1961 (11) TMI 78 - HC - Income Tax

Summary

Issues Involved:
1. Validity of assessments under section 34 for the assessment years 1949-50, 1951-52, and 1952-53.
2. Inclusion of interest paid by the firm on the capital contributed by the minor sons of the assessee in the total income of the assessee under section 16(3)(a)(ii).

Detailed Analysis:

1. Validity of Assessments under Section 34:

Assessment Year 1951-52:
The learned counsel for the petitioner conceded that the department properly initiated proceedings under section 34(1)(a) of the Act as no return was submitted by the assessee for the assessment year 1951-52. Therefore, the validity of the assessment for this year was not contested.

Assessment Year 1949-50:
The assessee argued that section 34 could not be invoked as he had filed his returns and disclosed all material facts necessary for the assessments. The department contended that the return was not valid as the assessee did not fill up Form No. III, which was necessary under section 22(5). The court noted that section 34 comes into play when there is an omission or failure to make a return or to disclose fully and truly all material facts necessary for the assessment.

The court observed that while the assessee submitted returns, he did not include the necessary particulars in Part III of the prescribed form for the assessment year 1949-50. This omission meant that the assessee did not disclose fully and truly all material facts necessary for the assessment. Consequently, the department was correct in invoking section 34(1)(a) for the assessment year 1949-50.

Assessment Year 1952-53:
For the assessment year 1952-53, the assessee included all material facts in his return, including the admission of his minor sons to the benefits of the partnership and their respective shares. The court held that there was no obligation on the assessee to include the income of the minors within his total income for computation under section 16(3). The court concluded that section 34 was inapplicable for the assessment year 1952-53, making the proceedings under that section and the reassessment invalid.

2. Inclusion of Interest Paid by the Firm on the Capital Contributed by Minor Sons:

The court addressed whether the interest paid to the minors on the capital contributed by them should be included in the total income of the assessee under section 16(3)(a)(ii). The court held that the contribution of capital by a minor is incidental to their admission to the benefits of the partnership. Consequently, the interest paid on such capital is includible in the income of the minors under section 16(3). The court referenced the case of Chouthmal Kejriwal v. Commissioner of Income-tax, where it was decided that interest income accruing to a minor from capital supplied as part of a partnership is to be included in the total income of the father under section 16(3)(a)(ii).

Conclusion:
- The assessments for the years 1949-50 and 1951-52 were validly made under section 34.
- The assessment for the year 1952-53 was not valid under section 34.
- The interest paid by the firm on the capital contributed by the minor sons is includible in the total income of the assessee under section 16(3)(a)(ii).

Order:
There will be no order as to costs.