1939 (12) TMI 8 - HC - Income Tax

Summary

Issues Involved:
1. Legal power of the Income-tax Officer under Section 34 of the Indian Income-tax Act.
2. Assessment of income in the hands of executors and trustees under Section 40 of the Indian Income-tax Act.
3. Deductibility of certain payments directed by the will from the assessable income.

Issue-wise Detailed Analysis:

1. Legal Power of the Income-tax Officer under Section 34 of the Indian Income-tax Act:

The primary issue raised was whether the Income-tax Officer had the legal power to take action under Section 34 of the Indian Income-tax Act concerning an item that had been considered and allowed during the initial assessment. The applicants contended that the sum of Rs. 39,492 had not escaped assessment and was part of the whole income assessed for the year in question. The court noted that the statute clearly states that if for any reason income has escaped assessment in any year, the Income-tax Officer may, within one year of the end of that year, reassess that income. The court found that the sum of Rs. 39,492 was not assessed due to a mistake by the Income-tax Officer in 1933, which he attempted to rectify in January 1935. The court referenced Commissioner of Income-tax, Bombay v. D.R. Naik, where a similar mistake of law was considered within the scope of Section 34. Consequently, the court concluded that the income of Rs. 39,492 had indeed escaped assessment, validating the Income-tax Officer's actions under Section 34.

2. Assessment of Income in the Hands of Executors and Trustees under Section 40 of the Indian Income-tax Act:

The second issue was whether the income of the estate should be assessed in the hands of the applicants as trustees of Ajit Kumar Ghosh under Section 40 of the Indian Income-tax Act and whether the compulsory payments were diverted from the beneficiary by the will. The court examined the payments directed by the will of Akshoy Kumar Ghosh, which were to be made out of the income of the property. The court referenced Raja Be joy Singh Dudhuria v. Commissioner of Income-tax, where it was held that what reaches the individual as income is intended to be charged. The court determined that the income which reached the executors and trustees was what was subject to tax, and not any diverted income. Therefore, the court held that the income was assessable in the hands of the executors and trustees, and the rule was discharged.

3. Deductibility of Certain Payments Directed by the Will from the Assessable Income:

The court also addressed whether the sum of Rs. 10,000 expended on the Sradh and the costs of taking out probate were deductible before arriving at the assessable income. The Income-tax Officer had refused these deductions, while allowing a deduction of Rs. 39,492 payable to the beneficiaries. The court upheld the Income-tax Officer's decision, noting that the statute's plain words indicated that the income had escaped assessment due to a mistake. The court referenced the judgment in Sir Rajendranath Makerjee v. Commissioner of Income-tax, which clarified that the word "assessment" includes the process of assessment and not just the final act. The court concluded that the non-inclusion of income in the return or a mistake of law could be reasons for invoking Section 34, and the deductions claimed were not permissible.

Conclusion:

The court discharged the rule in both parts, affirming the legal power of the Income-tax Officer under Section 34 to reassess escaped income and holding that the income was assessable in the hands of the executors and trustees. The court also upheld the non-deductibility of certain payments directed by the will from the assessable income. The other four rules were discharged for similar reasons, with no order as to costs.