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HIGH COURT OF CALCUTTA
CHAKRABARTI, SARMA SARKAR
P. R. MUKHERJEE - Appellant
Versus
COMMISSIONER OF INCOME-TAX, WEST BENGAL - Respondent
Income-Tax Ref. 114 Of 1953
Decided On : JANUARY 04, 1956
INCOME TAX - Assessment - Reassessment - Notice under Section 34(1) - Validity - Omission or failure to disclose fully and truly all material facts - Presumption - Whether the Tribunal had materials before it on which it could properly hold that the sum of Rs. 25,381/- was the assessee's income from undisclosed sources.
Fact of the Case:
The assessee, a cinema-house owner, was assessed to income-tax on the basis of a return submitted by him. The Income-tax Officer, however, was not satisfied with the assessee's return and issued a notice under Section 34(1) of the Income-tax Act, 1922, asking him to explain the source of the capital introduced by him into the business. The assessee replied that the capital had come from the dowry given to her by her father. The Income-tax Officer did not accept the assessee's explanation and recorded an order to the effect that since the assessee was unable to produce any evidence that the capital had really come from her father, it was to be presumed that the contributor had been her husband, the present assessee. The assessee's assessment was completed on the basis of the Income-tax Officer's order. The assessee appealed against the assessment, but the appeal was dismissed. The assessee then preferred a further appeal to the Appellate Tribunal, which also dismissed the appeal. The assessee then required the Tribunal to refer the disputed questions to the High Court for decision.
Finding of the Court:
The High Court held that the issue of the notice under Section 34(1) was valid and that the Tribunal had materials before it on which it could properly hold that the sum of Rs. 25,381/- was the assessee's income from undisclosed sources.
Issues: 1. Whether the issue of the notice under Section 34(1) by the Income-tax Officer in January, 1950, and the supplemental assessment following thereon are valid. 2. Whether on the materials on record (which have been fully set out above), the Tribunal was entitled to find that the sum of Rs. 25,381 was the assessee's income from undisclosed sources of the accounting year ending 31-3-1947.
Ratio Decidendi: 1. The High Court held that the issue of the notice under Section 34(1) was valid because: * The assessee had omitted or failed to disclose fully and truly all material facts necessary for his assessment. * The Income-tax Officer had reason to believe that an escape from assessment or under-assessment or assessment at too low a rate had taken place. 2. The High Court held that the Tribunal had materials before it on which it could properly hold that the sum of Rs. 25,381/- was the assessee's income from undisclosed sources because: * The amount appeared in the books of a business which stands in the name of the wife and the first presumption is that it is a capital contribution by the wife's husband, that is to say, the present assessee. * The second presumption is that the contribution made by the assessee to his wife's business was made out of his income, that is to say, it was itself an income amount in his hands. * The assessee had accepted the assessment made on the basis of the first notice under Section 34, which meant that he was accepting the position that the capital which had produced the income of Rs. 11,500/- had been transferred by him to the wife and therefore, the sum had belonged to him before such transfer.
Final Decision: The High Court answered both the questions referred to it in the affirmative.
( 1 ) THE facts of this Reference are a little unusual in that in making an assessment on the assessee, the Department seems to have proceeded by the method of trial and error.
( 2 ) IT appears that there are in the town of Howrah three houses, standing in the name of a lady, named Srimati Lila Devi. Those houses are premises Nos. 132, 133 andi 134, Netaji Subhas Road. On premises No. 132 stands a cinema-house called 'shyamasree Talkies' which is also in the name of the lady and which has been functioning since March, 1946. In February, 1948, Lila Devi voluntarily submitted a return of her income for the accounting year 1946-47 which, in her case, was the usual financial year. The return showed an income of Rs. 334-13-0 from property and Rs. 5,682-7-0 as income from the cinema business. The Income-tax Officer accepted the lady's figure as regards her income from property, but thought that the true income from the cinema business should be Rs. 11,500/- and not the amount shown by her. He did not, however, complete the assessment. He was about to do so when his mind appears to have been assailed by doubts as to whether the capital on which the business was being run was the lady's own and, if not, whether she would be the right person to be assessed. For the removal of that doubt he issued a notice to the lady on 9-6-1948, and asked her to explain the source from which the capital introduced by her into the business had come. The amount, it appears, was Rs. 25,381/ -.
( 3 ) BY a letter dated 22-6-1948, the lady replied to the notice served on her and stated that the capital of the cinema business had come from the dowry given to her by her father. The actual text of the letter has been set out in the order of assessment. The lady, it appears, said that the amount had been paid to her by her father in cash on various dates and since no record had been kept, neither her father, nor herself was in a position to furnish the exact dates of payment and receipt of the various sums. The Income-tax Officer was not prepared to accept the lady's explanation as true. He recorded an order to the effect that since the lady was unable to produce any evidence that the capital had really come from her father, it was to be presumed that the contributor had been her husband, the present assessee. In that view, he kept the lady's assessment pending and issued a notice to the present assessee on 21-7-1948, under Section 22 (2), read with Section 34 of the Act, asking him to furnish a return of his income for the assessment year 1947-48. The assessee filed a return on 30-7-1948, in which, besides showing his receipt from salary of Rs. 7,348/-he included the sums of Rs. 334/-13-/ and Rs. 5,347-10-0 as his wife's income assessable in his hands under Section 16 (3) of the Act. The inclusion of the last two sums was "under protest". It seems somewhat curious that the assessee should have included those sums at all even when furnishing his return, but the Tribunal points out that he must have come to know of the order recorded by the Income-tax Officer in his wife's file. The assessment of the assessee was next taken up. His return as to his income from salary was acceptedl and in addition to that income, the amounts of Rs. 335/- and Rs. 11,500/-, which had already been determined in the wife's file as her income from house property and the cinema business respectively, were included in his total income. The assessee appears to have acceptedl the assessment and did not appeal against it. The assessment was completed on 31-7-1948, and on the same day the wife's file was closed.
( 4 ) IT will be seen that although the Income-tax Officer taxed the wife's income in the hands of the assessee on the basis that the income Had arisen from capital transferred by him to her directly or indirectly, he did not seek to assess the amount of the contribution itself in the hands or the assessee as his income. Being too occupied with the fruits, he
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