1987 (12) TMI 58 - AT - Income Tax

Summary

Issues Involved:
1. Limitation of Appeals
2. Assessment of Income from House Property
3. Penalty Proceedings under Section 271(1)(c)
4. Applicability of Section 64(2) of the Income-tax Act
5. Validity of Prior Legal Precedents

Issue-wise Detailed Analysis:

1. Limitation of Appeals
The appeals were initially barred by a limitation period of 3 days. After hearing the parties on the assessee's application dated 12th September 1987, the delay was condoned, and the appeals were disposed of on merits.

2. Assessment of Income from House Property
The Income-tax Officer (ITO) brought to tax a sum of Rs. 4,043 as income from house property for the assessment years 1977-78 and 1978-79. The ITO's reasoning was based on the fact that the assessee had thrown his self-occupied residential house property into the hotchpotch of his Hindu Undivided Family (HUF) and subsequently received a sum of Rs. 5,000 upon partial partition. According to the provisions of section 64(2)(c), the income from the converted house property had to be assessed in the assessee's hands. The assessee's representative argued that the provisions were not applicable as the assessee was no longer a member of the HUF, but this contention was not accepted.

3. Penalty Proceedings under Section 271(1)(c)
Following the addition of income from house property, the ITO initiated penalty proceedings under section 271(1)(c) and issued show-cause notices. The assessee argued that full disclosure of material facts had been made and that the penalty could not be levied without proving 'mens rea'. The ITO, however, concluded that the property income had escaped assessment due to the assessee's failure to disclose all material facts. The ITO imposed a penalty of Rs. 3,000 for each year, which was confirmed by the CIT (A).

4. Applicability of Section 64(2) of the Income-tax Act
The assessee argued that the provisions of section 64(2) did not apply as the income from the house property was being received by the HUF consisting of his wife and major son, not by the spouse or minor child. The Tribunal agreed, stating that sub-sections (a) and (b) of section 64(2) were not applicable after the partial partition. Sub-section (c) was also not applicable as the income was received by the HUF and not by the spouse or minor child. The Tribunal found that the income from the property was not taxable in the assessee's hands after the partial partition.

5. Validity of Prior Legal Precedents
The Revenue cited a prior decision of the Tribunal in a connected case (Shri Hasmukhlal C. Shah) to support the imposition of penalties. However, the Tribunal noted that the material facts and arguments presented in the current case were different. The Tribunal decided to depart from its earlier view, concluding that no penalty was attracted in this case. The Tribunal also held that the decision in CIT v. Smt. P. K. Kochammu Amma was not applicable.

Conclusion:
The Tribunal concluded that the penalties for both the years under consideration were to be canceled, and the appeals were allowed. The Tribunal emphasized that the income from the property was not taxable in the assessee's hands under section 64(2) after the partial partition and that no mala fide intention could be attributed to the assessee.