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TMI Blog1969 (7) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... was assessed in that status for the relevant assessment years 1944-45, 1945-46, 1946-47 not only to income-tax but also to excess profits tax. On February 1, 1941, he purchased from Randhi Appalswamy (hereinafter referred to as "the vendor") a spinning mill known as Shri Satyanarayana Spinning Mills, Rajahmundry, for a sum of Rs. 54,731. The purchase was made at a period when there was litigation between the sons of the vendor and the vendor in respect of the spinning mill and other properties. The sons had filed a suit against the father, the vendor, claiming the schedule properties including the mill as joint family properties and for partition of the same. The vendor claimed that the properties were his self-acquired properties. The District Judge, Rajahmundry, held that the properties were the self-acquired properties of the vendor and dismissed the suit of the plaintiffs. Against the judgment of the District Judge an appeal was filed in the Madras High Court, being A.S. No. 175 of 1938. While the appeal was pending, on February 1, 1941, the assessee purchased the mill from the vendor who purported to sell the same as the sole owner. In A.S. No. 175 of 1938, the Madras High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sistant Commissioner. It held in the first place that the assessee had not disclosed the impugned source of income from the mill in his original assessment, that the matter as to the assessee's ownership of the mill was sub judice and that the decision of the Privy Council constituted information not only of law but also as to the factum of the ownership of the mill and the income thereform. The Tribunal expressed the view that the sum of Rs. 1,15,000 could not be allowed to be set off against the assessee's income from the mill as it was an ex gratia payment to the sons of Appalaswamy who had no right, title or interest in the mill and it was paid in order to perfect a supposed defective title and as such was of a capital nature. Thereafter the Income-tax Appellate Tribunal stated a case to the High Court under section 66(2) of the Indian Income-tax Act, 1922, on the following questions of law : "R.A. No. 779 which relates to the assessment year 1944-45 : '(1) Whether, on the facts and in the circumstances of the case, in respect of the assessment year 1944-45, the assessment made on the assessee in the status of a Hindu undivided family in respect of Income received by hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the amount received from the mill ?' " The Appellete Tribunal pointed out in the statement of the case that question No. 1 in R. A. No. 780 for the assessment year 1945-46 pertained to the earlier assessment year 1944-45 in R. A. No. 779 and also that question No. 2 in R. A. 780 and R. A. No. 779 for the assessment year 1945-46 and the corresponding excess profits tax assessment did not arise in that year but pertained to the earlier assessment year 1944-45 in R. A. No. 779 and the corresponding excess profits tax assessment in R. A. No. 782. The High Court answered questions No. 1 and 2 in R. A. No. 779 and question No. 1 in R.A. No. 780 in the affirmative. The High Court held that reassessment proceedings have been validly initiated under section 34 of the Act. The High Court found that the assessment on the assessee in the status of Hindu undivided family in respect of income received by him as receiver was proper. The High Court thought that the basis of the compromise in the Madras High Court entered into between the assessee and the minor sons of the vendor, Appalaswamy, wherein the assessee paid Rs. 1,15,000 to the minor sons cannot be ignored. The High Court nega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng under section 34 is legally valid. It was contended by Mr. Narasaraju that the decision of the Privy Council could not be said to be definite information within the meaning of the section. It was said that the Income-tax Officer was fully aware of the circumstances of the case and the assessee had placed all the relevant facts before him, namely, that under the High Court's judgment the vendor was only entitled to one-third share of the income pending the decision of the appeal before the Privy Council. In our opinion there is no justification for this argument. It is not true to say that the assessee brought all the relevant facts before the Income-tax Officer. On the contrary he deliberately suppressed the fact that there was a compromise between himself and the plaintiffs under which he was entitled to the whole of the income from the mill. At any rate the Privy Council's decision which determined the rights of the parties irrespective of the compromise did constitute definite information within the meaning of section 34 of the Income-tax Act. This view is borne out by the decision of this court in Maharaj Kumar Kamal Singh v. Commissioner of Income-tax. In that case the Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could do so within the period prescribed by serving on the person liable to pay tax a notice containing all or any of the requirements which may be included in a notice under section 22(2) and may proceed to assess or reassess such income, profits or gains. It is, therefore, manifest that once assessment is reopened by issuing a notice under sub-section (2) of section 22 the previous under-assessment is set aside and the whole assessment proceedings start afresh. When once valid proceedings are started under section 34(1)(b) the Income-tax Officer had not only the jurisdiction but it was his duty to levy tax on the entire income that had escaped assessment during that year. The second question involved in this case is whether the High Court was right in holding that any portion of the amount of Rs. 1,15,000 was liable to be treated as business expenditure. It is well established that where money is paid to perfect a title or as consideration for getting rid of a defect in the title or a threat of litigation the payment would be capital payment and not revenue payment. What is essential to be seen is whether the amount of Rs. 1,15,000 was paid for bringing into existence a right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sks which the continuance of the litigation would necessarily involve. The Privy Council might hold that the mill was the self-acquired property of the father, in which case the plaintiffs would get nothing and would incur a liability for costs. It might also be held that, though the property was the family property, the father was entitled as the natural guardian to sell the interests of minor sons in discharge of a binding family obligation. There is the further possibility that by the time the litigation ends the property will have deteriorated and its value will have been materially reduced by the termination of the lease of the land. Taking all these contingencies into consideration we are of opinion that the offer made by the purchaser of Rs. 1,15,000 for the release of the claim, if any, of the two sons in the mill sold to him by their father is a fair offer, the acceptance of which would be be beneficial to the minor second plaintiff." It is true that the High Court took into consideration the income from the mill in testing whether the offer made by the purchaser of Rs. 1,15,000 for the release of the claim of the plaintiffs was a fair offer. But that does, not mean ..... X X X X Extracts X X X X X X X X Extracts X X X X
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