1973 (6) TMI 6 - HC - Income Tax

Certain credits were discovered in the assessee s accounts - these creditors made voluntary disclosure and were assessed to tax - This reference involves the interpretation and effect of the Finance (No. 2) Act of 1965 and arises out of the reassessment of the income of the applicant on the ground that an undisclosed income of Rs. 90, 000 has escaped assessment during the course of the original assessment which was made on 24th October 1961 on the total income of Rs. 43, 219

Issues Involved:
1. Interpretation and effect of the Finance (No. 2) Act of 1965.
2. Legitimacy of reassessment of undisclosed income.
3. Genuineness of the hundi loans and the declarations made under Section 24 of the Act.
4. Estoppel and double taxation concerns.

Detailed Analysis:

1. Interpretation and Effect of the Finance (No. 2) Act of 1965:
The court examined the scheme of Section 24 of the Finance (No. 2) Act of 1965, which allowed individuals to declare undisclosed income before April 1, 1966, to avail certain advantages. The Act aimed to bring out unaccounted money to mitigate the parallel economy. The court noted that the Act was not intended to permit fraudulent declarations but was meant to protect those who disclosed income they actually earned but failed to declare earlier.

2. Legitimacy of Reassessment of Undisclosed Income:
The reassessment issue arose from the petitioner's introduction of Rs. 90,000 in the form of hundi loans from brokers who admitted to being name-lenders. The Income-tax Officer issued a notice to the petitioner to show cause for reopening the assessment for the year 1957-58. Despite the petitioner's contention that the amounts were deposits from five declarants, the Income-tax Officer added the amount to the petitioner's income after investigation. The Tribunal upheld this addition, stating that the revenue was not estopped from reassessing the petitioner's income.

3. Genuineness of the Hundi Loans and Declarations Made Under Section 24:
The court scrutinized the declarations made by five individuals under Section 24, who claimed to have deposited Rs. 90,000 with the petitioner. The Tribunal found these declarations to be non-genuine. The court held that the Act's scheme did not prevent the revenue from investigating the genuineness of these deposits during the assessment of the petitioner's income. The court emphasized that the Act protected only the declarants and not the amounts declared, allowing the revenue to reassess the income of non-declarants.

4. Estoppel and Double Taxation Concerns:
The petitioner argued that the revenue, having accepted the declarations under Section 24, could not now claim the amount as the petitioner's income, as it would result in double taxation. The court rejected this argument, stating that the acceptance of tax on declared amounts did not imply an admission by the revenue that the income belonged to the declarants. The court clarified that the protection under the Act was limited to the declarants and did not extend to the amounts declared. The court also noted that any double taxation resulting from false declarations was a consequence of the petitioner's actions, not the interpretation of the Act.

Conclusion:
The court affirmed the Tribunal's decision, holding that the revenue authorities were entitled to investigate the genuineness of the deposits and reassess the petitioner's income. The court rejected the petitioner's arguments on estoppel and double taxation, emphasizing that the Act's protection was limited to the declarants and did not prevent the revenue from reassessing the income of non-declarants. The reference was disposed of with costs to be borne by the petitioner.

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