Commissioner of Income Tax vs Lal Babu

S.P. Sinha, J.—The Patna Bench of the Income Tax Appellate Tribunal has referred the undermentioned questions of law for opinion to this court :

" (1) Whether, on the facts and in the circumstances of the case, the Tribunal were correct in law in holding that non-disclosure of income of the wife and minor sons, which was includible u/s 64 of the I.T. Act, 1961, in the total income of the assessee, did not attract the provisions of Section 271(1)(c) of the Income Tax Act, 1961 ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal were correct in law in holding that the additions made on estimate under the head " Income from other sources " on account of inadequate withdrawals and unexplained investments over house constructions, did not attract the provisions of Section 271(1)(c) of the Income Tax Act, 1961 ? "

The brief relevant facts are that the assessee is an " individual''''. The assessment year in this case is 1969-70. During the relevant previous year the assessee''s wife and minor sons received interest amounting to Rs. 6,449 from the firm in which the assessee was a partner which fell for assessment for the said assessment year 1969-70. The said sum of Rs. 6,449 was assessed in his hands in terms of Section 64 of the Income Tax Act, 1961 (hereinafter referred to as " the Act "). A sum of Rs. 3,500 on account of low drawings for meeting his expenditure plus a further sum of Rs. 4,660 on account of unexplained investment in house construction were also added to his income. The latter two amounts were added as " income from other sources ". On making these additions, the returned income fell short of 80% of the income finally assessed and consequently proceedings for levy of penalty u/s 271(1)(c) of the Act were initiated against him.

Before the IAC of Income Tax, the authority competent to levy penalty in such cases, the assessee submitted that no penalty was leviable on him because there was no concealment of income by him ; neither of the income arising to his wife and minor sons included in his total income u/s 64 of the Act, nor of the income from other sources included in his income by estimate. The IAC, however, did not accept the assessee''s plea and, since the income returned fell short of 80% of the income finally assessed, acting in terms of the Explanation to Section 271(1)(c), imposed a penalty of Rs. 14,609 on the assessee.

The assessee then appealed to the Income Tax Appellate Tribunal and once again it was reiterated that no penalty was leviable on him because he could not be deemed to have concealed his income by not including in his return of income the interest income arising to his wife and minor sons or even on the ground of the further estimated additions having been made to his income.

Before the Tribunal the department''s case was that the assessee was under an obligation to include and show in his return of income the said interest income falling to the share of his wife and minor children. The further case of the department was that since the assessee''s returned income fell short of 80% of the income assessed, a case for levy of penalty clearly arose against the assessee in terms of the Explanation to Section 271(1)(c) of the Act.

The Tribunal was conscious of the applicabilty of the Explanation to Section 271(1)(c) of the Act to the case. It held that a mere addition by estimate did not indicate that the income added was a concealed income of the assessee. The Tribunal further held that neither Section 64 of the Act nor Section 139 of the Act imposed any obligation on the assessee to include in his return the income of his minor sons or his wife, and, therefore, for such omission the penal provisions of Section 271(1)(c) of the Act were not attracted. The penalty levied on the assessee was accordingly cancelled. The department being aggrived by the decision of the Tribunal has then got this reference made u/s 256(1) of the Act to this court on the questions, as already stated above.

Learned counsel for the department submitted that it was obligatory on the part of the assessee to show in his return the income which was assessable in his hands in terms of Section 64 of the Act. In this connection, reference was made to the form of Income Tax return in which a column had been provided for disclosing such income. It was further submitted that by virtue of the fact that the income arising u/s 64 of the Act is assessable in the assessee''s hands, it is incumbent on the assessee to show such income in his return. In support of this proposition, reference has been made to Section 139(1) of the Act and the argument is that the return of income of any other person for which the assessee is assessable under this Act was required to be filed by him and this supported his contention that income assessable in his hands u/s 64 of the Act must be returned by the assessee.

In the instant case, it was submitted that the interest income, arising to his wife and minor sons from the firm of which the assessee was a partner, was clearly assessable in the assessee''s hands. It was, therefore, his obligation under the said provision of the Act to return such income in his return of income. Since the assessee had failed to do so, the penal provisions of Section 271(1)(c) of the Act were attracted.

The further submission is that the Tribunal was oblivious of the applicability of the Explanation to Section 271(1)(c) of the Act to the case, because had it not been so, the Tribunal would not have brushed aside the further additions made to the assessee''s income as arising out of other sources, as being irrelevant for the purpose of levy of penalty in terms of the Explanation to Section 271(1)(c) of the Act.

Learned counsel, appearing on behalf of the respondent-assessee, has reiterated the arguments which found favour with the Tribunal and on that ground has urged that both the questions must be answered in the affirmative. In support of his contention, he has cited certain case law, to which I shall presently refer, upholding the view that no obligation is cast on an assessee to include in his return of income such income as are assessable in his hands in terms of Section 64 of the Act.

In my opinion, the contention made on behalf of the respondent (assessee) is sound and it must prevail.

The obligation to file a return of income is cast on an assessee in terms of Section 139(1) of the Act, the relevant portion of which reads :

" Every person, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to Income Tax, shall furnish a return of his income or the income of such other person during the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed--..."

Learned counsel for the petitioner (department) has tried to read in the words " or the total income of any other person in respect of which he is assessable under this Act " as referring to such cases as are covered by Section 64 of the Act: This is a clear misconception because this part of the said section does not talk of returning a part of the total income of any other person in respect of which the assessee is assessable under the Act, but talks of the total income of any other person in respect of which the assessee is assessable under the Act. Definitely this provision has no reference to Section 64 of the Act but has to be understood only in the context of " representative assessee ", that is to say, a person who is liable to be assessed in respect of the total income, not arising to him, but arising to somebody else whom he represents. Representative assessee has been categorised in Section 160 of the Act and in certain other sections following it.

The interpretation which the learned counsel for the department wants me to accept in respect of the provisions of Section 139(1) of the Act is erroneous and, therefore, not acceptable.

Reading Section 139 of the Act, it clearly envisages that the assessee is to submit a return of his total income or to submit the return of total income of someone whom he represents. It does not call upon the assessee to include in his total income even such income as are assessable in his hands in terms of certain provisions of the Act.

Learned counsel for the department has made reference to the form of return prescribed under the Rules which was applicable to the assessment year in question. The form which he has shown to me shows a column meant for indicating the income arising to spouse or minor children. But this form came into effect from the 1st of July, 1972. The assessment year in question being 1969-70 this could not be the relevant form. I have also been referred to the statement of facts as made by the CIT in para. 4 of which he has stated : " the non-inclusion of income of wife and minor children u/s 64 of the I.T. Act, 1961, does attract the provisions of Section 271(1)(c) because it has been specifically provided in return Form No. 2 relevant for the assessment year 1969-70 that '' if the income of other persons is includible in assessee''s total income under the provisions of Section 61 62 63 or 64 of the I.T. Act, 1961, such income should also be shown separately in the return under the appropriate heads ''."

It is difficult to accept that the form prescribed from time to time can override or add to the provisions contained in the Act. When Section 139(1) of the Act does not cast any obligation on the assessee to include in his total income such income as are deemed by virtue of Section 61 62 63 or 64 to be the assessee''s income, a column provided in the form of Income Tax return can only have a persuasive value and not an obligatory value.

The question as to whether an assessee is under any obligation to include in his return such income as are assessable in his hands by virtue of Section 64 has been the subject-matter of decisions by several High Courts and each High Court has consistently taken the view that there is no such obligation cast on the assessee in terms of Section 139 of the Act. Reference may be made to the decision of the Madhya Pradesh High Court in the case of Commissioner of Income Tax Vs. Smt. Rani Duleiya, and to a single judge decision of the Calcutta High Court in the case of Radheshyam Ladia Vs. Income Tax Officer, "B" Ward and Others, and also to a decision of the Orissa High Court in the case of CIT v. Biju Patnaik [19761 103 ITR 713. In substance, the reasons which have found favour with their Lordships of the different High Courts are that Section 139 of the Act calls upon the assessee to return only his individual income. It does not cast any further obligation on him to include even such income in his return as are assessable in his hands, u/s 64 of the Act (the cases considered were u/s 16(3) of the Indian I.T. Act, 1922, which is equivalent to Section 64 of the new Act). Even Section 64 of the Act does not make the income arising to the spouse or minor children of the assessee an income deemed to arise to the assessee. Section 64 only says that such income as arises to his or her spouse or minor child shall be included in the assessee''s income.

It may be added that the provisions contained in Section 271(1)(c) of the Act applies only to concealment of his income ; it does not speak of concealment of income as are includible by a fiction of law in his income. This clearly restricts the applicability of Section 271(1)(c) of the Act to the concealment of " his income ", that is, one''s own income.

It must, therefore, be held that the Tribunal was right in holding that no obligation was cast on the assessee to include in his return of income, the income arising to his wife and minor sons which were includible in his income in terms of Section 64 of the Act. The failure of the assessee to do so does not attract the penal provisions of Section 271(1)(c) of the Act against him. Question No. 1 has, therefore, to be answered in the affirmative and in favour of the assessee.

Coming to question No. 2, it is true that the terms of the Explanation to Section 271(1)(c) of the Act get attracted when the income returned fell short of 80% of the income assessed and then the onus lies upon the assessee to prove that there was no concealment on his part of any income. But this does not mean that the department has got nothing to do after having once found the disparity between the income returned and the income assessed to be above 80%. That is not what the Explanation means.

In the instant case, admittedly, the amount of income added as " income from other sources " were by mere estimate. The assessee denied having earned any such income and further said that the estimate was faulty; or at least it could not give a handle to the Income Tax department to levy penalty on him. Once the assessee made out such a plea it was incumbent on the IAC to indicate by some materials that the estimated additions were not mere estimates but real and proper estimates of such income as the assessee had not returned.

Looking to the order of the IAC it clearly emerges that he has not at all taken any pains to indicate that the assessee''s plea was wrong and faulty and that the department''s stand was correct. The Explanation to Section 271(1)(c) of the Act, it must be understood, does not absolve the department of its onus to prove certain facts which might justify the levy of penalty. On the contrary, the Explanation to Section 271(1)(c), as has been indicated by several decisions of this court, only casts the initial onus on the assessee and if that is discharged, it shifts the onus to the department which has to rebut the Explanation offered by the assessee as being false or unacceptable. Since the assessee is required to prove a negative fact the onus on him cannot be of the nature of the onus on the prosecution in a criminal trial. The assessee need only show that his plea stands the test of preponderance of probability. If the assessee gives a plausible explanation against the additions made to his income, the onus will then shift to the department to show that the assessee''s explanation was false or not worthy of belief or that it was not even probable. As stated, no such pain has been taken by the IAC to justify the inclusion of the further items of income from other sources in the assessee''s income. It must, therefore, be held that the Tribunal was perfectly justified in holding that the mere estimated addition does not and will not be a good ground for levy of penalty u/s 271(1)(c) of the Act.

Learned counsel for the department had made an argument that the Tribunal seemed to be oblivious of the provisions of the Explanation to Section 271(1)(c).

This argument is baseless. A plain reading of the Tribunal''s order shows that it was very much conscious of such a provision being in the Act. It is only thereafter that the Tribunal has dealt with the question of penalty u/s 271(1)(c) of the Act.

Having regard to the discussion above, question No. 2 is also answered in the affirmative and in favour of the assessee.

The assessee will be entitled to hearing fee. Costs Rs. 250.

Nagendra Prasad Singh, J.

I agree.