1985 (4) TMI 6 - HC - Income Tax

Summary

Issues:
1. Whether nondisclosure of incomes of wife and minor sons, includible under section 64 of the Income-tax Act, attracts penalty under section 271(1)(c)?
2. Whether additions made on estimate under the head 'Income from other sources' due to inadequate withdrawals attract penalty under section 271(1)(c)?

Analysis:

1. The case involved an assessee who was a partner in a firm during the assessment year 1969-70. The assessee did not disclose the interest paid to his minor sons and wife by the firm in his income tax return. The Income-tax Officer added this amount to the assessee's total income. Additionally, a sum for low withdrawals was also added to the total income. The discrepancy between the assessed and returned income triggered a penalty proceeding under section 271(1)(c) of the Income-tax Act. The Tribunal, on appeal, canceled the penalty, leading to a reference to the High Court.

2. The first issue revolved around whether the non-disclosure of income of the wife and minor sons, as required under section 64 of the Income-tax Act, attracted penalty under section 271(1)(c). The High Court referred to the Supreme Court decision in V. D. M. RM. M. RM. Muthiah Chettiar v. CIT [1969] 74 ITR 183, where it was held that there was no obligation to disclose such income in the absence of a specific column for it in the prescribed form. The Court noted that even in the form for the year 1969, no column was designated for stating the income of the spouse or minor children. Therefore, the High Court ruled in favor of the assessee, following the precedent set by the Supreme Court.

3. On the second issue regarding additions made on estimate under the head 'Income from other sources' due to inadequate withdrawals, the High Court found that the Tribunal's order did not address this aspect. As per section 256(1) of the Act, only questions of law arising out of the Tribunal's order can be referred to the High Court. Since the Tribunal did not decide on the low withdrawals, the High Court deemed the reference of the second question as misconceived and declined to answer it.

4. In conclusion, the High Court refused to answer the second question as it did not arise from the Tribunal's order. However, it answered the first question in favor of the assessee, stating that no penalty could be levied for not disclosing the income of the spouse and minor children. The Court relied on the precedent set by the Supreme Court and emphasized the absence of a specific column for such disclosure in the relevant forms.