1970 (3) TMI 48 - HC - Income Tax

Reassessment u/s 147 - Whether there is any obligation on an assessee to disclose at the time of his assessment any transfers made by his wife of assets, gifted to her by the assessee, which might have resulted in capital gains -

Summary

Issues Involved:
1. Obligation of an assessee to disclose transfers made to his wife resulting in capital gains.
2. Inclusion of income arising to the spouse in the assessee's total income.
3. Validity of notices issued under section 148 of the Income-tax Act, 1961.
4. Interpretation of section 16(3) of the 1922 Act and section 64 of the 1961 Act.
5. Obligation under section 34 of the old Act and section 147 of the 1961 Act.
6. Changes in the provisions from the old Act to the new Act.

Detailed Analysis:

1. Obligation of an Assessee to Disclose Transfers Made to His Wife Resulting in Capital Gains:
The primary issue for consideration was whether the assessee was obligated to disclose any transfers made to his wife, which resulted in capital gains during the accounting year. The petitioner was assessed for the years 1960-61 to 1962-63, and certain interest received by the assessee's wife was included in his total income under section 16(3) of the 1922 Act and/or section 64 of the 1961 Act. The Income-tax Officer issued notices under section 148, contending that the assessee failed to disclose capital gains arising from the sale of assets transferred to his wife.

2. Inclusion of Income Arising to the Spouse in the Assessee's Total Income:
The judgment referenced section 16(3) of the 1922 Act and section 64 of the 1961 Act, which mandate the inclusion of income arising to the spouse from assets transferred without adequate consideration in the assessee's total income. The Supreme Court's decision in Sevantilal Maeklal Sheth v. Commissioner of Income-tax clarified that "income" includes capital gains, thus any capital gains arising from the transfer of assets to the wife must be included in the assessee's total income.

3. Validity of Notices Issued Under Section 148 of the Income-tax Act, 1961:
The petitioner challenged the notices issued under section 148, arguing that he had disclosed all necessary facts. The court examined whether the assessee had an obligation to disclose capital gains arising to his wife. The Supreme Court's decision in Muthiah Chettiar v. Commissioner of Income-tax was cited, which held that there was no obligation on the taxpayer to disclose income liable to be included under section 16(3) in his return.

4. Interpretation of Section 16(3) of the 1922 Act and Section 64 of the 1961 Act:
The court discussed the provisions of section 16(3) of the 1922 Act and section 64 of the 1961 Act, concluding that these sections required the inclusion of income arising to the spouse from assets transferred without adequate consideration. However, the obligation to disclose such income was not imposed on the taxpayer, as per the Supreme Court's interpretation in Muthiah Chettiar's case.

5. Obligation Under Section 34 of the Old Act and Section 147 of the 1961 Act:
Dr. Pal for the petitioner argued that under section 34 of the old Act and section 147 of the 1961 Act, the duty was on the assessee to disclose all material facts necessary for assessment. The court noted that once primary facts were disclosed, it was the assessing authority's responsibility to draw inferences and determine the proper tax. The Supreme Court's decision in Calcutta Discount Company's case was referenced to support this interpretation.

6. Changes in the Provisions from the Old Act to the New Act:
Mr. Mitter for the department argued that the provisions of section 22 of the old Act had materially changed in section 139 of the 1961 Act, imposing a duty on the assessee to file a return including income of any other person assessable in his hands. However, the court held that section 139 did not require the assessee to file a single return for both his own income and the income of another person assessable in his hands. The court found that the instructions in the return forms did not impose an obligation to disclose the income of the wife or minor child under section 64.

Conclusion:
The court concluded that the assessee had not failed to disclose all material facts necessary for his assessment, and the assumption of jurisdiction under section 147(a) by the Income-tax Officer was not justified. Consequently, the impugned notices were quashed, and the rule was made absolute. There was no order as to costs.