Citation Codes

Equivalent Citations

citation codes

Case Number

I.T Reference No. 37 of 1960

Judges

Y.S Tambe
V.S Desai, JJ.

Acts

clause (c) of sub-section (2) of section 59, the Central
clause (a) of sub-section (1) of section 34
sub-section (3) of section 16 provides:
provisions of sections 3, 22, 23, 16(3)
sub-sections (1) and (2) of section 22
sub-sections (5) and (6) of section 23,
section 66(1) of the Income-tax Act.
rules. Clause (e) of sub-section (2)
Sub-section (5) of section 59
sub-section (1) of section 22
sub-section (3) of section 16,
sub-section (1) of section 66
section 3, income-tax
year.9. Section 22
rules and rule 19

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Smart Summary

Comprehensive Summary of the Opinion (Tambe, J.) — Reference under section 66(1) of the Income-tax Act

Factual and Procedural Background

The reference arises under section 66(1) of the Income-tax Act in relation to the assessment year 1947-48 (accounting year ending 31 March 1947). The assessee, D.R. Dhanawate, was a partner in Shivraj Fine Art Litho Works, Nagpur, a firm registered for income-tax purposes since 1939. The other partners included the assessee's wife Parvatibai and six sons, one of whom (Yeshwantrao) was a minor admitted to the benefits of partnership. Each partner's share was two annas in a rupee; the assessee also disclosed receipt of Rs. 6,800 as an honorarium.

The assessee filed a return on 26 November 1947. The Income-tax Officer assessed the firm and partners together on 25 February 1948, determining the firm's total income at Rs. 2,00,176 and apportioning shares among partners. Initially the Income-tax Officer assessed the shares attributable to Parvatibai and Yeshwantrao in their own names rather than including those amounts in the assessee's income.

In 1955, following disclosures under a Government "Voluntary Disclosure Scheme," the firm's income was enhanced by Rs. 1,35,000. The Income-tax Officer reopened assessments under section 34 and revised the firm's total income to Rs. 3,35,176 on 29 February 1956, apportioning the enhanced amount among partners. On that basis the Income-tax Officer, in a later order dated 31 July 1956 (following a notice dated 21 March 1956 under clause (a) of sub-section (1) of section 34), added Rs. 79,344 to the assessee's income representing amounts apportioned to Parvatibai and the minor Yeshwantrao.

The assessee challenged the inclusion and appealed. The Appellate Assistant Commissioner earlier allowed an appeal (relying on D.R. Dhanwatay v. Commissioner of Income-tax [1956] 29 I.T.R. 257) and directed deletion of the addition, but subsequently the Income-tax Officer issued a second notice and passed the July 31, 1956 order adding the amounts. The Appellate Assistant Commissioner later confirmed the July 31, 1956 order (order dated 22 April 1957) and the Tribunal dismissed the assessee’s appeal. The Tribunal referred the following question of law to the High Court under section 66(1):

"Whether on the facts and in the circumstances of the case the assessment order passed by the Income-tax Officer dated July 31, 1956, as a result of the proceedings initiated under section 34(1)(a) is valid in law?"

Legal Issues Presented

Whether the Income-tax Officer was justified in reopening and passing the assessment order dated 31 July 1956 under section 34(1)(a) by treating the assessee as having failed to disclose fully and truly all material facts necessary for assessment, specifically by adding to the assessee's income the shares of his wife and minor son.
Whether, as a matter of law, an assessee is obliged when filing his return to include in that return the income of his wife and minor child arising from their membership/admission to benefits of a partnership in which he is a partner (and whether failure so to include constitutes a "failure to disclose" under section 34(1)(a)).

Arguments of the Parties

Assessee's Arguments (Mr. Kolah)

The case did not fall under the first limb of section 34(1)(a) because the assessee had, in fact, filed a return for the relevant year.
The assessee had disclosed, in the return and in Part I(c), the names of partners and that his minor son was admitted to benefits of partnership; thus material facts were known to the Income-tax Officer at the time of assessment and there was no failure to disclose fully and truly.
It is not the assessee's obligation to include in his return the share incomes of his wife and minor son; reliance was placed on an unreported Division Bench decision in Parvatibai Kishanlal Tiwari v. Commissioner of Income-tax (Decided 24 February 1956) supporting that view.

Department's Arguments (Mr. Joshi)

The case fell under the second limb of section 34(1)(a): the assessee failed to disclose fully and truly all material facts necessary for assessment because he did not include his wife’s and minor son’s share incomes in his return.
When section 3 (charging provision), section 22 (return obligation), section 16(3) (inclusion of wife's/minor's income in computing total income) and Note 3 of the prescribed return form are read together, Note 3 (being part of the prescribed form under section 59(5)) operates as statutory guidance with the force of law and obliges an assessee to include those incomes in his return.
Alternatively, even if inclusion in the return was not obligatory, the assessee was bound in assessment proceedings to inform the Income-tax Officer that the wife’s and minor’s incomes should be included in computing his total income, and he failed to do so.
Mr. Joshi challenged the binding nature of the Parvatibai decision (arguing it was given without noticing relevant provisions), and argued that the Income-tax Officer was justified in re-opening because of non-disclosure, including failure to disclose the Rs. 1,35,000 undisclosed income revealed by the Voluntary Disclosure Scheme.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
D.R. Dhanwatay v. Commissioner of Income-tax [1956] 29 I.T.R. 257	Used by the Appellate Assistant Commissioner to allow an earlier appeal directing deletion of the addition of Rs. 79,344 from the assessee's income.	The court records that the Appellate Assistant Commissioner relied on this decision when allowing the assessee's appeal; Mr. Joshi argued that the decision omitted consideration of relevant provisions and was not binding. The High Court considered the matter independently in light of statutory provisions.
Parvatibai Kishanlal Tiwari v. Commissioner of Income-tax (Division Bench, unreported; decision referred as I.T. Reference No. 35 of 1955; 24 February 1956)	Held (as cited in the opinion) that it is not obligatory upon an assessee to include in his assessment the deemed income arising by reason of section 16 (i.e., the wife's/minor's income included in computation of total income).	The court expressly adopts the view taken by that Division Bench decision, treating it as persuasive authority that the assessee was not under statutory obligation to include the wife's/minor's income in his filed return; this supports the conclusion that section 34(1)(a) could not be invoked on the basis alleged.

Court's Reasoning and Analysis

The court engaged in a statutory and textual analysis, proceeding in logical steps:

Identification of the legal requisites for invoking section 34(1)(a): the section permits reopening where an assessee has either failed to make a return or has failed to disclose fully and truly all material facts necessary for assessment for the year. The court accepted that the assessee had filed a return, so the first limb did not apply.
Examination of whether the assessee's omission to include his wife's and minor son's share incomes in his return equated to a failure to disclose fully and truly all material facts under the second limb. The court analyzed several statutory provisions invoked by the Department—section 3 (charge), section 22 (return obligation), section 16(3) (inclusion of spouse/minor income in computation), and section 59 (rule-making and force of prescribed form).
Analysis of the prescribed return form and Notes (Note 3 and Note 9 of rule 19). The Department's argument was that Note 3 (part of the prescribed return under rule-making power) required the assessee to include his wife’s and minor’s incomes in his return. The court carefully parsed the language of Note 3 and found it directed that such "sources" must be included in the return "under the appropriate head," but did not in terms require the assessee to include another person's income in his return.
The court considered whether item 4(b) of Part I (share of profits in a registered firm) was the "appropriate head" that would compel inclusion of the wife’s/minor's income. It concluded that subsection (3) of section 16 recognizes that the income is truly that of the wife or minor and only directs inclusion in the computation of the individual's total income. Therefore, it could not clearly be said that item 4(b) was intended to be used for disclosing other persons' incomes in the return. Note 9 (directions for item 4(b)) likewise did not require disclosure of the wife/minor's income by the assessee.
The court adopted the reasoning of the Division Bench decision (I.T. Reference No. 35 of 1955 / Parvatibai Kishanlal Tiwari) to the effect that it is not obligatory upon the assessee to include in his assessment the deemed income arising by reason of section 16. Thus the court rejected the Department’s contention that the Notes in the prescribed form converted into a statutory obligation to disclose another person’s income in the assessee’s filed return.
Even for the sake of argument, assuming the assessee had an obligation to include the wife’s and minor’s incomes in his return, the court rejected the Department's further contention that such omission constituted the specific statutory failure to "disclose fully and truly all material facts" within the meaning of section 34(1)(a). The court emphasized that to accept the Department's view would amount to reading additional words into the statute, which was impermissible.
The court also analyzed the structure of assessments for a registered firm and its partners: under the then subsections (5) and (6) of section 23 the assessments of the firm and its partners are complementary. The firm’s total income is determined first and apportioned among partners; the partner’s assessment depends on that apportionment. Because the firm and partners were assessed together by the same Income-tax Officer on the same day and the firm’s assessment disclosed that Parvatibai was a partner and Yeshwantrao was admitted to benefits of partnership, those disclosures were material facts available to the Income-tax Officer relevant to the assessee’s assessment.
Conclusion from the foregoing: the statutory conditions for invoking section 34(1)(a) were not satisfied regarding the July 31, 1956 order; hence that order could not be upheld.
The court briefly considered (and noted difficulties with) the Department’s alternative argument that reopening was justified because the Rs. 1,35,000 had not been disclosed earlier (the Voluntary Disclosure Scheme). The court observed that the point had not been raised before the Tribunal and that the present reference related to the July 31, 1956 order (not the earlier February 29, 1956 order). Consequently, the court did not decide that alternative contention but noted difficulties with it.

Holding and Implications

Holding: The court answered the referred question in the negative. The court held that the requirements of section 34(1)(a) were not satisfied and, therefore, the assessment order of the Income-tax Officer dated 31 July 1956 (made pursuant to proceedings initiated under section 34(1)(a)) cannot be upheld.

Direct consequences as stated in the opinion:

Primary ruling: The assessment order of 31 July 1956 is invalid and the question referred by the Tribunal is answered in the negative.
Costs of the reference are awarded to the assessee and are to be paid by the Department.

The court's conclusion rests on textual statutory construction (interpretation of sections 3, 16(3), 22, rule-making under section 59 and the Notes to the prescribed return form) and on the complementary character of firm and partner assessments under the relevant provisions. The court adopted the Division Bench view (I.T. Reference No. 35 of 1955 / Parvatibai Kishanlal Tiwari) that an assessee is not under a statutory obligation to include in his return the separate income of his wife or minor child arising under section 16, and further held that omission to include such amounts in the return did not constitute a "failure to disclose fully and truly all material facts" so as to justify reopening under section 34(1)(a).

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D.R Dhanwate v. Commissioner Of Income-Tax, M.P, Nagpur & Bhandara.

Tambe, J.:— This is a reference under section 66(1) of the Income-tax Act. We are here concerned with the assessment year 1947-48 the accounting year ending with March 31, 1947. At the material time the assessee was a partner in a firm styled as Shivraj Fine Art Litho Works, Nagpur. The other partners being his wife Parvatibai and six sons, out of whom one Yeshwantrao was a minor. He was admitted to the benefits of partnership. The share of each partner was two annas in a rupee. The firm was being treated as registered for purposes of income-tax since 1939. On November 26, 1947, the assessee submitted his return to the Income-tax Officer. As regards his share of profits in the registered firm, he stated “as per firm's case”. He further disclosed a certain income by way of interest and income from sources other than those mentioned in the form. In Part (c) of the form the assessee disclosed the names of all the partners and also disclosed that his minor son, Yeshwantrao Dhanawate, was admitted to the benefits of the partnership. In that column he also disclosed that in addition to the two annas share, he was being paid Rs. 6,800 as honorarium. The assessment of the firm as well as the assessments of the assessee and other partners of the firm were taken together on February 25, 1948, by Mr. Bandwar, the then Income-tax Officer (1st Additional), Nagpur. He, acting under sub-section (6) of section 23 of the Act, determined the total income of the firm at Rs. 2,00,176. Out of the income he apportioned Rs. 29,597 as the share of the assessee; Rs. 22,797 as the share of his wife Parvatibai and Rs. 22,797 as a share of his minor son, Yeshwantrao. On the same day he completed the assessment of the assessee as well as Parvatibai and Yeshwantrao. In the assessment orders made by him, the Income-tax Officer did not include the share of income of Parvatibai and Yeshwantrao in the income of the assessee. On the other hand, the Income-tax Officer assessed that income and taxed it in the hands of Parvatibai and Yeshwantrao. It appears that some time in the year 1955, taking advantage of the voluntary disclosure scheme of the Government, the partners of the firm made some disclosures under the said scheme. As a result of compromise arrangement, the income of the firm was enhanced by a sum of Rs. 1,35,000. The Income-tax Officer took action under section 34 against the firm and enhanced its income by the said amount. The Income-tax Officer also took action under section 34 against the assessee and the other partners for the purpose of revising the assessment. This revised assessment was made on February 29, 1956. The total income of the firm, as already stated, was enhanced by a sum of Rs. 1,35,000. Thus its total income computed amounted to Rs. 3,35,176. The said income was apportioned among the partners. The amount apportioned to the share of D.R Dhanawate came to Rs. 46,472 and the amount apportioned to the share of Parvatibai and Yeshwantrao came to Rs. 39,672 each, The revised assessment of the assessee also was done by the Income-tax Officer on the same day and in that assessment he added a sum of Rs. 79,344 representing the income that had been apportioned to the share of Parvatibai and Yeshwantrao to the income of the assessee. The income of the assessee was thus computed at Rs. 1,26,276. Feeling aggrieved by the order so far as it went to include the share of profits of Parvatibai and Yeshwantrao in his income, the assessee preferred an appeal to the Appellate Assistant Commissioner of Income-tax, Nagpur. The appellate authority relying on a decision of the Nagpur High Court, D.R Dhanwatay v. Commissioner of Income-tax [1956] 29 I.T.R 257., allowed the appeal on February 27, 1956, and directed the Income-tax Officer to delete the addition of the aforesaid amount of Rs. 79,344 from the total income of the assessee.

2. At this stage it would be convenient to refer to the relevant facts giving rise to the decision in D.R Dhanwatay v. Commissioner of Income-tax, which arose out of the assessee's assessment for the year 1946-47. For that year also on reopening the assessee's case by a notice under section 34(1)(b) of the Act, the Income-tax Officer had sought to revise the assessment of the assessee by including the share of income of his wife and a minor son.

3. To resume the narration of the facts of this case, against the aforesaid order of the Appellate Assistant Commissioner of February 27, 1950, the Department did not prefer an appeal to the Tribunal, but on the other hand, on March 21, 1956, a notice was issued by the Income-tax Officer under clause (a) of sub-section (1) of section 34 calling upon the assessee to file a fresh return within 35 days of the receipt of the notice. It was further stated in the notice that it was being issued after obtaining the necessary sanction of the Commissioner of Income-tax, M.P & Bhopal, Nagpur. The Income-tax Officer again passed an order on July 31, 1956, bringing to assessment in the hands of the assessee the share income of the assessee's wife and minor child under section 16(3) of the Act. The reason given by him is contained in paragraph 14 of his order, which is in the following terms:

“As stated above the assessee has year after year since 1940-41 onwards failed to show in his return the share income of his wife and minor sons from the firm, Shivraj Fine Art Litho Works, although the instructions contained in the return required that the assessee should show such share incomes in his own return. The mere fact that the constitution of the firm was before the Income-tax Officer when he made the assessment cannot absolve the assessee of his responsibility of showing certain items of income in his own return. The assessee has successfully avoided proper incidence of taxation for years together by not showing in his return the income which was properly chargeable in his hands under the law. Action under section 34(1)(a) is, therefore, warranted in this case.”

4. Against this order the assessee took an appeal to the Appellate Assistant Commissioner, who by his order dated April 22, 1957, confirmed the order of the Income-tax Officer. The assessee then took a second appeal before the Tribunal and that appeal also was dismissed. The Tribunal upheld the order of the Income-tax Officer under both the parts of section 34(1)(a). The assessee then moved the Tribunal under sub-section (1) of section 66 praying that the case be referred on a reference to this court. The Tribunal has now referred the case and the question of law arising out of the order of the Tribunal referred to us, is:

“Whether on the facts and in the circumstances of the case the assessment order passed by the Income-tax Officer dated July 31, 1956, as a result of the proceedings initiated under section 34(1)(a) is valid in law?”

5. Mr. Kolah, learned counsel for the assessee, contends that on the facts and in the circumstances of the case, the Income-tax Officer was not justified in taking action under section 34(1)(a) of the Act. To take action under that section it is necessary to establish that the assessee has failed to make a return or that the assessee has failed to disclose fully and truly all material facts necessary for the assessment for that year. The assessee has filed his return for the relevant year. The case, therefore, clearly did not fall under the first part of the section. The assessee has also fully disclosed that the other partner Parvatibai was his wife and the minor child Yeshwantrao was his son, who was only admitted to the benefits of the partnership. The Income-tax Officer, therefore, had at the time of the assessment before him all the necessary information to enable him to include the share incomes of Parvatibai and Yeshwantrao in the income of the assessee under section 16(3) of the Act. There being thus no failure to disclose fully and truly all the material facts on the part of the assessee, the case also did not fall under the second part of section 34(1)(a). According to Mr. Kolah, it is no part of the duty of the assessee to include in his total income the share incomes of his wife and minor son. He placed reliance on an unreported decision of this court in Parvatibai Kishanlal Tiwari v. Commissioner of Income-tax decided by a Division Bench of this court on February 24, 1956.

6. Mr. Joshi, learned counsel for the Department, on the other hand, contends that the case falls under the second part of section 34(1)(a) of the Act. We may at this stage state that even though the Tribunal had found that the case fell under both the parts of section 34(1)(a), Mr. Joshi concedes that the case does not fall under the first part of section 34(1)(a). As already stated, according to Mr. Joshi, the case falls under the latter part of the section, namely, failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessee's assessment for the year 1947-48. He contends that on a true contraction of this clause read together with the provisions of sections 3, 22, 23, 16(3) and Note (3) of the Notes contained in the prescribed form, it becomes clear that it is obligatory on the assessee to include in his total income the income of his wife and the income of his minor child. Admittedly, the assessee has not done so and his failure to do so, according to Mr. Joshi, amounts to his failure to disclose the material facts necessary for the assessment of the assessee for that year. In the alternative Mr. Joshi argues that even assuming that it was not obligatory on the assessee to include in the return of his total income filed by him the income of his wife and minor child, it undoubtedly was obligatory on him to tell the Income-tax Officer in his assessment proceedings that the income of his wife and his minor child should be included in his total income. The assessee admittedly has not done this also during his assessment proceedings and in this view of the matter also, there had been a failure on his part to disclose fully and truly all material facts necessary for his assessment for that year.

7. As regards the decision on which reliance is placed by Mr. Kolah Mr. J shi submits that that decision had been given without noticing the relevant provisions of law and is, therefore, not binding on us.

8. The first question that has to be considered is whether it was obligatory on the assessee to include in the return of his total income filed by him the income of his wife and his minor son and whether his failure to do so would amount to a failure to disclose fully and truly all material facts necessary for his assessment for that year. We would now proceed to examine the provisions to which we were referred by Mr. Joshi. Section 3, which is a charging section, provides:

“Where any Central Act enacts that income-tax shall be charged for any year at any rate or rates…. tax at that rate or those rates shall be charged for that year…. in respect of the total income of the previous year….”

9. Section 22 requ???es es a person whose total income during the previous year exceeds the maximum amount which is not chargeable, to make a return in the prescribed form of his total income and total world income during that year. The material part of sub-section (3) of section 16 provides:

“In computing the total income of any individual for the purpose of assessment, there shall be included—:

(a) so much of the income of a wife or minor child of such individual as arises directly or indirectly—

(i) from the membership of the wife in a firm of which her husband is a partner;

(ii) from the admission of the minor to the benefits of partnership in a firm of which such individual is a partner……”

10. Section 59 deals with the powers of the Central Board of Revenue to make rules. Clause (e) of sub-section (2) empowers the Central Board of Revenue to provide for any matter which by this Act is to be prescribed. Sub-section (5) of section 59 provides that rules made under this section shall be published in the Official Gazette and shall thereupon have effect as if enacted in this Act. In exercise of the powers conferred on it by clause (c) of sub-section (2) of section 59, the Central Board of Revenue has prescribed the rules and rule 19 provides that the return of the total income and total world income for individuals, Hindu undivided family, etc., required under sub-sections (1) and (2) of section 22 shall be in the prescribed form and shall be verified in the manner indicated therein. Part I of the form relates to the details that are to be filled in by the assessee regarding his sources of income. In the form it is mentioned that in filling this Part Note No. 3 should be taken into consideration. These Notes are given for guidance in filling up the return forms. These Notes are also printed on the forms of return furnished to the person making a return. The material part of Note 3 is in the following terms:

“Sources of income: The following income must be included in your return under the appropriate head:

(a) so much of the income of your wife as arises directly or indirectly from:

(i) her membership in a firm of which you are a partner;…

(b) so much of the income of your minor child as arises directly or indirectly from:

(i) his or her admission to the benefits of the partnership in a firm of which you are a partner.”

11. It is the say of Mr. Joshi that under section 3, income-tax is levied on the total income of the assessee and sub-section (1) of section 22 makes it obligatory on the assessee to make a return in the prescribed form of his total income. Note 3, which forms part of the prescribed form under Sub-section (5) of section 59, has the force of law as if it has been a part of the enactment. Note 3 casts a statutory obligation on an assessee to include in his income the share income of his wife and minor child when the source of income is a share in profits of a partnership of which the assessee, his wife and the minor son are the partners.

12. It is difficult to accept this contention. No doubt, the heading given to Note 3 is “sources of income”, but the body of the Note does not in terms say that the income of the wife and the minor child arising from their membership in a firm of which the assessee is a partner, is to be included and shown in the total income of the assessee. On the other hand, the words used are that it is to be included in the return, under the appropriate head. What then is the appropriate head? Mr. Joshi says that “appropriate head” is clause (b) of item 4 of Part I of the prescribed form of return. Under that clause the assessee has to disclose his share of profits in the registered firm. This return is to be made under section 22 of the Act and the said section casts an obligation on the assessee to disclose his total income and not the income of any other person. It is true that under sub-section (3) of section 16, the income of the wife and the minor child is included in the total income of the assessee at the time of computation of his total income, but on the language of sub-section (3) of section 16 it cannot be said that that is an income of the assessee as such in the strict sense though it may be chargeable to tax in his hand. Section 16 provides that in computing the total income of an individual for purpose of assessment, the income of the wife or a minor child of such individual as arises directly or indirectly from the membership of the wife and from admission of the minor to the benefits of the partnership is to be therein included. The provision thus first recognises that the income truly is the income of the wife or the minor child of the individual. It then directs its inclusion in the total income of the individual at the stage of computation of his total income. That being the position on the language of sub-section (3) of section 16, it cannot be clearly and definitely said that clause (b) of item 4 of Part I would be the appropriate head for the disclosure required to be made in the return under Note 3 of rule 19.

13. Mr. Kolah on the other hand referred to Note 9 of rule 19, which is in the following terms:

“Business, profession or vocation: If you are a partner in registered firm or if your firm has applied for registration you must complete item 4(b) of Part I and if you are a partner in an unregistered firm you must complete item 4(c) of Part I.

14. For the purpose of completing item 4(b) of Part I, the share of the partner is to be determined as follows:

(i) The share is the share to which he was actually entitled during the previous year and not the share to which he was entitled on the date on which the assessment is to be made.

(ii) It includes all interest (whether on loan or capital account and whether actually paid or not) and all salary, commission or other remuneration paid, payable or credited to him.”

15. Now, this Note 9 is a specific provision giving directions to the persons filling in the form regarding item 4(b) of Part I and it is to be noticed that this Note does not mention that the income of the wife and the minor child is to be included by the assessee in his income in filling the column against Item 4(b). It is, therefore, difficult for us to accept the contention of Mr. Joshi that the appropriate head for showing the income of the wife and the minor child is Item 4(b) of Part I. No other head was pointed out to us by Mr. Joshi from the First Part of the form. For reasons stated above it is, therefore, not possible to accept the contention of Mr. Joshi that there is a statutory obligation cast on an assessee in filing a return of his total income to include in it, the income of his wife and minor child arising directly or indirectly from their membership in a firm of which he also is a partner. We, therefore, see no reason to take a view other than the one taken by a Division Bench of this court in the aforesaid decision (I.T Reference No. 35 of 1955) wherein it is observed that it is not obligatory upon the assessee to include in his assessment the deemed income which arises by reason of section 16.

16. We would, however, for the sake of argument, assume that it is obligatory on the assessee in making a return to include in his total income the income of his wife and minor child. The question that next arises for determination is whether failure on his part to do so would amount to a “failure to disclose fully and truly all material facts necessary for his assessment for that year.” As already stated, it is Mr. Joshi's contention that that would amount to a failure to disclose fully and truly all material facts within the meaning of section 34. We find it difficult to accept this contention of Mr. Joshi also. To accept this contention we will have to read in the section, “failure to disclose fully and truly in his return all material facts necessary for his assessment for that year.”

17. That would involve adding something to the section, for which we find neither any warrant nor any justification. In our opinion, therefore, even assuming that it was the duty of the assessee to include the income of his wife and minor child in his income and show it so in his return, failure on his part did not amount to “failure to disclose fully and truly all material facts necessary for his assessment for the relevant year.” This brings us to the next contention of Mr. Joshi.

18. As already stated, it is his contention that the assessee has not in his assessment proceedings told the Income-tax Officer or disclosed to the Income-tax Officer that the income of his wife and minor son are to be added to his income in computing his total income, and, therefore, it is a failure on his part to disclose fully and truly all material facts. To put such a strict construction on the clause in the case of an assessment of a partner in a registered partnership is, in our opinion, not warranted. The assessment of a partner in a registered firm cannot be completely divorced from the assessment of the firm of which he is a partner. These two assessments are not in two different water tight compartments. But as would be seen from the provisions of the then sub-sections (5) and (6) of section 23, the two assessments are complementary to one another. In making the assessments of a registered firm and its partners, the Income-tax Officer had first to assess the total income of the firm and thereafter the total income as determined was apportioned by him among the partners according to their shares. Though the firm is a separate and distinct unit of assessment no tax was levied on the income of a registered firm in its hand,. but each partner's share of the registered firm's determined income was added to his other income and tax levied thereon on the basis of his total income. The assessment of a registered firm is thus a preliminary step in the matter of the assessment of its partners and forms part of their assessment. The disclosures made by the partner of a registered firm in the assessment of the firm would, therefore, as well be disclosures made by him of all the material facts necessary for the purpose of his own assessment. It is not disputed before us that on the material on record it is clear that in the assessment of the firm, it has been disclosed by the assessee to the Income-tax Officer that Parvatibai was his wife and that Yeshwantrao was his son. It was also disclosed that Parvatibai was a partner in the firm and Yeshwantrao was admitted to the benefits of the partnership. These facts were known to the Income-tax Officer at the time he made the assessment of the firm as well as of the assessee, his wife and son Yeshwantrao. All these assessments were made on one and the same day and by the same Income-tax Officer. The Income-tax Officer could as well have, on the basis of the facts disclosed to him, included in the total income of the assessee the income derived by Parvatibai on account of her membership in the firm and Yeshwantrao's income derived by him on account of his admission to the benefits of the partnership.

19. In our opinion, therefore, it has not been established that the requirements of section 34(1)(a) were satisfied in order to enable the Income-tax Officer to issue a notice on March 21, 1956, under section 34(1)(a) of the Act. Consequently, the order of assessment passed by the Income-tax Officer on July 31, 1956, cannot be upheld.

20. Mr. Joshi next contends that at any rate it should be held that the Income-tax Officer was justified in adding to the income of the assessee the income of Parvatibai and Yeshwantrao apportioned to them on reopening the assessment on disclosure of additional income of Rs. 1,35,000 under what the Tribunal calls “the Voluntary Disclosure Scheme” of the Government. It is the argument of Mr. Joshi that as the income of Rs. 1,35,000 was not disclosed by the assessee, there had been a failure on his part to make a full and complete disclosure of these material facts necessary for the purpose of his assessment. The Income-tax Officer, therefore, had power under section 34(1)(a) to re-open the assessment and serve a notice on the assessee and thereafter to make a fresh assessment and add the respective sums of Rs. 16,875 as income of Parvatibai and another sum of Rs. 16,875 as income of Yeshwantrao to the income of the assessee as these sums represent the shares of Parvatibai and Yeshwantrao in the undisclosed income of Rs. 1,35,000. There are, however, difficulties in the way of Mr. Joshi. The question in this form was not raised before the Tribunal. Further, the other difficulty in the way of Mr. Joshi is that we are not dealing with the case arising out of the order of the Income-tax Officer of February 29, 1956, but of date July 31, 1956, consequent on the second notice issued on March 21, 1956, by the Income-tax Officer.

21. For reasons stated above, in our opinion, the question referred to us will have to be answered in the negative. Costs of the assessee of this reference shall be paid by the Department.

22. Question answered in the negative.

D.R Dhanwate v. Commissioner Of Income-Tax, M.P, Nagpur & Bhandara.

Comprehensive Summary of the Opinion (Tambe, J.) — Reference under section 66(1) of the Income-tax Act

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Assessee's Arguments (Mr. Kolah)

Department's Arguments (Mr. Joshi)

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

D.R Dhanwate v. Commissioner Of Income-Tax, M.P, Nagpur & Bhandara.

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