1969 (7) TMI 4 - SC - Income Tax

Assessment made on the assessee in the status of a HUF in respect of income received by him as receiver could be justified notwithstanding the provisions of s. 41 - once valid proceedings are stated u/s. 34(1)(b) the ITO had not only the jurisdiction but it was his duty to levy tax on the entire income that had escaped assessment during that year - hence assessment made u/s. 34 is valid in law - assessee is not entitled to set off sum paid to the minors

Summary

Issues Involved:
1. Validity of proceedings initiated under Section 34 of the Income-tax Act.
2. Entitlement to set off the amount paid under a compromise against the income received from the mill.
3. Assessment of income received by the assessee as a receiver in the status of a Hindu undivided family.
4. Apportionment of the amount paid under the compromise between capital and income.

Issue-wise Detailed Analysis:

1. Validity of Proceedings Initiated Under Section 34 of the Income-tax Act:

The first question addressed was whether the proceedings under Section 34 were legally valid. The assessee contended that the Privy Council's decision could not be considered "definite information" under Section 34. The Supreme Court rejected this argument, stating that the assessee had not disclosed all relevant facts, specifically the compromise with the plaintiffs. The Privy Council's decision, which determined the rights of the parties, constituted "definite information" under Section 34. The Court cited the case of Maharaj Kumar Kamal Singh v. Commissioner of Income-tax to support its view that judicial decisions could constitute information under Section 34. The Court concluded that the proceedings initiated under Section 34 for the assessment year 1944-45 were legally valid. Once valid proceedings are initiated, the Income-tax Officer has the jurisdiction to reassess the entire income that had escaped assessment.

2. Entitlement to Set Off the Amount Paid Under Compromise:

The second issue was whether the assessee was entitled to set off Rs. 1,15,000 paid to the vendor's sons under the compromise against the income received from the mill. The High Court had held that the amount of Rs. 1,15,000 should be apportioned between capital and income. However, the Supreme Court disagreed, stating that the payment was made to perfect the title to a capital asset. The Court emphasized that payments made to acquire a source of profit or income are capital expenditures. The Court concluded that the entire amount of Rs. 1,15,000 should be treated as a capital payment, and the assessee was not entitled to exclude any portion of that amount from the income sought to be assessed.

3. Assessment of Income Received by the Assessee as Receiver in the Status of a Hindu Undivided Family:

The third issue was whether the assessment of income received by the assessee as a receiver in the status of a Hindu undivided family was justified. The High Court had affirmed that the reassessment proceedings were validly initiated under Section 34 and that the assessment on the assessee in the status of a Hindu undivided family was proper. The Supreme Court upheld this view, stating that once valid proceedings under Section 34 are initiated, the Income-tax Officer has the jurisdiction to reassess the entire income, including the income received by the assessee as a receiver.

4. Apportionment of the Amount Paid Under Compromise Between Capital and Income:

The final issue was whether the amount of Rs. 1,15,000 paid under the compromise should be apportioned between capital and income. The High Court had apportioned the amount in the ratio of 90:85, considering it partly towards the acquisition of a capital asset and partly towards the discharge of the claim towards profits. However, the Supreme Court rejected this apportionment, stating that the payment was a lump sum made to perfect the title to a capital asset. The claim for lease money from the property was ancillary to the claim to the capital asset. Therefore, the entire amount should be treated as a capital payment.

Conclusion:

The Supreme Court allowed the appeals of the Commissioner of Income-tax (C.As. Nos. 1381 to 1386 of 1966) to the extent indicated, dismissing the assessee's appeals (C.As. Nos. 893 to 898 of 1966). The Court concluded that the proceedings under Section 34 were valid, the entire amount of Rs. 1,15,000 was a capital payment, and the assessment of income received by the assessee as a receiver in the status of a Hindu undivided family was justified. There was no order as to costs in either set of appeals.