Income Tax Appellate Tribunal - Jodhpur
Kamal Kishore Swami vs Income Tax Officer on 2 July, 2004
Equivalent citations: (2004)85TTJ(JODH)206
ORDER
Hari Om Maratha, J.M.
1. This appeal has been filed by the assessee and arises out of the penalty order passed under Section 271(1)(c) of the IT Act, 1961 .(hereinafter referred to as 'the Act'), whereby a penalty of Rs. 30,000 was imposed on the assessee and the same was confirmed by the CIT(A), vide order dt. 26th July, 1999, pertaining to asst. yr. 1990-91.
2. At the time of hearing, Shri U.C. Jain was present on behalf of the assessee. Shri D.R. Zala was present on behalf of the Department.
3. We have heard the rival representatives and have perused the evidence on record.
4. The brief facts leading to this appeal are that the assessee did not include the income of his minor children in the returns filed on 13th Aug., 1990. The appellant was the partner in the firm, M/s Kamal Marble Factory, to the extent of 50 per cent whereas his minor sons were admitted in the partnership firm, M/s Everest Tools, for benefit only. The share income of the minors arising from their admission to the benefits of the partnership firm was required to be included in appellant's total income as per the provisions of Section 64(1)(iii) but the appellant had not included such income while furnishing his return of income. The AO initiated reassessment proceedings under Section 147 and completed the assessment after including the share income of the minors amounting to Rs. 39,940. In response to notice under Section 148, the assessee himself included such an income of the minors in his hands. The AO also made additions on account of low withdrawals on household expenses which were further reduced by the Dy. CIT(A). The penalty proceedings were initiated for not including the income in the minors' hands. The learned CIT(A) decided this issue by following the decision of the Hon'ble Supreme Court in the case of CIT v. Smt P.K. Kochammu Amma Peroke (1980) 125 ITR 624 (SC), wherein it was held by the apex Court that the assessee's failure to include in his return taxable income under Section 64 attracts the applicability of Section 271(1)(c) of the Act.
5. The case of the learned Authorised Representative, Shri U.C. Jain, is that the assessee submitted the original return declaring only his income and not including the income of his minor children, Master Kapil Swami and Swapnil Swami. The returns of income of both the minor children were filed separately in their individual capacity and total income was declared in their returns, and tax was also deposited. The AO accepted these returns under Section 143(1) of the Act and tax was also paid as per returns of income. The same AO passed the order of the firm in which the minor children were partners and their mother was also a partner in the firm. The returned income of the firm was accepted by the ITO. In the return of the firm complete details, computation, share allocation of partners were also declared. For asst. yr. 1992-93 in passed on 25th Nov., 1993, the income of the minor children was also accepted under Section 143(3) of the Act and the AO accepted share of profit from the firm in the hands of the minor children. Master Kapil Swami. The AO had not detected any concealed income at the time of passing of the order under Section 143(1). A copy of that order has been placed before us in the paper book at p. 1.
6. We have heard the rival submissions, perused the evidence on record and also treaded through the relevant provisions and precedents circumspectiously. The undisputed facts of this case are that the assessee declared income for the asst. yr. 1990-91, without including the income of his minor children who were admitted to partnership firm, M/s Everest Tools, for benefit. The returned income of the assessee was accepted under Section 143(1)(a) initially. The minor sons of the assessee, namely, Master Kapil Swami and Master Swapnil Swami, were assessed by the same ITO. The assessment order in the case of Kapil Swami was passed on 25th Nov., 1993, under Section 143(3) of the Act. The reassessment was initiated by issuing notice under Section 147 of the Act on 6th Sept., 1994. After the notice the assessee included the income of the minors in the return in response to the notice under Section 147/148 of the Act. This was the cause for initiation of penalty under Section 271(1)(c) for concealment of income. The penalty was levied and was confirmed by CIT(A) by following Supreme Court decision in the case of CIT v. Smt. P.K. Kochammu Amma (supra), wherein it was observed that the assessee's failure to include in his return taxable income under Section 64 attracts applicability of Section 271(1)(c) of the Act.
7. Before we decide the issue in controversy, we will have to trace the history and intention of the legislation which enacted Chapter V of the IT Act, 1961. Sections 60-65 of the Act fall under Chapter V of the Act and by virtue of these sections different types of income of other persons are included in assessee's total income. Section 64 (income of individual to include income of spouse and minor child, etc.) orders as under :
Sections 60 to 65 of the 1961 Act: Sections 16(1)(c) and 16(3) of the 1922 Act.
In Chapter V, the income-tax law deviates from the general principle that an assessee has to be taxed in respect of his own income. The intention is to counteract a generally prevalent and growing tendency on the part of taxpayers to dispose of their property or income in such a way that a liability may be minimised or avoided.
Section 60 makes transferred income assessable in the hands of the transferor where there is mere transfer of income but no transfer of assets.
Section 61 makes income arising out of a revocable transfer of assets assessable in the hands of the transferor.
Section 62 deals with transfers which are made irrevocable, not for all time but for a specified period.
Section 64 defines the words "transfer" and "revocable transfer" for the purposes of Sections 60, 61, 62 and 63.
Section 64 provides the circumstances where the income of an individual shall include the income of his or her spouse or of a minor child, etc., or of a son's wife or of a son's minor child or the income from the transferred asset or income from blended or converted property.
Section 64 secures that even where another person's income has been included in the income of the transferor or assessee by virtue of any of the above provisions, the holder of the transferred assets, etc. shall be bound to pay that portion of the tax levied on the transferor or assessee which is attributable to the amount so included in latter's income.
Object behind enactment of Chapter V.--Chapter V of the IT Act, 1961, containing Sections 60 to 65, is designed to overtake and circumvent a growing tendency on the part of taxpayers to endeavour to avoid or reduce tax liability by means of settlements. Stated quite generally, the method consisted in the disposal by the taxpayer of part of his property in such a way that the income should no longer be receivable by him, while at the same time he retained certain powers over, or interest in, the property or its income. The legislature's counter was to declare that the income of which the taxpayer had thus sought to disembarrass himself should, notwithstanding, be treated as still his income and taxed in his hands accordingly. [S.P. Jaiswal v. CIT (1997) 224 ITR 619, 626 (SC), quoting from A.G. Chamberlain v. CIT (1943) 25 Tax Cases 317, 329 (HL)].
Section 64--(i) to the spouse of such individual from the membership of the spouse in a firm carrying on a business in which such individual is partner.
(iii) to a minor child of such individual from the admission of the minor to the benefits of partnership in a firm.
(i) Section 2(45) refers to Section 5 which lays down that all the income, profits and gains which had accrued or arisen to the assessee or been 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.
(ii) It is clear from Section 64(1)(i) and (iii) that though the share of the spouse or minor child in the profits of a 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 firm. If this be the correct legal position, there can be child in the profits of the 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 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(1) must include every item of income which goes to make up his total income assessable under the Act.
8. Having discussed the relevant provisions, we would now see as to how far the Supreme Court decision in Smt. P.K. Kochammu Amma's case (supra) is applicable to the facts of this case. The facts of the above case were that the assessee was partner along with her husband and minor daughter, and others in two firms. 'X' filed return disclosing income from property and other sources. There was a 'note' in the return stating that if the income of any other person is includible in the total income of the assessee under the provisions of IT Act, inter alia, of Section 64 such income should also be shown under the appropriate head. But there was not a separate column for that purpose.
9. This 'X' did not show in the return the amount representing the shares of her husband and minor daughter in the firm, through they were includible in her total income under Section 64(1)(i) and (iii). The question was whether penalty could be imposed on the assessee under Section 271(1)(c) on the ground that the assessee had concealed the particulars of her income because she had not shown the shares of her husband and her minor daughter in the two firms as family part of her total income in the return submitted by her.
"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 order to enable the Revenue authorities to make a proper assessment of tax on the assessee. It must, therefore, follow a fortiori 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 provisions 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, Sub-section (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 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 and 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."
10. The Hon'ble Supreme Court followed the three-Judges decision in V.D.M. RM. M. RM. Mutthiah Chettiar v. CIT (1969) 74 ITR 183 (SC). In this case the Hon'ble Supreme Court held as under :
"We are, in the circumstances, unable to agree with the High Court that Section 34 imposed an obligation upon the assessee to disclose all income includible in his assessment by reason of Section 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 ITO to exercise the power under Section 16(3)(a)(ii), nor had the use of the expression 'necessary for his assessment' in Section 34(1)(a) to that effect. The High Court did not consider the argument that the ITO had only changed his opinion and reopened the assessment.
We agree with that view. The order of reassessment was made well within four years from the date of the last day of the year of asst. yr. 1954-55. The notice was, therefore, competently issued by the ITO."
11. The Supreme Court two-Judges Bench followed the decision of Muthiah's case (supra) and dismissed the appeal of the Department, but passed certain 'obiter dictum'. The 'obiter' cannot override the main decision. So, the decision in P.K. Kochammu Amma (supra), was that penalty cannot be levied under Section 271(1)(c) of the Act. The final decision was that penalty cannot be levied in such circumstances.
12. In the given case, as we have already narrated the relevant facts, the assessee did file returns of minors, etc. before the same ITO for the assessment year under consideration. There was a mistake in not filing the 'total income' in the light of Section 64(1) of the Act. The mistake, in our opinion, seems to be bona fide. This mistake has been attributed to the counsel who prepared the returns. This plea was taken by the assessee in his letter whose copy has been placed before us in A.P.B. (assessee's paper book). The income of the minor was processed under Section 143(3) by the same ITO on 25th Nov., 1993, in the case of Master Kapil Swami whereas the notice under Section 147 was issued on 6th Sept., 1994. In totality of facts and attached circumstances therewith give an impetus that the mistake in question was bona fide one and the assessee immediately corrected the same. Of course, the assessee had failed to carry on the statutory obligation.
13. The learned Authorised Representative has also relied on the Hon'ble Patna High Court decision in the case of CIT v. Lal Babu (1980) 122 ITR 1066 (Pat). wherein under identical circumstances, penalty under Section 271(1)(c) was deleted. The facts of the case were as under :
14. During the relevant previous year the assessee's wife and minor sons received interest amounting to Rs. 6,449 from a firm in which the-assessee was a partner which fell for assessment in the asst. yr. 1969-70. The sum of Rs. 6,449 was assessed in his hands in terms of Section 64 of the Act. An estimated sum of Rs. 3,500 on account of low drawings for meeting his expenditure plus a further estimated sum of Rs. 4,600 on account of unexplained investment in house construction were also added to his income as "income from other sources". The assessee denied having earned any such income and further that the estimate was faulty. On making these additions, the returned income fell short of 80 per cent of the income finally assessed and proceedings for levy of penalty under Section 271(1)(c) of the Act were initiated against him by the IAC. Before the IAC, the assessee contended that no penalty was leviable on him because there was no concealment of income by him; neither of the income arising to his wife and minor sons included in his total income under Section 64 of the Act, nor of the income from other sources included in his income by estimate. The IAC did not accept the assessee's plea and since the income returned fell short of 80 per cent of the income finally assessed, imposed a penalty of Rs. 14,609 on the assessee under the Explanation to Section 271(1)(c) of the Act. On appeal, the Tribunal held that a mere addition by estimate did not indicate that the income added was the concealed income of the assessee; that neither Section 64 nor the income of his minor sons or his wife, and, for such omission, the penal provisions of Section 271(1)(c) of the Act were not attracted, and the penalty levied was cancelled.
15. The Hon'ble Court held as under :
"(i) That the Tribunal was right in holding that no obligation was cast on the assessee to include in his return of income, the income rising to his wife and minor sons which were includible in his income in terms of Section 64 of the Act. The failure of the assessee to do so did not attract the penal provisions of Section 271(1)(c) of the Act against him.
(ii) That the amounts of income added as "income from other sources" were by mere estimate. The assessee denied having earned any such income and further stated that the estimate was faulty and should not give a handle to the Department to levy penalty on him. Once the assessee made out such a plea, it was incumbent on the IAC to indicate by some material that the estimated additions were not mere estimates but real and proper estimates of such income as the assessee had not returned. Further, the Tribunal's order showed that it was very much conscious of the provisions of the Explanation to Section 271(1)(c) of the Act. It was only thereafter that the Tribunal had dealt with the question of penalty under Section 271(1)(c) of the Act. Therefore, the additions made on estimate under the head 'income from other sources' on account of inadequate withdrawals and unexplained investments did not attract the provisions of Section 271(1)(c) of the Act.
The terms of the Explanation to Section 271(1)(c) of the Act get attracted when the income returned falls short of 80 per cent of the income assessed and then the onus lies upon the assessee to prove that there was no concealment on his part of any income. But, this does not mean that the Department has got nothing to do after having once found the disparity between the income returned and the income assessed to above 80 per cent. The Explanation to Section 271(1)(c) of the Act does not absolve the Department of its onus to prove certain facts which might justify the levy of penalty. The Explanation to Section 271(1)(c) only casts the initial onus on the assessee and if that is discharged, it shifts to the Department which has to rebut the explanation offered by the assessee as being false or unacceptable. Since the assessee is required to prove a negative fact, the onus on him cannot be of the nature of onus on the prosecution in a criminal trial. The assessee needs only to show that his plea stands the test of preponderance of probability. If the assessee gives a plausible explanation against the additions made to his income, the onus will then shift to the Department to show that the assessee's explanation was false or not worthy of belief or that it was not even probable."
16. The ratio of the above decision vis-a-vis the cumulative intention and object of the provisions of Sections 139(1), 64(1)(c)(iii), 2(45) and 271(1)(c) of the Act, impel our opinion in favour of the assessee. Every default for which there is a valid explanation should not attract such a penalty. The deterrent effect of the penal provision is amply answered by the act and explanation of the assessee, as we have discussed above. The CIT(A) wrongly applied the ratio of the Kochamma's decision (supra) of the Hon'ble Supreme Court, without carefully going through the main text of the decision. The CIT(A) seems to be carried away by the 'head notes' of the decision, inadvertently.
17. After relying on the decisions mentioned above and the explanation of the assessee, we are of the contended opinion that penalty under Section 271(1)(c) is not leviable, where the mistake or fault was bona fide: where the assessee failed to carry out statutory obligation by mistake of counsel; where the assessee immediately corrected the bona fide mistake; and where the assessee had submitted the return of minor which was accepted by same ITO while passing assessment under Section 143(3) of the Act.
18. In the result, the appeal of the assessee is accepted.