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PETITIONER: THE COMMISSIONER OF INCOME TAX, KERALA

       Vs.

RESPONDENT: SMT. P.K. KOCHAMMU AMMA PEROKE

DATE OF JUDGMENT23/09/1980

BENCH: BHAGWATI, P.N. BENCH: BHAGWATI, P.N. VENKATARAMIAH, E.S. (J)

CITATION:  1980 AIR 2124            1981 SCC  (1) 241

ACT:      Penalty, imposition  of-Assessee failed  to include the income of the spouse and minor child in the return of income for the  assessment year 1964-65, though includible under s. 64(1) and  (iii)-Whether failure  entails penalty  under  s. 271(1)(c) of the Income Tax Act, 1961, as the unamended Rule 12 of  the 1961  (prior to  31-3-1972) did  not provide  any column in  the prescribed  form-Income Tax  Act,  1961,  ss. 2(45), 4, 5, 64(1)(i) and (iii), 139 and 271(1)(c) read with Rule 12  of the  Income Tax  Rules, 1962, scope of-Words and phrases "his income" meaning of.

HEADNOTE:      The  respondent   assessee  was   a  partner   in   the partnership firms  of  M/s.  Malabar  Tile  Works  and  M/s. Malabar Plywood  Works and  alongwith her  there were  other partners including  her husband  and minor  daughter. In her returns for  the  assessment  year  1964-65  for  which  the relevant accounting  year was  the calendar year ending 31st December, 1963,  the  assessee  filed  a  return  of  income omitting the  amounts representing the shares of her husband and minor daughter in the partnership firms from her income. The  Income  Tax  Officer,  however,  brought  the  amounts, namely, Rs.  59,506 to  tax and referred the case for taking action under  s. 271(1)(c)  of  the  Act  to  the  Assistant Appellate Commissioner  who imposed a penalty of namely, Rs. 7,000 on  the assessee  for having  concealed her income. In appeal the  Tribunal set  aside the order and the High Court on reference affirmed the Tribunal’s order. Hence the appeal by Revenue to this Court after obtaining special leave.      Dismissing the appeal, the Court ^      HELD: (1)  The assessee,  in view  of the fact that the prescribed form  for filing  of returns  under s. 139 of the Act, prior  to 31st  March, 1972,  did not  contain separate column to  show "income arising to spouse/minor child or any other person  referred to  in Chapter  V of the Act", and in view of  the decision  of three  Judges Bench reported in 74 I.T.R. 83  SC could not be said to have concealed her income by not  disclosing in  the return  filed by  her the amounts representing the shares of her husband and minor daughter in the two partnership firms. [788B]      (2) The  term  "his  income"  for  the  purpose  of  s.

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271(1)(c) of  the Act, is "his income" which the assessee is liable to  disclose for  the purposes  of assessment and yet fails to  do so. The return of income under s. 139(1) of the Act is  required to  be filed in order to enable the Revenue Authorities to  make a  proper  assessment  of  tax  on  the assessee. A  fortiorari, it  follows that  the assessee must disclose in  the return every item of income which is liable to be  taxed in his hands under ss. 4 & 5 of the Act. [785B; F-H] 782      (3) The  definition of  "total income"  in s. 2(45), no doubt refers  to s.  5 which  lays down  that all the income profits and  gains accrued  or arisen  to  the  assessee  or received by  or on behalf of the assessee shall be liable to be included  in his  total  income  but  this  provision  is subject to  the other provisions of the Act and therefore if the income  of any other person is declared by any provision of the Act to be includible in computing the total income of the assessee,  such income  would form  part  of  the  total income exigible  to tax  under s.  4 of the Act. S. 64(1) is one such  provision which  provides  for  inclusion  of  the income of  certain other  persons  in  computing  the  total income of the assessee. [785F-H]      Section 64(1)  makes it  clear that though the share of the spouse  or minor  child in  the profits of a partnership firm in which the assessee is a partner is not the income of the assessee but is the income of such spouse or minor child it is liable to be included in computing the total income of the assessee  and it would be assessable to tax in the hands of the assessee. The total income of the assessee chargeable to tax  would include the amounts representing the shares of the spouse and minor child in the profits of the partnership firm. Obviously  the words "his income" in s. 139 sub-s. (1) must include  every item of income which goes to make up his total  income   assessable  under   the  Act.   The  amounts representing the shares of the spouse and minor child in the profits of  the partnership  firm  would  be  part  of  "his income" for  the purpose of assessment to tax and would have to be shown in the return of income filed by him. [786B-D]      (4) It  is true  that the form of the return prescribed by Rule  12 of the Income Tax Rules, 1962 which was in force during the  relevant assessment  year did  not  contain  any separate column  for showing  the income  of the  spouse and minor child liable to be included in the total income of the assessee, but  it did  contain a  Note stating  that if  the income of any other person is includible in the total income of the  assessee under the provisions, inter alia, of s. 64, such income  should also  be shown  in the  return under the appropriate head. This Note clearly required the assessee to show in  the return  under the  appropriate head  of income, namely, "profits  and gains  of business  or profession" the amounts representing  the shares  of the  husband and  minor daughter  of   the  assessee  in  the  profits  of  the  two partnership firms.  The assessee  however failed to disclose these amounts  in the  return submitted by her and there was plainly and manifestly a breach of the obligation imposed by s. 139 sub-s. (1) requiring the assessee to furnish a return of  her  income  in  the  prescribed  form.  To  accept  the contention that  despite the Note the assessee was still not liable to  show in  the return  the amounts representing the shares  of  her  husband  and  minor  daughter  in  the  two partnership firms  would render  the  Note  meaningless  and futile and turn it into a dead-letter 783 and that  would be  contrary to  all  recognised  canons  of

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construction. The assessee was guilty of concealment of this item of  income which plainly attracted the applicability of s. 271 sub-s. (1) clause (c). [786G-787D]      V.D.M.RM.M.RM.  Muthiah  Chettiar  v.  Commissioner  of Income Tax, 74 ITR 183 (SC), doubted

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil Appeal No. 1086 of 1973.      Appeal by  Special Leave  from the  Judgment and  Order dated 8-12-1971 of the Kerala High Court in T.I.T. Reference No. 91/69.      S.  C.   Manchanda  and  Miss  A.  Subhashini  for  the Appellants.      K. T.  Harindranath  and  T.  T.  Kunhikannan  for  the Respondent.      The Judgment of the Court was delivered by      BHAGWATI  J.-This  appeal  arises  out  of  proceedings initiated by  the Revenue authorities for levying penalty on the  assessee.  The  assessee  is  a  lady  and  during  the assessment year  1964-65 for  which the  relevant accounting year was  the calender  year ended  31st December, 1963, the assessee was  a  partner  in  two  partnership  firms,  M/s. Malabar Tile  Works  and  M/s.  Malabar  Plywood  Works  and alongwith  her  there  were  other  partners  including  her husband and  minor daughter.  The assessee filed a return of income for  the assessment  year 1964-65 showing Rs. 4754 as income from  property and  Rs. 4748  as  income  from  other sources. The  assessee stated in the return under the column "Profits and  Gains of Business and Profession" against item (b) which required share in the profits of a registered firm to be  shown "Please  ascertain from  the firms’  files  the Malabar Tile Works and Malabar Plywood Works." The assessee, however, did not show in the return the amounts representing the shares of her husband and minor daughter in the firms of M/s. Malabar  Tile Works  and  M/s.  Malabar  Plywood  Works though they  were clearly  includible in computing the total income of  the assessee  under section  64  sub-section  (1) clauses (i)  and (iii)  of the  Income Tax  Act,  1961.  The Income Tax  Officer while making the assessment included the amounts representing  the shares  of the  assessee’s husband and minor  daughter in the profits of these two firms in the assessment of the assessee and taxed the assessee on a total income of  Rs. 59,506  after including  these amounts. Since the assessee  had not shown these amounts as forming part of her total income in the return submitted by her, though they were clearly  includible in  her total  income under section 64, sub-section  (1) clauses  (i) and  (iii), the Income Tax Officer was of the view that the assessee had con- 784 cealed the  particulars of  her income  and rendered herself liable to  penalty under  section 271 sub-section (1) clause (c), and  since the minimum penalty leviable on the assessee was  Rs.  1000,  he  referred  the  case  to  the  Assistant Appellate Commissioner  who issued  notice under section 274 and after  hearing the  assessee, imposed  a penalty  of Rs. 1000. The  assessee appealed  to the  Tribunal  against  the order imposing  penalty and  one of  the arguments  urged on behalf of  the assessee  in support  of the  appeal was that there was  no obligation  of the  assessee to  show  in  her return the  amounts representing  the shares  of her husband and  minor   daughter  in   the  two  firms  and  there  was accordingly no  concealment by her of the particulars of her

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income so  as to  attract the penalty under section 271 sub- section (1)  clause (c). The Tribunal accepted this argument of the  assessee and  held that  section 271 sub-section (1) clause (c) could be invoked only if there was concealment of the "particulars  of his  income by  the assessee"  and  the words "his  income" referred  only to  be the  income of the assessee himself  and not  to the income of any other person which might  be liable  to be  included in the income of the assessee by reason of section 64 sub-section (1) clauses (i) and (iii).  The Tribunal  accordingly held that the omission or failure  of the  assessee to  disclose in  her return the amounts representing  the shares  of her  husband and  minor daughter in  the two  firms as  forming part  of her  income could not  be visited  with penalty  under section  271 sub- section (1)  clause (c)  and  in  this  view,  the  Tribunal allowed the appeal and set aside the order imposing penalty. This led  to the filing of an application for a reference by the Revenue  and on  the application,  the Tribunal referred the following  question of  law for  the opinion of the High Court:           "Whether on  the facts and in the circumstances of      the case,  the Tribunal is correct in law in cancelling      the penalty levied under section 271(1)(c)?" The High  Court took the view that the words used in section 271 sub-section  (1) clause  (c) were  "his income"  and the amounts representing  the shares  of the  assessee’s husband and minor  daughter in the two firms could not be said to be the income  of the  assessee, though  in computing her total income these amounts were liable to be included by reason of section  64  sub-section  (1)  clauses  (i)  and  (iii)  and therefore, the  assessee could not be said to have concealed her income  when she  did  not  disclose  these  amounts  as forming part  of her  income in the return submitted by her. The High Court accordingly answered the question referred to it in  favour of  the assessee  and against the Revenue. The Revenue thereupon  preferred the present appeal with special leave obtained from this Court. 785      There is  a decision of this court which is directly in point and  it concludes  the determination  of the  question arising in  this appeal  against the  Revenue but  before we refer to  that decision, we might first examine the question on principle  as a  matter of  pure interpretative exercise. Section  271   sub-section  (1)   clause  (c)  provides  for imposition of  penalty on  an assessee  if it is found inter alia that the assessee has concealed the particulars of "his income." The  question is  what is  the scope and content of the words "his income" occurring in this penal provision. Do they refer  only to the income of the assessee himself or do they also take in the income of others which is liable to be included in  the computation  of the  total  income  of  the assessee by  reason of  the relevant  provisions of the Act, such as  section 64  sub-section (1)  clauses (i) and (iii)? The answer  to this  question obviously  depends upon  as to what is  "his  income"  which  the  assessee  is  liable  to disclose for  the purpose  of assessment for concealment can only be of that which one is bound to disclose and yet fails to do  so. Section  139 provides  for filing  of a return of income by  an assessee  and sub-section  (1) of this section lays down  that every  person whose  total income during the previous year  exceeds  the  maximum  amount  which  is  not chargeable to  income tax,  shall furnish  a return  of  his income in the prescribed form and verified in the prescribed manner, and  setting forth  such other particulars as may be prescribed. The  return of income is required to be filed in

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order to  enable the  Revenue Authorities  to make  a proper assessment of  tax on the assessee. It must therefore follow a fortiorari  that the  assessee must disclose in the return every item  of income  which is  liable to  be taxed  in his hands as  part of his total income. The charge of income tax is levied  by section 4 on the total income of the assessee, and ’total  income’ is defined in section 2 sub-section (45) to mean "the total amount of income referred to in section 5 computed in the manner laid down" in the Act. It is no doubt true that the definition of ’total income’ in Section 2 sub- section (45)  refers to  section 5 and this latter provision lays down  that all  the income profits and gains accrued or arisen to  the assessee  or received  by or on behalf of the assessee shall  be liable to be included in his total income but this provision is subject to the other provisions of the Act and  therefore if  the income  of any  other  person  is declared by  any provision  of the  Act to  be includible in computing the  total income  of the  assessee,  such  income would form  part of  the total  income exigible to tax under section 4  of the Act. Now, section 64 subsection (1) is one such provision which provides for inclusion of the income of certain other  persons in  computing the  total income of an assessee. Clauses  (i) and (iii) of this sub-section provide that in  computing the  total income  of an  assessee  there shall be included all 786 such income  as arises  directly or indirectly to the spouse of such  assessee from  the partnership  of the  spouse in a firm carrying  on a  business in  which such individual is a partner as  also to  a minor child of such assessee from the admission of  the minor  to the  benefits of the partnership firm. It  is clear from this provision that though the share of the spouse or minor child in the profits of a partnership firm in which the assessee is a partner is not the income of the assessee but is the income of such spouse or minor child it is liable to be included in computing the total income of the assessee  and it would be assessable to tax in the hands of the assessee. The total income of the assessee chargeable to tax  would include the amounts representing the shares of the spouse and minor child in the profits of the partnership firm. If this be the correct legal position, there can be no doubt  that   the  assessee  must  disclose  in  the  return submitted by him, all amounts representing the shares of the spouse and  minor child  in the  profits of  the partnership firm in  which he  is a partner, since they form part of his total income  chargeable to  tax. The  words "his income" in section 139  sub-section (1)  must  include  every  item  of income which  goes to  make up  his total  income assessable under the  Act. The  amounts representing  the shares of the spouse and  minor child  in the  profits of  the partnership firm would  be part  of "his  income"  for  the  purpose  of assessment to  tax and  would have to be shown in the return of income filed by him.      The assessee  then contended  that the return of income which was required to be filed by her under section 139 sub- section (1) was a return in the prescribed form and the form of the return prescribed by rule 12 of the Income Tax Rules, 1962 did  not contain  any column  for showing the income of the spouse  and minor  child which was liable to be included in the  total income  of the  assessee under section 64 sub- section (1) clauses (i) and (iii) and there was therefore no obligation on  the assessee  to disclose  this income in the return filed  by  her.  This  contention  is  also,  in  our opinion, fallacious  and deserves to be rejected. It is true that the  form of the return prescribed by rule 12 which was

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in force during the relevant assessment year did not contain any separate column for showing the income of the spouse and minor child liable to be included in the total income of the assessee, but  it did  contain a  Note stating  that if  the income of any other person is includible in the total income of the  assessee under  the provisions inter alia of section 64, such  income should  also bestow in the return under the appropriate head. This Note clearly required the assessee to show in  the return  under the  appropriate head  of income, namely, "Profits  and Gains  of Business  of Profession" the amounts representing the shares of the husband and minor 787 daughter  of   the  assessee  in  the  profits  of  the  two partnership firms.  But even  so,  the  assessee  failed  to disclose these  amounts in  the return  submitted by her and there was  therefore plainly  and manifestly a breach of the obligation imposed  by section 139 sub-section (1) requiring the assessee  to furnish  a return  of  her  income  in  the prescribed form.  It is difficult to see how the Note in the prescribed form  of the  return  could  be  ignored  by  the assessee and  she could  contend that  despite the Note, she was  not   liable  to   show  in   her  return  the  amounts representing the shares of her husband and minor daughter in the two  partnership firms.  The contention of the assessee, if accepted,  would render  the Note  meaningless and futile and turn  it into  dead letter and that would be contrary to all recognised canons of construction. There can be no doubt that the  assessee was  bound to  show  in  her  return  the amounts representing  the shares  of her  husband and  minor daughter in  the two  partnership firms and in failing to do so, she  was guilty  of concealment  of this  item of income which plainly  attracted the  applicability of  section  271 sub-section (1) clause (c).      It is  obvious that  on this  view the  order  imposing penalty on the assessee would have to be sustained but there is a  decision  of  this  Court  in  V.D.M.RM.M.RM.  Muthiah Chettiar vs.  Commissioner of  Income Tax  Madras  which  is binding upon  us and where we find that a different view has been taken  by a Bench of three Judges of this Court. It was held in  this case  that even  if  there  were  any  printed instructions  in  the  form  of  the  return  requiring  the assessee to  disclose the  income received  by his  wife and minor child  from   a firm  of  which  the  assessee  was  a partner, there was, in the absence in the return of any head under which  the income  of the wife or minor child could be shown, no  obligation on  the assessee to disclose this item of income,  the assessee  could not be deemed to have failed or omitted  to disclose  fully and  truly all material facts necessary for  his assessment  within the meaning of section 34(1) (a)  of the  Indian Income  Tax Act,  1922.  With  the greatest respect  to the  learned Judges  who  decided  this case, we  do not  think, for reasons already discussed, that this decision  lays down the correct law on the subject, and had it  not been  for the fact that since 1st April 1972 the form of  the return  prescribed by  rule 12 has been amended and since  then, there  is a  separate column  providing the "income arising to spouse/minor child or any other person as referred to  in Chapter  V  of  the  Act"  should  be  shown separately under  that column  and consequently  there is no longer any scope for arguing that the assessee is not bound 788 to disclose  such income  in the  return to  be furnished by him, we  would have  referred the  present case  to a larger bench. But we do not propose to do so since the question has now become  academic in view of the amendment in the form of

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the return  carried out  with effect from 1st April 1972. We would therefore  follow this  decision in Muthiah Chettiar’s case, which  being a  decision of a bench of three Judges of this Court  is binding upon us, and following that decision, we hold  that  the  assessee  could  not  be  said  to  have concealed her  income by  not disclosing in the return filed by her  the amounts  representing the  shares of her husband and minor daughter in the two partnership firms.      We accordingly  dismiss the appeal, but in the peculiar circumstances of  the present  case, we  think that the fair order of  costs would be that each party should bear and pay its own costs throughout. S.R.                                       Appeal dismissed. 789