were disposed of by subsequent
order dated August 31, 1958. On a petition filed under s.
66(1) of the Act the tribunal referred the following
question to the High Court for decision:
"Whether. on the facts and in the
circumstances of the ease the revised
assessments under section 34 dated 16-10-1952
and 18-3-1954 are legal and valid".
804
As regards the first revised assessment the High Court was
of the view that even if the provisions of s. 34(1)(b) were
to apply the assessment could not be said to be barred by
time nor could it be said to be barred under s. 34(1)(a) as
the assessee had failed to show that the income tax Officer
was aware that the assessee had received income from its
share in the firm. The question was consequently answered
in the affirmative so far as the assessment order dated
October 16, 1952 was concerned. The assessment order of
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 7
March 18, 1954 was challenged before the High Court on the
ground that there was no default on the part of the assessee
attracting applicability of s. 34(1)(a). It was noticed by
the High Court that although the Income tax Officer had,
during the proceedings for the assessment year 1945-46,
made an enquiry about the investments in Sarpat and bamboo
business no action had been taken in those assessment
proceedings against the assessee but it could not be
presumed that he had accepted the explanation of the
assessee. Having held that the investment represented
income from undisclosed source he was bound to treat it as
income which accrued in December 1943 when it was invested,
being the income during the financial year 1943-44 and
therefore it had to be taxed in the assessment year 1944-45.
The question referred was answered in the affirmative with
regard to the assessment order of March 18, as well.
The argument of Mr. S.C. Manchanda in respect of the
assessment made in October 1952 is that there was no failure
on the part of the assessee to disclose material facts. It
is submitted that the share income of the assessee’s son
from the firm Raj Narain Durga Prasad could not be shown in
the assessee’s return as the accounting period of that firm
closed on April 1, 1944 which was well after the close of
the previous year of the assessee which ended on October 28,
1943. It. is said that neither the income of the firm nor
the share of the assessee’s son had been determined till
then and it was not possible for the assessee to show the
said income in his return. Moreover the Income tax ’Officer
had knowledge of the assessee’s interest in the firm
Ramnarain Durga Prasad on May 12, 1947 when the assessment
for the year 1945-46 was made. Thus the escapement, if any,
has not resulted from any default or omission on the part
of the assessee. The High Court had disposed of this
contention by observing that there was no finding in the
order of the appellate tribunal that the share of the income
from the said firm was not known at the time when the return
was filed. It was admitted that the return filed by the
assessee did not disclose that the assessee enjoyed
income from his share in that firm. It was no longer open
to the assessee to press this contention particularly when
the burden lay upon him to show that the Income tax
-Officer was aware that the assessee received income from
his share in that firm. Mr. Manchanda has not been able to
persuade us
805
to take a different view in the matter. The real challenge.
on behalf of the assessee before us has been to the amount
which was included as income from undisclosed source in the
revised assessment order made in March 1954 being the
capital which had been invested in the business of Sarpat
and bamboos. This amount, as found by the tribunal, came to
Rs. 27,000 odd and had been invested in partnership with Ram
Narain Durga Prasad for the business of the supply of Sarpat
and bamboo. to the Government, the investment having been
made between December 8, 1943 and February 17, 1944.
According to Mr. Manchanda no income from the aforesaid
business could be shown in the return for the year 1944-45
because the business itself had been commenced after the
close of the relevant previous year which ended on October
28, 1943. For the assessment year 1945-46, however, a sum
of Rs. 1640 was assessed as the assessee’s income in this
joint venture. During the course of the assessment
proceedings for the year 1945-46 the assessee is stated to
have filed an affidavit before the Income tax Officer giving
details in respect of the Sarpat and bamboo business. Mr.
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 7
Manchanda has invited our attention to the definition of
"previous year" as contained in s. 2( 11 ) of the Act at the
relevant period and has pointed out that the Sarpat and
bamboo business did not fall within the year up to which
accounts had been made i.e. October 28, 1943. It was verily
impossible, says Mr. Manchanda, to have shown in the return
any amount relating to Sarpat and bamboo business. The
method to be adopted in such a situation has now been
settled by a long course of decisions In Commissioner of
Income tax, Bihar & Orissa v.P. Darolia & Sons(1) the facts
were that for the assessment year 1947-48 the accounting
year of the assessee was the Diwali year corresponding to
November 4, 1945 to October 24, 1946. The Income tax
Officer rejected the books of the assessee and ascertained
his income from the business at an estimate for that year.
He also added to this estimate certain cash credits in its
account books entered on the 22nd and 27th of November,
1945, as secret profits from undisclosed sources which dates
were after the end of the accounting year. It was found
that the amount included as secret profits from undisclosed
source was not from the business of the assessee but from
separate sources and no account was maintained by the
assessee in respect of the amount nor had it exercised any
option as regards the previous year with respect to that
source. It was held that in the aforesaid circumstances the
previous year of the assessee in respect of its
undisclosed source of income was the financial year ending
on March 31, 1946. In Bishan Dutt v. Commissioner of Income
tax U.P. & V.P.(2) the previous year of the assessee for he
assessment year 1945-46 in respect of his cloth business was
July 4, 1943 to June 26, 1944. In the account books of that
busi-
(1) 27 I.T.R. 515. (2) 39 I.T.R.
534.
CI/69--5
806
ness for that period a sum of Rs. 9,800 appeared as credit
in the suspense account on September 2, 1943. The Income
tax Officer, in the absence of a satisfactory explanation,
held this amount to be income from undisclosed source. The
view expressed by the High Court was that there being
nothing to show that any accounts in respect of the
undisclosed source of income existed or were maintained or
that the assessee exercised any option under s.
2(11)(i)(a) in respect of such accounts, the only course.
open to the department was to tax his income from
undisclosed source on the basis of the financial year being
the previous year. On that basis the amount could be taxed
only for the assessment year 1944-45 and not for the
assessment year 1945-46. On similar facts the Calcutta High
Court expressed the same view in Jethmal v. Commissioner of
Income Tax(1). By now it appears to be well settled and no
decision even of a High Court has been cited to the contrary
that in such circumstances the only possible way in which
such undisclosed income can be assessed or reassessed is to
make the assessment during the ordinary financial year.
Mr. Manchanda has called our attention to s. 68 of Income
tax Act, 1961 according to which where any sum is found
credited in the books an assessee maintained for any
previous year and the assessee offers no explanation about
the nature and source thereof or the explanation offered by
him is not, in the opinion of the Income tax Officer,
satisfactory the sum so credited may be charged to income
tax as the income of the assessee of that previous year. It
is, however, obvious that even under the provisions embodied
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 7
under the new Act it is only when any amount is found
credited in the books of an assessee that the section will
apply. On the other hand if the undisclosed income was
found to be from some unknown source or the amount
represents some concealed income which is not credited in
his books the position would probably not be different from
what was laid down in the various cases decided when the Act
was in force.
The last argument of Mr. Manchanda is that in order to
attract the applicability of s. 34(1)(a) of the Act the
omission or the failure on the part of the assessee to
disclose fully and truly all material facts necessary for
his assessment must be found to be wailful and deliberate.
In support of his submission he has relied on P.R. Mukherjee
v. Commissioner of Income tax, West Bengal(2) in which it
was observed that a person cannot be said to have omitted or
failed to disclose something when, of such thing, he has no,
knowledge and that a similar implication is carried by
the word "disclose" because one cannot be expected to
disclose a thing unless it is a matter which he know or
knows of. It is altogether unnecessary to decide whether
this view is sustainable
(1) 49 I.T.R. 633. (2) 30 I.T.R.
535.
807
or not. At any rate, in the present case, the assessee had
failed to show that he did not know and was not aware of the
true position in respect of the sum of Rs. 27,000 odd which
was invested in the Sarpat and bamboo business.
For all these reasons the appeals fail and are dismissed
with costs.
G.C. Appeals dismissed.
808