ppeals Nos
1457 to 1459 of 1958
Appeals from the judgment and order dated August 21 1964 of the Madras High Court in TC No 75 of 1962 Reference No 50 of 1962
M C Chagla and T A Ramachandran for the appellant in all the appeals
section K Aiyar add B D Sharma for the respondent in all the appeals
The Judgment of the Court was delivered by Shah J
Ramanathan Chettiar his son Muthiah Chettiar called hereinafter for the sake of brevity Muthiah and Ramanathan Annamalai and Alagappan sons of Muthiah constituted a Hindu undivided family
The family owned a 35th share in MRMS Firm Seramban in Malaya
The firm was assessed under the Indian income tax Act 1922 in the status of a firm resident within the taxable territories
On September 16 1950 Muthiah separated from the family taking his 15th share in the MRMS Firm
On April 13 1951 the status of the family became completely disrupted and the three sons of Muthiah took in equal shares the remaining 25th share the grandfather Ramanathan taking no share in the MRMS Firm
For the assessment year 1952 53 Muthiah submitted a return of his income as an individual and stated under the head business income Kindly ascertain his assessee s share of profit and remittances from the Income tax officer Second Additional Circle I Karaikudi in F 6098 m1952 53
In Part III of the return Muthiah supplied the following information about his partners Name and address of Name of each partner Share the firm including assessee Messrs RRMS Firm 1
Assessee Muthiah Chettiar 60303 Seramban F MS 2
M RM
M Ramanathan Chettiar minor
40303 3
M RM
M RM
M Alagappan Chettiar minor
40303 4
M RM
M RM
M Annamalai Chettiar minor 40303 6
MSS 60303 7
Charity 3303 717 For the assessment year 1953 54 in column 3 in section B of the return Muthiah stated  Kindly ascertain the remittances from the Income tax Officer Fifth Additional Karaikudi in F 6098 m and at p 3 of the return in column 3 of Section F it was stated Assessee has 60303 share in Messrs Joint Seramban Malaya
Kindly ascertain share of profit or loss from the Income tax Officer Fifth Additional Karaikudi in F 6098
 In Part III of the return he set out the names of the partners as were mentioned in the return for 1952 53
Against the names
of Ramanathan Chettiar Alagappan Chettiar and Annamalai Chettiar it was not disclosed that they were minors
For the assessment year 1954 55 at the foot of page 1 of the return Muthiah stated  The assessee has a remittance of Rs 6188 12 0 from RRMS Firm Seramban
His share of income may be taken from the firm s file  and in Part III the names of seven partners as mentioned in 1952 53 return were set out Ramanathan Alagappan were not shown as minors
Ramanathan Alagappan and Aannamalai the three minor sons of Muthiah represented by their mother and guardian also filed returns of their respective income for the years 1952 53 1953 54 and 1954 55 and disclosed therein their shares in the profit from the 25th share in the MRMS Firm
For the assessment years 1952 53 1953 54 and 1954 55 the Income tax officer completed the assessments separately on the firm on Muthiah as an individual and on the three minors represented by their mother and guardian
Muthiah was assessed in respect of his share in the income of the firm and from other sources
In his returns muthiah had not disclosed the share received by his minor sons and the Income tax officer did not in making the assessments include shares of the minors from the firm under section 16 3 a ii of the Indian Income tax Act 1922
The Income tax Officer issued notices of reassessment to Muthiah under section 341 a of the Income tax Act 1922 for the years 1952 53 and 1953 54 and under section 341 b for the year 1954 55
Muthiah filed returns under protest declaring the same income as originally assessed
In the view of the Income tax Officer Muthiah had not furnished in Part III clause c of the return full facts regarding the other parties and in column 2 he had merely disclosed that Ramanathan Alagappan and Annamalai were minors that information was not full in the sense that he had not stated that L10Sup69 11 718 they were minors sons of Muthiah
Accordingly the Income tax Officer held that the income of the sons of Muthiah which should have been included under section 16 3 a ii of the Income tax Act had escaped assessment in Muthiah s hands and he brought that income to tax
The Appellate Assistant Commissioner confirmed the order made by the Income tax Officer
In appeal to the Tribunal it was contended by Muthiah that he had fully and truly disclosed all the particulars he was required to disclose in the returns of his income for the three years in question and section 34 a a had no application to the assessment years 1952 53 and 1953 54 and for 1954 55 the reopening was based only on a change of opinion
Muthiah also contended that section 40 of the Income tax Act was mandatory and since the Income tax Officer had made separate assessments on the minors represented by their mother no further  assessment under section 163 could be made the two sections being mutually exclusive
The Tribunal observed that for the first two years section 34 1 a applied that in respect of the year 1954 55 there was no change of opinion but the assessment was made on information received within the meaning of section 34 1  b of the Income tax Act and that separate assessment of the minors did not stop the Income tax Officer from assessing the income received by the minor sons in the hands of Muthiah
The Appellate Tribunal accordingly confirmed the order of the Appellate Assistant Commissioner
At the instance of Muthiah the following questions were referred to the High Court of Madras  i Whether on the facts and in the circumstances of the case the re assessment made on the assessee under section 34 of the Act is valid in law for 1952 53 to 1954 55  iiWhether on the facts and in the circumstances of the case the inclusion of the share income of the minor in the hands of the assessee by invoking the provisions of section 163 of the Act is valid in law notwithstanding that an assessment is made on the minor represented by his guardian  The answer to the second question must in view of the recent judgment of this Court in C R Nagappa vs The Commissioner of Income tax Mysore1 be in the affirmative
In considering the first question it is necessary to refer to certain provisions of the Income tax Act 1922
By section 3 1 719 the total income of the previous year of every individual Hindu undivided family Company and local authority and of every firm and other association of persons or the partners of the firm or the members of the association individually was charged to tax for that year in accordance with and subject to the provisions of the act at any rate or rates prescribed by the Finance Act
Total income was defined in section 215 as meaning total amount of income profits and gains referred to in sub section
1 of section 4 computed in the manner laid down in this Act Section 41 set out the method of computation of total income  it enacted 1 Subject to the provisions of this Act the total income of any previous year of any person includes all income profits and gains from whatever source derived which a are received or are deemed to be received in the taxable territories in such year by or on behalf of such person or b if such person is resident in the taxable territories during such year i accrue or arise or are deemed to accrue or arise to him in the taxable territories during such year or Section 22 by sub section
1 required the Income tax Officer to give notice by publication in the press in the prescribed manner requiring every person whose total income during the previous year exceeds the maximum exempt from tax to furnish a return in the prescribed form setting forth his total income
Sub sectian 2 authority the Income tax Officer to serve a notice upon a person whose income in the opinion of the Income tax Officer exceeded the minimum free from tax
Section 23 dealt with the assessment
It conferred power upon the Income tax Officer to assess the total income of the assessee and to determine the sum payable by him on the basis of such return submitted by him
Rule 19 framed under section 59 of the Income tax Act 1922 required the assessee to make a return in the form prescribed thereunder and in Form A applicable to an individual or a Hindu undivided family or an association of persons there was no clause which required disclosure of income of Any person other than the income of the assessee which was liable to be included in his total income
The Act and the Rules accordingly imposed no obligation upon the assessee to disclose to the Income tax Officer in his return information relating to income of any other person by law taxable in his hands
720 But s  16 sub section
3 provided that in computing the total income of any individual for the purpose of assessment there shall be included the classes of income mentioned in cls
a and b
Sub section 3 a ii in so far as it is material provided In computing the total income of any individual for the purpose of assessment there shall be included a so much of the income of a wife or minor child of such individual as arises directly or indirectly i ii from the admission of the minor to the benefits of partnership in a firm of which such individual is a partner The assessee was bound to disclose under section 225 the names and addresses of his partners if any engaged in business profession or vocation together with the location and style of the principal place and branches thereof and the extent of the shares of all such partners in the profits of the business profession or vocation and any branches thereof but the as was not required in making a return to disclose that any income was received by his wife or minor child admitted to the benefits of partnership of a firm of which he was a partner
Counsel for the Commissioner contended that in the forms of returns prescribed in the Notes of Guidance for drawing up the return were printed and thereby the assessee was informed that he had to disclose the income received by his wife and minor children from a firm of which the assessee was a partner
Counsel has however not placed before the Court the forms of return in vogue in the relevant year of assessment
In the Income Tax Manual published under the authority of the Central Government in 1945 under cl
3 printed at p 185 theassessee is advised to include the return under the appropriate headcertain classes of income which are liable to be included in theassessment of an individual under section 16 and income liable to betaxed under sections 41D 44E and 44F
This instruction was repeated in the Manual Parts II and III at pp 344 and 345 in the 10th Edition published in 1950
But in the 11th Edition of the Manual published in 1954 no such instructions were printed
About the date on which the instructions were deleted Counsel for the Commissioner was unable to give any information
Assuming that there were instructions printed in the Forms of return in the relevant years  in the absence of any head under which the income of the wife or minor child of a partner whose wife or a minor child was a partner in the same firm could be shown by not showing that income the tax payer cannot be deemed to have failed or omitted to disclose fully and truly all material 721 facts necessary for his assessment
Section 163 imposer an obligation upon the Income tax Officer to compute the total income of any individual for the purpose of assessment by including the items of income set out in cls
a i to iv and b but thereby no obligation is unposed upon the tax payer to disclose the income liable to be included in his assessment under section 163
For failing or omitting to disclose that income proceedings for reassessment cannot therefore be commenced under section 34 1 a Section 225 required the assessee to furnish particulars of the names and shares of his partners but imposes no obligation to mention or set out the income of the nature mentioned in section 163
In the relevant years there was no head in the form under which income liable to be assessed to tax under section 163 a and b could be disclosed
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 includable in his assessment by reason of section 163 a ii
Section 341 a sets out the conditions in which the power may be exercised  it did not give rise to an obligation to disclose information which enabled the Income tax Officer to exercise the power under section 163 a ii nor had the use of the expression necessary for his assessment in section 341a that effect
The High Court did not consider the question whether in the year 1954 55 the notice under section 341 b was properly issued against Muthiah
The Tribunal in their judgment observed There is no basis for the argument that the Income tax Officer had only changed his opinion and reopened the assessment
 We agree with that view
The order of re assessment was made well within four years from the date of the last day of the year of assessment 1954 55
The notice was therefore competently issued by the Income tax Officer
The order passed by the High Court in so far as it relates to the years 1952 53 and 1953 54 is set aside and the answer in the negative is recorded
For the year 1954 55 the answer recorded by the High Court is confirmed
There will be no order as to costs throughout
YP Appeal partly allowed


Summary:
The assessee and his minor sons separately held shares in a resident firm
For assessment years 1952 53 to 1954 55 the assessee filed returns as an individual and therein stated under the head business income that the profit should be ascertained from the Income tax Officer assessing the firm
The names of the partners were stated but it was not stated in the return that some of the parties were his minor sons
The minors through their mother as guardian also filed returns for these assessment years and they were assessed to tax
The assessee was also assessed as an individual in respect of his share in the income of the firm and other sources but the assessment order did not include the share of the minors from the firm
The Income tax Officer issued notices of reassessment to the assessee under section 341 a of the Indian Income tax Act 1922 for the years 1952 53 and 1953 54 and under section 341 b for the year 1954 55
The Income tax Officer took the view that the assessee had not disclosed the fact that his sons were minors and the income of the sons which should have been included under section 163 a ii had escaped assessment in the assessee s hands and accordingly he brought that income to tax
The Appellate Assistant Commissioner confirmed this order
The Appellate Tribunal in appeal held that for the first two years section 341 a applied that in respect of the third year there was no change of opinion but the assessment was made on information received within the meaning of section 341 b and that the income of the minors could be assessed in the hands of the assessee notwithstanding the separate assessments already made on the minors
On reference the High Court answered the questions against the assessee
In appeal this Court HELD  Section 163 of the Act imposed an obligation upon the Income tax Officer to compute the total income of any individual for the purpose of assessment by including the items of income set out in cls
ai to iv and b but thereby no obligation was imposed upon the tax payer to disclose the income liable to be included in his assessment under section 163
For failing or omitting to disclose that income proceedings for reassessment could not be commenced under section 341 a
Section 225 required the assessee to furnish particulars of the names of the shares of the partners but imposed no obligation to mention or set out the income of the nature mentioned in section 163
In the relevant years there was no head in the form of return prescribed under the rules under which income liable to be assessed to tax under section 163 a  b could be disclosed
These assessments under section 341 a for the years 1952 53 and 1953 54 could not therefore be upheld
721 A ii The income of a minor can be included in the hands of an assessee under section 163 of the Act notwithstanding that an assessment has been made on the minor represented by his guardian
718 G H 716 CR Nagappa vs Commissioner of Income tax Mysore  followed
iii In respect of the assessment years 1954 55 there was no basis for the argument that the Income tax Officer had only changed his opinion
The order of re assessment was made well within four years from the date of the last day of that assessment year
The notice was therefore competently issued by the Income tax Officer
L721 F