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Citation Codes
Equivalent Citations
citation codes
Case Number
Judges
  • S.P Sinha
  • Nagendra Prasad Singh, JJ.
Acts
  • SECTION 64 INCOME TAX ACT 1961
  • provisions of Section 271(1)(c) of the Income-tax Act, 1961.2.
  • provisions of Sections 61, 62, 63 or 64 of the I.T Act, 1961
  • Section 16(3) of the Income-Tax Act, 1922,
  • Section 64 of the I.T Act, 1961
  • provisions of Section 271(1)(c)
  • Section 271(1)(c).25.
  • Section 271(1)(c)
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Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Judges
  • S.P Sinha
  • Nagendra Prasad Singh, JJ.
Acts
  • SECTION 64 INCOME TAX ACT 1961
  • provisions of Section 271(1)(c) of the Income-tax Act, 1961.2.
  • provisions of Sections 61, 62, 63 or 64 of the I.T Act, 1961
  • Section 16(3) of the Income-Tax Act, 1922,
  • Section 64 of the I.T Act, 1961
  • provisions of Section 271(1)(c)
  • Section 271(1)(c).25.
  • Section 271(1)(c)
See more information ...
Smart Summary

Structured Summary of the Opinion (S.P. Sinha, J.)

Factual and Procedural Background

The Patna Bench of the Income-tax Appellate Tribunal referred two questions of law to this Court concerning whether omissions in the assessee's return attracted penalty under Section 271(1)(c) of the Income-tax Act, 1961.

Relevant facts: the assessee (an individual) for assessment year 1969-1970 did not include in his return interest of Rs. 6,449 which had arisen to his wife and minor sons from a firm in which the assessee was a partner. That amount was assessed in the assessee's hands under Section 64 of the Act. In addition, sums of Rs. 3,500 (low drawings) and Rs. 4,660 (unexplained investment in house construction) were added to his income as "income from other sources" by estimate.

Because the returned income fell short of 80% of the income finally assessed, proceedings for penalty under Section 271(1)(c) were initiated and the Inspecting Assistant Commissioner imposed a penalty of Rs. 14,609. The assessee contested the penalty before the Tribunal, which set it aside on two grounds: (1) omission to return income assessable under Section 64 did not attract Section 271(1)(c), and (2) mere estimated additions as income from other sources did not justify penalty. The Department appealed, resulting in the present reference under Section 256(1) of the Act.

Legal Issues Presented

  1. Whether the Tribunal was correct in law in holding that non-disclosure of income of the wife and minor sons, which was includible under Section 64 of the Income-tax Act, 1961 in the total income of the assessee, did not attract the provisions of Section 271(1)(c) of the Income-tax Act, 1961.
  2. Whether the Tribunal was correct in law in holding that the additions made on estimate under the head "income from other sources" on account of inadequate withdrawals and unexplained investments over house constructions did not attract the provisions of Section 271(1)(c) of the Income-tax Act, 1961.

Arguments of the Parties

Department's Arguments

  • The assessee was obliged to include in his return income which was assessable in his hands under Section 64; the return form even contained a column for such income, indicating the obligation.
  • Because the income assessable under Section 64 was assessable in the assessee's hands, Section 139(1) requires the return of that income; omission therefore constitutes concealment attracting Section 271(1)(c).
  • As the returned income fell short of 80% of the assessed income, the Explanation to Section 271(1)(c) is applicable and creates a case for levying penalty; the Tribunal erred in disregarding the Explanation.

Assessee's Arguments

  • No penalty was leviable because there was no concealment by the assessee: Section 139(1) does not cast an obligation to include in the assessee's return the income assessable in his hands by virtue of Section 64.
  • The additions made as "income from other sources" were mere estimates; the assessee denied earning such income and contended that the estimates were faulty; such estimated additions alone do not justify a penalty without material showing they represent undisclosed real income.
  • The Tribunal's view was supported by case law (several High Court decisions) holding there is no obligation under Section 139 to include income assessable under provisions equivalent to Section 64.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Commissioner of Income-tax, M.P v. Smt. Rani Duleiya (Madhya Pradesh High Court) High Court held that Section 139 requires return of the assessee's own total income; it does not impose an obligation to include in the assessee's return income assessable in his hands under provisions equivalent to Section 64. The Court relied on this decision as supporting authority that an assessee is not obliged by Section 139(1) to include in his return income merely because it is assessable in his hands under Section 64.
Radheshyam Ladia v. Income-Tax-Officer, "B" ward, District I (Calcutta High Court, single Judge) Same principle: Section 139(1) calls for return of the assessee's own total income and does not require inclusion of income assessable by legal fiction under provisions like Section 64. The Court cited this decision as part of a consistent body of High Court authority supporting the assessee's position on Section 139(1) and Section 64.
Commissioner of Income-tax (Central), Calcutta v. Biju Patnaik (Orissa High Court) Also held that there is no obligation on the assessee under Section 139 to include in his return income assessable in his hands by virtue of the corresponding provision in the earlier Act (Section 16(3), equivalent to Section 64). The Court relied on this decision to reinforce the point that Section 64 operates by inclusion for assessment purposes but does not convert the obligation under Section 139 into one requiring the assessee to return another person's income.

Court's Reasoning and Analysis

The Court analysed the matter in two parts corresponding to the two referred questions.

1. On non-disclosure of income assessable under Section 64

  1. The Court examined Section 139(1), quoting its operative portion requiring a person to furnish a return of "his income or the income of such other person" where he is assessable in respect of the "total income" of that other person.
  2. The Court rejected the department's attempt to treat the clause "or the total income of any other person in respect of which he is assessable" as referring to partial inclusion situations under Section 64. The Court emphasised that the language refers to cases of a representative assessee — someone who must return the entire total income of another person (as defined in Section 160 and related provisions) — and not to situations where only certain items are includible in the assessee's income by legal fiction.
  3. Consequently, Section 139(1) does not impose an obligation to include in the assessee's return items that are assessable in his hands only by virtue of statutory inclusion (Sections 61–64); the provision is to be read narrowly as concerned with returns of one's own income or the total income of another whom one represents.
  4. The Court addressed the department's reliance on a return form containing a column for income of spouse and minor children and observed that the form cited came into effect from 1 July 1972, whereas the assessment year was 1969–1970; moreover, a form cannot override statutory provisions — it has persuasive but not obligatory force when the statute does not impose the duty.
  5. The Court noted prior High Court decisions uniformly adopting the view that Section 139 does not cast an obligation to return income assessable under the earlier corresponding provision (Section 16(3) of the 1922 Act, equivalent to Section 64).
  6. The Court further emphasised that Section 271(1)(c) penalises concealment of "his income" (one's own income) and does not explicitly refer to concealment of income includible by fiction in his income; this linguistic point further narrowed the provision's applicability.
  7. Conclusion for this limb: the omission to include income of wife and minor sons assessable under Section 64 did not attract Section 271(1)(c).

2. On additions by estimate as "income from other sources"

  1. The Court accepted that the Explanation to Section 271(1)(c) is triggered when the returned income is less than 80% of the assessed income, placing an initial onus on the assessee to show absence of concealment.
  2. However, the Court stressed that this Explanation does not absolve the department of its duty; once the assessee offers a plausible explanation (even though it involves proving a negative), the onus shifts to the department to rebut that explanation with materials showing the estimates represent real, undisclosed income.
  3. In the present case the additions in question (low drawings and unexplained investment) were made by estimate. The assessee denied such income and challenged the estimates as faulty. The Inspecting Assistant Commissioner, in the view of the Court, did not produce material to show that the estimates were not mere estimates but correct reflections of undisclosed income.
  4. Therefore, the department failed to discharge its shifted onus after the assessee offered a plausible explanation, and mere estimated additions without supporting material cannot justify penalty under Section 271(1)(c).
  5. The Court also rejected the department's submission that the Tribunal was oblivious to the Explanation: the Tribunal had considered the Explanation and then concluded that estimated additions were insufficient to sustain penalty.

Holding and Implications

Core Ruling: Both reference questions were answered in the affirmative and in favour of the assessee.

Consequences and direct effects:

  • The Court held that omission to include in the assessee's return income assessable in his hands by virtue of Section 64 (income of wife and minor children included for assessment) does not attract the penal provisions of Section 271(1)(c).
  • The Court held that estimated additions under the head "income from other sources" (in this case low drawings and unexplained investments) did not justify imposition of penalty under Section 271(1)(c) because the department failed to rebut the assessee's plausible explanation.
  • The Tribunal's cancellation of the penalty was upheld; the assessee was awarded hearing fee costs of Rs. 250/-, as stated in the order.
  • The opinion does not purport to set a novel precedent beyond applying existing High Court authorities and prior decisions of this Court; its practical effect is to confirm that (a) Section 139(1) does not require returning income assessable by fiction under Section 64, and (b) mere estimated additions are not by themselves sufficient to attract penalty under Section 271(1)(c) in absence of departmental material rebutting the assessee's explanation.

No information beyond the text of the provided opinion has been added; statutory and case references and all conclusions are derived from that text alone.

Show full summary ...

    Commissioner Of Income Tax, Bihar, Patna v. Lal Babu, Patna City

    S.P Sinha, J.:— The Patna Bench of the Income-tax Appellate Tribunal has referred the under mentioned questions of law for opinion to this Court:—

    (1) “Whether on the facts and in the circumstances of this case, the Tribunal were correct in law in holding that non-disclosure of income of wife and minor sons, which was includible under Section 64 of the I.T Act, 1961 in the total income of the assessee, did not attract the provisions of Section 271(1)(c) of the Income-tax Act, 1961.

    2. “Whether on the facts and circumstances of this case, the Tribunal were correct in law in holding that the additions made on estimate under the head “income from other sources” on account of inadequate withdrawals and unexplained investments over house constructions, did not attract the provisions of Section 271(1)(c) of the Income-tax Act, 1961?”

    2. The brief relevant facts are that the assessee is an ‘individual’. The assessment year in this case is 1969-1970. During the relevant previous year the assessee's wife and minor sons received interest amounting to Rs. 6,449/- from the firm in which the assessee was a partner which fell for assessment for the said assessment year 1969-1970. The said sum of Rs. 6,449/- was assessed in his hands in terms of Section 64 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’. A sum of Rs. 3,500/- on account of low drawings for meeting his expenditures plus a further sum of Rs. 4,660/- on account of unexplained investment in house construction were also added to his income. The latter two amounts were added as ‘income from other sources’. On making of these additions the returned income fell short of 80% of the income finally assessed and consequently proceedings for levy of penalty under Section 271(1)(c) of the Act was initiated against him.

    3. Before the Inspecting Assistant Commissioner of Income Tax, the authority competent to levy penalty in such cases, the assessee submitted that no penalty was leviable on him because there was no concealment of income by him; neither the income arising to his wife and minor sods included in his total income under Section 64 of the Act, nor the income from other sources, included in his income by estimate. The Inspecting Assistant Commissioner, however, did not accept the assessee's plea and since the income returned fell short of 80% of the income finally assessed, acting in terms of the Explanation to Section 271(1)(c), imposed a penalty of Rs. 14,609/- on the assessee.

    4. The assessee then appealed to the Income-Tax Appellate Tribunal and once again it was reiterated that no penalty was leviable on him because he could not be deemed to have concealed his income by not including in his return of income the interest income arising to his wife and minor sons or even on the ground of the further estimated additions having been made to his income.

    5. Before the Tribunal the department's case was that the assessee was under an obligation to include and show in his return of income the said interest income falling to the share of his wife and minor children. The further case of the department was that since the assessee's returned income fell short of 80% of the income assessed, a case for levy of penalty clearly arose against the assessee in terms of the Explanation to Section 271(1)(c) of the Act.

    6. The Tribunal was conscious of the applicability of the Explanation to Section 271(1)(c) of the Act to the case. It held that a mere addition by estimate did not indicate that the income added was a concealed income of the assessee. The Tribunal further held that neither Section 64 of the Act nor Section 139 of the Act imposed any obligation on the assessee to include in his return the income of his minor sons or his wife, and, therefore, for such omission the penal provisions of Section 271(1)(c) of the Act Were not attracted. The penalty levied against the assessee was accordingly cancelled. The department being aggrieved by the decision of the Tribunal has then got this reference made under Section 256(1) of the Act to this Court on the questions, as already stated above.

    7. Learned counsel for the department submitted that it was obligatory on the part of the assessee to show in his return the income which was assessable in his hands in terms of Section 64 of the Act. In this connection referance was made to the form of income-tax return in which a column had been provided for disclosing such income. It was further submitted that by virtue of the fact that the income arising under Section 64 of the Act is assessable in the assessee's hand, it is incumbent on the assessee to show such income in his return. In support of this proposition reference has been made to Section 139(1) of the Act and the argument is that the return of income of any other person for which the assessee is assessable under this Act was required to be filed by him and this supported his contention that income assessable in his hands under Section 64 of the Act must be returned by the assessee.

    8. In the instant case it was submitted that the interest income, arising to his wife and minor sons from the firm of which the assessee was a partner, was clearly assessable in the assessee's hand. It was, therefore, his obligation under the said provision of the Act to return such income in his return of income. Since the assessee had failed to do so, the penal provisions of Section 271(1)(c) of the Act were attracted.

    9. The further submission is that the Tribunal was obligious of the applicability of the Explanation to Section 271(1)(c) of the Act to the case, because had it not been so, the Tribunal would not have brushed aside the further additions made to the assessee's income as arising out of other sources, as being irrelevant for the purpose of levy of penalty in terms of the Explanation to Section 271(1)(c) of the Act.

    10. Learned counsel, appearing on behalf of the respondent-assessee, has reiterated the arguments which found found with the Tribunal and on that ground has urged that both the questions must be answered in the affirmative. In support of his contention he has cited certain case laws, to which I shall presently refer, upholding the view that no obligation is cast on an assessee to include in his return of income such income as are assessable in his hands in terms of Section 64 of the Act.

    11. In my opinion the contention made on behalf of the respondent (assessee) is sound and it must prevail.

    12. The obligation to file a return of income is cast on an assessee in terms of Section 139(1) of the Act, the relevant portion of which reads:

    “Every person, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax, shall furnish a return of his income or the income of such other person during the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed………”

    13. Learned counsel for the petitioner (department) has tried to read in the words “or the total income of any other person in respect of which he is assessable under this Act” as referring to cases as are covered by Section 64 of the Act. This is a clear misconception because this part of the said section does not talk of returning a part of the total income of any other person in respect of which the assessee is assessable under the Act, but talks of the total income of any other person in respect of which the assessee is assessable under the Act. Definitely this provision has no reference to Section 64 of the Act, but has to be understood only in the context of “representative assessee’, that is to say a person who is liable to be assessed in respect of the total income, not arising to him, but arising to somebody else whom he represent. Representative assessee has been categorised in Section 160 of the Act and in certain other sections following it.

    14. The interpretation which the learned counsel for the department wants me to accept in respect of the provisions of Section 139(1) of the Act is erroneous and therefore, not acceptable.

    15. Reading Section 139 of the Act, it clearly envisages that the assessee is to submit a return of his total income or to submit the return of total income of some one whom he represents. It does not call upon the assessee to include in his total income even such income as are assessable in his hands in terms of certain provisions of the act.

    16. Learned counsel for the department has made reference to the form of return prescribed under the Rules which was applicable to the assessment year in question. The form which he has shown to me shows a column meant for indicating the income arising to spouse or minor children. But this form came into effect from the 1st of July, 1972. The assessment year in question being 1969-1970 this could not be the relevant firm. I have also been referred to the statement of facts as made by the Commissioner of Income Tax, in paragraph 4 of which he has stated that “the non-inclusion of income of wife and minor children under Section 64 of the I.T Act, 1961 does attract the provisions of Section 271(1)(c) because it has been specifically provided in return from No. 2 relevant for the assessment year, 1969-1970 that “if the income of other persons is includible in assessee's total income under the provisions of Sections 61, 62, 63 or 64 of the I.T Act, 1961 such income should also be shown separately in the return under the appropriate heads”.

    17. It is difficult to accept that the form prescribed from time to time can override or add to the provisions contained in the Act. When Section 139(1) of the Act does not cast any obligation on the assessee to include in his total income, such income as are deemed by virtue of Sections 61, 62, 63 or 64 to be assessee's income, a column provided in the form of income-tax return can only have a pursuasive value and not an obligatory value.

    18. The question as to whether an assessee is under any obligation to include in his return such income as are assessable in his hands by virtue of Section 64 has been the subject-matter of decision by several High Courts and each High Court has consistently taken the view that there is no such obligation cast on the assessee in terms of Section 139 of the Act. Reference may be made to the decision of the Madhya Pradesh High Court in the case of Commissioner of Income-tax, M.P v. Smt. Rani Duleiya,(1) and to a single Judge decision of the Calcutta High Court in the case of Radheshyam Ladia v. Income-Tax-Officer, “B” ward, District I(2)(2) and also to a decision of the Orissa High Court in the case of Commissioner of Income-tax (Central), Calcutta v. Biju Patnaik(3). In substance, the reasons which have found favour with their Lordships of the different High Courts are that Section 139 of the Act calls upon the assessee to return only his individual income. It does not cast any further obligation on him to include even such income in his return as are assessable in his hands, under Section 64 of the Act (the cases considered were under Section 16(3) of the Income-Tax Act, 1922, which is equivalent to Section 64 of the New Act). Even Section 64 of the Act does not make the income arising to the spouse or minor children of the assessee an income deemed to arise to the assessee. Section 64 only says that such income as arises to his or her spouses or minor child shall be included in the assessee's income.

    19. It may be added that the provisions contained in Section 271(1)(c) of the Act applies only to concealment of “his income”: it does not speak of concealment of income as are includible by a fiction of law in his income. This clearly restricts the applicability of Section 271(1)(c) of the Act to the concealment of “his income”, that is, one's own income.

    20. It must, therefore, be held that the Tribunal was right in holding that no obligation was cast on the assessee to include in his return of income, the income arising to his wife and minor sons which were includible in his income in terms of Section 64 of the Act. The failure of the assessee to do so does not attract the penal provisions of Section 271(1)(c) of the Act against him. Question No. ??? has, therefore, to be answered in the affirmative and in favour of the assessee.

    21. Coming to question No. (2), it is true that the term of the Explanation to Section 271(1)(c) of the Act get attracted when the income returned fell short of 80% of the income assessed and then the onus lies upon the assessee to prove that there was no concealment on his part of any income. But this does not mean that the department has got nothing to do after having once found the disparity between the income returned and the income assessed to be above 80% that is not what the explanation means.

    22. In the instant case, admittedly, the amount of income added as ‘income from other sources’ were by mere estimate. The assessee denied having earned any such income and further said that the estimate was faulty; or at least it could not give a handle to the Income-Tax Department to levy penalty on him. Once the assessee made out such a plea it was incumbent on the Inspecting Assistant Commissioner to indicate by some materials that the estimated additions were not mere estimates but real and proper estimates of such income as the assessee had not returned.

    23. Looking to the order of the Inspecting Assistant Commissioner it clearly emerges that he has not at all taken any pain to indicate that the assessee's plea was wrong and faulty and that the department's stand was correct. The Explanation to Section 271(1)(c) of the Act, it must be understood, does not absolve the department of its onus to prove certain facts which might justify the levy of penalty. On the contrary, the Explanation to Section 271(1)(c) as has been indicated by several decisions of this Court, only casts the initial onus on the assessee and if that is discharged, it shifts to the department which has to rebut the explanation offered by the assessee as being false or unacceptable. Since the assessee is required to prove a negative fact the onus on him cannot be of the nature of onus on the prosecution in a criminal trial. The assessee need only show that his plea stands the test of preponderance of probability. If the assessee gives a plausible explanation against the additions made to his income, the onus will then shift on the department to show that assessee's explanation was false or not worthy of belief or that it was not even probable. As stated, no such pain has been taken by the Inspecting Assistant Commissioner to justify the inclusion of the further items of income from other sources in the assessee's income. It must, therefore, be held that the Tribunal was perfectly justified in holding that the mere estimated addition does not and will not be a good ground for levy of penalty under Section 271(1)(c) of the Act.

    24. Learned counsel for the department had made an argument that the Tribunal seemd to be oblivious of the provisions of the Explanation to Section 271(1)(c).

    25. This argument is baseless. A plain reading of the Tribunal's order shows that it was very much conscious of such a provision being in the Act. It is only thereafter that the Tribunal has dealt with the question of penalty under Section 271(1)(c) of the Act.

    26. Having regard to the discussions above, question No. (2) is also answered in the affirmative and in favour of the assessee.

    27. The assessee will be entitled to hearing fee cost Rs. 250/-.

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    Comments

    Commissioner Of Income Tax, Bihar, Patna v. Lal Babu, Patna City
    (Nov 7, 1979)