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Smt. Hemlata Agarwal vs The Commissioner Of Income-Tax

High Court Of Judicature at Allahabad|14 October, 1966

JUDGMENT / ORDER

ORDER
1. This is a case stated under Section 66(2) of the Indian Income-lax Act. 1922 (hereinafter referred to as the Act). The question which was directed to he referred by this Court was:
"Whether on the facts and in the circumstances of the case, the Income-tax Officer had reason to believe that the profits or gains amounting to Rs. 24.500 chargeable to income tax had escaped assessment within the meaning of Section 34(1) (a) of the Income-tax Act?"
2. The material facts are these: The relevant year of assessment is the assessment year 1945-46, the previous year being the financial year ending 31st March, 1945. The assessee is the wife of Ganesh Prasad. She was the grand daughter of Raja Sir Moti Chand. She has been assessed in the status of an individual under Section 34(l)(a) of the Act for her failure to explain satisfactorily a sum of Rs. 24,500 out of the total investment of Rs 83,500 made in the purchase on 8-5 1944 of a house property at Varanasi in her name. Her husband Ganesh Prasad was a member of the erstwhile Hindu undivided family of M/s. Bishwanalh Prasad and Sons The Tribunal has found that she also was a member thereof Her explanation was that out of the investment of Rs. 83,500, the sum of Rs 59,000 was a loan taken by her from the Hindu undivided family and this has been accepted by the Department Her explanation that she had sold her ornaments on two dates at Amrilsar i.e on 11th March 1944 and 1st of May 1944 and realised therefrom Rs. 24,500 was disbelieved and assessment under Section 34( 1) (a) against her was made on the 7th of March, 1955 in respect of the assessment year 1945-46
3. Prior, however, to the issue of the notice under Section 34(1) fa) againsl the assessee there is a background which requires to be set out The factum of the purchase of the house in the name of the assessee was known to the Income-tax Officer He however, took action in the first instance not against the assessee nor against her husband but against the Hindu undivided family In that assessment the personal account-books of the present assessee were produced and examined and yet the Income-tax Officer added the sum of Rs. 24,500 as income from an undisclosed source in the hands of the Hindu undivided family This assessment order was made on the 27th of March. 1950 On the 6th of October 1950 that assessment on the Hindu undivided family was set aside by the Appellate Assistant Commissioner who held that no assessment could be made on the family as it had disrupted on 1-8-1943 Thereafter the Income-tax Officer went to sleep for over two years and woke up on the 1st of December 1952 and issued a notice, to the husband of the assessee Ganesh Prasad and not to her, under Section 34 On the 18th of March, 1954. the husband Ganesh Prasad filed objections in writing to the Income-tax Officer in response to show cause notice, dated the 16th of March 1950. supported by an affidavit, He also furnished the original sale-deed and mutation of the Municipal Board in favour of his wife and urged that he had no concern with the property He further stated that he wanted to produce certain witnesses and gave a list of five witnesses who might be summoned includ ing one Sri Murlidhar the scribe of the sale deed to prove who the real purchaser was. The Income-tax Officer on the 22nd of March 1954. completed the assessment of Ganesh Prasad adding the income of Rs. 24,500 holding that it could not be the income of his wife the present assessee, as she had no business In other words it was held that she had no source of income Notwithstanding this finding by him in Ganesh Prasad's case, the very next day on the 23rd of March 1954 he proceeded to issue a notice under Section 34(1)(1) of the Act to the assessee wife This was just 8 days before the expiry of the period of 8 years' limitation provided for action under Section 34(l)(a) of the Act. To continue the narration of events regarding Ganesh Prasad's case Ganesh Prasad being aggrieved by the order of assessment made against him went up in appeal to the Appellate Assistant Commissioner who quashed the notice under & 34 on the ground that it was barred by time being beyond four years which was the period of limitation for assessment under Sec-lion 34(l((b) of the Act. The Department, thereupon. filed a second appeal and the Tribunal allowed it holding that the provisions of Section34(l)(a) would apply and in any event the provisions of the second proviso to sub-section (3) of Section 34 would remove the bar of limitation, if any The Tribunal thereupon remanded the rase to the Appellate Assistant Commissioner and directed him !o dispose of the appeal in accordance with law That appeal is still pending Reverting now to the sequence of events in the present case, as already observed, the notice under Section 34(1) (a) was issued to the assessee on the 23rd of March, 1954 The assessment order was completed by the Income-tax Officer on the 7lh of March 1955. The Appellate Assistant Commissioner upheld the validity of the assessment under S. 34(1) (a) and dismissed the appeal on 24-1-1959. The Appellate Tribunal also dismissed the appeal In doing so. however, the following observations, infer alia were made "The assessment was levied in the first in stance on the Hindu undivided family in res pect of this income from an undisclosed source, but this assessment against the Hindu undivid ed family was set aside in appeal The next step for the Department was to take up this matter againsf the husband, and we are informed that this sum of Rs 24,500 was in cluded in the assessment of the husband, and that the husband's case is now pending before the Appellate Assistant Commissioner.
The original assessment order against the husband was oassed bv the Income tax Officer on 22-3-1954. when the Income tax Officer is alleged to have observed that the present ap-
pellant was not engaged in any business. This seems to be ratio of the Income-tax Officer's decision in the case of the husband, but as he was probably in doubt and to guard against any risk after the bitter experience in quashing of assessment against the Hindu undivided family, the Income-tax Officer thought it prudent to issue a notice to the present appellant also ex majorie cautela. It is now urged before us that section 34(l)(a) will not apply because, after having held the wife as not engaged in any business, the Income-tax Officer erred in coming to the conclusion that in her case the income had escaped assessment and that such a conclusion could not he based on an unreasonable plea. In our view this is not tantamount to a change of opinion but a more cautious approach of the Income-tax Officer by way of a protective assessment to avoid the recurrence of technical quashing as in the case of the Hindu undivided family Even if, as held by him, she was not engaged in any business there was nothing to prevent him from believing reasonably that the money may have come to her from some undisclosed source for the purchase of the house in her name..... It was not the case of a mere change of opinion on Ihe part of the Income-tax Officer as urged on behalf of the appellant. The Income-tax Officer had to guard against the expiry of limitation in the peculiar predicament in which he was placed, where the house stood in her name and the assessment was pending against her husband Since the proceedings against the husband are pending before the Appellate Assistant Commissioner we refrain from expressing any opinion whether the money for the purchase of the house proceeded from him or not."
Thereupon, the assessee moved the Tribunal for a reference to this Court under Section 66(1), but that application was rejected. Then this Court was moved by an application under Section 66(2) of the Act which was allowed. A question was called by this Court because it was noticed that the findings bv the Tribunal were not at all clear and they were contradictory
4. In allowing the said application under Section 66(2) the High Court noticed:
"It appears that by reason of the fact that the house actually stands in the name of the assessee, the I. T O was not quite certain as to what would be the ultimate fate of the assessment of this sum of money in the hands of the husband The assessment against husband was completed on 22-3-1964 and the notice under Section 34(l)(a) was issued to the assessee the very next day,..... Two statements occur in the order of the I. T. A. Tribunal on the question whether the I. T. O. entertained a "reasonable belief" thai this sum of money represented the income of the assessee These statements are "as he (I T. O.) was probably in doubt and to guard against any risk after the bitter experience in quashing of assessment against the H. U. F., the I. T. O. thought it prudent to issue a notice to the present appellant also" ....... The other statement is, "In our view this is not tantamount to a change of opinion but a more cautious approach of the I. T. O. by way of a protective assessment to avoid the recurrence qf technical quashing as in the case of the H. U. F." The question which has been raised by the assessee before us, therefore, is whether in these circumstances it could be said that the Income-tax Officer "had reason to believe. ....that profits or gains chargeable to income-tax, had escaped assessment within the meaning of Section 34(t)(a)."
5. It is clear that what was agitating the mind of the Court was the validity of the assessment itself which was made under Section 34 (1) (a), when the Tribunal, which is the final court of fact, had yet not made up its mind whether the impugned sum of Rupees 24,500 was the income of the assessee or that of her husband. Apart from the legality of the notice which was issued under Section 34(l)(a); when no finding had been given by the Tribunal as to whether this sum of Rs. 24,500 was her income or the income of her husband, it was difficult if not impossible for it to have held that the Income-tax Officer had reason to believe that the assessee's income had escaped assessment
6. The condition precedent for the issue of a notice under Section 34(1) (a) is "reason to believe" which means anything but reason to suspect that income had escaped assessment. There must be some material on the record for the reason entertained by the Income-tax Officer. When the Tribunal itself is not able to make up its mind and the Income-tax Officer was also not able to make up his mind, it is quite impossible to say that the Income-tax Officer entertained a reasonable belief that some income of the assessee had escaped assessment. The Income-tax Officer cannot blow hot and cold in the same breath. It was properly noticed by the Tribunal that, in the assessment upon the husband, in respect of this very income, the Income-tax Officer had said that it could not be the income of the wife as she had no business or source of income, and, after saying so. how could he on the very next dav have proceeded to issue a notice to the assessee on the basis that he had a reasonable belief that some income in her hands had escaped assessment? Even if the Income-tax Officer can blow hot and cold, it is certainlv not open to the Tribunal to blow hot and cold. Again, it might be open to the Income tax Officer to make a protective assessment but it is certainly not open to the Income-tax Appellate Tribunal which is the final court of fact to make a protective order The Act requires the Tribunal to give final findings of fact which, in this case, can only mean that it must find. as a fact, that the impugned sum was the income of the assessee and of no one else. When the Tribunal refuses to give any such finding, then it is not oossible for the Tribunal to con-firm such an assessment, albeit under Section 34(1)(a). It is not for the Tribunal to make excuses for the Income-tax Officer or to justify his action first, in making the assessment in the hands of the undivided Hindu family and then in the hands of the husband and while an appeal against that assessment order made against the husband of the assessee is still pending to proceed and dispose of the appeal of the assessee. What the Tribunal ought to have done in a case like this was, to hear both the appeals together, and. finally determine as to whether the impugned sum is, if at all, the income of the husband or the wife,
7. In this view of the matter, it is not necessary to consider whether it was incumbent upon the assessee to file a return under Section 22(1) of the Act in response to the general notice if his or her "total income during the previous year exceeded the minimum amount which is not chargeable to income-tax" Apart from the sum of Rs. 24,500 which the Income-tax Officer took to be her income from an undisclosed source and also took the same amount as income from an undisclosed source of the husband, the only other income was of Rs. 669. Therefore, so far as the assessee is concerned, it was open to her to argue that she was not obliged to file any return under Section 22(1) of the Act It is also not necessary to decide whether the primarv facts in the shape of her account books were disclosed to the Income-tax Officer during the course of the assessment proceedings taken against the Hindu undivided family in respect of this very sum of Rs 24.500.
8. For the reasons given above, we would answer the question referred in the negative and in favour of the assessee. The Department will pay the costs of this reference which we assess at Rs. 250 Counsel's fee is also assessed at Rs. 250.
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Title

Smt. Hemlata Agarwal vs The Commissioner Of Income-Tax

Court

High Court Of Judicature at Allahabad

JudgmentDate
14 October, 1966
Judges
  • S Manchanda
  • M Beg