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Petitioner: Raja PRIYANAND PRASAD SINGH VS Respondent: COMMISSIONER OF INCOME-TAX, U. P.Honorable Justice BHARGAVAAmbika Prasad,J. Sarup
1966 P T D 625
1966 P T D 625
[Allahabad (India)]
Before Bhargava and Mehrotra, JJ
Raja PRIYANAND PRASAD SINGH
Versus
COMMISSIONER OF INCOME-TAX, U. P.
Miscellaneous Case No. 2 of 1950, decided on 25th March 1957.
Indian, Income-tax Act (XI of 1922), Ss. 4(3)(vii), (viii) & 34Re-assessment-Information received by Officer already available in account-books produced at original assessment-Re-assessment whether permissible on the ground that no conscious knowledge could be attributed at original assessment-Agricultural income----Income from sale of forest trees of spontaneous growth-No evidence of expenditure of human skill or labour-Casual income---Sale of forest trees by single transaction--Removal of trees and payment of price extending over a period of years-Income from sale of trees whether casual income.
After he had made the original assessment on the basis of the return filed by the assessee, the Income-tax Officer, Banaras, received a letter from the Income-tax Officer, Gorakhpur, informing him that the assessee had sold standing timber in his zemindari at Gorakhpur to certain persons. The Income-tax Officer made enquiries and upon receiving information from the assessee made a re-assessment under section 34 of the Indian Income-tax Act, 1922, in respect of the income derived from the sale of forest trees, rejecting the contentions of the assessee (i) that the information which was received by the Income-tax Officer was already available in the account-books produced before the Officer at the original assessment, and the income from the sale of forest trees had not been assessed then on the view that it was not liable to income-tax, and (ii) that the income derived from the sale of forest trees was agricultural income or in the alternative casual income. '
The Appellate Tribunal confirmed the re-assessment on -the ground that as the items in question were mixed up with a mass of items regarding agricultural income no conscious knowledge of the existence and character of the income from the sale of forest trees could be attributed to the Income-tax Officer at the time of the original assessment, and that there was no indication in the original assessment order that the Income-tax Officer had knowledge of such income:
Held, (i) that a mere possibility that information which was already available. to the Income-tax Officer when he made the original assessment had escaped his notice then, was not sufficient to justify proceedings under section 34 of the Income-tax Act; the burden lay upon the Department of proving affirmatively that the information about the income from the sale of forest trees was not in the possession of the Income-tax Officer when he made the original assessment; no burden should have been placed on the assessee to establish that the entries in the account-books relating to the sale of forest trees had come to the conscious knowledge of the Income-tax Officer; it did not follow from the mere failure of the assessee to establish such knowledge that the Income-tax Officer had no conscious knowledge of those entries; the Department having produced no material at all and failed to discharge the burden that lay on it, the Tribunal committed an error in holding that the proceedings were valid;
(ii) that, however, as the forest trees were held to be of spontaneous growth, and the assessee had not proved that human skill or labour was employed in planting or growing the trees, the income derived from the sale thereof could not be held to be agricultural income;' .
(iii) that although the entire timber was sold at one time by a single transaction, as the agreement for sale showed that the trees were to be removed by operations carried out over a number of years and the price was also to be paid in instalments spread over a similar period the income could not be said to be casual income.
[Case-law referred to].
STATEMENT OF CASE
These two reference applications under section 66(1) of the Income-tax Act arise out of a combined Tribunal order passed in I. T. A. No. 724 of 1947-48 and 1. T. A. No. 695 of 1948-49 relating to the assessment years 1945-46 and 1946-47 respectively. Except the two questions regarding the validity of the notice under section 34 of the Income-tax Act which are special to Reference Application No. 521, the other questions raised by these applications are common to both. They are, therefore, for the sake of convenience disposed of by this consolidated order of reference.
2. As in our opinion questions of law do arise out of the order of the Tribunal, we proceed to draw up a statement of the case in regard to them.
3. The assessee is assessed to income-tax in the status of a Hindu undivided family on income from interest on securities, interest on arrears of rent, sayar, dividends and property. The accounting period adopted for income for interest on arrears of rent and sayar which arise in respect of zamindari at Gorakhpur is from 1st October to 30th September, while the calendar year is followed for other sources of income. The assessment for the year 1945-46 was made by the Income-tax Officer, Banaras, -on the 28th November 1945, under section 23(3) of the Income-tax Act on a total income of Rs. 12,055 from the above-mentioned sources. In January 1946, the Income-tax Officer, Gorakhpur, sent a letter to the Income-tax Officer, Banaras, intimating to him the fact that the assessee had sold standing timber in his zamindari at Gorakhpur to Tribeni 'Nath and Ramanand for Rs. 2,15,000 and to Mohan Singh Autar Singh for Rs. 1,95,000. The Income-tax Officer, Banaras, thereupon addressed a letter to the assessee asking him to furnish the particulars of these payments. On receipt of these particulars the Income-tax Officer, Banaras, issued a notice under section 34 on 23rd February 1946, to the applicant in respect of the year 1945-46. The validity of this notice was challenged by the applicant on the ground that the accounts produced at the time of the original assessment contained all the particulars and the amounts received from the aforesaid persons and the money received had also been used for purchasing Government securities. It was, therefore, contended that- the factum of the receipt of the sale proceeds of the timber trees was within the knowledge of the Income-tax Officer who made the original assessment. It was also contended that as there were specific instructions in the Income-tax Manual and such receipts were not taxed in other cases in earlier years, the Income-tax Officer must have deliberately not included such receipts in the assessment and as such no new information had come in the possession of the Income-tax Officer about them. The Income-tax Officer did not accept the plea of the applicant either in fact or in law. The Tribunal also did not accept the applicant's version of the matter and held that the Income-tax Officer, Banaras, had acquired definite information on 8th January 1946, from the letter which he received from the Income-tax Officer, Gorakhpur, and that the assessment made under section 34 of the Income-tax Act after including the receipts from the sale of timber trees was legal.
During the course of the revised proceedings under section 34, relating to the assessment year 1945-46 and the original assessment proceedings relating to the assessment year 1946-47 the following pleas as to the taxability of the income arising from the sale of the timber trees were also raised: that the income was agricultural income, that the income was of a casual nature and that the income was a capital receipt. These pleas Were not accepted either by the Income-tax Officer or by the Appellate Assistant Commissioner. Only the first two pleas were reagitated before the Tribunal. The Tribunal's finding in regard to the validity of the revised assessment under section 34 relating to the assessment year 1945-46 was as follows:
"In the first place, as pointed out by the Income-tax Officer, no books of accounts containing the items in question were produced before him in the revised assessment proceedings containing any signature of his predecessor in office in token of their examination by him. The Appellate Assistant Commissioner has also pointed out that the appellant did .not produce the Siahas and Jamabandis of Gorakhpur before him but only the books relating to Banaras in which the sale of timber was noted in Gorakhpur Khata and has pointed out that the appellant had been taxed only for Rs. 35,000 as his receipts during the previous year while the Gorakhpur Khata has the total of Rs. 1,58,625 and that no details of the various items are given in the accounts except under the general head Amdani Ilaqa. We agree with the Appellate Assistant Commissioner that when the items in question were mixed up with such a mass of agricultural income as is admitted by the appellant's own munib Ramji, no conscious knowledge of the existence and the character of such income could be attributed to the Income-tax Officer seized of the original assessment. Neither the order sheets of the original assessments nor the notes about the examination of accounts that were produced nor even the rough notes on the miscellaneous file contain any iota of proof to show that the items in question were ever the subject of any consideration by the Income-tax Officer . . . . . There is no indication in the original assessment order that the income from the forest trees had ever attracted the attention of the Income-tax Officer."
The Tribunal rejected the evidence of the appellant's servant Sripat Tewari that the receipt from the sale of timber trees had actually been brought to the notice of the Income-tax Officer as a result of his querry about the large investments in Government Promissory Notes which the applicant had made in the year of account. The Tribunal came to the conclusion that there was no reliable material before it to hold that the items relating to the timber income were the subject of any conscious decision on the part of the Income-tax Officer, or re-assessment of any income which had been previously held to be non-assessable by him. It held that the Income-tax Officer had no knowledge of the income in question until the Income-tax Officer, Gorakhpur, informed him by his letter dated 8th January 1946 that the applicant had sold trees and earned an income there from and that it was after receipt of this letter that he addressed a letter to the applicant and on 11th January 1946, asked him to confirm the above information, in response to which the applicant supplied the required information about his income from the sale of forest trees on 22nd January 1946, and it was on the basis of the above piece of information that the Income-tax Officer issued notice under section 34 of the Income-tax Act on 23rd February 1946. On the above facts the Tribunal held that the Income-tax Officer was not in possession of any information during the course of the original assessment of the appellant but he acquired definite information on 8th January 1946, and got its confirmation on 22nd January 1946, from the assessee's own reply. It, therefore, held the proceedings for the revised assessment taken by the Income-tax Officer to be legal. It is on the above facts that question No. 1 as framed by us arises out of the Tribunal's order relating to the assessment year 1945-46.
5. As regards the contention of the appellant about the non-taxability of the income from the timber trees on the ground that it was agricultural income, the Tribunal repelled the same on the following findings:
"Having scrutinised the evidence of the above-mentioned witnesses with sufficient care, we are definitely of opinion, in concurrence with the Appellate Assistant Commissioner, that the evidence falls short of proving that the forests were grown by the process of agriculture in the manner stated by the appellant's witnesses . . . . . The result of our examination of the evidence is that the appellant has failed to prove it as a fact that the forests in question were planted by him by means any agricultural operations. It follows, therefore, that being timber trees which are natural products of many parts of this province, they are of spontaneous growth like other natural products."
The Tribunal relied on the authority of their Lordships of the Privy Council reported in Raja Mustafa Ali Khan v. Commissioner of Income-tax ((1948) 16 I T R 330) in support of its view that, in the above circumstances, income from the sale of timber trees was not agricultural income.
6. As regards the casual and non-recurring nature of the income, the Tribunal's finding was in the following terms:
"The appellant has taken up the plea that income was also not assessable to tax as it was of a casual and non-recurring nature. This plea is based mainly on the ground that except the two jungles, which were sold, the appellant had no other jungles and therefore the income arose only once. It is further alleged that in a way it arose out of an involuntary sale necessitated by the exigencies .of the war times. In our opinion, both these grounds are insufficient to make the income `casual income'. The income arose from the sale of the trees which became the stock-in-trade of the appellant as soon as they were severed from the forest grounds with a view to earn an income from the sale of such trees as had reached their cutting age. This is a regular process resorted to by the jungle owners to earn a periodical income from their jungles. In our opinion, the income which was the subject-matter of assessment under appeal was not casual income but was a revenue receipt which was taxable in the hands of the appellant."
It, therefore, rejected the above contention of the appellant. It is on the above facts that the following questions of law arise for reference to the High- Court:
(1) Whether in the circumstances of the case, the proceedings started for the assessment year 1945-46 tinder section 34 of the Income-tax Act were valid in law?
(2) Whether in the circumstances of the case the price of timber trees received by the assessee was exempt from income-tax either as
(a) agricultural income under section 4(3)(viii) of the Income-tax Act, or as
(b) casual income under section 4(3)(vii) of the Income-tax Act?
Only question No. 2 arises in reference to the assessment appeal for 1946-47. We may add that question No. 1 of R. A. No. 521 which corresponds to question No. 3 of R. A. No. 520 and questions Nos. 3 and 4 of R. A. No. 521 which correspond to questions Nos. 5 and 6 of R. A. No. 520 are, in our opinion, not referable questions of law as question No. 1 of R. A. No. 521 and question No. 3 of R. A. No. 520 are concluded by findings of fact and questions Nos. 5 and 6 of R. A. No. 520 and questions Nos. 3 and 4 of R. A. No. 521 do not arise out of the order, of the Tribunal as the points were not debated before it.
7. Parties were supplied draft statement of the case. Respondent had no suggestions to make. The applicant has asked for the substitution of the words `timber trees' for `forest trees' in the draft statement, which has been done. He wants us to substitute a paragraph of page 3 of his statement of case in, place of paragraph 5 of the draft statement but as it contains certain fact which has not been armed by the Tribunal, the prayer cannot be allowed. The applicant also presses for inclusion of question No. 5 of R. A. No. 520 in the order of reference. This we have already refused in the order of reference as it does not arise out of the order of the Tribunal. As regards the papers sought, to be included in the appendix, we think that only the Tribunal's order out of which the reference order arises should form part of the reference and be made an' an appendix. Other documents have been discussed in the Tribunal's order and their evidentiary value has been assessed by it as a fact finding authority. The statement of the case as amended will be submitted to the High Court in the usual course.
Ambika Prasad and Y. P. Tiwari for the Assessee.
J. Sarup for the Commissioner.
JUDGMENT
BHARGAVA, J.-The following questions of law have been referred for the opinion of this Court:
(1) Whether in the circumstances of the case, the proceedings started for the assessment year 1945-46 under section 34 of the Income-tax Act were valid in law?
(2) Whether in the circumstances of the case the price of timber trees received by the assessee was exempt from income-tax, either as
(a) agricultural income under section 4(3)(viii) of the Income-tax Act, or as
(b) casual income under section 4(3)(vii) of the Income-tax Act?
This reference relates to assessment years 1945-46 and 1946-47. The assessee was assessed for the year 1945-46 on 28th of November 1945, on a total income of Rs. 12,055 on the basis of the return .filed by him. The assessee owned certain blocks of forest in the district of Gorakhpur situate in villages Anantpur alias Bhadauna and Dumri which according to the assessee were fallow land but had been converted into forest by planting trees on them. The trees on these lands were sold` under ad agreement to Tribeni Nath and Ramanand for a sum of Rs. 2,15,000 and to Mohan Singh Autar Singh for a sum of Rs. 1,95,000. Under this agreement certain sums were realised by the assessee for the sale of the trees during the two previous years corresponding to the two assessment years in question, viz. 1945-46 and 1946-47. After the assessment for the year 1945-46 had been completed on 28th November, 1945, by the Income-tax Officer of Banaras, a letter dated 8th January, 1946, was received by him from the Income-tax Officer, Gorakhpur, informing him that the assessee had sold standing timber in the zamindari at Gorakhpur to Tribeni Nath and Ramanand for Rs. 2,15,000 and to Mohan Singh Ram Autar for Rs. 1,95,000. The Income-tax Officer, Banaras, thereupon, addressed a letter making inquiries from the assessee about the details of the transactions. The information was supplied by the assessee and, thereafter, on 23rd February 1946, the Income-tax Officer issued a notice under section 34 of the Income-tax Act in respect of the assessment for the year 1945-46 calling upon the assessee to show cause why his income from the sale of these trees, which had escaped assessment, should not be brought into assessment. In the proceedings for the original assessment of 1946-47, a sum for the sale of trees by the assessee had been shown in his return and hence the assessee challenged the validity of the notice under section 34. In addition, the assessee challenged the liability to tax of the income derived by him from the sale of forest trees and timber on the ground that it was agricultural income and in the alternative that it was casual income. The Income-tax Officer rejected these contentions and the appeal of the assessee to the Appellate Assistant Commissioner as well as to the Tribunal failed. Consequently, at the request of the assessee, the questions mentioned above have been referred to this Court,
So far as the first question referred to us is concerned, the contention on behalf of the assessee was that, at the time when the notice under section 34 of the Income-tax Act was issued to the assessee for the assessment year 1945-46, the Income-tax Officer had not received any definite information in consequence of which he discovered that part of the income had escaped assessment. The main contention was that the information, which was received by the Income-tax Officer, 'Banaras, on 8th of January, 1946, had already been present before him at the time of the original assessment which was made on the 28th of November 1945, and the income from the sale of the forest trees had not been assessed by the Income-tax Officer on the view that it was not liable to be charged with income-tax. This contention in effect was that the material, which came before the Income-tax Officer in January, 1946, was not fresh material at all and the issue of the notice was a mere change of opinion. Dealing with this contention, the Tribunal mentioned in its judgment that it has been pointed out by the Income-tax Officer who dealt with the proceedings under section 34 that no books of account containing the items in question (i.e., entries relating to income from sales of trees) were produced before him in the revised assessment proceedings containing any signature of his predecessor-in-office in token of their examination by him. It would appear from this that the Income-tax Officer, who had made the original assessment on the 28th November, 1945, was not the same individual who received the letter dated 8th January, 1946, from the Income-tax Officer, Gorakhpur, and who issued the notice under section 34 of the Income-tax Act. The officer being different pointed out in his order that the books of account which were produced before him in proceedings under section 34 did not contain any signature of his predecessor in token of the fact that these account books had been examined by the latter. The Tribunal also added that the Appellate Assistant Commissioner had pointed out that the assessee did not produce the Siahas and Jamabandis before him but only the books relating to Banaras in which the sale of timber was noted in the Gorakhpur Khata, that the assessee had been taxed for Rs. 35,000 as his receipts during the previous year, while the Gorakhpur Khata had total of 1,58,625 and that no details of the various items were given in the accounts except under the general bead Amdani Ilaqa. After mentioning these facts which were pointed out by the Income-tax Officer and the Appellate Assistant Commissioner in their orders, the Tribunal did not proceed to record their concurrence with the views of the officers on these points. What the Tribunal stated was merely that they agreed with the Appellate Assistant Commissioner's view that, "when the items in question were mixed up with such a mass of agricultural income as is admitted by the assessee's own munim Ramji, no conscious knowledge of the existence and the character of such income could be attributed to the Income-tax Officer seized of the original assessment. Neither the order sheet of the original assessment or the notes about the examination of accounts that were produced, nor even the rough notes on the miscellaneous file contain any iota of proof to show that the items in question were ever the subject 9f any consideration by the Income-tax Officer."
On these facts found by the Tribunal, the Tribunal proceeded to give the ultimate finding in the following words
"We therefore hold that there is no reliable material before us to hold that the items relating to the forest income were the subject of any conscious decision on the part of the Income-tax Officer that they were not assessable to tax. There is no indication in the original assessment order that the income from the forest trees had ever attracted the attention of the Income-tax Officer."
This final finding was further reinforced by the Tribunal by making a reference to the statement of Ramji, the munim of the appellant, who had stated that he had shown the income from the sale of the forest trees and the income from the rent under the amalgamated account with the head Amdani Ilaqa and that he had sorted out the forest income from the rent income subsequently at the instance of the two sons of the assessee. On these findings the Tribunal went on to hold that in this case there was no question of any change of opinion by the Income-tax Officer or the re-assessment of the income which had been previously held to be non-assessable by him and that in fact it appeared that the Income-tax Officer had no knowledge of the income from the forest until the Income-tax Officer, Gorakhpur informed him, vide the latter's letter dated 8th January 1946, that the appellant had sold the trees and earned an income therefrom. The language in which the Tribunal recorded their findings clearly indicates that they did not repel the contention of the assessee that the entries relating to the income from the forest did exist in the account books. They must be held to have accepted this fact and their decision that the discovery that some income had escaped assessment was the result of the definite information received through the letter of the Income-tax Officer, Gorakhpur, is based on their finding that there was no material to hold that the items relating to the forest income were ever in the conscious knowledge of the Income-tax Officer. In thus proceeding, the Tribunal clearly committed an error of law as they lost sight of the principle of burden of proof in such a case. Under section 34 of the Income-tax Act, the jurisdiction of the Income-tax Officer to initiate proceedings depended on his receipt of definite information, the consequence of which was that he discovered that some…
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