1999 P T D 680

[225 I T R 548]

[Kerala High Court (India)]

Before V. V. Kamat and P.A. Mohammed, JJ

COMMISSIONER OF INCOME-TAX

versus

GEORGE JACOB and others

Income-tax References Nos.205 to 228 of 1988, 77 to 80 of 1989 and 11 of 1990, decided on 20/06/1996.

Income-tax---

----Rectification---Firm---Partner---Voluntary disclosure---Search and seizure at firm's premises---Firm making declaration under S.14 of Voluntary Disclosure Act---Partners making voluntary disclosures of share income from firm under S.3---Voluntarily disclosed income excluded from total income of partners---Rectification to include it---Firm not a different entity from partners---Partners entitled only to benefit under S.14---Voluntary disclosure not permissible where accounts maintained and source of income shown therein-- -Rectification justified---Indian Income Tax Act, 1961, Ss. 154, 182 & 184---Indian Voluntary Disclosure of Income and Wealth Act, 1976, Ss.3, 8 & 14.

The assessees were partners in various firms and their main source of income was the share income from these firms. The firms were searched in proceedings under section 132 of the Income Tax Act, 1961, and seizures were made. Consequent upon the coming into force of the Voluntary 'Disclosure of Income and Wealth Act, 1976, the firms filed a declaration under section 14(1) of that Act. The assessees also filed individual declarations under section 3(1) of the 1976 Act. The Commissioner of Income-tax granted certificates to the assessees, in accordance with the provisions of section 8(2) of the 1976 Act. On the strength of the certificates, the Income-tax Officer granted the assessees a deduction from their total income, of the income voluntarily declared by them. Subsequently, by an order of rectification under section 154 of the Income Tax Act, 1961, the Income-tax Officer withdrew the deduction, holding that the amount represented the assessees' respective share in the income of the firms that was disclosed under section 14(1) of the 1976 Act for the assessment year in question, and that the share of each partner under section 182 of the Income- tax Act would have to be included in his total income assessable to tax accordingly. On appeals, the Commissioner of Income-tax (Appeals) holding that the certificate granted under section 8(2) of the 1976 Act conferred immunity on the declarants, set aside the orders of rectification. The Tribunal, on appeal by the Department, took the view that there were debatable questions which could not be the subject-matter of rectification under section 154 of the Income Tax Act, 1961. On a reference:

Held, (i) that there were three conditions under section 8 of the 1976 Act for not including the voluntarily declared income in the total income under the Income Tax Act: (a) the declarant must credit such amount in his books of account and intimate such credit to the Income-tax Officer; (b) the income-tax in respect of the voluntarily disclosed income must be paid; and (c) the amount required to be invested in specified securities must be so invested. A bare look at these provisions would show that no debate was necessary to know that any person keeping books of account, who knows the source of the amount and shows the same in the books of account maintained by him, would not be entitled to the benefits of the Voluntary Disclosure Act, 1976. Therefore, the assessees would not be entitled to the benefit of section 8 of the 1976 Act;

(ii) that, moreover under section 132 of the Income-tax Act, the firms were searched and documents were seized. The partnership firms were not different from the partners. The firm is not a legal person, although the income-tax treats it as an assessee. The consequence of an action under section 132 of the Income-tax Act would visit the assessees. The firms had made declarations under section 14 of the 1976 Act. A declaration by the assessees under section 14(1) of the 1976 Act would only benefit them in regard to payment of interest, under section 139(8) or section 215 or section 217 of the Income-tax Act, imposition of penalty and prosecution, as specifically enacted in regard thereto;

(iii) that it was a case of mistake apparent from the record on the plain language of the statutory provisions, and, therefore, the Income-tax Officer was competent to invoke section 154 for the purpose of modifying the orders originally made allowing the exclusion of the income declared by the partners-assessees under section 3(1) of the Voluntary Disclosure of Income and Wealth Act, 1976.

Sree Meenakshi Mills Ltd. v. CIT (1957) 31 ITR 28 (SC) ref.

P.K.R. Menon, Senior Advocate and N.R.K. Nair for the Commissioner.

P.C. Chacko, Roy Chacko, C. Kochunni Nair, M.A. Firoz, Dale P. Kurien and Madhavan for the Assessees.

JUDGMENT

V.V. KAMAT, J.---In all these 29 references the question is as to whether the Income-tax Officer is justified in exercise of the powers under section 154 of the Income Tax Act, 1.961, for the purpose of modifying the order passed earlier whereby the exclusion of income declared by the assessees concerned under section 3(1) of the Voluntary Disclosure Act could be annulled, modified or otherwise.

The question is as follows, which is the same in all these references:

"Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law and fact in finding that the Income-tax Officer was not competent to invoke section 154 for the purpose of modifying the order originally made allowing the exclusion of the income declared by the assessee under section 3(1) of the Voluntary Disclosure Act?"

These assessees are partners in different firms of the Muthoottu group and their main source of income is the share income from these firms.

Under section 132 of the Income Tax Act, 1961, the firms were searched in pursuance of the seizure in accordance therewith. .

On October 8. 1975, the Voluntary Disclosure of Income and Wealth Act, 1976, came into force. Section 3 of the said Act required any person, before January 1, 1976, to make a declaration in accordance with the provisions of section 4 thereof in respect of any income chargeable to tax under the Income Tax Act, 1961, for any assessment year, provided in regard to the said income, such person had failed to furnish a return under section 139 of the Income-tax Act or which he failed to disclose in any return of income furnished by him under the Income-tax Act, before the commencement of this Act or in regard to such income assessment is escaped by reason of the omission or failure on the part of such person to make a return under the Income-tax Act or to disclose the same fully and truly with reference to all material facts necessary for the assessment or otherwise. When such person satisfies these situations, the provision enacts that in that situation notwithstanding anything contained in the Income Tax Act, 1961, or in any Finance Act, income-tax shall be chargeable in respect of the income so declared which is described under the Act as "the voluntarily disclosed income" at the rate or rates specified in the Schedule to the Act. These assessee-partners accordingly filed the returns with regard to the income which could not be understood as income as qualified by the above three situations.

Apart from the firm filing the declaration under section 14(1) of the Act in pursuance of the search and seizure, these partner-assessees also filed individual declarations under section 3(1) of the said Act. In accordance with the provisions of section 8 of the said Act, the Commissioner of Income-tax granted certificates to them, specifically as per the provisions of section 8(2) of the Act.

On the strength of the certificates under section 8(2) of the Act, the assessees approached the Income-tax Officer and by the first order, the Income-tax Officer granted deduction, presumably in accordance with the provisions of section 8 of the Voluntary Disclosure Act, 1976. By and large, these orders would be found as Annexure "A" to all these references.

However, by the subsequent order, the Income-tax Officer acting under section 154 of the Income Tax Act, 1961, specifying that the amount was deduction from the assessees' total income on the ground that it represented the amount disclosed under section 3(1) of the Voluntary Disclosure Act, the Income-tax Officer observed that the amount represented the assessees' respective share in the income of the firm as was disclosed under section 14(1) of the Act for the assessment year in question, the share of each partner, under section 182 of the Act would be included in his total income assessable to tax accordingly. The Income-tax Officer observed further that the earlier deduction from the total income was not in order, the Income-tax Officer found it to be a mistake apparent from the record and, acting in pursuance of the notice under section 154 of the Act, rectified the earlier order in exercise of the powers under section 154 of the Act. The Income-tax Officer rejected the contention that there was no mistake apparent from the record.

The First Appellate Authority---Commissioner of Income-tax (Appeals), Ernakulam--took the view that when the assessee produced the certificate issued by the Commissioner, the Income-tax Officer rectified the various assessment orders on the basis of this certificate excluding the income--the amount as disclosed under section 3(1). The discussion continued that, subsequently, the Income-tax Officer issued notice under section 154 of the Act, that under section 182 of the Act, the amount in the hands of the partner as his share is also assessable. The first Appellate Authority considered that there is no provision in the Income Tax Act, 1961, by which income covered by the Voluntary Disclosure Act, 1976, can be taken up for assessment by the Income-tax Authority under the provisions of the Income Tax Act, 1961. The First Appellate Authority placed reliance on section 8 of the Voluntary Disclosure Act, 1976, to mean that the amount of the disclosed income shall not be included in the total income of the declarant for any assessment year under the Income Tax Act, 1961, if the conditions mentioned therein are satisfied. The discussion further proceeds to state that the certificate under section 8(2) of the Act confers immunity on the declarant.

The first Appellate Authority has further emphasised that at the inception the Income-tax Officer had accepted the assessee's views as correct and the present approach is diametrically opposite and, therefore, does not show a clear error apparent from the records in the original order. The discussion concluded that such a situation cannot be altered in exercise of the powers under section 154 of the Act. The Department took up the matter before the Income-tax Appellate Tribunal, Cochin Bench. The Tribunal has reproduced the rival contentions in paragraphs 2 and 3 and in paragraph 5 of its order.

The Tribunal took the view that the Income-tax Officer was not competent to invoke powers under section 154 for the purpose of modifying the orders originally passed whereby the exclusion of the income declared by the assessees under the Voluntary Disclosure Act were allowed. The Tribunal took the view that there is a debate involved in settling the question. According to the Tribunal, the question was as to whether the assessees were required or entitled to file declarations under section 3(1) of the Voluntary Disclosure Act in respect of part of the income declared by the firm under section 14 of the Voluntary Disclosure Act. The Tribunal also observed that section 8 of the Voluntary Disclosure Act, 1976, clearly provides for the exclusion of the income declared under section 3 from the total income. The Tribunal has taken care further to pinpoint that there are no qualifications of any manner to exclude from its purview the share of a partner in the income declared by a firm under section 14(1) of the Act. It is observed further that there is yet another question that would arise and it is as to whether the share income is to be included because of the assessment made on the firm taking into account the declaration made by the firm under section 14 of the Act. The Tribunal observes in the context that the question is as regards the provisions of section 182 of the Act, such share will have to be understood as the consequent allocation of such share income amongst the partners and also whether such income, in view of the declaration under section 3(1) of the Act, could be excluded in the teeth of such declaration having been accepted by the Commissioner of Income-tax as evidenced by the issue of a certificate under section 8 of the Act. The Tribunal felt that this was a debatable question which cannot be the subject-matter of rectification or modification in exercise of the powers under section 154 of the Act.

We have heard learned senior standing counsel for taxes. He contended that a mere reading of the statutory provisions of the Voluntary Disclosure Act, 1976, would create no difficulty whatsoever, in regard to the situation that the income has to be included in the concerned assessment year. With vehemence at his command, learned counsel showed us his anxiety that the two Appellate Authorities have reached the conclusions without perusing the statutory provisions. Learned counsel further contended that . the statutory provisions of the Voluntary Disclosure of Income and Wealth Act, 1976, would lead to only one and one conclusion in his favour. Learned counsel took us through the statutory provisions, especially sections 3, 4, 8 and 14.

At the other end, we have also heard learned counsel for the assessees, the team led by Sri Chacko, learned senior counsel. Sri Chacko also took us through the statutory provisions and particularly brought to our attention the provisions of the Voluntary Disclosure of Income and Wealth Rules, 1975. In the first instance, the submission of learned counsel was that on a true and proper interpretation of the provisions of the Act and the Rules, the amounts disclosed by the declarants and certified by the Commissioner of Income-tax in accordance with the provisions of section 8(2) would conclude the question and cannot be included in the total income in any way whatsoever. Learned counsel also further reiterated that the two Appellate Authorities have styled the situation as a debatable one and continued to urge on the basis thereof that in such a situation, the provisions of section 154 of the Act are not available for exercise, to reach a diametrically opposite conclusion in regard thereto. In the process of submissions, learned counsel also took us through the provisions of the Act. Learned counsel in fact also brought to our attention Form "A" in the Appendix to the Voluntary Disclosure Rules, 1975, which is required to be filled in and presented to the Commissioner of Income-tax by the declarant. He wanted us to concentrate our attention on item No.9 of the said Form, which requires the declarant to clarify as to whether the amount of the voluntarily disclosed income has been credited in the books of account or any other record and if so, attaching copies of the relevant entries in duplicate. Learned counsel based his submission with reference to Item No.9 to argue that the certificate under section 8(2) of the Act is the be all and end all and is conclusive in character not only with regard to the proceedings under the Voluntary Disclosure Act, 1976, but also with regard to the contemplated proceedings under the Income Tax Act, 1961, of any character whatsoever. Learned counsel submitted that Item No.9 in Form ' A' has to be meaningfully understood in the context of the statutory position given to the certificate under section 8(2) of the Act. Learned counsel further submitted that if the Income-tax Officer has already understood the position that the income covered by the certificate under section 8(2) of the Act is not to be included in the total income, such conclusion should be understood to receive finality in regard thereto. It is not open to any kind of change. It will have to be treated as a legal and valid order, on the strength of the conclusive character of the certificate under section 8(2) of the Act. Consequently, learned counsel urged that what has been done by the Income-tax Officer, subsequently, is opening the door which was jammed and closed. Alternatively, learned counsel submitted that even though any other view is possible and learned counsel reinforced his submission by referring to the approach of the two Appellate Authorities that the question is a debatable one, learned counsel emphatically attempted to emphasise that exercise of the power under section 154 of the Act would not be available because when a question is debatable, the error could not be styled as error apparent on the face of the record.

In this manner, after hearing learned counsel for both sides, we must express that we were at pains that the two Appellate Authorities at least from the contents of the two orders, are seen to have taken no trouble to go through the text of the statute. Had they, the result would have been otherwise, on the plain language of the statute. In the process of consideration of the question involved before us, a plain analysis of section 3 becomes inevitable. The provision speaks of "any - person" to make a declaration as required according to the provisions of section 4. Such a declaration is in respect of any income ordinarily chargeable to tax under the Income-tax Act. There is no time-limit. Such income chargeable to tax can -relate to any of the assessment years in the past obviously. The provision also qualifies in a three-fold manner. The income should be such that there is no return under section 139 of the Income-tax Act any time. The income should be such in regard to which this "any person"- has failed to disclose in a return of income furnished by him under the Income-tax Act before the date of commencement of this Act, i.e., before October 8, 1975. Such income also should be such that the record should not (sic) show that assessment is escaped by reason of omission or failure on the part of such "any person" to make a return under the Income-tax Act or to disclose fully and truly, all material facts necessary for its assessment or otherwise.

In other words, such person who is expected to make a declaration of his income must qualify the three statutory requirements in regard not only to him, but with regard to income proposed to be declared under this enactment. It is only such income specifying the qualifications in regard thereto as will be seen, that can be charged in respect of the income at the rate or rates specified in the Schedule to this Act. In this context, the statute provides the well-known non-obstante clause, with regard to the charge of income-tax at the rate or rates specified in the Schedule. The said non obstante clause would read:

"Notwithstanding anything contained in the Indian Income-tax Act, 1922 (11 of 1922), or the Income-tax Act or in any Finance Act..."

This would mean that the provisions of the Income Tax Act, 1961, are kept apart.

The provisions of section 3(2) also further particularises that nothing contained in section 3(1) would apply to situations specified therein. They are as follows:

"3(2). Nothing contained in subsection (1) shall apply in relation to---

(i) the income assessable for any assessment year for which a notice under section 139 or section 148 of the Income-tax Act has been served upon such person and the return has not been furnished before the commencement of this Act;

(ii) where any books of account, other documents, money, bullion, jeweller or other valuable articles or things belonging to the person making the declaration under subsection (1) (hereafter in this section, in sections 4 to 13 and in the Schedule referred to as the declarant) have been seized as a result of any search under section 132 of the Income-tax Act or under section 37-A of the Wealth Tax Act, the income in respect of the previous year in which search was made or any earlier previous year."

It would, thus, be clear at once that pending proceedings under the Income Tax Act, 1961, have also been taken outside the purview of what is understood as "income" that could be legitimately the income in regard to which a declaration can be made by any person. Apart therefrom, section 3(3) enacts a further requirement of investment of a sum equal to five per cent of the amount of the voluntary disclosure. This aspect is not really necessary in the matter under consideration. Section 4 deals with the particulars and the persons who can present the application under the signature.

Section 8 of the Act has a marginal note "Voluntarily disclosed income not to be included in the total income". This would normally mean that the income which is shown in proceedings of the Voluntary Disclosure Act, 1976, is not to be included in the total income and it is so stated in section 8(1) of the Act. However, the situation is not wholly unconditional. The three conditions for not including the said income in the total income under the Income-tax Act are reproduced as follows:

"(i) the declarant credits such amounts in the books of account, if any, maintained by him for any source of income or in any other record and, intimates the credit so made to the income-tax Officer;

(ii) the income-tax in respect of the voluntarily disclosed income is paid by the declarant; and

(iii) the amount required to be invested in the securities referred to in subsection (3) of section 3 is so invested by the declarant."

When these conditions are satisfied, section 8(2) provides consequently that the Commissioner of Income-tax has to grant a certificate. It is also necessary to see the text of section 8(2) and it is as follows:

"The Commissioner shall, on an application made by the declarant, grant a certificate to him setting forth the particulars of the voluntarily disclosed income, the amount of income-tax paid in respect of the same, the amount of investment made in the securities referred to in subsection (3) of section 3 and the date of payment and investment. "

Learned counsel submitted that the scope of the finality of this certificate has to be appreciated with reference to the contents of Form 'A', especially Item No.9 thereof, requiring to state as to whether the amount voluntarily disclosed has been credited in the books of account or any other record or not. It would be appropriate to quote the text of Item No.9 of Form 'A' and it is as follows:

"Whether the amount of the voluntarily disclosed income has been credited in the books of account or any other record. (If so, attach copies of the relevant entries in duplicate). "

Relying on section 8(2) of the Act, learned counsel submitted that the certificate to be granted is on setting forth the particulars of the voluntarily disclosed income. Learned counsel emphasised upon the word "particulars" to contend that it is only on the basis of Form A" the proceeding is initiated and culminates in the issuance of the certificate.

The provisions of section 3 requiring the special characteristics of such "any person" with regard to the "income" ---the subject-matter of the declaration gets well-known by a new Act, sections 3(1)(a), (b) and (c) of the Act. Added to these, the provisions of section 8(1)(i), (ii) and (iii) reinforce these characteristics of "any person" who is thought of as a declarant under the Voluntary Disclosure of Income and Wealth Act. A bare look at these provisions would show that no debate is necessary to know that any person keeping books of account, knowing the source of income, cannot be considered to be the person in the mind of the legislative provision of the Act---Voluntary Disclosure of Income and Wealth Act, 1976. The two provisions are crystal clear that they are applicable to a person in regard to the income to be disclosed which is not in any way near about the records of the Income-tax Department on the one hand and also the record of accounts of the concerned assessee. The provisions of the Act, also are crystal clear that such person who is the declarant is not also required to disclose the source of income. All that he has to do is to make a declaration to satisfy the requirements of section 3 of the Act in regard to which the Commissioner of Income-tax would grant a certificate. Sections 8(1)(i), (ii) and (iii) of the Act make it abundantly clear that if such a person knows the source of the amount, shows the same in the books of account maintained by him, such a person would not be entitled to the benefits of the Voluntary Disclosure Act, 1976.

Illustratively, the provisions of sections 9 and 10 also can be seen in aid of the situation for understanding the clear statutory provisions discussed above. Completed assessments reaching to the situation of finality are not to be reopened. Similarly, in any situation, the amount of tax paid in accordance with the rates specified in the Schedule is not to be refunded under any circumstances. This would show that such "any person" that is contemplated under the Act is understood by these provisions as having to be dealt with by the said Act which is a self-contained and complete code. If it is found that the declarant is not a person who could be understood as such in accordance with the provisions of the Act, he cannot be an expected declarant under the provisions of the Act. Similarly, if such declarant cannot be understood in regard to the income he proposes to declare under the Act cannot be understood as income as specifically provided by the concerned provisions discussed hereinbefore, then it is equally true that such a person with regard to the income he proposes to declare will not be entitled to any benefits of the Act. In other words, the plain language of the Act shows that if the person is qualified, the income is also qualified. To be precise and in the context of the situation at hand, if the income is such in regard to which the source is certain, in regard to which the account books are sure to debit them and credits in regard thereto are traceable in the accounting system of such person, then such person cannot have the benefit of this Act, but will have to look after himself under the provisions of the Income-tax Act. In such a situation, these aspects will have to be ascertained in the light of the statutory provisions of section 8 of the Act.

Learned counsel submitted that the certificate under section 8(2) of the Act would be conclusive. Reading the said statutory provision which is reproduced hereinbefore, it would be seen that the certificate requires statement of the disclosed income, the amount of income-tax paid and the amount of investment under securities is also made in accordance with section 3(3) of the Act. Section 11 of the Act makes the things clear. It enacts again by prefix of non-obstante clause "Notwithstanding anything contained in any other law for the time being in force", that nothing contained in any declaration would be admissible. There it is obvious that in regard to the proceedings under the Act and consequence in regard to the person and the income covered by the proceeding under the Act, the, contents of the certificate would be of conclusive character. It is so also on the basis of intrinsic material in the language of section 8 itself. Section 8(1)(i), (ii) and (iii) provide ample aid to the situation. What is required is that income tax is paid and the amount is invested. These are conclusive situations. In our judgment, the language of section 8, as stated above, is more than clear.

This takes us to consider the statutory provisions of section 14 of the Act. The factual matrix of these reference shows that under section 132 of the Income Tax Act, 1961, the firms were searched and documents were seized. These are partnership firms and are not different from its partners. The law of partnership, though elementary, tells us that partnership is only in the nature of a contract amongst persons who are partners in relation to the agreed activity and in the sense are not different from the firm in any sense of the term. In fact, the firm is not a legal person although the Income-tax Act treats it as an assessee. In any sense of the situation, the consequence of an action under section 132 of the Act would visit the assessees. By a second way, looking at the partners as individual assessees, the statutory provision is plain and simple that such a declaration by the assesses would only benefit them in regard to payment of interest, under section 139(8) of the Act, under section 215 or section 217 of the Act imposition of penalty and prosecution as specifically enacted in regard thereto. In this situation also, the assessees could be understood with reference to the income declared by them, with reference to the payment of interest, penalty and prosecution only.

As stated at the outset, a bare look at the statutory provisions of the Voluntary Disclosure of Income and Wealth Act, 1976, and especially the non-obstante clauses referred to hereinbefore together with the clear statutory provisions that persons who are regular in maintenance of accounts knowing the source of income, are not persons contemplated under the Act, would show that the assessees would not get benefit either of section 8 of the Act or even section 14 thereof.

If this position is not to be considered as a mistake apparent from the record, in our judgment, there can be no better case for the exercise of the powers under section 154 of the Act. The Supreme Court as far back as in Sree Meenakshi Mills Ltd. v. CIT (1957) 31 ITR 28 had an occasion to consider the identical provision under the Indian Income-tax Act, 1922. The summary is in the following manner (headnote):

"The position that emerges from the decided cases is that:

(i) When the point for determination is a pure question of law such as construction of a statute or document of title, the decision of the Tribunal i's open to reference to the Court under section 66(1).

(ii) When the point for determination is a mixed question of law and fact, while the finding of the Tribunal on the facts found is final, its decision as to the legal effect of those findings is a question of law which can be reviewed by the Court.

(iii) A finding on a question of fact is open to attack under section 66(1) as erroneous in law when there is no evidence to support it or if it is perverse.

(iv) When the finding is one of fact, the fact that it is itself an inference from other basic facts will not alter its character as one of fact."

It is plain that the plain language makes no difficulty. We have done nothing more than that. We have also found that both the Appellate Authorities have not considered the statutory provisions. If this is not a mistake apparent on the record, then which one, we do not know and we do not want to speculate.

For the above reasons, the question is answered in negative, in favour of the Revenue and against the assessees.

A copy of this judgment under the seal of the Court and the signature of the Registrar shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench, as required by law.

C.M.A./1744/FCReference answered.