Vd.M Rm.M Rm. Muthiah Chettiar v. Commissioner Of Income-Tax, Madras.

The Judgment of the Court was delivered by

Srinivasan, J.:— The two questions that stand referred to us are these:

“(1) Whether, on the facts and in the circumstances of the case, reassessment made on the assessee under section 34 of the Act is valid in law for 1952-53 to 1954-55?

(2) Whether, on the facts and in the circumstances of the case, the inclusion of the share income of the minor in the hands of the assessee by invoking the provisions of section 16(3) of the Act is valid in law notwithstanding that the assessment is made on the minor represented by his guardian?”

2. It is the admitted case that the assessee has three minor sons. It is also undisputed that these minor sons have been admitted to the benefits of a partnership in which the assessee is a partner. Originally, the assessments in respect of these assessment years were made on the assessee as an individual. The Income-tax Officer did not apply section 16(3) of the Act, which on the bare statement of the position as above, was clearly attracted. In those years, there were also separate assessments on the minors, their mother acting as the guardian for the submission of their returns. The omission to apply section 16(3) of the Income-tax Act was noticed subsequently and the Income-tax Officer issued notices to the assessee under section 34(1)(a) for the first two assessment years and under section 34(1)(b) for 1954-55. The assessee filed returns declaring the same incomes as originally assessed and contended that the assessments could not be reopened. The Income-tax Officer however took the view that, beyond stating that certain persons were minors, there was no indication in the returns submitted by the assessee that these minors are the sons of the assessee who derived income from the same partnership in which the assessee was a partner; There was, according to the Income-tax Officer, an omission on the part of the assessee to disclose fully and truly all the material facts necessary for his assessment. In this view, reassessments were made. In so far as the last year is concerned, the reassessment was purportedly made under section 34(1)(b), it being unnecessary for the department to invoke the larger period for a reassessment available under section 34(1)(a). In these reassessments, the share incomes of the minor sons were included in the assessable income of the assessee by applying the provisions of section 16(3)(a)(ii) of the Income-tax Act.

3. Appeals were taken by the assessee to the Appellate Assistant Commissioner and to the Income-tax Appellate Tribunal. The Appellate Assistant Commissioner was satisfied that, in the original returns submitted by the assessee, the assessee had not disclosed the share income of the minors, which was liable to be included in his, assessments. He pointed out that in his returns, the assessee, while setting out his fractional share in the partnership, had intimated that the Income-tax Officer should ascertain the actual share income from the concerned Income-tax Officer who was presumably responsible for the assessment of the firm. The Appellate Assistant Commissioner thought that there was a deliberate avoidance on the part of the assessee to refer to the relationship of the minors to the assessee himself. The assessee contended before the lower appellate authorities that it was for the Income-tax Officer to have ascertained the correct share of the income which was liable to be included in his assessment; the Income-tax Officer had in fact before him the separate assessments of the minor sons as well as the assessment records of the firm so that there was no failure on the part of the assessee, to disclose any relevant fact. These contentions were rejected, the Appellate. Assistant Commissioner holding that nowhere in any of these records was the particular relationship of the minors to the assessee at all indicated, and unless that information was available to the Income-tax Officer, the Income-tax Officer could not possibly proceed to apply section 16(3) of the Act. The Tribunal in the appeals before it adverted to these circumstances. It repelled the contention of the assessee that the assessee had fully and truly disclosed all the particulars, which the several columns of the form of return required him to disclose and that he could not be found fault with in the circumstances of the case for not disclosing something over and above what the returns specified should be set out therein. The Tribunal declined to accept this contention and dismissed the appeals.

4. The principal argument advanced by Mr. Srinivasan, learned counsel for the assessee, is that the only duty which the assessee is called upon to discharge in relation to his assessment is that which is set out in section 22 of the Act and so long as that duty is discharged, any other information which the Income-tax Officer might feel it necessary for him could only be obtained from the assessee by the concerned officer calling for that information. The assessee, so it is claimed, is required to comply with the requirements of section 22 of the Act and no further duty lies upon him. It is not however dented that in the returns, while the names of the sons of the assessee were given, their relationship to the assessee was not at all indicated. In the return for the assessment year 1952-53, they were shown as minors. In the returns for the subsequent years, even that fact was not indicated. The question then is whether the only duty which an assessee has in relation to his assessment is that contained in section 22 of the Act and whether if the return contains the particulars indicated therein, the assessee's failure to disclose a relevant fact, relevant to the application of section 16(3), would amount to a failure to disclose fully and truly the particulars necessary for his assessment.

5. By section 22(1) of the Act, every person whose total income during the previous year exceeded the maximum amount which is not chargeable to income-tax is required to furnish “within such period not being less than 60 days as may be specified in the notice, a return, in the prescribed form and verified in the prescribed manner, setting forth (along with such other particulars as may be required by the notice) his total income and total world income during that year.” The return itself is one which is prescribed under the authority of the statute and broadly stated any requirement contained therein has the force of the statute itself. Section 59 which confers power upon the Central Board of Revenue to make rules enables that authority to provide for any matter which has to be prescribed by this Act, and under section 59(5), rules made under this section shall be published in the Official Gazette and shall thereupon have effect as if enacted under this Act. We do not propose to enter into the scope and the validity of these rules but would content ourselves with observing that in so far as the rules or directions contained in the form of the returns are in consonance with the provisions of the Act, their binding authority cannot be questioned. The contention, however, of the assessee has been that the department cannot point to a single omission in the return as submitted by the assessee and if the particulars which he has furnished in the return comply with the requirements of the directions found therein, he has no other obligation. In support of this line of argument, reliance has been placed upon a decision of the Bombay High Court in Dhanwate v. Commissioner of Income-tax [1961] 42 I.T.R 253.. This decision held that there is no statutory obligation cast upon the assessee in filing a return of his total income to include therein the income of his wife or minor child arising directly or indirectly from her or its membership in a firm of which he is also a partner. Even in the view that it is obligatory, the learned judges held that failure on his part to do so does not amount to a failure to disclose fully and truly all material facts necessary for his assessment for the year within the meaning of section 34(1)(a). The learned judges examined the various parts of the form of return and the several particulars which are indicated by the headings in the form and found that there was no part in the form providing for the inclusion of such an income as has been referred to. There was no appropriate head in the form in which this part of the income which is includible in the income of the assessee under section 16(3) of the Act could be shown. It was principally for the reason that there was no appropriate head that the learned judges reached the conclusion that no duty lay upon the assessee in this regard. Dealing next with the failure to disclose fully and truly all material facts, they thought that to accept the argument that there was failure to show this part of the income in the return would virtually amount to re-writing the provision, such as “failure to disclose fully and truly in his return all material facts necessary for his assessment for that year”. They accordingly reached the conclusion that, even if there was a duty, section 34(1)(a) would not be attracted.

6. The further reason which the learned judges gave was that in so far as the income derived from the partnership is concerned, the assessment of an assessee, who is a partner in a firm, cannot be altogether divorced from the assessment of the firm itself. Since the assessment of the firm is a preliminary step in the matter of the assessment of its partners, the disclosures made by the partners of the firm in the assessment of the firm would as well be disclosures made by them of all the material facts necessary for the purpose of their own assessment. In the case before them, it was not disputed that “on the material on record, it is clear that in the assessment of the firm, it had been disclosed by the assessee to the Income-tax Officer that Parvati Bai was his wife and that Yaswantha Rao was his son. It was also disclosed that Parvati Bai was a partner in the firm and Yaswantha Rao 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, Yaswantha Rao. 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 Parvati Bai on account of her membership in the firm and Yaswantha Rao's income derived by him on account of his admission to the benefits of the partnership.” On this reasoning, the reference was answered in favour of the assessee.

7. We may broadly indicate our view that the decision of the learned judges of the Bombay High Court in Dhanwate v. Commissioner of Income-tax appears to have proceeded more on the particular facts of that case and upon the finding that the Income-tax Officer had all these materials available to him at the time he made the assessments of the firm and the individuals.

8. A similar view has been taken by the Andhra Pradesh High Court in Akula Venkatasubbiah v. Commissioner of Income-tax [1963] 47 I.T.R 458. This part of the headnote is sufficient.

“When the assessee had shown in his return that in addition to two adult partners, four of his minor sons were admitted to the benefits of the partnership and had also mentioned the shares of each of the partners, it can be said that he stated all the material facts which would enable the department to determine the assessable income of the assessee. There was no obligation on his: part to include the income of the minors within his total income for computation under section 16(3) of the Act. If the return contains all the material facts which would put the officer in a position to compute the total income, it is the duty of the officer to include the income contemplated by section 16. There is no further obligation laid on the assessee.”

9. It will be noticed that in the case dealt with by the Andhra Pradesh High Court, in his return, the assessee had shown that his minor sons had been admitted to the benefits of the partnership in which he was also a partner, a position almost similar to that which obtains in the Bombay decision.

10. It seems to us that whether section 22, of its own force, casts an obligation upon the assessee to disclose an income includible in his assessment by reason of section 16(3)(a)(ii) or not section 34(1)(a) contemplates a failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year. The expression used herein is “necessary for his assessment”. Section 16 of the Act provides for the inclusion of the share income of the minor child of an assessee from the firm in which the assessee is a partner in computing the total income of the assessee. Undoubtedly, the liability to income-tax is on the total income of the assessee, which by reason of section 16(3) takes in the share income of the minor in the firm in which the assessee is a partner. Reading section 34(1)(a) in the context of section 3 as well as section 16(3), it certainly appears as if it is incumbent upon the assessee to disclose such particulars as would enable his assessment to be made, and if his assessment is to be made on a total income which includes the income referred to in section 16(3), it is difficult to see why it cannot be held that there is a duty cast upon the assessee in that regard.

11. In Calcutta Discount Company v. Income-tax Officer the nature of the duty of the assessee contemplated by section 34(1)(a) by the expression “omission or failure to disclose fully and truly all material facts” came to be considered by the Supreme Court. The actual point that was decided in that decision was whether the assessee had a duty to disclose what may be described as an inferential fact or whether his duty was confined to placing before the department all the primary facts necessary for his assessment. But that apart, their Lordships made the following observations at page 199:

“Before we proceed to consider the materials on record… it is necessary to examine the precise scope of disclosure which the section [section 34(1)(a)] demands. The words used are ‘omission or failure to disclose fully and truly all material facts necessary for his assessment for that year’. It postulates a duty on every assessee to disclose fully and truly all material facts necessary for his assessment. What facts are material and necessary for assessment will differ from case to case. In every assessment proceeding, the assessing authority will, for the purpose of computing or determining the proper tax due from an assessee, require to know all the facts which will help him in coming to the correct conclusion. From the primary facts in his possession, whether on disclosure by the assessee or discovered by him on the basis of the facts disclosed or otherwise the assessing authority has to draw inferences as regards certain other facts; and ultimately, from the primary facts and the further facts inferred from them, the authority has to draw the proper legal inferences and ascertain on a correct interpretation of the taxing enactment the proper tax leviable… There can be no doubt that the duty of disclosing all the primary facts relevant to the decision of the question before the assessing authority lies on the assessee.”

12. They refer to the Explanation to section 34 and point out that the assessee's omission to bring to the assessing authority's attention particular items in the account books or particular portions of the document which are relevant will amount to omission as contemplated. They further say :

“Nor will he be able to contend successfully that by disclosing certain evidence, he should be deemed to have disclosed other evidence which might have been discovered by the assessing authority if he had pursued investigation on the basis of What has been disclosed.”

13. They finally point out that the duty of the assessee consists in placing before the assessing authority all primary facts and it is for the assessing authority to decide what inferences of fact and inferences of law have ultimately to be drawn from these primary facts. It is not for the assessee to tell the assessing authority what such inference should be.

14. It seems to us that the relationship of the minors admitted to the benefits of the partnership in which the assessee is a partner is just such a primary fact as their Lordships of the Supreme Court refer to, and if that primary fact was kept back from the knowledge of the assessing authority, it must necessarily follow that there was a failure to disclose material facts necessary for the assessment of the assessee. As we have pointed out, though in the relevant part of the return the assessee had given the name of the partnership from which he derived income and furnished also the names of the other members of the partnership; in none of the returns did he show that three of the persons so indicated were his sons. Only in the return for 1952-53 did he even indicate that these were minors. In the returns for the subsequent years, even that part of the information was lacking. The primary fact that is essential for the assessment of the assessee is undoubtedly that the minor sons of the assessee had been admitted to the benefits of the partnership of which the assessee himself was a member. Without this particular piece of information, the Income-tax Officer could not possibly ascertain the total income of the assessee which should be brought to tax under the law. Indeed, we would agree with the lower appellate authorities that the assessee had deliberately avoided giving any indication of this relationship. Whether section 22 of the Act casts such a duty upon him or not is, to our minds, immaterial. Their Lordships of the Supreme Court in Calcutta Discount Co. Ltd. v. Income-tax Officer have drawn the inference that such a duty is cast upon the assessee by the terms of section 34 itself.

15. Mr. Srinivasan, learned counsel for the assessee, advances his further arguments on the ground that since the assessing authority dealt with the assessment of the firm as well as the individual assessment of the sons of the assessee, he must have been in a position to know that this was a case where other incomes under section 16(3) of the Act were includible in the total income of the assessee. The Income-tax Officer deals with hundreds of assessments and it would be humanly impossible for that officer to discover connections between one assessee and another without being placed in possession of any information which would guide his investigation in that regard. The assessment records of neither the firm nor of the minor sons of the assessee form part of the record in the present case. We have no means of knowing whether this information relevant to the application of section 16(3) is at all available in those records. Indeed, it has been found that, in so far as the assessments of the minor sons are concerned, the mother of the minors purported to appear as the guardian. Those returns would not have disclosed to the Income-tax Officer that these minors in whose names separate assessments were being made were the sons of this assessee at all. We would refer to the observations of their Lordships of the Supreme Court in the decision cited, which deals with the Explanation to section 34, and the remarks which they make in that connection are quite apposite in this context. Merely to say that the assessment of the firm and the assessments of the minors as individuals were done by the same Income-tax Officer cannot, in our view, be relied upon to support the theory that the precise information which was required in the present case was made available to the Income-tax Officer by the assessee.

16. It follows that section 34 of the Act was rightly invoked in the present case. Question No. 1 is answered accordingly.

17. It is submitted by the learned counsel for the assessee that the second question has also to be answered against the assessee in view of the decision of this court in Commissioner of Income-tax v. Rathinasabhapathy Mudaliar. The assessee will pay the costs of the department. Counsel's fee Rs. 250.

18. Questions answered accordingly.