JUDGEMENT
S.S. Mehra, Judicial Member -
(1.)APPELLANT revenue by their present appeal challenge order dated 7-8-1985 of the learned Commissioner of Income-tax (Appeals), Ludhiana, passed on an appeal against the assessment order dated 17-3-1983, framed under Section 143(3)/147(b) of the Income-tax Act, 1961, for the assessment year 1977-78, inter alia, on the following ground:-
On the facts and in the circumstances of the case the learned CIT (Appeals) has erred in cancelling the re-assessment framed by the ITO vide order dated 17-3-1983.
(2.)By status, assessee in this case is an individual deriving income from various sources including salary, director's fee, dividend and agriculture. His method of accounting was mercantile and the accounting period was the year ending 31-3-1977. Return in this case was originally filed on 31-3-1977, declaring income of Rs. 1,09,290 including agricultural income of Rs. 6,900. The said return was subsequently revised on 10-2-78, showing income at Rs. 86,690. The reason for filing the revised return was explained in the forwarding letter attached with the second return mentioning therein that on account of Clause (ii) of Sub-section (1) of Section 64 of the Act, the salary income of Rs. 21,600 and Director's fee amounting to Rs. 1000 received by the assessee from M/s. Murari Woollen Mills (P.) Ltd. had been excluded as was said to be assessable in the hands of the assessee's spouse as she and the assessee being relatives enjoyed voting powers more than 50% in the said concern at any time during the previous year in the financial affairs of the said company. The ld. ITO thus excluded an amount of Rs. 21,600 observing 'salary income to be assessed in the hands of assessee's spouse in terms of Clause (ii) of Sub-section (1) of Section 64'. Similarly, another sum of Rs. 1,000 was also excluded again observing 'Director's fee assessable in the hands of the spouse under Section 64(ii)'. Assessment originally was framed on 23-2-1978 under Section 143(3) of the Act
Subsequently, the ld. ITO framed assessment order on 22-3-82, for the assessment year 1979-80, in the case of assessee wherein it was held that the salary and remuneration amounts were taxable in the hands of the assessee himself and not in the hands of his spouse. It was also observed in that assessment order that the facts and circumstances were the same as were existing for the year under consideration, i.e. 1977-78. According to the ld. ITO, his assessment order dated 22-3-82 for the assessment year 1979-80 and the conclusion arrived at there constituted 'information 'which was supposed to have come in the possession of the ld. ITO. On that basis, he formed the belief that income chargeable to tax had escaped assessment.
(3.)PROCEEDINGS under Section 147(b) of the Act were thus initiated by issuing notice under Section 148 of the Act and the return in response thereto was filed on 21-7-82. The facts with respect to salary of Rs. 21,600 and director's fee at Rs. 1,000 from M/s Murari Woollen Mills (P) Ltd. were noted. It was also noted that no doubt the said receipt had been shown by the assessee in the return but was excluded by the ld. ITO while computing his salary income. The exclusion earlier was said to be on the ground that remuneration was received by the assessee by reason of his wife being substantially interested in the said company and thus claiming it to be assessable in her hands under Section 64(l)(ii) of the Act. It was considered by the ld. ITO, who framed the second assessment order under Section 147(b) of the Act that the earlier assessment was framed without taking into account the salary and director's fee received by the assessee from the said company. Thus, an inclusion of Rs. 22,600 was made by the ld. ITO vide re-assessment order dated 17-3-83 with the following observation:-
Among different sources of income, the assessee was in receipt of salary and Director's fee from Murari Woollen Mills (P) Ltd. during the relevant previous year. For the period under assessment, he received salary of Rs. 21,600 and Director's fee amounting to Rs. 1,000 from the said company. The assessment records of the assessee as well as his wife have been gone through. These, however, reveal altogether different facts. It is found that not only is the assessee himself substantially interested in this company but his interest therein is even far greater than that of his wife. To elucidate, the comparative position of shareholding in this company in respect of assessee and his wife as at the beginning the close of the accounting period is shown in the table below:-
JUDGEMENT_4325_TLIT0_19890.htm
In view of the foregoing facts, the provisions of Clause (ii) of Sub-section (l)of Section 64 are not attracted in relation to the remuneration in question and that the amount of Rs. 22,600 representing salary and Director's fee received by the assessee from M/s. Murari Woollen Mills (P) Ltd. will be assessable in his own hands notwithstanding the fact that such remuneration has been clubbed with the income of his wife.
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