Mal Lodha, J. - (1.) THIS is a preference under Section 256(1) of the I.T. Act, 1961 (No. XLIII of 1961) (for short "the Act" herein), by the Income-tax Appellate Tribunal, Delhi Bench "A", which for the sake of brevity hereinafter will be referred to as the "the Tribunal". The Tribunal has referred the following questions of law for decision of this court : "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Appellate Assistant Commissioner was wrong is legalising the assessments for the assessment years 1962-63, 1963-64 and 1964-65, respectively, by converting the provisions of Section 147(a) into those of Section 147(b) of the Act of 1961 ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that in respect of the assessment years 1965-66 and 1966-67, the provisions of Section 27(1) read with Section 64(iv) of the Income-tax Act, 1961, did not apply to the transfer of property made by the assessee ? (3) Whether, on the facts and in the circumstances of the case, the expression 'an individual' occurring in Section 64(iv) of the Income-tax Act, 1961, would include a female ? (4) Whether the Tribunal was right in holding that the provisions of Section 64(iv) of the Income-tax Act, 1961, are retrospective in character so as to include the income of the minors (other than house property) in respect of transfer made prior to April 1, 1961 ? (5) Whether, on the facts and in the circumstances of the case, the Tribunal was right in not giving a direction that credit be given for tax paid by the minors for the assessment years 1962-63 to 1966-67 ?"
(2.) THE assessee, Mrs. Ayodhya Kumari, transferred her house property on March 31, 1956. She transferred a fixed deposit of Rs. 5,000 with the National Motors on December 29, 1956. She also transferred ten shares of City Light THEatres (P.) Ltd., on August 24, 1960, to her minor son, Sunil Kumar. One the same day, i.e., August 24, 1960, she transferred seventeen shares of City Light THEatres (P.) Ltd. to her minor son, Akhil Kumar. THE incomes of these minor sons were not included in the total income of the assessee in her original assessments as according to the interpretation put by the Supreme Court on Section 16(3) of the Indian I.T. Act, 1922 (No. XI of 1922) (for short "the old Act"), that "an individual" occurring in Section 16 of the old Act would only include male species and not female species. According to the Income-tax Officer (ITO), there were changes in the provisions of Section 64 of the Act and according to Section 64(iv) of the Act, income of of the minor sons was to be included in the assessee's assessment. THE ITO started proceedings against the assessee under Section 147(a) of the Act in respect of the assessment years 1962-63, 1963-64 and 1964-65, and he included the income of the minor sons in the total income of the assessee. He also included the income of the minor sons from the assets transferred by her to them in the assessment of the assessee for the assessment years 1965-66 and 1966-67. THE assessee preferred appeals. THE Appellate Assistant Commissioner (AAC) held that, on the facts of the case, he can substitute application of the provisions of Section 147(b) for Section 147(a) of the Act. He further held that though the assets had been transferred by the assessee prior to the commencement of the Act, still the provisions of Section 64 of the Act were applicable to the case, for, the Act is not concerned with the date of transfer but with the income arising out of transfer and chargeable to income-tax and that Section 64(iv) of the Act is wide enough to include income derived by transfer before the passing of the Act. THE assessee filed second appeals before the Tribunal. THE five appeals were disposed of by a common order dated June 25, 1979. THE appeals related to the assessment years 1962-63, 1963-64, 1964-65, 1965-66 and 1966-67. THE three appeals relating to 1962-63, 1963-64 and 1964-65 arose out of the initiation of proceedings under Section 147(a) of the Act as the ITO included the income of the minor sons in the total income of the assessee. THE remaining two appeals were in respect of the assessment years 1965-66 and 1966-67, in which the income of the minor sons from the assets transferred by the assessee to them were included. THE Tribunal has summarised its conclusions as follows : "(a) Assessments for the years 1962-63, 1963-64 and 1964-65 could not be sustained because the Income-tax Officer wrongly applied the provisions of Section 147(a) to the facts of the case and the Appellate Assistant Commissioner was not competent to invoke the provisions of Section 147(b) of the Act to legalise the assessments for these three years. (b) Though the assessee is a female, yet, in view of the charging Sections 4 and 5 read with Sections 60 to 64 along with the Explanation thereto, income from fixed deposits and income from shares earned by the minor sons are to be included in the total income of the assessee for the assessment years 1965-66 and 1966-67. (c) Income from property which beloged to the minor sons cannot be clubbed with the income of the assessee in view of the provisions of Section 27 read with Section 64 of the Act." Five applications were filed by the Commissioner of Income-tax (CIT) requiring the Tribunal to refer the questions of law arising out of its orders dated June 25, 1970. It has referred the above mentioned questions for answer to this court. Learned counsel for the respondents filed typed copies of the notice dated May 1, 1965, in respect of the assessment years 1962-63, 1963-64 and 1964-65, and also typed copies of replies to the notice dated May 1, 1965. Learned counsel for the Revenue stated that he has no objection if typed copies of notice dated May 1, 1965, relating to the aforesaid three assessment years are taken into consideration, for, it is clear from the statement of the case that the proceedings were initiated under Section 147(a) of the Act. He, however, objected regarding replies being taken into consideration while answering the questions referred to above. We heard Mr. J.P. Joshi for the Revenue and Mr. H.P. Gupta and Mr. S.K. Gupta for the assessee-respondent. We proceed to answer the questions at seriatim.
(3.) QUESTION No. 1: The AAC in his order dated September 18, 1968, passed in the appeals relating to the assessment years 1962-63, 1963-64 and 1964-65, came to the conclusion that Section 147(a) did not apply and that the initiation of the proceedings against the assessee could be under Section 147(b) of the Act. The Tribunal was, however, of the view that the AAC was not right in legalising the assessments by resorting to the provisions of Section 147(b). In other words, according to the Tribunal, the proceedings initiated under Section 147(a) could not be legalised by converting them into that of Section 147(b) of the Act. Two pre-requisite conditions are necessary for exercising jurisdiction under Clause (a) of Section 147 of the Act : (i) the ITO must have reason to believe that income has escaped assessment, and (ii) that he must have reason to believe that such escapement is by reason of the omission or failure on the part of the assessee or to disclose fully and truly all material facts necessary for his assessment for the relevant year. Two conditions precedent which are to be satisfied before the ITO can take action under Clause (b) of Section 147 are : (i) he should have reason to believe that income has escaped assessment, and (ii) it should be in consequence of information received after the original assessment that he should have reason so to believe. If either condition is not satisfied, the ITO's action would be without jurisdiction. ;