1980-VIL-20-SC-DT

Equivalent Citation: [1980] 125 ITR 624 (SC)

Supreme Court of India

Date: 23.09.1980

COMMISSIONER OF INCOME-TAX, KERALA

Vs

SMT. PK KOCHAMMU AMMA, PEROKE

BENCH

Judge(s)  : E. S. VENKATARAMAIAH. and P. N. BHAGWATI.

JUDGMENT

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 calendar 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 along with 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. 4,754 as income from property and Rs. 4,748 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 amount 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 s. 64, sub-s. (1), cls. (i) and (iii), of the I.T. Act, 1961. The ITO 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 s. 64, sub-s. (1), cls. (i) and (iii), the ITO was of the view that the assessee had concealed the particulars of her income and rendered herself liable to penalty under s. 271, sub-s. (1), cl. (c), and since the minimum penalty leviable on the assessee was Rs. 1,000, he referred the case to the IAC who issued notice under s. 274 and, after hearing the assessee, imposed a penalty of Rs. 7,000. 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 on 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 income so as to attract the penalty under s. 271, sub-s. (1), cl. (c). The Tribunal accepted this argument of the assessee and held that s. 271, sub-s. (1), cl. (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 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 s. 64, sub-s. (1), cls. (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 s. 271, sub-s. (1), cl. (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 s. 271, sub-s. (1), cl. (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 s. 64, sub-s. (1), cls. (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.

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-s. (1), cl. (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 s. 64, sub-s. (1), cls. (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-s. (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 order to enable the revenue authorities to make a proper assessment of tax on the assessee. It must, therefore, follow a fortiori 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 s. 4 on the total income of the assessee, and "total income" is defined in s. 2, sub-s. (45), to mean "the total amount of income referred to in s. 5 computed in the manner laid down" in the Act. It is no doubt true that the definition of "total income" in s. 2, sub-s. (45), refers to s. 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 s. 4 of the Act. Now, s. 64, sub-s. (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 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 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.

The assessee then contended that the return of income which was required to be filed by her under s. 139, sub-s. (1), was a return in the prescribed form and the form of the return prescribed by r. 12 of the I.T. 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 s. 64, sub-s. (1), cls. (i) and (iii), and there was, therefore, no obligation on the assessee to disclose this income in the returns 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 r. 12, 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. 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 s. 139, sub-s. (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 s. 271, sub-s. (1), cl. (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 v. CIT [1969] 74 ITR 183 (SC), 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, and 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 s. 34(1)(a) of the Indian I.T. 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 r. 12 has been amended and since then, there is a separate column providing that "income arising to spouse/minor child or any other person as referred to in Chap. 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 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 the return carried out with effect from 1st April, 1972. We would, therefore, follow this decision in Muthiah Chettiar's case [1969] 74 ITR 183 (SC), 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.

Appeal dismissed.

 

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