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V.S Arulanandam v. Commissioner Of Income-Tax, Madras.
Factual and Procedural Background
The assessee, a non-resident married individual, was assessed to income-tax for the assessment year 1954-55 (previous year ending April 12, 1954) on his total income arising within the taxable territory. A sum of Rs. 4,805, credited to his wife as interest on certain deposits she made with a firm called P.P.M. Thangiah Nadar at Tuticorin, was not disclosed by the assessee. The assessment was reopened under section 34(1)(a) of the Income-tax Act, 1922, the amount was included in his total income and thereby brought to charge; that order has become final and is not in issue in the present proceedings.
Subsequent proceedings under section 28(1)(c) resulted in a penalty of Rs. 1,000 being levied against the assessee. The assessee's objections were overruled at first instance and on further appeals. Pursuant to directions of the court, a statement of case was submitted under section 66(2) posing the central question whether the failure of the assessee to include his wife's income in his return justified imposition of the penalty under section 28(1)(c).
Legal Issues Presented
- Whether, on the facts and circumstances of the case, the failure of the assessee to include the income receipt of his wife in his return or returns justifies the imposition of the penalty under section 28(1)(c) of the Income-tax Act, 1922?
- Whether income that falls within the ambit of section 16(3)(a)(iii) is required to be included by the assessee as part of his total income in his return under section 22(1)?
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| D.R. Dhanwate v. Commissioner of Income-tax [1961] 42 I.T.R. 253 | Supports the view that section 16(3) does not, strictly speaking, make the income the husband's own income and does not obligate the husband to include the wife's income in his return. | The court accepted this view and relied on the case to support the conclusion that section 16(3) does not create an obligation on the husband to include the wife's income in his own return under section 22(1). |
| Akula Venkatasubbaiah v. Commissioner of Income-Tax [1963] 47 I.T.R. 458 | Constructions similar to Dhanwate: section 16(3) results in chargeability but does not convert wife's income into husband's own income for purposes of the husband's return obligation. | The court noted that the Bombay case construed the provisions similarly and observed that the income "cannot be said that that is the income of the assessee as such in the strict sense though it may be chargeable to tax in his (husband's) hand." |
| High Court of Andhra Pradesh (earlier judgment referred to) | Held there is nothing in the language of either section 34 or section 16 to warrant the conclusion that it is incumbent on the assessee to include certain deemed incomes (there, income of minor partners) in his total income. | The court referred to and followed this earlier judgment to the extent that it supports the proposition that the obligation to include deemed incomes does not necessarily fall on the assessee's duty to return his own income. |
| Vd. M. Rm. M. Rm. Muthiah Chettiar v. Commissioner of Income-Tax, Madras [1965] 55 I.T.R. 147 | Decision by Division Bench that did not entirely accord with Akula Venkatasubbaiah regarding the scope of section 34(1)(a) in the context of section 16(3). | The court noted this decision but observed it did not address the scope of section 22(1) or section 28(1)(c) with respect to income falling under section 16(3)(a)(iii); thus it was not determinative of the question before the court. |
| R. Ganesan v. Commissioner of Income-Tax, Madras | Visualised that there was a duty on the assessee to give particulars of the wife's income. | The court acknowledged that R. Ganesan visualised such a duty, but held that failure to mention the wife's income cannot, in view of the language of section 28(1)(c), be brought within its mischief to justify penalisation. |
| Calcutta Discount Co. Ltd. v. Income-tax Officer | Considered the scope of the words "omission or failure to disclose fully and truly all material facts" in section 34(1)(a). | The court stated that this precedent was cited by the revenue but was "not of much help" in deciding the present question; a majority in that case found no omission or failure on those facts. |
Court's Reasoning and Analysis
The court proceeded by analysing statutory definitions and the scheme of the Act:
- Definition and scheme: "Total income" is defined by section 2(15) as the total amount of income referred to in sub-section (1) of section 4, computed in the manner laid down in the Act. Section 4(1)(c) directs that the total income of a non-resident shall include income which accrues, or arises or is deemed to accrue or arise to him in the taxable territories. Section 3 charges tax in respect of the total income of the previous year, and section 22(1) requires a person whose total income exceeds the exempt limit to furnish a return in a prescribed form.
- Nature of "total income": From these provisions the court concluded that "total income" contemplates income that accrues or arises or is deemed to accrue or arise to the assessee himself; i.e., the total income of the assessee "as such" is to be returned.
- Role of section 16(3): Section 16(3)(a)(iii) (introduced by amendment in 1937) provides that, in computing the total income of an individual for assessment, so much of the income of the wife as was transferred from husband to wife without adequate consideration shall be included. The court emphasised that the provision implies the income remains the wife's income but is, for assessment purposes, included in the husband's total income. It does not convert the wife's income into the husband's personal income in the ordinary sense.
- Obligation to include in return: Reading section 22(1) and the form of return together with section 16(3), the court found nothing in section 16(3)(a)(iii) that, when read literally, imposes upon the husband a legal obligation to include the wife's income in his return of his total income. The court accepted the view in Dhanwate and Akula Venkatasubbaiah to this effect.
- Interpretation of section 28(1)(c): Section 28(1)(c) speaks of concealment of particulars "of his income." The court took this wording as unmistakable evidence that the provision refers to concealment of the assessee's own income, not the income of another person which may be by statutory provision included by the officer in the assessee's total income for assessment purposes. Consequently, section 28(1)(c) does not cover a wife's income not included by the husband in his return.
- Duty to give particulars vs. penal liability: The court acknowledged that section 16(3) makes it expected that an assessee would give particulars of the wife's income in his return, and that some earlier case law (R. Ganesan) visualised such a duty. Nonetheless, the court concluded that failure to mention those particulars cannot, given the language of section 28(1)(c), be the basis for penalisation under that provision.
- Procedure and alleged concession: The Appellate Assistant Commissioner had proceeded on the basis that the assessee had conceded liability under section 28(1)(c), but the assessee repudiated any such concession in grounds of appeal. The court found nothing on record except the Appellate Assistant Commissioner's order to show a concession. In any event, the legal question of liability under section 28(1)(c) could be raised by the assessee at any stage.
Holding and Implications
Holding: The question referred to the court was answered in favour of the assessee. The court held that the failure of the assessee to include his wife's income in his return does not, on the facts and in the circumstances of the case, justify imposition of a penalty under section 28(1)(c).
Implications:
- The direct effect recorded in the opinion is that the question was answered in favour of the assessee; the court awarded costs in favour of the assessee and fixed counsel's fee at Rs. 250.
- No broader or novel precedent was pronounced beyond applying and following existing authorities: the court relied on earlier decisions (notably D.R. Dhanwate and Akula Venkatasubbaiah) to interpret the relationship between section 16(3)(a)(iii), the duty to return "total income" under section 22(1), and the penal provision in section 28(1)(c). The opinion does not state that it established a new principle of law beyond that application.
Question answered in favour of the assessee.
JUDGMENT
1. As a non-resident married individual the assessee was charged to income-tax for the assessment year 1954-55, the previous year ending on April 12, 1954, on a total income arising to him within the taxable territory. On the ground that a sum of Rs. 4,805 credited to his wife as interest due to her on certain deposits made by her with a firm called P.P.M Thangiah Nadar at Tuticorin was not disclosed by the assessee, the assessment was reopened under section 34(1)(a) of the Income-tax Act, 1922, and the amount was included in his total income and brought to charge. This order has become final and is no longer in question. Proceedings under section 28(1)(c) against the assessee followed with the result a penalty of Rs. 1,000 was levied. Various objections were raised by the assessee which were all overruled in the first instance as well as in the further appeals. Pursuant to the directions of this court, a statement of the case has been submitted to us under section 66(2) on the following question:
“Whether, on the facts and in the circumstances of the case, the failure of the assessee to include the income receipt of his wife in his return or returns justifies the imposition of the penalty under section 28(1)(c)?”
2. The question so framed in effect raises the point as to whether the income that falls within the ambit of section 16(3)(a)(iii) is required to be included by the assessee as part of his total income in his return under section 22(1). There, is no dispute at any time that the wife's income does fall within the ambit of section 16(3)(a)(iii). “Total income” is defined by section 2(15) to mean the total amount of income, profits and gains referred to in sub-section (1) of section 4, computed in the manner laid down in the Act. Section 4(1)(c) directs that the total income of the previous year of any person shall include all income, profits and gains from whatever source derived, which, if such person is not a resident in the taxable territories during such year, accrue, or arise or are deemed to accrue or arise to him in the taxable territories during such year. The charge under section 3 is in respect of the total income of the previous year. It is manifest from these provisions that what is contemplated by them is the total income that accrues or arises or is deemed to accrue or arise to the assessee in the taxable territory in the previous year. In other words, it is the total income of the assessee as such that is brought to charge by section 3. The scheme of these provisions is also carried into section 22(1) which requires an individual having a chargeable total income in the previous year to return it in the prescribed form. The sub-section requires every person “whose total income during the previous year exceeded the maximum amount which is not chargeable to income-tax” to furnish a return in the prescribed form. The form of return prescribed also indicates that it is the total income of the individual as such in terms of its definition that is required to be returned. But as we noticed, total income is not merely the total amount of income referred to in sub-section (1) but computed in the manner laid down in the Act. The total income as denned is not stated as of a particular individual or as his own total income. But, it is, however, implied in this provision because of sub-section (1) of section 4 that the total income will consist of what is referred to in section 4(1). That means the total income must be referable to income that accrues or arises or is deemed to accrue or arise to the individual. The Act contains a series of sections which provide as to how to compute the total income of an individual under different heads. In addition to them, there is section 16, which provided for certain exemptions and exclusions in determining the total income, as it originally stood, but actually, as it stood at the relevant time, it contains certain inclusions. Sub-section (3) was introduced into the Act by section 2 of the Indian Income-tax Act (Amendment) Act, 1937. This sub-section so far as is relevant for the present purpose says that, in computing the total income of any individual for the purpose of assessment, there shall be included so much of the income of the wife as transferred from assets directly or indirectly to the wife by the husband otherwise than for adequate consideration or in connection with an agreement to live apart. This provision itself makes it clear that but for it such an income of the wife of an individual will not be liable to be included in the total income of the latter. The underlying assumption of the provision is that the income is of the wife, but, for purposes of assessment, it shall be included in the total income of the husband. That is not to say that thereby the income of the wife becomes the income of the husband. The view we take is supported by D.R Dhanwate v. Commissioner of Income-tax [1961] 42 I.T.R 253. and Akula Venkatasubbaiah v. Commissioner Of Income-Tax. [1963] 47 I.T.R 458..
3. The question then is whether there is anything in section 16(3)(a)(iii) which obliges the husband to include the wife's income in the return of his total income. If, as we said earlier, the obligation under section 22(1) is but to return the total income of the assessee, that is to say, as the total income that has accrued or arisen or deemed to have accrued or arisen to him, there is nothing in section 16(3)(a)(iii) which casts an obligation on the assessee, reading section 16(3)(a)(iii) literally, that he should include the wife's income in his return of his total income. D.R Dhanwate v. Commissioner of Income-tax took that view. We are, with respect, inclined to accept it as correct. Akula Venkatasubbaiah v. Commissioner Of Income-Tax. also construed the provisions that way. In the Bombay case, after referring to the relevant provisions including section 16(3), the court observed:
“it……cannot be said that that is the income of the assessee as such in the strict sense though it may be chargeable to tax in his (husband's) hand.”
4. The court also referred to and followed an earlier judgment which had also held that it was not obligatory upon the assessee to include in his assessment the deemed income which arose by reason of section 16. The second case was actually concerned with the scope of section 34(1)(a) and in considering that question in the light of the facts there, the High Court of Andhra Pradesh, observed:
“We are unable to find anything in the language of either section 34 or of section 16 which warrants the conclusion that it is incumbent on the assessee to include the income of the minor partners in his total income.”
5. The court was inclined to think that what section 16 does is to authorise and even cast a duty on the officer concerned to include all the artificial incomes in the total income of the assessee. We are not in the instant case concerned with the actual scope of section 34(1)(a), for, as we said, the order made under that section has become final and is not and cannot be canvassed in these proceedings. We may in passing mention that Vd.M Rm.M Rm. Muthiah Chettiar v. Commissioner Of Income-Tax, Madras. [1965] 55 I.T.R 147., decided by a Division Bench of this court, did not entirely accord with the reasoning of Akula Venkatasubbaiah v. Commissioner Of Income-Tax. so far as the scope of section 34(1)(a) is concerned in the context of section 16(3). The court was not concerned with the scope of section 22(1) in regard to income that falls within the ambit of section 16(3)a()(iii); nor was it concerned with the scope of section 28(1)(c).
6. section 28(1)(c) speaks of concealment of the particulars “of his income”. To our minds this indication is unmistakable that the income there referred to is the income of the assessee himself and not the income of someone else which, because of the specific provision in that regard, is to be included by the Income-tax Officer for purposes of assessment in the total income of the assessee. In our opinion section 28(1)(c) does not cover a wife's income not included by the husband in his return of his total income.
7. What then is the effect of the direction in section 16(3)(a) that income which falls under any one of the categories mentioned in it shall be included in the total income of the individual? The answer, to our minds, is that, in view of this provision, the assessee is expected to give particulars of the wife's income in his return; but this does not imply any legal obligation on him, for a breach of which he can be penalised under any of the provisions of the Act. R. Ganesan v. Commissioner Of Income-Tax, Madras. visualised that there was such a duty. But we do not think that a failure to mention the particulars of the wife's income can, having regard to the language of section 28(1)(c), be brought under its mischief. We do not think that Calcutta Discount Co. Ltd. v. Income-tax Officer cited to us for the revenue is of much help in deciding the question before us. The question there considered was as to the scope of the words “omission or failure to disclose fully and truly all material facts” in section 34(1)(a). The majority of the learned judges were of the view that on the facts in that case there was no omission or failure.
8. There is one other matter which perhaps we may advert to. The Appellate Assistant Commissioner proceeded in his order on the basis that there was a concession on the part of the assessee that he was liable under section 28(1)(c). This concession was repudiated by the assessee in his grounds of appeal to the Tribunal. We ourselves do not find anything on record to find, other than the order of the Appellate Assistant Commissioner, that there was such a concession. In any case, it is purely a question of law relating to the liability of the assessee under section 28(1)(c) which he is entitled to raise at any stage.
9. The question referred to us is answered in favour of the assessee with costs. Counsel's fee Rs. 250.
Question answered in favour of the assessee.
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