MULLA - (1.) -
(2.) BY an order dated February 16, 1934, passed by a bench of this Court the Commissioner of Income Tax was directed under the provision of section 66 (3) of the Indian Income Tax Act to state a case on certain questions, the Commissioner having refused to state the same on the application of the assessee under Section 66 (1). The questions formulated by this Court are :- (1) Whether the payments made by M. K. Khanna from November 16, 1923, to September 9, 1927, were rightly taken into account in making the assessment for the year in question 1931-32 ? (2) Whether in law the partition of the family was effected from the date of the decree or award, or from the year 1921 as held by the Assistant Commissioner of Income Tax ? (3) Whether Rs. 44,611-9-9 realised from M. K. Khanna in Sambat 1980-81 is liable to income-tax as the income or profit of the assessee, or is this sum exempt from income-tax under Section 14 of the Income tax Act ? (4) Whether on the facts found the assessee has concealed the particulars of his income or has deliberately furnished inaccurate particulars of his income and is, therefore, liable to penalty under Section 28 of the Income Tax Act ? In order to answer the questions satisfactorily it will be necessary to state a few facts. The Reference has arisen out of the assessment made in the year 1931-32. Under Section 3 of the Act the assessment shall be in respect of all income, profits and gains of the previous year. The previous year in the case of the present assessee, according to the system of accounts maintained by him, would be the year beginning from Kuar Sambat 1986 to Kuar Sambat 1987. The assessee is a Hindu undivided family of Azamgarh which goes by the name of Messrs. Ratan Chand Lallu Mal of Azamgarh and Rai Bahadur Mukand Lal is the head of the family. As a matter of fact this family came into existence as a result of the disruption of a bigger Hindu undivided family known as Messrs. Sital Prasad Kharag Prasad of Calcutta and the head of this bigger family was the late Raja Sir Moti Chand of Benares, and one of the questions that we shall have to decide is as to when there was a partition of or separation in the bigger Hindu undivided family. The assessee began to be taxed from the year 1925-26 on the income of the previous year which ran from Kuar 1980 to Kuar 1981. The first and the most important question is whether the payments made by M. K. Khanna from November 16, 1923, to September 9, 1927, were rightly taken into account in making the assessment for the year in question 1931-32. It is clear that the assessment year being 1931-32 the income of the previous year 1930-31 ought to be ordinarily taken into consideration and the payments made or income received from November 1923 to September 1927 would be beyond the scope of assessment, but it is the case for the department that under the peculiar circumstances of this case the above income made in those years can also be taken into consideration. It appears that on March 31, 1918, a loan of Rs. 2,00,000 was advanced by the late Sir Moti Chand to Mr. Maharaj Kishore Khanna. The amount due under this loan fell to the share of Ratan Chand Lallu Mal after partition in the bigger family to Sital Prasad Kharag Prasad. Payments were made by Mr. Khanna from time to Rai Bahadur Mukand Lal.
(3.) THE first payment for the purpose of this case was made in November 1923 and the sum so paid was Rs. 10,000. In the assessment year for 1925-26 when this payment along with certain other payments made in the previous year 1923-24 ought to have been taken into consideration, the assessee did not show them in his return nor did the department assess any tax on those payments. It is, however, quite clear that as much as Rs. 44,611-9-9 was received by the assessee. THE appellate order of the Assistant Commissioner dated March 28, 1933 shows that in the books of the assessee the entries are :- JUDGEMENT_189_ITR4_1936Html1.htm In connection with the first three items the words as interest are noted definitely in the assessees account books. THEse items were then transferred from the account of Mr. Khanna and the entries that were subsequently made in a separate account were to the effect that Rs. 40,150-7-3 were credited to the personal account of Raj Bahadur Makund Lal and Rs. 4,461-2-6 were credited to the Dharmada account. THEse entries were made on August 28, 1924 and this date corresponds with the last entry of Rs. 78-14-6 to which reference has already been made. By reason in the return furnished by him and the department also failed to scrutinise the account books carefully the whole of this income escaped assessment in the assessment year 1925-26. In the assessment year 1926-27 the assessee was taxed on certain income which undoubtedly included the sum of Rs. 16,139-8-0 received from Mr. Khanna on Pus Sudi 7, 1981 and October 2, 1925. The learned Assistant Commissioner says, that the appellant declared this income for the assessment of the year 1926-27 and it was actually included in the assessment of that year. We now come to the assessment year 1927-28 when the income for the previous year 1925-26 or Kuar Sambat 1982 to Kuar Sambat 1983 would be taken into consideration. In this year also the assessee received a sum of Rs. 16,521-8 6, but once again he did not show it in his return and the Revenue authorities also failed to detect it. It is not quite clear either from the statement of the case or from the orders of the Income Tax Officer and the Assistant Commissioner whether this sum was in the first instance credited in the account of Mr. Khanna as interest, although there is a stray passage in the judgment of the Assistant commissioner wherein he says that this interest was not credited to the interest account. Now there are certain entries which require mention. We have stated above that on August 28, 1924 the sum of Rs. 44,611-9-9 was credited to the personal account of the assessee in the sum of Rs. 40,157-7-3 and to the Dharmada account in the sum of Rs. 4,461-2-6, but in the year 1982-83 the account books show that a sum of Rs. 54,611 which included the above sum of Rs. 44,000 odd and a sum of Rs. 8,000 received on Pus Sudi 7, 1981, was at first credited to the interest account, then debited to the interest account and finally credited to the personal account of Mr. Khanna. Whether these entries escaped the attention of the Revenue authorities is not quite clear from the statement of the case, but from a passage in the judgment of the Income Tax Officer dated April 23, 1932 it would be reasonable to infer that the revenue authorities did come to know of these entries, for it is stated in the order just referred to while considering the entry of the sum of Rs. 52,611 that it is not known how the cross entries of the interest account were explained away before Mr. S. M. Husain As to the sum of Rs. 16,521-8-6 the entries are to the effect that this sum was credited to the account of the appellants son Indu Bhushan and from that account it was subsequently transferred to the account of Rai Bahadur Makund Lal. In the assessment year 1928-1929 which was for the income of the previous year 1926-27 corresponding to Kuar Sambat 1983-84 once again the assessee did not show any income from Mr. Maharaj Kishore Khanna. In the assessment year 1929-30 which related to the income of the previous year 1927-28 corresponding to Kuar Sambat 1984 to Kuar Sambat 1985 the assessee did not file any return but he produced certain accounts which, however, did not show any income received from Mr. Khanna and the assessment was made under Section 23 (4) according to the best of the Income Tax Officers judgment. In the assessment year 1930-31 which related to the income of the previous year 1928-29 corresponding to Kuar Sambat 1985 to Kuar Sambat 1986 the assessee did not show any income from Mr. Khanna and the Income-tax Officer assessed him on a certain income which was arrived at after making certain calculations.;