Smt. Budho Devi vs Commissioner of Income Tax

D.K. Kapur, J.—The assessee, Smt. Budho Devi, had sold property situated at R-7/8, Green Park Extension, New Delhi, making a capital gain of Rs. 30,767, for which she filed a return in the assessment year 1967-68. The ITO, after disclosing the investment in the construction of the property amounting to Rs. 53,000, came to the conclusion that it came from Shri Darbari Lal, the assessee''s husband. He also held that the capital gain was not assessable in the assessee''s hands, as it belonged to Shri Darbari Lal. So, the assessment was made for nil income. The Additional Commissioner came to the conclusion that this order was prejudicial to the interest of the revenue because even the income disclosed in the return was not assessed in the hands of the assessee. After giving the necessary notice, he set aside the assessment order and directed it to be made afresh. An appeal was taken by the assessee to the Tribunal, which affirmed the order of the Additional Commissioner.

On a reference being sought by the assessee, the following question has been referred to us u/s 256(1) of the income tax Act, 1961 (''the Act''), by the Tribunal :

"Whether, on the facts and in the circumstances of the case, the order passed by the income tax Officer making nil assessment on the assessee for the assessment year 1967-68 was erroneous in so far as it was prejudicial to the interest of the revenue within the meaning of section 263(1) of the income tax Act, 1961, and the Additional Commissioner of income tax was justified in setting aside the assessment and directing the income tax Officer to reframe the same according to law ?"

Before us, it is contended for the assessee that the order of the Tribunal is not correct because the order passed by the ITO making the assessment nil was neither prejudicial to the interest of the revenue nor was it erroneous and, hence, section 263(1) of the Act was not attracted. Reference to certain judgments has been made to support this point of view.

However, it is sufficient to note what the Tribunal said in his order. It was said : "On behalf of the department, reliance was placed on the decision of the Additional Commissioner of income tax and it was submitted that the income tax Officer should have made a protective assessment on the assessee. It was further submitted that as the income tax Officer failed to make the necessary protective assessment, the action of the income tax Officer was prejudicial to the interests of the revenue."

Later on, it was said to the same order by the Tribunal (sic). Even before the Additional Commissioner, it was submitted on behalf of the assessee that the lady would be able to prove the sources of investment claimed by her. On these facts, the order of the ITO in not making even a protective assessment was, in our opinion, erroneous in so far as it was prejudicial to the interest of revenue. Prejudice to the interest of the revenue may be caused, if both the assessee and her husband are ultimately found not to be assessable to this capital gain in their individual assessments. These remarks were made in the context of the fact that the assessee''s husband, Shri Darbari Lal, was also sought to be assessed u/s 147(a) of the Act by reopening his assessment. It was, thus, possible that if the result in that case had been that the property was concluded not to belong to Shri Darbari Lal, the capital gains would not be assessed in his hands. The conclusion of the Tribunal was based on the possibility that in case the ITO''s order stood, then the income might escape assessment both in the hands of the assessee as well as her husband. That is why a protective assessment was necessary.

In the judgment relied upon by the learned counsel for the assessee, H.H. Maharaja Raja Pawer Dewas Vs. Commissioner of Income Tax, , the Court concluded that the order must be erroneous as well as prejudicial to the interest of the revenue. On the facts of that case, it was found that the order might be erroneous but it could not be held to be prejudicial. In another case of Commissioner of Income Tax Vs. Late Sunderlal (through Bankey Behari Lal), , the equivalent provision in the Indian income tax Act, 1922 was analysed and it was held that the Commissioner must give reasons for being satisfied that the order passed by the ITO was prejudicial to the interest of the revenue and without reasons, the order could not be passed. In the third case decided by this Court of Gee Vee Enterprise Vs. Additional Commissioner of Income Tax, , the provisions of section 263 were examined in a writ petition under article 226 of the Constitution of India. In that case, the ITO, had not made a proper enquiry and so it was held that the order was sufficiently erroneous within the meaning of section 263.

Each case must necessarily turn on its own facts. The facts in this case are quite clear and distinct. The assessee had herself submitted a return showing a capital gain of Rs. 30,767. So, as far as we can see, she had to be the assessee for this amount unless somebody else was assessed for the said capital gain. The mistake made by the ITO was to hold that the amount was not assessable in the hands of the assessee, thus, leaving it open to the department to start proceedings against the assessee''s husband. The mistake of the ITO was to fail to protect the revenue against the possibility that the income was not that of Shri Darbari Lal. In such an event, the income would not be assessed in the hands of both the husband as well as the wife. It was, therefore, necessary that the order should have been passed assessing the amount in the hands of the assessee, with the condition that in case it was assessed in the name of the husband, then the assessment order would stand cancelled. This type of assessment is what is commonly described as a protective assessment.

Inasmuch as, there was a failure to do this, the order was certainly prejudicial to the interest of the revenue and the Tribunal is quite right in its conclusion on this aspect of the case.

It remains to be seen whether the order can be described as erroneous. It can be seen that this is a simple case following a particular pattern. If in the return, income has been shown by the assessee, it is not for the ITO to say that the income is not assessable in the hands of the assessed; if it is assessable in the hands of somebody else, then only can the assessment in respect of this assessee be cancelled. Inasmuch as the ITO did not guard against the possibility of the amount not being the income of anybody else, the order is also erroneous. It is, thus, both erroneous as well as prejudicial.

The fact that the Additional Commissioner has not given very detailed reasons, this conclusion has been criticised by the learned counsel for the assessee, but it seems that in this case, this matter was quite obvious. All along the assessee had been claiming that the amount utilised for making the construction was her own money. For this purpose ''her own money'' would be the money belonging to her and loans from Shri Darbari Lal, Sat Narain, Chander Mohan and Ashok Kumar. It was thus the assessee''s own case that the money did belong to her and, therefore, capital gains were hers and not those of anybody else. It is thus a case in which there has been a mistake by the ITO which required revision. Accordingly, we answer the question referred to us in the affirmative, in favour of the department and against the assessee but leave the parties to bear their own costs.