Holding

Non‑disclosure of a wife’s or minor child’s share income by the assessee does not constitute a failure to disclose fully and truly all material facts under section 34(1)(a).

Summary

The respondent, Radheshyam, was assessed for the years 1960-61, 1961-62 and 1962-63 and was served notices under sections 147(a) and 148 of the Income‑Tax Act, 1961. The Income‑Tax Officer alleged that his wife had received valuable assets from him without adequate consideration and that the income and capital gains arising therefrom were not disclosed in his returns. The respondent contended that the non‑disclosure of his wife’s and minor child’s share income did not amount to a failure to disclose fully and truly all material facts under section 34(1)(a). The Calcutta High Court, relying on the Supreme Court’s decision in V.D.M. RM M.RM Muthiah Chettiar, held that the assessee is not obliged to disclose the income of his wife or minor child in his return unless the return form provides a specific column for it, and therefore no concealment under s.34(1)(a) occurred. The Division Bench dismissed the Revenue’s appeal, upholding the quashing of the notices.

Issues considered

Whether the failure of an assessee to disclose the share income of his wife and minor child in his income‑tax return amounts to a failure to disclose fully and truly all material facts within the meaning of section 34(1)(a) of the Income‑Tax Act, 1961.
Whether the Income‑Tax Officer can validly issue reassessment notices under sections 147(a) and 148 on the basis of such non‑disclosure.

Legislation cited

Income Tax Act, 1922s. 2(15), s. 22, s. 23, s. 3, s. 4(1), s. 59
Income Tax Act, 1961s. 143(3), s. 147(a), s. 148, s. 16(3), s. 22(5), s. 23(3), s. 34(1)(a)

Subjects

Income taxSection 34(1)(a)ConcealmentDisclosure of spouse incomeMinor child incomeReassessmentTax return formPenalty

Judgment

INCOME-TAX OFFICER, CALCUTTA & ORS.
A
v.
RADHESHY AM LADIA

APRIL 21, 1987

B [R.S. PATHAK, CJ AND RANGANA'tH MISRA; J.]

Income Tax Act, 1961-Section 34(1)(a)-Assessee-Failure to
disclose share income of wife and minor child-Whether thete is failure . _,,._
to disclose fully and truly all material.

C The respondent was assessed to Income tax for bssessment year
1960·61 under s. 23(3) of the Income Tax Ad, 1922 and for the assess•
., -
.

ment years 1961·62 and 1962·63 under s. 143(3) of the Income tax Act,
1961. The validity of the notices issued under s. 147(a) redd withs. 148
of the Act of 1961 in respect of these three ass~ssmeni ~ears was chal·
lenged by the respondent under Act 226. 'though the notices did not
D disclose any material to justify their Issue, ihe Income Tax Officer in hk
return before the High Court stated that tlurlng ·the course of assess-
ment for the year 1963-64 of the wife of the respondent, she contended
having received valuable assets from the respondent between 11th
December 1955 and 28th October, 1960 without adequate consideration
in money or money's worth. The income from the said assets which
E should have been Included in the return of the respondent was uot so
included by him and thai the capital gains arisen therefrom was also not
included or disclosed by the respondent in his returns.

A Learned Single Judge relying upon the decision of the Supreme
Court in V.D.M. RM. M.RM. Mathiah Chettiar v. Commissioner of ~··
F Income-tax, Madras 74 ITR 183 quashed the notices. The appeal of the
Revenue failed before the Division Bench.

Dismissing the appeal,
·li.
HELD: By failure of the assessee to include the share income of
G his wife and minor child in his return, it cannot be deemed that he has
failed to disclose fully and truly all material facts necessary for the
assessment within the meaning of s. 34(1)(a) of the Indian Income Tax
Act.1961. [1107Bj

V.D.M.RM. M.RM. Muthiah Chettiar v. Commissioner of
H Income-tax, Madras, 74 ITR 183; Malegaon Electricity Co. (P) Ltd. v.
1l02
INCOME-TAX OFFICER v. RADHESHYAM [MISRA, J.] 1103

Commissioner of Income-tax, Bombay, 78 ITR 466 and Commissioner A
of Income-tax, Kera/av. Smt. P.K. Kochammu Amma, Peroke, 125
ITR 624, followed.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1187
of 1974.
B
From the Judgment and Order dated 19.12.1973 of the Calcutta
J
' High Court in Appeal No. 13 ! of 1971.

S.C. Manchanda and Ms. A. Subhashini for the Appellants.

B.P. Maheshwari, S.P. Mittal and R.S. Rana for the Respon- C
dent.

The Judgment of the Court was delivered by

RANGANATH MISRA, J. This appeal by the Revenue is by
certificate and is, directed against the judgment of a Division Bench of D
the .Calcutta High Court which upheld the decision of a single judge in
a writ petition quashing the notices issued to the petitioner under
section 147(a) of the Income Tax Act of 1961. in respect of assessment
years 1960-61, 1961-62. and 1962~63. ' ·

Respondent was assessed to income-tax for the assessment year E
1960-61 under section 23(3) of the Act of 1922 on 4.3.1961 and for the
following two assessment years under section 143(3) of the Act of 1961
on 10th and 11th June, 1963., respectively. Notices under section
l;l7(a) read with section 148 of the Act of 1961 were issued to the
respondent in respect of t.hese three assessment years whereupon he
challenged the validity of those notices by filing an application under F
Article 226 of the Constitution, Though the notices did not disclose
any material to justify their issue, the Income-tax Officer in his return
to the rule nisi before the High Court stated:

.·" ..... The assessment for the year '!963-64 of Smt. Sushila
Bala Devi Ladia, wife o,f the petitioner, was taken up by G
-1' me. During the course of the said assessment, she conten-
de'd having received valuabl~ assets from the petitioner bet-
ween 11th Deceml:)er, 1955 and 28th October, 1960. with-
out adequate consideration in money or money's worth. It
was contended on her behalf that she received over 1203
tolas of gold in jewellery on or about 11. 12./ 1955 and H
1104 SUPREME COURT REPORTS (1987] 2 S.C.R.

A Rs.1,00,000 in cash on or about 28.10.1960. It was further
contended on her behalf that the said jewellery was sold
between the years 1959 and 1962. The income from the said
assets which should have been included in the return of the
petitioner was not so included by him. The capital gains
arising therefrom was also not included or disclosed by the
B petitioner in his returns."

On behalf of ihe assessee reliance- was placed on the decision of this
Court in V.D.M.RM. M.RM. Muthiah Chettiar v. CommiSsioner of
Income-tax, Madras, 74 !TR 183 where with reference to failure of the
assessee to include the share income of his wife and minor child in a
C firm, this Court held:-

"In considering the first question it is necessary to refer to
certain provisions of the Income-tax Act, 1922. By section
3 the total income of the previous year of every individual,
Hindu Undivided family, company and local authority, ani:l
D of every firm and other association of persons or the part-
ners of the firm or the members of the association individu-
ally was charged to tax for that year in accordance with,
and subject to the provisions of the Act at any rate or ratei
prescribed by the Finance Act. Total income was defined in
section 2(15) as meaning 'total amount of income, profits
E gains referred to in sub-section (1) of section 4 computed in
the. manner laid down this Act'. Section 4(1) set out the
method of computation of total income; it enacted: ,l
.·~
'(I) subject to the provisions of this Act, a total
income of any previous year of any person includes all
p
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
G
(b) if such person is resent in the taxable territories
during such year-

(i) accrue or arise m are deemed to accrue or arise to him
in the taxable territories during such year, or ........ '
H
INCOME-TAX OFFICER•· RADHESHYAM [MISRA, J.l · 1105

. Section 22 by sub-section (I) required the income-tax A
otficer to. give notice by· publication in the press in the
prescribed manner, requiring every person whose total
· · income during the previous year axceed the maximum
exempt from tax, to furnish a return in the prescribed form
setting forth his total income. Sub-section (2) authorised B.
the Income-tax Officer to serve a notice upon a .person
whose income in the opinion of the income tax officer ex-
ceeded 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 section 59 C
of the Income-tax .Act, 1922 required the assessee to make
... a return in the form prescrib.ed thereunder, and in Form A
applicable to an individual or a Hindu Undivided family or
" an association of. persons there. was no clause which re-
.. quired disclosure of income of any person other than the
income of the assessee, which was liable to be included in D
the total income. The Act and 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."
• • j. !

'.'But section 16 sub-section (3) provided in comput- E
ing the total income of any individual for the purpose of
assessment there shall be included the classes of income
. mentioned in clauses (a) and (b). Sub-section 3(a)(ii) in-
sofar as it is material, provided:

· 'In computing the total income of any individual for F
.'< 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 orindirectly-
(
...... .
' .
(ii) From the admission o.f minor to .the benefits of G
· partnership.in a firm of which such individual is a partner.'
,.· ~ ,i .r , '.' ',·. ..
. . The · assessee was bound to disclose under section
22.(5) the names and addresses of his partners, if any, en-
.. gaged in business, profession or vocation together with the
H
. location and styled of the principal place and branches
1106 SUPREME COURT REPORTS [1987] 2 S.C.R.

A thereof and the extent of the shares of all such partners in
the profits of the business, profession or vocation and )>-
branches thereof, btit the assessee was not required in mak-
ing 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."
B
Upon this conclusion this Court therein held: ,:...
"For failing or omitting to disclose that income proceedings
for reassessment cannot, therefore, be commenced under
section 34(1)(a)."
.., -
c '
Relying upon this decision the learned Single Judge quashed the
notices. The Revenue appealed to the Division Bench but failed to "tr
obtain any relief in view of the said decision of this Court. The Divi-
sion Bench also took note of the decision in the case. of Malegaon
Electricity Co. (P) Ltd. v. Commissio~er or Income-tax, Bombay, 78
D ITR 466. Therein after referring to Muthiah Chettiar case (supra).
H_edge,-J. speaking for the Court, stated: ·

"Hence, by not showing the income of his wife and minor
children, the assessee cannot be deemed to have failed to 'f
disclose fully and truly all material facts necessary for his
E assessment within the meanins of section 34(1)(a) of the _,.
Act."

It is appropriate to take note of a later decision of this Court in-- 4-.
Commissioner of Income-tax, Kera/av. Smt. P.K. Kochammu Amma,
Peroke, 125 ITR 624. That was of a two-Judge Bench. Reliance was
F sought to be placed on Muthiah Chettiar's case (supra). Dealing with -t"
the question of imposition.of penalty under section 27l(l)(c) of the
1961 Act, the Division Bench observed:

·"It is obvious that on this view the order imposing penalty
on the assessee would have to be sustained but there is a
G decision of this Court in V.D. M.RM. M.RM. Muthiah
Chettiar v. Commissioner of Income-tax, (1969) 74 UR 183
(SC) which is binding upon us and where we find that a
different view has been taken by a Bench of three Judges of
this Court. It was held in this case that even if there were
any printed instructions in the form of the return requiring
H the assessee to disclose the income received by his wife and
INCOME-TAX OFFICER v. RADHESHYAM (MISRA, J.I 1107
minor child from a firm of which the assessee was a partner. A
~ there was, in the absence in the return of any head under
which the income of the wife or minor child could be
shown, no obligation on the assessee to disclose this item of
income, and the assessee could not be deemed to have failed
or omitted to disclose fully and truly all material facts
B
necessary for his assessment within the m~aning of 34( 1)( a)
) of the Indian Income Tax Act, 1922. With the greatest respect
to the learned Judges who decided this case. we do not

- ,A
think, for reasons already discussed, that this decision lays
down the correct law on the subject, and had it not been for
the fact that since 1st April, 1972, the form of the return /
prescribed by rule 12 has been amended and since then. c
there is a separate column providing that 'income arising to
~ spouse/minor child or any other person as referred to in
Chapter V of the Act' should be shown separately under
that column and consequently there is no longer any scope
for arguing that the assessee is not bound to disclose such
D
income in the return to be furnished by him, we would have
referred the present case to a larger Bench. But we do not
propose to do so since the question has now become
academic in view of the amendment in the form of the
-~ return carried out with effect from !st April, 1972. We
would, therefore, follow this decision in Muthian Chettiar's
E
case which being a decision of three Judges of this Court is
' binding upon us ..................................... "

' We agree with what has been stated in Kochammu Amm's case
----- and for the reasons indicated therein, we do not propose to refer this
case to ·a larger bench. Following the law as laid down in the two cases
F
reported in 74 !TR 183 and 78 ITR 466 we dismiss the appeal. There
would be no order for costs throughout.

A.P.J. Appeal dismisse_d.