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1935 (9) TMI 8 - HC - Income Tax

Issues Involved:
1. Whether the payments made by M.K. Khanna from November 16, 1923, to September 9, 1927, were rightly taken into account in making the assessment for the year 1931-32.
2. Whether in law the partition of the family was effected from the date of the decree or award, or from the year 1921 as held by the Assistant Commissioner of Income Tax.
3. Whether Rs. 44,611-9-9 realized from M.K. Khanna in Sambat 1980-81 is liable to income tax as the income or profit of the assessee, or is this sum exempt from income tax under Section 14 of the Income Tax Act.
4. Whether on the facts found the assessee has concealed the particulars of his income or has deliberately furnished inaccurate particulars of his income and is, therefore, liable to penalty under Section 28 of the Income Tax Act.

Detailed Analysis:

Issue 1:
The primary question was whether the payments made by M.K. Khanna from November 16, 1923, to September 9, 1927, should be considered in the assessment for the year 1931-32. The court noted that the assessment year 1931-32 should ordinarily consider the income of the previous year 1930-31. However, the department argued that due to peculiar circumstances, the income from 1923 to 1927 should also be considered. The court found that the payments were initially treated as interest in the assessee's accounts but were later transferred to different accounts, obscuring their nature. The court concluded that the method adopted by the department was not justified by law, as it contravened Section 3 of the Indian Income Tax Act, which mandates that only the income of the previous year should be taxed. Therefore, the payments made by M.K. Khanna from November 16, 1923, to September 9, 1927, should not be taken into account for the assessment year 1931-32.

Issue 2:
The second issue was whether the partition of the family was effected from the date of the decree or award, or from the year 1921. The court found that there was a private partition in Sambat 1978 (October 1921) between the family members, and the assessee had been doing business and earning income since then. The court referred to the case of Shiva Prasad Gupta v. The Commissioner of Income Tax, United Provinces, where it was held that Mr. Shiva Prasad Gupta, another member of the same bigger family, was separate from the time of the private partition. The court concluded that the partition or separation of the family was effected from the year 1921, as held by the Assistant Commissioner of Income Tax.

Issue 3:
The third issue was whether Rs. 44,611-9-9 realized from M.K. Khanna in Sambat 1980-81 is liable to income tax or exempt under Section 14 of the Income Tax Act. The court noted that Section 14 exempts income received by a member of a Hindu undivided family. However, the family ceased to be a Hindu undivided family in Sambat 1978 (1921). Therefore, the sum could not be said to have been received by the assessee as a member of a Hindu undivided family. The court concluded that the sum of Rs. 44,611-9-9 is liable to income tax as the income or profit of the assessee and is not exempt under Section 14 of the Income Tax Act.

Issue 4:
The fourth issue was whether the assessee had concealed the particulars of his income or deliberately furnished inaccurate particulars, making him liable to penalty under Section 28 of the Income Tax Act. The court did not provide a detailed analysis of this issue in the judgment provided. However, it noted that the assessee's conduct in trying to evade income tax for several years was reprehensible.

Preliminary Objection:
A preliminary objection was raised regarding the compliance with Rule 7 of the Rules framed by the Court under Section 66 of the Indian Income Tax Act. The assessee argued that the Commissioner did not submit the draft case's opinion to the assessee. The court found no merit in this contention, stating that the opinion of the Commissioner is different from the statement of the case, and there was complete compliance with Rule 7.

Conclusion:
The court answered the reference accordingly:
1. The payments made by M.K. Khanna from November 16, 1923, to September 9, 1927, should not be taken into account in making the assessment for the year 1931-32.
2. The partition of the family was effected from the year 1921, as held by the Assistant Commissioner of Income Tax.
3. The sum of Rs. 44,611-9-9 realized from M.K. Khanna in Sambat 1980-81 is liable to income tax as the income or profit of the assessee and is not exempt under Section 14 of the Indian Income Tax Act.

The court awarded no costs to the assessee against the department due to the assessee's conduct in evading income tax. The fee for the counsel for the department was taxed at Rs. 200, with a month's time to file the necessary certificate.

 

 

 

 

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