Full Judgment Text
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PETITIONER:
JAMNAPRASAD KANHAIYALAL
Vs.
RESPONDENT:
COMMISSIONER OF INCOME-TAX, M.P., BHOPAL
DATE OF JUDGMENT08/05/1981
BENCH:
SEN, A.P. (J)
BENCH:
SEN, A.P. (J)
PATHAK, R.S.
VENKATARAMIAH, E.S. (J)
CITATION:
1981 AIR 1759 1981 SCR (3) 849
1981 SCC (3) 441
CITATOR INFO :
R 1984 SC 989 (1,2)
F 1984 SC1990 (2)
ACT:
Voluntary Disclosure Scheme under section 24 of the
Finance (No. 2) Act, 1965, Scope and effect of-Whether the
acceptance of a disclosure statement made by a declarant
under section 24 of the Finance Act, 1965 confers immunity
on another person from tax liability in respect of the same
sum of money-Whether section 24 has an overriding effect
over section 68 of the Income Tax Act, 1961-Bar of double
taxation-Section 18 of the Voluntary Disclosures of Income
and Wealth Act, 1976 (Act 8 of 1976).
HEADNOTE:
During the course of the assessment proceedings of the
assessee-firm for the assessment year 1967-68, the Income
Tax officer noticed cash credits of Rs. 9,250 each in the
names of five sons of the Managing Partner, in the books of
the assessee. The Income Tax officer found that these
creditors, who were minors, had no independent source of
income. The assessee contended before the ITO that the five
creditors had voluntarily disclosed the credits under
section 24 of the Finance (No. 2) Act, 1965 and that the
disclosures were accepted by the Commissioner. The ITO
rejected the contention of the assessee and held that the
cash credits in question were unexplained cash credits, that
they represented the income of the assessee from undisclosed
source, and accordingly made an addition of Rs. 46,250. The
appellate Assistant Commissioner held that the acceptance of
the voluntary disclosures under section 24(3) of the Act and
the payment of tax thereon precluded the Department from
disputing the fact that the income belonged to the
creditors, and, as the same income could not be taxed twice
once in the hands of the creditors and again in the hands of
the assessee, set aside the order of the ITO. The Tribunal
disagreed with the Appellate Assistant Commissioner and
upheld the order of the ITO. Hence the reference at the
instance of the assessee under section 257 of the Income Tax
Act, 1961 .
Answering the reference against the assessee, the Court
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^
HELD: Per Sen, J.
1. Section 24 of the Finance (No. 2) Act, 1965 cannot
be construed as conferring any benefit, concession or
immunity on any person other than the person making the
declaration under the provisions of the Act. The scheme of
the Act makes it abundantly clear that it was to protect
only those who preferred to disclose the income they
themselves had earned in The past and which they had failed
to disclose at the proper time. The scheme only permitted
the bringing
850
forward of income to tax; it did not require investigation
of the claim of the declarant. The Act granted immunity only
to the declarant and not to other persons to whom the income
really belonged. [859 G-H, 860 A]
2. The legal fiction created by sub-s. (3) of s. 24 of
the Finance (No. 2) Act, 1965 by virtue of which the amount
declared by the declarant had to be charged to income-tax
"as if such amount were the total income of the declarant",
was limited in scope and it cannot be invoked in assessment
proceedings relating to any person other than the person
making the declaration, and did not take away the power
vested in the ITO under section 68 of the Income Tax Act,
1961 to reject the’ explanation of an assessee for a cash
credit on the ground that the explanation was not
satisfactory in the case of such other person. [861 F-G]
3. The finality under sub-s. (8) of section 24 of the
Act was to the order of the Central Board of Revenue under
sub-s. (6) thereof and not to the assessment of tax made on
the basis of a declaration made by the creditors under the
scheme. There was, therefore, nothing to prevent an
investigation into the true nature and source of the cash
credits. [861 B, D]
4. The acceptance of voluntary disclosures under s 24
of the Act and the payment of tax thereon by the creditors
could not, in law, justify the deletion of the amount of Rs.
46,250 as it represented the assessee’s income from
undisclosed sources. In a case of this description, there
was no question of double taxation which was a situation of
assessee’s own making in getting false declarations made in
the names of the creditors with a view to avoid higher slab
of taxation. once it was found that the income declared by
the creditors did not belong to them, there was nothing to
prevent the same being taxed in the hands of the assessee to
which it actually belonged. [861 H, 862 A-B, 863 C]
Manilal Gafoorbhai Shah v. Commissioner of Income Tax,
(1974) 95 I.T.R. 624 Gujarat; Badri Prasad & Sons v.
Commissioner of Income Tax, (1975) 98 I.T.R. 657 Allahabad;
Pioneer Trading Syndicate v. Commissioner of Income Tax,
Lucknow, (1979) 120 I.T.R. 5 (Full Bench Allahabad) and
Additional Commissioner of Income Tax v. Samarathmal
Santoshchand, (1980) 124 I.T.R. 297 Madhya Pradesh,
approved.
Rattan Lal & Ors v. Income Tax officer, 98 I.T.R. 681
Delhi; Shakuntala Devi & Ors v. C.I.T, (1980) 125 I.T.R. 18
Delhi and Mohd. Ahsan Wani v. C.I.T., (1977) 106 I.T.R. 84
Jammu & Kashmir, overruled.
5. The declaration made under sub-s. (2) of s.24 of the
Income Tax Act, 1961 had to relate to income actually earned
by the assessee. It did not require any investigation into
the correctness of the declarations or any determination of
the amounts belonging to the declarant. The mere charge to
tax on the amounts under the Voluntary Disclosure Scheme
could not have the effect of converting the money from the
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deductions from the books of the assessee into the income of
The declarants if it did not belong to it. It was,
therefore, open to the Income Tax officer to investigate
into the source of the cash credit amounting to Rs. 46,250
standing in the books of the assessee in the names of the
sons of the Managing Partner. [859 C-D, 860 F-G]
851
1. The making of an assessment against a declarant on
his disclosure of statement under section 24 of the Finance
(No. 2) Act, 1965 cannot deprive Income Tax officer of
jurisdiction to assess the same receipt in the hands of
another person if, in a properly constituted assessment
proceeding under the Income Tax Act, the receipt can be
regarded as the taxable income of such other person. [852 G-
H, 853 A]
2. The liability imposed under section 24 of the
Finance (No. 2) Act, 1965 is identifiable with the income
tax liability under the Income Tax Act. The scheme for
voluntary disclosure of income and its taxation is only
another mode provided by law for imposing income tax and
recovering it. Consequently the general principles which
apply to assessments made under the Income Tax Act would,
except for provision to the contrary, be applicable to
assessments made under section 24 of the Finance (No. 2)
Act, 1965. Accordingly when the assessment to income tax is
made under the latter enactment, it will be governed by the
general principle that a finding recorded therein governs
only the particular person assessed. [852 B-D]
3. The finality enacted by sub.s. (8) of section 24 of
the Finance (No. 2) Act, 1965 attaches to the assessment of
the declarant only. It cannot in law operate in favour of or
against any other person. [852 F]
3:1. The jurisdiction of an Income Tax officer when
making an assessment is concerned primarily with the issue
whether the receipt under consideration constitutes the
income of the assessee before him. Any finding reached by
the Income Tax officer touching a person not the assessee in
the process of determining that issue cannot be regarded as
an operative finding in favour of or against such person.
The only exception of this rule centers on the limited
class, and for the limited purpose, defined by the Supreme
Court in Income Tax Officer, A-Ward, Sitapur v. Murlidhar
Bhagwan Das, 52 I.T.R. 335 at 346. [852 D-F]
Ahmed Ibrahim S. Dhoraji v. The Commissioner of Wealth
Tax Gujarat, [1981] 3 SCR p. 402 and Income Tax Officer, A-
Ward, Sitapur v. Murlidhar Bhagwan Das, 52 ITR 335 at 346,
applied.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Tax Reference Case No. 19
of 1975.
Tax Reference u/s. 256 of the Income Tax Act, 1961 made
by the Income Tax Appellate Tribunal, Jabalpur Bench,
Jabalpur in R.A. No. 221/Jab/73-74 arising out of I.T.A. No.
1560 (Jab)/1972-73 decided on 10-1-1974; Assessment Year
1967-68.
S. T. Desai, B.L. Noma and K.J. John for the Petitioner
852
V.s. Desai, Champat Rai and Miss A. Subhashini for the
Respondent.
The Judgment of A.P. Sen and E. S. Venkataramiah, JJ.
was delivered by Sen, J. R.S. Pathak, J. gave a separate
opinion.
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PATHAK, J: I agree. The acceptance of a disclosure
statement made by a declarant under s.24 of the Finance (No.
2) Act, 1965 cannot confer immunity on another person from
tax liability in respect of the same sum of money. As was
held by this Court in Ahmed Ibrahim S. Dhoraji v. The
Commissioner (of Wealth Tax Gujarat the liability imposed
under s.24 of the Finance (No. 2) Act, 1965 is identifiable
with the income tax liability under the Income-tax Act. The
scheme for voluntary disclosure of income and its taxation
is only another mode provided by law for imposing income tax
and recovering it. Consequently, the general principles
which apply to assessments made under the Income-Tax Act
would except for the provision to the contrary, be
applicable to assessments made under s.24 of the Finance
(No. 2) Act, 1965. Accordingly, when the assessment to
income tax is made under the latter enactment, it will be
governed by the general principle that a finding recorded
therein governs only the particular person assessed. The
jurisdiction of an Income Tax officer when making an
assessment is concerned primarily with the issue whether the
receipt under consideration constitutes the income of the
assessee before him. Any finding reached by the Income Tax
officer touching a person not the assessee in the process of
determining that issue cannot be regarded as an operative
finding in favour of or against such person. The only
exception to this rule centres on the limited class, and for
the limited purpose, defined by this Court in Income-Tax
Officer, A-Ward Sitapur v. Murlidhar Bhagwan Das. Viewed in
the light of that principle it is apparent that the finality
enacted by sub-section (8) of section 24 of the Finance (No.
2) Act, 1965 attaches to the assessment of the declarant
only. It cannot in law operate in favour of or against any
other person.
I am of opinion that the making of an assessment
against a declarant on his disclosure statement under s.24
of the Finance (No. 2) Act, 1965 cannot deprive an Income
Tax officer of jurisdiction to assess the same receipt in
the hands of another person if, in
853
a properly constituted assessment proceeding under the
Income Tax A Act, the receipt can be regarded as the taxable
income of such other person. I would answer the first
question in the affirmative, in favour of the Revenue and
against the assessee. That being so, no answer is necessary
to the second question. The Commissioner of Income-Tax is
entitled to his costs of the reference.
SEN, J. This is a direct reference under s. 257 of the
Income Tax Act, 1961 made by the Income Tax Appellate
(Tribunal, Jabalpur, for short, The Appellate Tribunal), at
the instance of the assessee. The reference is necessitated
due to divergence of opinion, as reflected in the various
decisions of different High Courts, with respect to the
scope and effect of the Voluntary Disclosure Scheme under s.
24 of the Finance (No. 2) Act, 1965 (the ’Act’, for short).
The assessee, Messrs. Jamnaprasad Kanhaiyalal, is a
partnership firm. The firm consists of 4 partners, namely,
Kanhaiyalal and his 3 major sons, Rajkumar, Swatantrakumar
and Santoshkumar with his minor son Satishkumar admitted to
the benefits of the partnership. In the course of assessment
proceedings for the assessment year 1967-68, the relevant
accounting year of which was the year ending Diwali, 1966,
the Income Tax officer (ITO, for short) noticed in the books
of account of the asssesee five Cash credits of Rs. 9,250
each in the names of five sons of Kanhaiyalal, as detailed
below:
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Rs.
Sailendrakumar 5 yrs. 9,250/-
Satishkumar 9 yrs. 9,250/-
Sunilkumar 7 yrs. 9,250/-
Swatantrakumar 16 yrs. 9,250/-
Santoshkumar 18 yrs. 9,250/-
--------
46,250/-
---------
The ITo accordingly called upon the assessee to explain the
genuineness as well as the source of the cash credits. On
being questioned, Kanhaiyalal the Managing Partner,
disavowed ail knowledge as to the capacity of the creditors
to advance the amounts in question.
854
On the contrary, he admitted that the creditors had no
independent source of income of their own. In fact, he
further stated that he could not explain the source of the
cash credits.
It was contended before the ITo that the creditors
having made voluntary disclosures under the Voluntary
Disclosure Scheme and the disclosures made by them having
been accepted by the Commissioner of Income Tax and tax paid
thereon, the amount of Rs. 46,250 could not be treated as
income of the assessee from undisclosed sources. The ITo,
however, held that the disclosures made under the scheme
granted immunity from further taxation only to the
declarant, and not to person to whom the income actually
belonged. He further held that the assessee having failed to
prove the genuineness and source of the cash credits, the
amount of Rs. 46,250 credited in the books of account of the
assessee in the names of the creditors, who had no income of
their own must be treated as the assessee’s income from
undisclosed sources. According to him, such cash credits
were treated in their names after making false declarations
under the Scheme, with a view to avoid a higher rate of
taxation. He accordingly made an addition of Rs. 46,250 as
assessee’s income from undisclosed sources.
The Appellate Assistant Commissioner disagreed with the
ITO, holding that when an amount was disclosed by a person
under s. 24 of the Act, there was an immunity not only as
regards the declarant, but there was also a finality as to
the assessment. In his view, the entire statement of
Kanhaiyalal had to be ignored, as it was not clear in what
capacity the questions were put to him and the answers
elicited because any investigation into the source of the
deposits was prohibited and illegal under the Act. He
accordingly held that the acceptance of the voluntary
disclosures made by the creditors in question to the
Commissioner and the payment of tax thereon precluded the
Department from disputing that the income belonged to the
said creditors-and as the same income cannot be taxed twice,
once in the hands of the creditors and again in the hands of
the assessee, the order passed by the ITO in that behalf was
unsustainable. The Appellate Assistant Commissioner,
therefore, directed the deletion of Rs. 46,250. The
Department went up in appeal before the Appellate Tribunal.
The Appellate Tribunal, however, disagreed with the
Appellate Assistant Commissioner and upheld the decision of
the ITo. It was of the opinion that the ITo was justified in
treating the cash credits appearing in the books of account
of the assessee in the names of
855
the creditors as unexplained cash credits, since it was
found that the A income declared by the creditors did not
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belong to them, and there was nothing to prevent the same
being taxed in the hands of the assessee to which it
actually belonged. According to the Tribunal the immunity
under s. 24 of the Act was conferred on the declarant only,
and there was nothing to preclude an investigation into the
true nature and source of the credits. The Appellate
Tribunal, after taking into consideration the statement of
Kanhaiyalal, and having regard to the age of the creditors
and the fact that none of them had any independent source of
income at any time, held that the ITo was justified in
holding that the asssessee failed to discharge the burden of
proof under s. 68 of the Income Tax Act, 1961 in regard to
the nature and source of the cash credits and, therefore, it
had to be treated as the assessee’s income from undisclosed
sources. Thereupon, the assessee applied to the Appellate
Tribunal under s. 256 of the Income Tax Act, 1961 to refer
the question of law arising out of its order, to the Madhya
Pradesh High Court for its opinion.
There being a conflict of opinion between the different
High Courts as to the true nature of the immunity granted
under s. 24 of the Act, the Appellate Tribunal has made a
reference under s. 257 of the Income Tax Act, 1961 to this
Court, of the following questions of law, for its opinion,
namely:
1. Whether on the facts and in the circumstances of
the case, it was open to the Revenue authorities
to investigate into the genuineness of the five
credits aggregating to Rs. 46,250 and records a
finding in regard thereto, when the Disclosure
petitions made by the five creditors under Section
24 of the Finance (No. 2) Act, 1965, had been
acted upon by the Revenue authorities ?
2. If the answer to the first question is in the
negative and in favour of the assessee, whether
the addition of Rs. 46,250 to the income of the
assessee as representing its income from
undisclosed sources, for the assessment years
1967-68, is valid and justified in law ?
The main question in controversy lies within a narrow
compass. The question, in fact, is whether the provisions of
s. 24 of the Act can be construed as conferring any benefit,
concession or
856
immunity on any person other than the person making the
declaration under the provisions of the Act. It may be
mentioned that to avoid any room for doubt, the legislature
has introduced s. 18 in the Voluntary Disclosures of Income
and Wealth Act, 1976 (Act No. 8 of 1976) which specifically
provides that save as otherwise provided in the Act, nothing
contained in the Act shall be construed as conferring any
benefit, concession or immunity on any person other than the
person making the declaration under the provisions of the
Act. The question for consideration is whether the absence
of such a provision as is found in Act No. 8 of 1976 leads
to the consequence that acceptance of a declaration under s.
24 of the Act confers a benefit which is not provided by the
Act on a person other than the declarants and takes away the
power of the ITO under s. 68 of the Income Tax Act, 1961 to
make an investigation as to the nature and source of a cash
credit appearing in the books of the assesssee to reject the
explanation offered by the assessee as unsatisfactory and to
treat it as his income from undisclosed sources.
Section 24 of the Finance (No. 2) Act, 1965 provided
for the making of voluntary disclosures in respect of
amounts representing income chargeable to tax under the
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Income Tax Act 1922 or the Income tax Act, 1961, for any
assessment year commencing on or before April 1, 1964. On
such disclosure being made under sub-s. (I) thereof, in the
manner provided by sub-s. (2) the amount was to be charged
to Income tax in accordance with sub-s. (3) which provided
by a legal fiction that income tax shall be charged on the
amounts of voluntarily disclosed income at certain specified
rates "as if such amount were the total income of the
declarant". There was a safeguard provided in sub-s. (4)
that the benefit under the scheme would be available only in
respect of the voluntarily disclosed income and not in
respect of the amount detected or deemed to have been
detected by the ITO before the date of declaration. When the
Commissioner of Income Tax passed an order under sub-s. (4)
there was an appeal provided to the Central Board of Revenue
under sub-s. (S) and the Board was empowered under sub-s.
(6) to pass such orders thereon as it deemed fit. There was
a finality attached to the order of the Board under sub-s.
(8)
In support of the reference, learned counsel for the
assessee has, in substance, put forth a three-fold
contention. It is submitted, firstly, that the ITO could not
have treated the cash credits standing
857
in the names of the sons of Kanhaiyalal, the Managing
Partner as . the assessee’s income from undisclosed sources,
having regard to the fact that each one of them had made a
declaration under sub-s. (I) and paid tax thereon under sub-
s. (3). The submission is that it is not permissible for the
Department to go into the question of the nature and source
of the amount so declared in a voluntary disclosure under
s.24 of the Act, and to say that it does not represent the
income of the declarant. Secondly, it is urged that sub-s.
(I) read with sub-s. (3) of s.24 of the Act has a overriding
effect over s.68 of the Income Tax Act, 1961 and, therefore,
the ITO could not make any investigation as to the nature
and source of the cash credits, and thirdly, it is submitted
that there cannot be double taxation of the same income,
once in the hands of the creditors and again in the hands of
the assessee. These submissions proceed on a wrongful
assumption that there is a finality attached under sub-s.
(8) to the legal fiction created by sub-s. (3) for which
there is no basis whatever. The contentions cannot, in our
opinion, prevail.
For an appreciations of the contentions raised, it is
necessary to set out the relevant provisions of s.24 of the
Act. Sub-s. (1), insofar as relevant reads .
(1) Subject to the provisions of this section, where
any person makes, on or after the 19th day of
August, 1965, and before the 1st day of April,
1966, a declaration in accordance with sub-section
(2) in respect of the amount representing income
chargeable to tax under the Indian Income-tax Act,
1922 (11 of 1922), or the Income-tax Act, 1961 (43
of 1961), for assessment year commencing on or
before the 1st day of April, 1964-
(a) for which he has failed to furnish a return within
the time allowed under section 22 of the Indian
Income-tax Act, 1922 (11 of 1922), or section 139
of the Income-tax Act, 1961 (43 of 1961), or G
(b) which he has failed to disclose in a return of in
come filed by him on or before the 19th day of
August, 1965, under the Indian Income Tax Act,
1922 (11 of 1922) or the Income Tax Act, 1961 (43
of 1961), or
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858
(c) which has escaped assessment by reason of the
omission or failure on the part of such person to
make a return under either of the said Acts to the
Income-tax officer or to disclose fully and truly
11 material facts necessary for his assessment.
he shall, notwithstanding anything contained in the said
Acts, be charged income-tax in accordance with sub-section
(3) in respect of the amount so declared or it more than one
declaration has been made by a person the aggregate of the
amounts declared therein, as reduced by any amount specified
in any order made under sub-section (4) or, if such amount
is altered by an order of the Board under sub-section (6),
then such altered amount...............
Sub-s. (3) containing the legal fiction reads as
follows:
(3) Income-tax shall be charged on the amount of the
voluntarily disclosed income-
(a) where the declarant is a person other than a
company, at the rates specified in paragraph
A, and
(b) where the declarant is a company, at the
rates specified in Paragraph F,
of Part I of First Schedule to the Finance Act (X of 1965)
as if such amount were the total income of the declarant
Sub-s. (8) on which strong reliance is placed, runs
thus:
(8) An order under sub-section (6) shall be final and
shall not be called in question before any Court
of law or any other authority.
The crux of the matter is whether the provisions of
s.24 of the Act can be construed as conferring any benefit,
concession or immunity on any person other than the person
making the declaration under the provisions of the Act. The
question is whether the non-obstente clause contained in
sub-s. (I) of s. 24 of the Act precludes the Department from
proceeding against the person to whom the income actually
belonged. The contention that there was an immunity not only
as regards the declarant, but there was also a finality as
to the assessment under s.24 of the Act stems from a
misconception of the nature and scope of the Voluntary
Disclosure Scheme.
859
Under sub-s. (I) of s.24, a person was required to make
a voluntary disclosure in respect of the amount representing
the income chargeable to tax under the Indian Income Tax
Act, 1922 or the Income Tax Act, 1961 for any assessment
year commencing on or before April 1, 1964. Sub s. (I) makes
it clear that the declarations, which were expected to be
made in the manner provided by sub-s. (2), were with regard
to the income which was chargeable to tax under the Income
Tax Acts of 1922 or 1961, but which was not disclosed at the
proper time. Neither under the Act of 1922 nor under the Act
of 1961, was a person required to submit a return with
regard to the income which was either not earned or deemed
to have been earned by him. It, therefore, follows that the
declarations under sub-s. (2) of s.24 had to relate to
income actually earned by him. The scheme only permitted the
bringing forward of income to tax it did not require
investigation of the claim of the declarant. If a person
made a declaration, the Commissioner was under an obligation
to assess him to tax.
In respect of the voluntary disclosures made, a
declarant acquired an immunity from further investigation as
to the nature and source of the income. He also acquired
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certain benefits. One of the distinctive features of the
scheme was that tax was chargeable on the whole of the
disclosed income taken as a single block at rates prescribed
for personal income or for corporate income under the Act,
and not at an ad hoc concessional rate. Further, facilities
were allowed to payment of tax in appropriate instalments
extending over a period not exceeding four years, subject to
a down payment of not less than 10% of the tax due and
furnishing a security in respect of the balance. Income
which had already been detected on the material available
prior to the date of disclosure, was, however, to be
assessed under the regular provisions of the Income Tax Act
and not under the scheme. Any admissions made by a person in
the declarations filed by him under the scheme in respect of
such income were not to be used in assessing that income
under the Income Tax Act. Under the scheme, the disclosed
income was not to be subject to any further proceedings of
assessment. The identity of the declarant was not to be
revealed and he was also immune from penalty and prosecution
for the past concealment of the disclosed income. It is,
therefore, obvious that the Act granted immunity only to the
declarant alone and not to other persons to whom the income
really belonged.
The scheme of the Act makes it abundantly clear that it
was to protect only those who preferred to disclose the
income they
860
themselves had earned in the past and which they had failed
to disclose at the appropriate time. It is undoubtedly true
that the Act was brought on the statute book to unearth the
unaccounted money. But there is no warrant for the
proposition that by enacting the same, the legislature
intended to permit, or connive at, any fraud sought to be
committed by making benami declarations. If the contentions
were to be accepted, it would follow that an assessee in the
higher income group could, with immunity, find out a few
near relatives who would oblige him by filing returns under
s.24 of the Act disclosing unaccounted income of the
assessee as their own and claiming that the said income was
kept by them in deposit with the assessee.
That takes us to the contention based on the legal
fiction contained in sub-s. (3) of s.24 of the Act and the
finality of the assessment, by virtue of sub-s. (8) thereof.
The legal fiction contained in sub-s. (3) of s.24 of the
Act, construed in the light of the other provisions; must
mean that the income voluntarily disclosed shall be deemed
to be the income of the declarant. The words "as if such
income were the total income of the declarant" can only mean
that even though the income did not actually belong to the
declarant lt would be treated to be his income for purposes
of payment of income tax under the scheme. If, therefore, a
person made a false declaration with regard to income not
earned by him, it is difficult to comprehend how the
Department could be prevented from proceeding against the
person to whom the income actually belonged and during the
course of whose assessment the concealed income is detected.
It, therefore, logically follows that on a disclosure being
made, the amount was not to be charged to income tax in
accordance with sub-s. (3) of s.24 of the Act, taking the
disclosed income as the taxable income of the declarant.
The immunity under s. 24 of the Act was conferred on
the declarant only and there was nothing to preclude an
investigation into the true nature and source of the
credits. The ITO was, therefore, justified in treating the
cash credits in the books of account of the assessee in the
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names of the creditors as unexplained cash credits. The
finality under sub-s. (8) is to the order of the Central
Board of Revenue under sub-s. (6). Under sub-s. (4) the
Commissioner of Income Tax was required, within thirty days,
if satisfied that the whole or any part of the income
declared had been detected or deemed to have been detected
by the ITO prior to the
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date of declaration, to make an order in writing to that
effect and forward a copy thereof to the declarant. Any
person who objected to such an order could appeal under sub-
s. (5) to the Central Board of Revenue stating the grounds
for such an objection. The Board was empowered to pass such
orders as it thought fit under sub-s. (6). This order of the
Board under sub-s. (6) was final and conclusive by reason of
sub-s. (8). Thus, the finality under sub-s. (8) was to the
order of the Board under sub-s. (6) of s. 24 and not to the
assessment of tax made on the declarations furnished by the
creditors under the scheme, by virtue of the legal fiction
contained in sub-s. (3) of s. 24 of the Act.
The next question that calls for determination is
whether the non-obstante clause contained in sub-s. (1) of
s. 24 of the Act precludes the Department from proceeding
against the person to whom the income actually belonged.
Under sub-s. (1) of s. 24 the declaration was required to be
made in respect of the amount which represented the income
of the declarant. The declaration could not be made in
respect of an amount which was not the income of the
declarant. If, therefore, a person made a false declaration
with respect to an amount which was not his income, but was
the income of somebody else, then there was nothing to
prevent an investigation into the true nature and sources of
the said amount. There was nothing in s. 24 of the Act which
prevented the ITO, if he was not satisfied with the
explanation of an assessee about the genuineness or source
of an amount found credited in his books, in spite of its
having already been made the subject of a declaration by the
creditor and then taxed under the scheme. We find no warrant
for the submission that s. 24 had an overriding effect over
s. 68 of the Income Tax Act, 1961, insofar as the persons
other than the declarants were concerned.
In our judgment, the legal fiction created by sub-s.
(3) of s. 24 of the Act by virtue of which the amount
declared by the declarant was to be charged to income tax
"as if such amount were the total income of the declarant"
was limited in its scope, and it cannot be invoked in
assessment proceedings relating to any person other than the
person making the declaration under the Act so as to rule
out the applicability of s. 68 of the Income Tax Act, 1961.
The last question that remains is whether the same
income cannot be taxed twice, once in the hands of the
creditors and again in the hands of the assessee. In a case
of this description, there is
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no question of double taxation. The situation is of the
assessee’s own making in getting false declarations filed in
the names of the creditors with a view to avoid higher slab
of taxation. Once it was found that the income declared by
the creditors did not belong to them, there was nothing to
prevent the same being taxed in the hands of the assessee to
which it actually belonged.
It follows that the decisions of the Gujarat High Court
in Manilal Gafoorbhai Shah v. Commissioner of Income Tax, of
the Allahabad High Court in Badri Prasad & Sons v.
Commissioner of Income Tax, and Pioneer Trading Syndicate v.
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 11
Commissioner of Income Tax, Lucknow and of the Madhya
Pradesh High Court in Addl. Commissioner of Income Tax v.
Samrathmal Santoshchand which lay down the true scope of the
Voluntary Disclosure Scheme under s. 24 of the Act must be
upheld. The decisions of the Delhi High Court in Rattan Lal
& Ors v. Income Tax Officer and Shakuntala Devi & ors. v.
C.I.T. and of the Jammu & Kashmir High Court in Mohd. Ahsan
Wani v. C.I.T., taking a view to the contrary, are
overruled.
The Income Tax officer was entitled to determine
whether the amount disclosed was or was not the income of
the declarant, while dealing with the case of another
assessee under s. 68 of the Income Tax Act, 1961. The legal
fiction created by sub-s. (3) of s. 24 was restricted to the
Voluntary Disclosure Scheme itself. The protection enjoyed
by the declarant under that scheme extended only to the
amounts so declared being not liable to be added, in any
assessment, of the declarant. There was no absolute finality
attached to the declaration especially when the nature and
source of the sum declared was being determined for the
purpose of its inclusion in the income of an assessee other
than the declarant. There was, therefore, nothing which
prevented the Income Tax officer from investigating into the
nature and source of the sums credited in the books of
account of an assessee and reject his explanation to the
effect that
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the sums belonged to the persons who had made declarations
about them under s. 24 of the Act.
Accordingly, the reference must be answered in favour
of the Revenue and against the assessee. Our answer to the
first question is that the legal fiction created by sub-s.
(3) of s. 24 of the Finance (No.2) Act, 1965 by virtue of
which the amounts disclosed by the declarants had to be
charged to income tax "as if such amount were the total
income of the declarants" was limited in its scope and could
not be invoked in the assessment proceedings relating to the
assessee in whose books of account the cash credits appear.
The answer to the first question is sufficient to dispose of
the second. On the construction placed on sub-s. (3) of s.
24 of the Act, it must also be held that the ITO was
justified in treating the cash credits appearing in the
books of account of the assessee, amounting to Rs. 46,250 as
the assessee’s income from undisclosed sources, since the
assessee failed to discharge the burden of proof placed upon
him under s. 68 of the Income Tax Act, 1961. The
Commissioner of Income Tax shall be entitled to his costs of
the reference.
S.R.
864