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PETITIONER: V.D. M. R. M. M. R. M. MUTHIAH CHETTIAR

       Vs.

RESPONDENT: COMMISSIONER OF INCOME-TAX, MADRAS

DATE OF JUDGMENT: 14/02/1969

BENCH: SHAH, J.C. BENCH: SHAH, J.C. RAMASWAMI, V. GROVER, A.N.

CITATION:  1970 AIR   10            1969 SCR  (3) 715  1969 SCC  (1) 675  CITATOR INFO :  D          1970 SC1982  (11)  RF         1980 SC2114  (4)  F          1987 SC1768  (4,5)

ACT: Indian  income-tax  Act  (11 of 1922),  ss.  34  and  16(3)- Assessee’s  return of income as individual not showing  that other  members  of his firm were his  minor  sons-Income  of minors   separately  assessed-S.  34(1)  and  s.   34(1)(b), applicability of income of a minor son whether can be  added under   s.  16(3)-income  of  assessee  after  having   been separately assessed.

HEADNOTE: The assessee and his minor sons separately held shares in  a resident firm.  For assessment years 1952-53 to 1954-55, the assessee  filed returns as an individual and therein  stated under  the  head business income that the profit  should  be ascertained from the Income-tax Officer assessing the  firm. The names of the partners were stated, but it was not stated in the return that some of the parties were his minor  sons. The  minors,  through their mother as guardian,  also  filed returns  for these assessment years, and they were  assessed to tax.  The assessee was also assessed as an individual, in respect  of  his share in the income of the firm  and  other sources, but the assessment order did not include the  share of the minors from the firm.  The Income-tax Officer  issued notices  of reassessment to the assessee under s. 34(1)  (a) of the Indian Income-tax Act, 1922 for the years 1952-53 and 1953-54  and under s. 34(1) (b) for the year  1954-55.   The Income-tax  Officer took the view that the assessee had  not disclosed the fact that his sons were minors and the  income of  the sons which should have been included under s.  16(3) (a) (ii) had escaped assessment in the assessee’s hands  and accordingly  he brought that income to tax.   The  Appellate Assistant Commissioner confirmed this order.  The  Appellate Tribunal,  in appeal held that for the first two,  years  s. 34(1) (a) applied, that in respect of the third year  there was  no  change of opinion but the assessment  was  made  on information received within the meaning of s. 34(1) (b)  and

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that the income of the minors could be assessed in the hands of  the assessee ’notwithstanding the  separate  assessments already  made on the minors.  On reference, the  High  Court answered  the  questions against the assessee.   In  appeal, this Court, HELD  : Section 16(3) of the Act imposed an obligation  upon the  Income-tax Officer to compute the total income  of  any individual  for the purpose of assessment by  including  the items of income set out in cls. (a)(i) to (iv) and (b),  but thereby  no  obligation was imposed upon  the  tax-payer  to disclose the income liable to be included in his  assessment under  s. 16(3).  For failing or omitting to  disclose  that income  proceedings for reassessment could not be  commenced under s. 34(1) (a).  Section 22(5) required the assessee  to furnish  particulars  of  the names of  the  shares  of  the partners but imposed no obligation to mention or set out the income of the nature mentioned in s. 16(3).  In the relevant years  there  was no head in the form of  return  prescribed under the rules under which income liable to be assessed  to tax  under  s. 16(3) (a) & (b) could  be  disclosed.   These assessments  under  s. 34(1) (a) for the years  1952-53  and 1953-54 could not, therefore be upheld. [721 A] (ii) The  income of a minor can be included in the hands  of an assessee under s. 16(3) of the Act, notwithstanding  that an assessment has been made on the minor represented by  his guardian. [718 G-H] 716 C.R. Nagappa v. Commissioner of Income-tax, Mysore, [1969] 1 S.C.R. 979, followed. (iii)     In respect of the assessment years 1954-55,  there was  no basis for the argument that the  Income-tax  Officer had  only changed his opinion.  The order  of  re-assessment was  made well within four years from the date of  the  last day  of  that assessment year.  The notice  was,  therefore, competently issued by the Income-tax Officer.  L721 F]

JUDGMENT: CIVIL APPELLATE JURISDICTION:Civil Appeals Nos. 1457 to 1459 of 1958. Appeals from the judgment and order dated August 21, 1964 of the Madras High Court in T.C. No. 75 of 1962 (Reference  No. 50 of 1962). M.   C. Chagla and T. A. Ramachandran, for the appellant (in all the appeals). S.   K.  Aiyar add B. D. Sharma, for the respondent (in  all the appeals). The Judgment of the Court was delivered by  Shah,  J.  Ramanathan  Chettiar his  son  Muthiah  Chettiar called  hereinafter  for the sake of  brevity,  Muthiah--and Ramanathan,  Annamalai  and  Alagappan,  sons  of   Muthiah, constituted  a Hindu undivided family.  The family  owned  a 3/5th share in M.R.M.S. Firm, Seramban in Malaya.  The  firm was  assessed under the Indian income-tax Act, 1922, in  the status  of a firm resident within the  taxable  territories. On  September  16, 1950, Muthiah separated from  the  family taking  his 1/5th share in the M.R.M.S. Firm.  On April  13, 1951  the status of the family became  completely  disrupted and  the  three  sons of Muthiah took in  equal  shares  the remaining  2/5th share-the grandfather Ramanathan taking  no share in the M.R.M.S. Firm. For the assessment year 1952-53 Muthiah submitted a  return of  his  income as an individual and stated under  the  head business income "Kindly ascertain his (assessee’s) share  of

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profit  and remittances from the Income-tax officer,  Second Additional  Circle I, Karaikudi, in F. 6098-m/1952-53".   In Part  III  of  the return  Muthiah  supplied  the  following information about his partners Name and address of   Name of each partner       Share the firm           including assessee Messrs. R.RM.S. Firm 1. Assessee (Muthiah Chettiar) 60/303 Seramban, F. M.S.    2. VD.  M.RM. M. RM.  M.                      Ramanathan Chettiar (minor).   40/303                      3.  VD. M. RM.  M. RM.  M.                        Alagappan Chettiar (minor).   40/303                      4.  VD. M. RM.  M. RM.  M.                         Annamalai Chettiar (minor)   40/303                      5. C.P.R.                       60/303                      6. M.S.S.                       60/303                      7. Charity                       3/303 717 For the assessment year 1953-54 in column 3 in section B  of the   return   Muthiah  stated  :  "Kindly   ascertain   the remittances  from the Income-tax Officer, Fifth  Additional, Karaikudi in F. 6098-m", and at p. 3 of the return in column 3 of Section F it was stated               "Assessee  has 60/303 share in Messrs.   Joint               Seramban (Malaya).  Kindly ascertain share  of               profit  or loss from the  Income-tax  Officer,               Fifth Additional, Karaikudi in F. 6098."               In Part III of the return he set out the names               of  the  partners as, were  mentioned  in  the               return  for  1952-53.  Against the  names.  of               Ramanathan  Chettiar, Alagappan  Chettiar  and               Annamalai  Chettiar it was not disclosed  that               they were minors.               For the assessment year 1954-55 at the foot of               page 1 of the return Muthiah stated :               "The   assessee  has  a  remittance   of   Rs.               6,188-12-0 from R.R.M.S. Firm, Seramban.   His               share  of income may be taken from the  firm’s               file.’, and in Part III the names of seven partners as mentioned  in 1952-53 return were set-out--Ramanathan, Alagappan, were not shown as minors. Ramanathan,  Alagappan and Aannamalai--the three minor  sons of  Muthiah  represented by their mother and  guardian  also filed returns of their respective income for the years 1952- 53,  1953-54 and 1954-55 and disclosed therein their  shares in the profit from the 2/5th share in the M.RM.S. Firm. For  the assessment years 1952-53, 1953-54 and  1954-55  the Income-tax  officer completed the assessments separately  on the  firm,  on  Muthiah as an individual and  on  the  three minors  represented by their mother and  guardian.   Muthiah was  assessed in respect of his share in the income  of  the firm and from other sources.  In his returns muthiah had not disclosed  the  share  received by his minor  sons  and  the Income-tax officer did not in making the assessments include shares of the minors from the firm under s. 16 (3) (a)  (ii) of the Indian Income-tax Act, 1922.  The Income-tax  Officer issued notices of reassessment to Muthiah under s. 34(1) (a) of the Income-tax Act, 1922 for the years 1952-53 and  1953- 54  and under s. 34(1) (b) for the year  1954-55.   Muthiah, filed  returns  under protest declaring the same  income  as originally assessed.  In the view of the Income-tax Officer Muthiah  had  not furnished in Part III clause  (c)  of  the return full facts regarding the other parties and in  column 2  he  had merely disclosed that Ramanathan,  Alagappan  and Annamalai were minors: that "information was not full in the

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sense that he had not stated that L10Sup./69-11 718 they were minors sons" of Muthiah.  Accordingly the  Income- tax  Officer  held that the income of the  sons  of  Muthiah which should have been included under s. 16 (3) (a) (ii)  of the Income-tax Act had escaped assessment in Muthiah’s hands and he brought that income to tax. The  Appellate  Assistant Commissioner confirmed  the  order made  by the Income-tax Officer.  In appeal to the  Tribunal it  was  contended by Muthiah that he had  fully  and  truly disclosed all the particulars he was required to disclose in the  returns of his income for the three years in  question, and  "s.  34 (a) (a) had no application  to  the  assessment years 1952-53 and 1953-54 and for 1954-55 the reopening  was based only on a change of opinion".  Muthiah also  contended that s. 40 of the Income-tax Act was mandatory and since the Income-tax  Officer  had made separate  assessments  on  the minors  represented by their mother, no further’  assessment under  s.  16(3)  could  be made,  the  two  sections  being mutually exclusive. The Tribunal observed that for the first two years s. 34 (1) (a)  applied, that in respect of the year 1954-55 there  was no  change  of  opinion  but  the  assessment  was  made  on information  received within the meaning of s. 34 (1 )  (b) of  the Income-tax Act and that separate assessment  of  the minors  did not stop the Income-tax Officer  from  assessing the  income  received  by the minor sons  in  the  hands  of Muthiah.   The Appellate Tribunal accordingly confirmed  the order of the Appellate Assistant Commissioner. At  the  instance of Muthiah the  following  questions  were referred to the High Court of Madras :               (i)   Whether   on  the  facts  and   in   the               circumstances  of the case, the  re-assessment               made on the assessee under s. 34 of the Act is               valid in law for 1952-53 to 1954-55 ?               (ii)Whether   on  the  facts  and   in   the               circumstances  of the case, the  inclusion  of               the share income of the minor in the hands  of               the assessee by invoking the provisions of  s.               16(3)   of   the   Act   is   valid   in   law               notwithstanding that an assessment is made  on               the minor represented by his guardian ?" The  answer  to  the second question must, in  view  of  the recent  judgment  of  this Court in C.  R.  Nagappa  v.  The Commissioner   of   Income-tax,   Mysore(1),   be   in   the affirmative. In  considering the first question it is necessary to  refer to  certain  provisions  of the Income-tax  Act,  1922.   By section 3 (1)  [1969] 1 S.C.R. 979. 719 the  total income of the previous year of every  individual, Hindu undivided family, Company and local authority  and  of every firm and other association of persons or the  partners of  the firm or the members of the association  individually was  charged  to tax for that year in accordance  with,  and subject  to the provisions of the act at any rate  or  rates prescribed  by the Finance Act.  "Total income" was  defined in s. 2(15) as meaning "total amount of income, profits  and gains referred to in sub-s. (1) of section 4 computed in the manner  laid  down in this Act." Section 4(1)  set  out  the method of computation of total income : it enacted               (1)   Subject  to the provisions of this  Act,               the  total income of any previous year of  any

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             person includes all income, profits and gains               from whatever source derived which--               (a)   are   received  or  are  deemed  to   be               received  in the taxable territories  in  such               year by or on behalf of such person or               (b)   if  such  person  is  resident  in   the               taxable territories during such year,-               (i)   accrue or arise or are deemed to  accrue               or  arise  to him in the  taxable  territories               during such year, or Section 22 by sub-s. (1) required the Income-tax Officer  to give  notice by publication in the press in  the  prescribed manner, requiring every person whose total income during the previous  year  exceeds  the maximum  exempt  from  tax,  to furnish  a return in the prescribed form setting  forth  his total  income.   Sub-sectian (2)  authority  the  Income-tax Officer to serve a notice upon a person whose income in  the opinion of the Income-tax Officer exceeded the minimum  free from  tax.   Section  23  dealt  with  the  assessment.   It conferred  power upon the Income-tax Officer to  assess  the total  income  of  the assessee and  to  determine  the  sum payable  by  him on the basis of such return,  submitted  by him.   Rule  19 framed under s. 59 of  the  Income-tax  Act, 1922,  required  the assessee to make a return in  the  form prescribed  thereunder,  and  in Form  A  applicable  to  an individual or a Hindu undivided family or an association  of persons  there  was no clause which required  disclosure  of income of Any person other than the income of the  assessee, which  was liable to be included in his total  income.   The Act and the Rules accordingly imposed no obligation upon the assessee to disclose to the Income-tax Officer in his return information  relating to income of any other person  by  law taxable in his hands. 720 But  s’ 16 sub-s. (3) provided that in computing  the  total income of any individual for the purpose of assessment there shall  be included the classes of income mentioned  in  cls. (a)  and (b).  Sub-section (3) (a) (ii) in-so-far as  it  is material  provided  "In computing the total  income  of  any individual  for  the purpose of assessment, there  shall  be included: (a)  so much of the income of a wife or minor child of  such individual as arises directly or indirectly-- (i) (ii) from  the  admission of the minor to  the  benefits  of partnership  in  a  firm  of  which  such  individual  is  a partner;" The assessee was bound to disclose under s. 22(5) the  names and addresses of his partners, if any, engaged in  business, profession or vocation together ’with the location and style of the principal place and branches thereof and the  extent of  the  shares of all such partners in the profits  of  the business,  profession or vocation and any branches  thereof, but  the as was not required in making a return to  disclose that  any  income was received by his wife  or  minor  child admitted  to the benefits of partnership of a firm of  which he was a partner. Counsel for the Commissioner contended that in the forms  of returns prescribed in the "Notes of Guidance" for drawing up the  return  were  printed, and  thereby  the  assessee  was informed that he had to disclose the income received by  his wife  and minor children from a firm of which  the  assessee was  a partner.  Counsel has however not placed  before  the Court  the forms of return in vogue in the relevant year  of assessment.   In the Income Tax Manual published  under  the

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authority  of the Central Government in 1945 under  cl.  (3) printed at p. 185 theassessee is advised to include  the return under the appropriate headcertain classes of income which are liable to be included in theassessment   of   an individual under s. 16, and income liable to betaxed under  ss. 41D, 44E and 44F.  This instruction was  repeated in  the Manual Parts II and III at pp. 344 and 345  in  the 10th Edition published in 1950.  But in the 11th Edition  of the  Manual  published  in 1954 no  such  instructions  were printed.   About  the date on which  the  instructions  were deleted Counsel for the Commissioner was unable to give  any information.  Assuming that there were instructions  printed in  the  Forms  of return in the  relevant  years’,  in  the absence  of any head under which the income of the  wife  or minor  child of a partner whose wife or a minor child was  a partner  in  the same firm, could be shown, by  not  showing that income the tax-payer cannot be deemed to have failed or omitted to disclose fully and truly all material 721 facts necessary  for his assessment.  Section 16(3) imposer, an  obligation  upon the Income-tax Officer to  compute  the total income of any individual for the purpose of assessment by including the items of income set out in cls. (a) (i)  to (iv) and (b), but thereby no obligation is unposed upon the tax-payer  to disclose the income liable to be  included  in his  assessment under s. 16(3).  For failing or omitting  to disclose  that  income proceedings for  reassessment  cannot therefore  be  commenced under s. 34 (1) (a)  Section  22(5) required  the assessee to furnish particulars of  the  names and  shares  of his partners, but imposes no  obligation  to mention or set out the income of the nature mentioned in  S. 16(3).  In the relevant years there was no head in the  form under  which  income liable to be assessed to tax  under  s. 16(3) (,a) and (b) could be disclosed. We  are in the circumstances unable to agree with  the  High Court that s. 34 imposed an obligation upon the assessee  to disclose  all income includable in his assessment by  reason of  s.  16(3)  (a) (ii).  Section 34(1)  (a)  sets  out  the conditions in which the power may be exercised : it did  not give,-rise  to an obligation to disclose  information  which enabled  the Income-tax Officer to exercise the power  under s.  16(3)  (a)  (ii),  nor had the  use  of  the  expression "necessary for his assessment" in s. 34(1)(a) that effect. The High Court did not consider the question whether in  the year  1954-55  the notice under s. 34(1)  (b)  was  properly issued  against  Muthiah.  The Tribunal  in  their  judgment observed: "There  is  no basis for the argument  that  the  Income-tax Officer  had  only  changed his  opinion  and  reopened  the assessment." We  agree  with that view.  The order of  re-assessment  was made well within four years from the date of the last day of the  year of assessment 1954-55.  The notice  was  therefore competently issued by the Income-tax Officer. The order passed by the High Court,, in so far as it relates to the years 1952-53 and 1953-54 is set aside and the answer in  the  negative  is recorded.  For the  year  1954-55  the answer recorded by the High Court is confirmed.  There  will be no order as to costs throughout. Y.P.                       Appeal partly allowed. 722