COMMISSIONER OF INCOME TAX Vs. BAI BHAGIRATHIBAI
LAWS(BOM)-1962-9-21
HIGH COURT OF BOMBAY
Decided on September 28,1962

COMMISSIONER OF INCOME TAX Appellant
VERSUS
Bai Bhagirathibai Respondents

JUDGEMENT

TAMBE, J. - (1.)THIS is a reference under sub -section (1) of section 66 of the Income -tax Act. Assessee Bhagirathibai (deceased) is now represented before us by her legal representatives, Motilal Manakchand, her husband, and Maganlal Motilal, her son. We are here concerned with the assessment year 1950 -51. Assessee Bhagirathibai, her husband, Motilal, and son, Maganlal, were members of a Hindu joint family. Motilal and Maganlal were doing business under the name and style of Motilal Manakchand each having 8 annas' share therein. One of the businesses carried on by them was the managing agency business. On 29th June, 1949, there was a partition of the joint family property and the terms and conditions agreed between the members were reduced to writing in a partition deed. As a result of this partition, Bhagirathibai became entitled to receive 0 -2 -8 share from here husband, Motilal, and 0 -2 -8 share from her son, Maganlal, out of their respective shares of 8 annas in the managing agency business. In the relevant previous year to the assessment year 1950 -51 the assessee received Rs. 1,10,749 -6 -10 (Rs. 55,374 -11 -5 from each) as her share of 0 -2 -8 in pursuance of the aforesaid partition. In the said assessment year she filed a return and therein disclosed Rs. 1,22,911 as her income, which included the aforesaid sum of Rs. 1,10,749. Now, it may be stated that both Maganlal and Motilal in their respective assessments claimed the said sum of Rs. 55,347 -11 -5 paid to Bhagirathibai as her share as an allowable deduction. In the statement of the case, Motilal and Maganlal have been referred to as payers and Bhagirathibai has been referred to as a recipient. We would also refer to them similarly. Now, in the assessment of the payers, their claim for deduction was disallowed with the result that the said amounts were included in their respective incomes and it was taxed in their hands. In the case of the recipient, i.e. Bhagirathibai, no tax was levied on the said amount of Rs. 1,10,749 -6 -10, but the difference between Rs. 1,22,911 and Rs. 1,10,749 -6 -10, was taxed in her hands at the rate applicable to Rs. 1,22,911. Both the payers as well as Bhagirathibai went in appeal to the Appellate Assistant Commissioner, the payers challenging the inclusion of the said sums in their incomes and the recipient, Bhagirathibai, challenging the rate at which tax was levied. The Appellate Assistant Commissioner affirmed the orders of the Income -tax Officer and the appeals were dismissed. Payers as well as Bhagirathibai took further appeals to the Tribunal. In the appeals of the payers, the Tribunal held that the amounts paid were not admissible deductions. In the case of Bhagirathibai the Tribunal held the Rs. 1,10,749 -6 -10, the amount received by her from the payers, was not includible even for rate purposes. The payers thereafter made an application under sub -section (1) of section 66 to refer to this court certain questions of law arising out of the Tribunal's order. The Commissioner of Income -tax also made an application under sub -section (1) of section 66 of the Income -tax Act to refer to this court the question of law arising out its orders in Bhagirathibai's appeal. Now, it appears, that the Tribunal referred the following question of law as arising out of its order in payers' case : 'Whether, on the facts and in the circumstances of the case, the payment made to Bhagirathibai by virtue of the deed of dissolution dated the 29th June, 1949, could be allowed as a deduction against the profits of the firm styled as Motilal Manakchand & Sons or against the share income from the firm in the hands of the partners ?'
(2.)THIS court, on a proper construction of the deed of partition, held that what the parties really intended was that only a portion of the managing agency commission should be the income of Motilal and Maganlal and the remaining portion should be the income of Bhagirathibai. In this view of the matter, this court held that Motilal and Maganlal were entitled to claim deductions in respect of the amounts paid by them to Bhagirathibai as her share of 0 -2 -8 of the income from the managing agency business. The Income -tax Officer, thereafter, initiated action under section 34(1) (a) against Bhagirathibai with a view to reassess the sum of Rs. 1,10,749 -6 -10 which had not been taxed in the hands of Bhagirathibai. In the said proceedings the Income -tax Officer actually levied tax on the aforesaid amount of Rs. 1,10,749 -6 -10 under section 34(1) (a). Against this order of the Income -tax Officer Bhagirathibai preferred an appeal before the Appellate Assistant Commissioner, who held that Bhagirathibai had declared the aforesaid amount of Rs. 1,10,749 and odd in her return and, therefore, section 34(1) (a) had no application to the facts of the case. In this view of the matter, the Appellate Assistant Commissioner set aside the order of the Income -tax Officer made by him under section 34(1) (a) of the Act. The department accepted this finding of the Appellate Assistant Commissioner and did not take the matter further. It is after this stage that the Tribunal has taken up the aforesaid application of the Commissioner of Income -tax made by him under sub -section (1) of section 66 of the Act. It appears that an attempt was made on behalf of the Commissioner to enlarge the scope of the reference by asking the Tribunal to refer to this court a question whether tax could be levied on the assessee in respect of Rs. 1,10,749 -6 -10. The Tribunal, however, has not accepted the prayer of the Commissioner, but, after drawing up a statement of the case, has referred the following question of law as arising of its order to this court : 'Whether, on the facts and circumstances of the case, it is open to the income -tax authorities to included the sum of Rs. 1,10,750 in the assessment of the assessee for the assessment year 1950 -51 for rate purposes ?
Mr. Joshi, learned counsel for the revenue, contends that the Income -tax Officer had included the sum of Rs. 1,10,749 and odd in the total income of the assessee and had computed her total income at Rs. 1,22,882 but in view of the findings recorded in the case of payers Seth Motilal Manekchand v. Commissioner of income -tax and in view of the fact that the said amount of Rs. 1,10,749 -6 -10 was taxed in the hands of the payers, the Income -tax Officer did not levy any tax on the said amount. He, however, had made an order that the balance of the assessee's income of Rs. 11,632 be taxed at the rate applicable to Rs. 1,22,882. According to Mr. Joshi, thus the sum of Rs. 1,10,749 and odd having been included by the Income -tax Officer in the total income of assessee and the said inclusion being right in the light of the judgment of this court in Seth Motilal Manekchand v. Commissioner of Income -tax, the levy of tax on Rs. 11,632 at the rate applicable to Rs. 1,22,882 is a valid levy.

(3.)MR . Dwarkadas, learned counsel for the assessee, on the other hand, contends that the sum of Rs. 1,10,749 and odd had not been included in the total income of the assessee by the Income -tax Officer. The sum of Rs. 1,10,749 -6 -10, not being part of the assessee's income, cannot be merely included for purposes of rate save and except in accordance with the provisions of the Income -tax Act. Sub -section (1) of section 16 is the only provision which enables the Income -tax Officer to included certain income for purposes of rate, which may not be included for purpose of computation of the total income. Mr. Dwarkadas in the alternative contends that at any rate the Income -tax Officer, not having levied any income -tax on Rs. 1,10,749 -6 -10 in the hands of the assessee, it must be assumed that the Income -tax Officer had not included the said sum in the total income of the assessee. In the further alternative Mr. Dwarkadas argues that after the decision by this court of the reference in payer's case, the Income -tax Officer had taken action under section 34(1) (a) of the Act on the ground that the said sum had stood untaxed. It must, therefore, be assumed that the Income -tax Officer had to included the said amount of Rs. 1,10,749 -6 -10 in the total income of the assessee, though it was the case of the department that the said sum of Rs. 1,10,749 -6 -10 could be included by the Income -tax Officer in the total income of the assessee. Mr. Dwarkadas placed reliance on a decision in Commissioner of Income -tax v. N. M. Raiji.


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