COMMISSIONER OF INCOME-TAX VS MAHENDRA SINGH
1999 PT D 3095
[229 I T R 3101
[Rajasthan High Court (India)]
Before M.G. Mukherji, C. J. arid Bhagwati Prasad, J
COMMISSIONER OF INCOME-TAX
Versus
MAHENDRA SINGH
D.B.I.T. Reference Application No-4 of 1994, decided on 05/11/1996.
(a) Income-tax---
----Reference---Reassessment---Failure to disclose material facts necessary for assessment---Reassessment proceedings to include income from house property in individual assessment of assessee---CIT finding that reassessment proceedings were based on wealth tax records of assessee---Contention of assessee that house property had been merely occupied by him and that it belonged to HUF---Tribunal whether justified in setting aside reassessment proceedings---Question of law---Indian Income Tax Act; 1961, Ss.147, 148 & 256.
(b) Income-tax---
----Reference---Question decided by High Court cannot be referred--- Interest---Decision of High Court in a similar case that interest could not be charged under Ss.139(8) & 217---Question whether such interest could be charged could not be referred---Indian Income Tax Act, 1961, Ss. 139, 217 & 256.
(c) Income-tax---
---Reference---Appellate Tribunal---Jurisdiction---Single Member Bench-- Law applicable---Amendment to S,255(3) w.e.f. 1-4-1989---Jurisdiction of Single Member Bench extended from cases involving forty thousand rupees to cases involving one lakh of rupees---Question regarding jurisdiction of Single Member Bench in case involving more than one lakh of rupees in reassessment proceedings for 1980-81 initiated in October, 1984---Question of law---Indian Income Tax Act, 1961, Ss.255 & 256.
The assessee was an individual. The assessment in this case for the assessment year 1980-81, was originally completed under section 143(3) of the Income Tax Act, 1961, on January 31, 1982, on a total income of Rs.1,12,804 as against the returned income of Rs.14,000. The same was, Pakistan Tax Decisions 1999 however, reopened under section 147 by issue of notice under section 148, dated October 29, 1984. The assessee's claim in reassessment proceedings was that the property known as "Samore Bagh" belonged to the Hindu undivided family- of B and the assessee was using it as his residence since 1964. This property had riot been transferred to his name and hence it continued to belong to the said Hindu undivided family. The Commissioner of Income-tax (Appeals) found that the reassessment was on the basis of wealth-tax records of the assessee which came to the knowledge of the assessing authority. He upheld the reassessment but the Tribunal set aside the reassessment proceedings. On an application to direct reference:
Held, that the assessee's contention that the property belonged to the Hindu undivided family was not acceptable for the reason that the Samore Bagh property never remained in the common hotchpot at the time of the transfer because this property was given away to the assessee. The question whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that income from the Samore Bagh property was not assessable in the hands of the assessee, the same being usufruct income, and the assessee being only an occupier of the said property, had to be referred.
Held also, (i) that the point regarding chargeability of interest under sections 139(8) and 217 was already covered by the decision in CIT v. Multimetals Ltd. (1991) 187 ITR 98 (Raj.) wherein it had been decided against the Revenue. Hence, the question whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that no interest under sections 139(8) and 217 was chargeable could not be referred.
(ii) that under section 255(3) a Single Member Bench of the Tribunal had jurisdiction only in cases involving forty thousand rupees. This was extended to cases involving one lakh of rupees with effect from April 1, 1989. Hence, the question whether the Tribunal was justified in deciding this appeal by a Bench consisting of a single member despite the fact that income determined by the Assessing Officer exceeded Rs.1,00,000 had to be referred.
A.L.A. Firm v. CIT (1991) 189 ITR 285 (SC); CIT v. Mutlimetals Ltd. (1991), 187 ITR 98 (Raj.); Madan (D.B.) v. CIT (1991) 192 ITR 344 (SC); Maharaj Kumar Kamal Singh v. CIT (1963) 67 ITR 725 (Pat.); Narayanappa (S.) v. CIT (1967) 63 ITR 219 (SC) and Phool Chand Bajrang Lal v ITO (1993) 203 ITR 456 (SC) ref.
Sandeep Bhandawat for the Commissioner.
JUDGMENT
M. G. MUKHERJI, C.J.---This is a reference application under section 256(2) of the Income Tax Act., 1961, at the behest of the Commissioner of Income-tax, Jodhpur, asking this High Court, on being satisfied with the incorrectness of the decision of the Appellate Tribunal, directing the Appellate Tribunal to state the case and refer it to this Court.
Four questions of law have been indicated for the purpose of such reference:
"(i) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that reopening of the assessment was invalid?
(ii) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that income from Samore Bagh property was not assessable in the hands of the assessee, the same being usufruct income, and the assessee being only, on occupier of the said property?
(iii) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justify -I in holding that no interest under sections 139(8) and 217 is chargeable?
(iv) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in deciding, this appeal by a Bench consisting of a single member despite the fact that income determined by the Assessing Officer exceeded Rs.1,00,000?"
The assessee is an individual. The assessment in this case for the assessment year 1980-81 was originally completed under section 143(3) on January 31, 1982, on a total income of Rs.1,12,804 as against the returned income of Rs.14,000. The same was, however, reopened under section 147 by issue of notice under section 148, dated October 29, 1984. The assessee did not furnish any return of income in compliance with the said notice and therefore, a notice under section 142(1) was issued on March 29, 1989, in response to which it was stated that the return already filed may be treated as the return filed in compliance with the said notice.
The assessee's claim in reassessment proceedings is that the property known as "Samore Bagh" belongs to a Hindu undivided family of Meharana Bhagwat Singh and the assessee was sing it as his residence since 1964. This property has not beet: transferred to his name and hence it continued to belong to the said Hindu undivided family. The contention of the assessee was not accepted by the Assessing Officer in view of the detailed facts given in the assessment order for the assessment year 1976-77 wherein the income from "Samore Bagh" had been assessed in the hands of the assessee. In absence of any details furnished by the asses e, the Assessing Officer
estimated the income of Rs.30,000 representing the lease of land for plucking flowers and sale of fruits, etc.
In appeal before the learned Commissioner of Income-tae (Appeals), it was submitted that the Assessing Officer did not inform the assessee even on a specific request which specific income had escaped assessment. It was contended that in the year 1964 the property in question was allotted by the assessee's father to the assessee for residence and that the income was utilised for the upkeep of the said property. Even the legality of the proceedings under section 148 was challenged but the learned Commissioner of Income tax (Appeals) overruled the same and sustained the additions made by the Assessing Officer.
The assessee being aggrieved by the order of the learned Commissioner of Income-tax (Appeals) carried the matter before the Income tax Appellate Tribunal who opined that not only the reopening of the assessment was invalid, but that the Income-tax Authorities had no justification to tax any amount in the hands of the assessee by way of usufruct income as an occupier of the property in question. The levy of interest under sections 139(8) and 217 was also set aside.
The Department had filed an application under section 256(1) of the Income-tax Act for making a reference of the aforesaid four questions. The Tribunal has rejected the application on the ground that questions Nos.(i) and (ii) no doubt arise out of the order of the Tribunal, but they are not questions of law, fit for reference. For question No.(iii), the Tribunal came to the conclusion that in view of the Rajasthan High Court judgment rendered in Multimetals case (1991) 187 ITR 98, the question stands concluded and hence though a question of law arises, it is not fit for reference to the High Court. The Tribunal further observed that so far as question No.(iv) is concerned, it does not arise out of the Tribunal's order though it is a different matter, i.e., the subject-matter of question No.(iv) may oar may not be challenged before the High Court by way of proper writ.
As and when an application was filed under section 256(2) of the Income-tax Act a notice was served on the respondent, Shri Mahendra Singhji, who did not choose to engage any Advocate and thereafter, filed a written submission by registered post addressed to the Registrar of this Court on December 15, 1995. It was submitted at his behest that the order of the Triple was wholly correct and no direction to the Tribunal was required in terms of section 256(2).
It was submitted on behalf of the respondent that there was no new material on record to support the reopening of the assessment under section 147 and there was no jurisdiction for including the income from the Samore Bagh property in the hands of the respondent. The Commissioner of Income-tax stated that the reassessment was on the basis of wealth tax records of the assessee which came to the knowledge of the assessing authority and as per the Commissioner of Income-tax's own admission the assessee was in possession of the property since 1964 and the respondent has been a wealth tax assessee right since that time for a period of 20 years. The Revenue did not disturb either the income-tax or the wealth tax assessments of the respondent. On this ground the respondent contended in his written submission that the contention of the Commissioner of income-tax that the wealth-tax record or information about the property could come into possession of the assessing authority after the framing of the original assessment was clearly erroneous. His assertion was that the information was on the record of the Department for more than 20 years and there was no new facts which would justify the reassessment or enquiry of the facts.
Mr. Bhandawat, appearing for the Commissioner of Income-tax, referred us to the decision in S. Narayanappa v. CIT (1967) 63 ITR 219 (SC), where it was held that the proceedings for assessment or reassessment under section 34(1)(a) of the old Act of 1922 which corresponds to section 147 start with the issue of a notice and it is only after the service of the notice that the assessee, whose income is sought to be assessed or reassessed, becomes a party to those proceedings. The earlier stage of the proceedings of recording the reasons of the Income-tax Officer and of obtaining the sanction of the Commissioner are administrative in character and are not quasi judicial. There is no requirement in any of the provisions of the Act or any section laying down as a condition for the initiation of the proceedings that the reasons which induced the Commissioner to accord sanction to proceed under section 34 must also be communicated to the assessee. The Income-tax Officer need not communicate to the assessee the reasons, which led him to initiate the proceedings under section 34.
It was further held that the existence of the belief which led the Income-tax Officer to reopen the assessment and going for reassessment could be challenged by the assessee but not the, sufficiency of the reasons for, the belief. If there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which would have a material bearing on the question of under assessment or any fact which escaped assessment that would, be sufficient to give jurisdiction to the Income-tax Officer to issue the notice of reassessment or reopen the assessment under section 34. The existence of the belief can be challenged by the assessee but not the sufficiency of the reasons for the belief. In A.L.A. Firm v. CIT (1991) 189 ITR 285 (SC), it was held that the material which constituted information and on the basis of which the assessment was reopened having been previously missed by the Income-tax Officer or that material not having been considered at the time of original assessment, though it was a decision of 1961 and the Income-tax Officer could have known of it, had he been diligent, the obvious fact was that he was not aware of the existence of that fact then and when he came to know about it, he rightly initiated the proceedings for assessment. In Phool Chand Bajrang Lal v. ITO (1993) .203 ITR 456 (SC), it was held that when subsequent to the completion of the original assessment proceedings, on making an enquiry, the Income-tax Officer came to know that the Calcutta company from whom the appellant claimed to have borrowed the loan of Rs.50,000 in cash had not really lent any, money but only had used its name to cover up a bogus transaction, this was not a case where the Income-tax Officer sought to draw any fresh inference, which could have been raised at the time of the original assessment on the basis of the materials placed before him by the appellant relating to the loan from the Calcutta company and which he failed to draw at that time. Acquiring fresh information, specific in nature and reliable i.e. character relating to a concluded assessment which went to expose the falsity of the statement made by the assessee at the time of the original assessment was different from drawing a fresh inference from the same facts and material available with the Income-tax Officer at the time of the original assessment proceedings. It is indeed true that the Enquiry Officer could have deferred the completion of the original assessment proceedings for further enquiry and investigation `into the genuineness of the loan transaction, but his failure to do so then and complete the original assessment proceedings did not take away his jurisdiction to act under section 147, on receipt of the information subsequently. The subsequent information an the basis of which the officer acquired reasons to believe that income chargeable to tax had escaped assessment on account of the omission of the appellant to make a full and true disclosure of the primary facts was relevant, reliable and specific and, therefore, the Income-tax Officer in this case rightly initiated the reassessment proceedings on the basis .,of the subsequent information which was specific, relevant and reliable. The Income-tax Officer acquires jurisdiction to reopen an assessment under section 147(a) only. if on the basis of specific, reliable and relevant information coming into his possession subsequently, he has reasons--which he must record---to believe that by reason of omission or failure on the part of the assessee to make a true and full disclosure of all material facts necessary for his assessment during the concluded assessment proceedings, any part of his income, profit, or gains, chargeable to income-tax has escaped assessment. The Income-tax Officer may start reassessment proceedings either because some fresh facts had come to light which were riot previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. In such situations, it was not a case of mere change of opinion or the drawing of a different inference from he same facts as were earlier available but this amounts to the Income-tax Officer acting on "fresh information". Since the belief is that of the Income tax Officer, the sufficiency of the reasons for forming-the belief is not for the Court to judge but it is open to 'an assessee to establish that there in fact existed no belief or that the belief was not a bona fide one or was based on vague, irrelevant and non-specific information. To that limited extent, the Court may look into the conclusion arrived at by the Income-tax Officer and examine whether there was any material available on the record from which the requisite belief could be- formed by the Income-tax Officer and further whether that material had any rational connection or a live link with the formation of the requisite belief. It would be immaterial whether the Income tax Officer at the time of making the original assessment could or could not have found by further enquiry or investigation whether the transaction was genuine or not, if, on the basis of subsequent information the Income-tax Officer arrives at a conclusion after satisfying the two conditions prescribed in section 147(a) that the assessee had not made a full and true disclosure-of the material facts at the time of original assessment and, therefore, income chargeable to tax had escaped assessment. It was succinctly held in this decision that on of the purposes of section 147 is to ensure that a party cannot get away by wilfully making a false or unique statement at the time of the original assessment and when that falsity comes to the notice of the Income-tax Officer; he may turn round and say "you accepted my lie, now your hands are tied and you can do nothing'. It would be a travesty of justice to allow the assessee that latitude. We find there is much substance behind the first question of law pointed out above.
As regards the second question raised whether the Income-tax Appellate Tribunal was justified in holding that the income from the Samore Bagh Property not assessable in the hands of the assessee, the same being usufruct income and that the assessee was only an occupier of the said property, Mr. Bhandawat pointed out to us that the decision in Maharaj Kumar Kamal Singh v. CIT (1968) 67 ITR 725 (Patna) laid down a guiding principle. The assessee, Maharaja Kumar Kamal Singh, was a holder of an impartible estate who by an indenture, dated November 23, 1950, granted unto his wife, Maharani Usha Rani, Premises Nos.26-A and 26-B, Camac Street, Calcutta, for life by way of supplementary grant for all the four assessment years and the income from these house properties was included in the total income of assessee. Before the Appellate Assistant Commissioner, the appellant contended that the inclusion of the income from the house property under section 16(3) of the old Income-tax Act, 1922, in the assessee's total income was not justified as the income belonged to his wife. The Appellate Assistant Commissioner negatived this contention and held that the income has rightly been included in the total income of the assessee, Before the Tribunal an additional ground was urged for all the four appeals that in view of the facts that the Dumraon Raj is an impartible estate and the assessee had transferred the property to his wife for maintenance, the provisions of section 16(3) of the previous Income-tax Act, 1922, were not applicable to the case of the assessee and It was contended that he being the holder of an impartible estate, the properties of the estate belonged to the Hindu undivided family of which he was the "karta" and so the income from any property transferred by the assessee to his wife cannot be included in his total -income. The transfer in such a case would not be a transfer by an individual to his wife. The Tribunal further held that though for a limited purpose an impartible estate may be regarded as belonging to the Hindu undivided family, the holder for the time being is the absolute owner of the estate during his lifetime with the power of alienation by gift or by will.
The Patna High Court answered the question that the income from house property transferred by the holder of an impartible estate to his wife cannot be taken as a transfer by the husband of his assets to his wife. We find it primarily a question of fact and the judgment cited by Mr. Bhandawat does not help us to support his contention. Mr. Bhandawat contended that the former ruler as per family custom could give out his properties to anyone who is dependent upon him for maintenance. Mr. Bhandawant further contended that the property so transferred did not require registration under the Transfer of Property Act and this property was part and parcel of the official residence of the Ruler and thereby the Ruler enjoyed the benefit of exemption under the Income-tax Act and the Wealth Tax Act. The late Maharana Bhagwat Singh being the owner of the property transferred the same by custom and disposed of the property in favour of his dependent without requiring registration and this was a well-established and recognised practice followed in the family of the Ruler which fact is supported by the incident that the late Bhagwat Singh was awarded Shambhu Niwas and Shiv Niwas by his father, the late Bhupal Singh, as a marriage gift on the occasion of his marriage without registration and following the same practice the late of Singh also granted Samore Bingh to his eldest son, Mahendra Singh, and another house Shikar Badi to Arvind Singh, Champa Bal to Smt. Gulab Kanwal and Sarva Ritu Villa to Rajtnata Birad Kanwar. These have never been the subject-matter of litigation. The assessee's contention that the property belonged to the Hindu undivided family was not acceptable for the reason that the Samore Bagh Property never remained in the common hotchpotch at the time of the transfer because this property was given away to the assessee.
As regards the third question 3s to whether, on the facts and in the circumstances of the case, the Income-tax, Appellate Tribunal was justified in finding that no interest under sections 139(8) and 217 is chargeable,. the point is already covered by the decision in CIT v. Multimetals Ltd. (1991) 187 ITR 98 (Raj.), wherein it has been decided against the Revenue. Mr. Bhandawat further brought to our notice an observation of the Supreme Court in D.B. Madan v. CIT (1991) 192 ITR 344, wherein it was observed, inter alia, that it cannot always be said that, in all cases where a similar question of law had been answered in a particular way and in a particular manner, an identical question of law arising in a later case would cease to be a referable one and, therefore, the course to be adopted is to reject a reference under section 256(2) of the Income Tax Act, 1961. Despite such observation we do not think it to be an absolute question of law.
Last but not the least comes the fourth question as to whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in deciding this appeal by a Bench consisting of a single member despite the fact that income determined by the Assessing Officer exceeded Rs.1,00,000. Mr. Bhandawat took us through the provision of section-255, substation (3), as it existed prior to its amendment by the Direct Tax Laws (Amendment) Act, 1989, with effect from April 1, 1989. The earlier amount was Rs.40,000. It would, thus, also be a question of law. On questions Nos.(i) and (iv), we think that we should direct the Tribunal to make a reference under section 256(2) of the Income-tax Act.
In the result, we allow the reference application in part and direct the Tribunal to make a reference under section 256(2) of the Income-tax Act with regard to questions Nos.(i) and (iv) as claimed by the applicant.
The matter stands disposed of accordingly.
M.B.A./3087/FC Order accordingly.