Mrs. Ziabanu Malak vs Commissioner of Income Tax

V.A. Mohta, J.—This is reference u/s 256(1) of the income tax Act, 1961 (''the Act''), at the behest of the assessee on the following two questions: 1. Whether, on the facts and in the circumstances of the case, the provisions of section 147(a) of the income tax Act, 1961 applied to the facts of the present case?

Whether it was obligatory on the part of the assessee to include in his return of income the share income of the two minors for the three years under consideration?

The assessee M.D. Malak (deceased) was a partner in a partnership firm "Mehdi Bagh Shop". His two minor sons were admitted to the benefits of the partnership. On noticing that shares of profits allotted to those minor sons were not included in the return of income by the assessee for the assessment years 1962-63 to 1964-65 the assessments were reopened u/s 147(a) of the income tax Act, 1961 (''the Act'') and the share of profit added in the income of the assessee in those assessment years. The AAC quashed the reassessment on the ground that having regard to the statutory form of return of income for the respective years, the assessee cannot be deemed to have failed or omitted to disclose fully and truly all the material facts necessary for his assessment. In coming to that conclusion, the AAC relied upon the ratio of the case of V.D.M.R.M.M.R.M. Muthiah Chettiar Vs. Commissioner of Income Tax, Madras, . The Tribunal reversed the order of the AAC and restored the order of ITO holding that the ratio of the above Supreme Court decision does not apply since (unlike that form of return of income in that case) the Forms for the assessment years made it obligatory to declare such share of income.

According to the assessee, the share of profits attributable to his minor children was no doubt includible in his income but that income was not part and parcel of the assessee''s total income which he should have declared in the return. Neither the law mandated to do so, nor the prescribed form specified the head in which the said income could be shown. The deed of partnership clearly showed that his minors were admitted to the benefits of the partnership. The deed was on record, the firm was assessed on that basis and, thus, there was no deliberate attempt to suppress that fact and, hence, section 147(a) was not attracted.

Since both the parties have relied upon the above decision of the Supreme Court, it would be proper to notice its ratio and the background. Assessments were reopened u/s 34(1)(a) of the Indian Income- tax Act, 1922, for similar reason of non-disclosure of such income in the return. In the Form of return prescribed under rule 19 of the income tax Rules, 1922, there was no clause which required disclosure of the income of any person other than the income of the assessee which was liable to be included in his total income. The form was not produced before the Court but the income tax Manual contained instructions to include such income in the return. The Supreme Court proceeded upon the assumption that the form also contained such instructions but in the absence of the head in the form under which such income could be shown held that there was no justification for reassessment u/s 34(1). Following observations in that case are most material for our purpose:

... Assuming that there were instructions printed in the Forms of return in the relevant years, in the absence of any head under which the income of the wife or minor child of a partner whose wife or minor child was a partner in the same firm, could be shown, by not showing that income of the taxpayer cannot be deemed to have failed or omitted to disclose fully and truly all the material facts necessary for his assessment. Section 16(3) imposes an obligation upon the income tax Officer to compute the total income of any individual for the purpose of assessment by including the items of income set out in clauses (a)(i) to (iv) and (b), but thereby no obligation is imposed upon the taxpayer to disclose the income liable to be included in his assessment u/s 16(3). For failing or omitting to disclose that income proceedings for reassessment cannot therefore be commenced u/s 34(1)(a). Section 22(5) required the assessee to furnish particulars of the names and shares of his partners, but imposed no obligation to mention or set out the income of the nature mentioned in section 16(3). In the relevant years there was no head in the Form under which income liable to be assessed to tax u/s 16(3)(a) and (b) could be disclosed." (p. 188)

We may mention that sections 16(3)(a)(ii), 22 and 34 of the 1922 Act are respectively, equivalent to sections 64(1)(iii), 139 and 147(a) of the 1961 Act, as it stood at the material time. No doubt, the assessments in question were under the new Act and the assessments in the Supreme Court were under the 1922 Act. But that factor makes no difference upon the application of the ratio of the decision of the Supreme Court, because, it is a common ground that the prescribed Form of return even for the material assessment years did not specify the head in which such income could be shown by the assessee.

We may incidentally mention that the form has been amended with effect from 1-4-1972. Now the head in which such income can be shown is mentioned. It is because of the change in the form since 1972 that the Supreme Court did not refer the above decision to a larger Bench despite indicating disagreement with its view and preferred to follow it - see Commissioner of Income Tax, Kerala Vs. Smt. P.K. Kochammu Amma Peroke, and Income Tax Officer, Calcutta and Others Vs. Radheshyam Ladia, .

In Radheshyam Ladia''s case (supra) is confirmed the decision of the Calcutta High Court in the case of Radheshyam Ladia Vs. Income Tax Officer, "B" Ward and Others, , in which decision in V.D.M.R.M.M.R.M. Muthiah Chettiar''s case (supra) has been considered in the context of comparative positions under the 1922 Act as well as the 1961 Act. In the Calcutta High Court case relevant assessment years were 1960-61 to 1962-63. It was held that in absence of a clause in the forms requiring disclosure of such income the ratio of V.D.M.R.M.M.R.M. Muthiah Chettiar''s case (supra) would apply since the material provisions in the 1922 and 1961 Acts are nearly similar.

In the case of Commissioner of Income Tax (Central) Vs. Biju Patnaik, , the Orissa High Court has also taken similar view of the matter in applying the ratio of V.D.M.R.M.M.R.M. Muthiah Chettiar''s case (supra).

Our attention was drawn on behalf of the revenue to the case of Sushila Devi Jain Vs. Commissioner of Income Tax, Delhi-I, , wherein the ratio of V.D.M.R.M.M.R.M. Muthiah Chettiar''s case (supra) was not held applicable to that case. Now apart from the fact that the said decision was rendered before the Supreme Court decision in Radheshyam Ladia''s case (supra), the factual background of the case is also somewhat different. In the said case, the assessee had shown minors as partners but without disclosing their relationship with the partners. Even the partnership deed did not mention that the minors were the assessee''s children. There was no indication either by way of reference to the name of their father and otherwise from which the ITO could have gathered that the firm in which the assessee was partner had three minor children who were admitted to the benefits of partnership. Thus, this was a case in which neither from the deed nor from the columns in the form it could be discovered that the assessee''s children were admitted to the benefits of partnership. The following observations in that case would reveal what weighed with the Delhi High Court:

... As we have already pointed out, the ITO could not be visited with the knowledge of the relationship between the assessee and the minor children. If there had been some indication of the relationship between the assessee and the minor children and still the ITO had failed to apply section 64 it could be said that the escapement was due to his negligence but that is not the situation in the present case." (p. 562)

In the instant matter, it is not the case of the revenue that the deed of partnership did not disclose the relationship or it was not available with the department. The deed of partnership dated 31-5-1956 which is shown to us clearly discloses that the two minor children of the assessee were admitted to the benefits of partnership. The firm as is inevitable under the IT Act was already assessed under the Act. Hence, the ratio of Sushila Devi Jain''s case (supra) will have no application to the matter at hand. For all these reasons, the two questions are answered in the negative and in favour of the assessee. No costs.