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Petitioner: CHOOHARMAL WADHURAM VS Respondent: COMMISSIONER OF INCOME-TAX, GUJARAT IIHonorable Justice P. N. BHAGWATI, ACTGDilip H. Dwarkadas,J. M. Thakore
1969 P T D 849
1969 P T D 849
[Gujarat (India)]
Before P. N. Bhagwati, Actg. C. J. and Divan, J
CHOOHARMAL WADHURAM
versus
COMMISSIONER OF INCOME‑TAX, GUJARAT II
Income‑tax Reference No. 24 of 1965, decided on 16th August 1967.
Re‑assessment‑Income earned in Karachi prior to Partition‑ Whether liable to re‑assessment‑Re‑assessment of partner whether can be made without prior assessment of firm‑Sanction for re‑assessment obtained describing assessee as association of persons‑ Re‑assessment of assessee in the status of individual whether permissible ‑ Notice ‑ Notice served on one of several legal representatives‑Re‑assessment proceedings whether valid‑Indian Income‑tax Act, 1922, Ss. 24‑B & 34(1)(a).
One Chooharmal Wadhuram carried on business in partnership with another person in Karachi prior to Partition. Subsequent to Partition he carne to India and the partnership was dissolved. In the books of account of a firm in Petlad certain amounts were found credited to the firm of Chooharmal Wadhuram for the financial years 1945‑46 and 1946‑47. After the death of Chooharmal in 1952, notice under section 34(1)(a) was served op D As his legal representative, Sanction for reassessment proceedings was obtained describing D as an association of persons. Against the reassessment proceedings the assessee contended that: (i) he was not liable to be taxed in the taxable territories for the assessment years 1945‑47; and 1947‑48 ; (ii) he could not be assessed in respect of the deposits in the Petlad firm without the amount being assessed in the hands of the firm of which he was partner ; (iii) assessment could not be made in the status of an individual as sanction for proceedings had been given in respect of an association of persons and (iv) the proceedings had not been validly initiated as notice had been served on one only of several legal representatives.
Held, (i) An assessee, who was resident in British India prior to partition, would be assessable under the Indian Income‑tax Act, though the territory subsequently formed part of Pakistan.
(ii) The revenue has an option to assess a firm or the partners of the firm as individuals. It is not bound to proceed first against the firm before proceeding against the partners.
(iii) The facts showed that sanction for reassessment had been obtained against D as the legal representative of Chooharmal. Though the status of the assessee had been wrongly described, it would not invalidate the reassessment proceedings as the assessee proceeded against by the Income‑tax Officer was the same in respect of whom sanction was given by the Commissioner.
(iv) The notice and reassessment proceedings would be valid if the Income‑tax Officer after diligent and bona fide enquiry believed D to be sole legal representative of Chooharmal.
[Case sent back to Tribunal for supplemental statement of case on this point.]
If an Income‑tax Officer after diligent and bona fide enquiry ascertains who the legal representatives of a deceased are, such legal representatives sufficiently represent the estate of the deceased. A decision obtained with them on record will bind not merely those impleaded but the entire estate including those not brought on record.
Daya Ram v. Shyam Sundari A I R 1965 S C 1049 applied.
Commissioner of Income‑tax v. K Adinarayana Murthy (1967) 65 I T R 607 (S C) ; Commissioner of Income‑tax v. Muralidhar Jhawar and Purna Ginning and Pressing Factory (1966) 60 I T R 95 (S C) ; First Additional Income‑tax Officer v. Mrs. Suseela Sadanandam (1965) 57 I T R 168 (S C) ; Fulchand Purshottam v. Vasavada, Income‑tax Officer (1963) 4 G L R 591 and Thakkar (J C.) v. Commissioner of Income‑tax (1955) 27 I T R 658 ref.
STATEMENT OF CASE
By these applications, which are considered together, the assessee requires the Appellate Tribunal to refer to the High Court certain questions of law which are said to arise out of the orders of the Tribunal in I. T. As. Nos 7800 to '1805 of 1963‑64. Since, in our opinion, certain questions of law do arise out of the aforesaid orders of the Tribunal, we hereby draw up a statement of the case and refer it to the High Court of Gujarat at Ahmedabad under section 66(2) of the Indian Income‑tax Act, 1922, for opinion.
2. The assessee is one late Shri Chooharmal Wadhuram represented by Shri Daulatram Chooharmal, one of his heirs and legal representatives. The assessment years in question are 1946‑47, 1947‑48, 1950‑51, 1951‑52, 1952‑53 and 1953‑54. The corresponding previous years for, the first five assessment years are financial years 1945‑46, 1946‑47, 1919‑50, 1950‑51 and 1951‑52 and the previous year for the assessment year 1953‑54 covered the period from April 1, 195 2, to 28th August 1952, when Shri Chooharmal died.
3. Shri Chooharmal was doing business in partnership with one Muljibhai Dahyabhai in the name of Daulatram Chooharmal at Karachi. The partnership was dissolved by an agreement dated November 7, 1948. Chooharmal and Mu1jibhai came to India after Partition. There is no evidence to show that Shri Chooharmal was assessed to income‑tax in respect of the assessment years 1946‑47 and 1947 48 at Karachi. But a notice under section 22(4) issued to him for the assessment year 1945‑46 by the Income‑tax Authorities at Karachi was produced before the income‑tax authorities and the Tribunal. Shri Chooharmal was a member of the Yarn Syndicate at Karachi and tax in respect of his share from the Syndicate was collected from the Syndicate for the assessment years 1946‑47 and 1947‑48 and the Syndicate in its turn sent him an advice note accordingly. After coming to India he died on August 28, 1952. The notice under section 22(4) issued by the income‑tax Officer, Karachi, and the intimation received from the Yarn Syndicate are made annexures "A" and "B", respectively, and form parts of the case.
4. In the meantime, there was an account in the books of one Messrs Narayandas Purshottamdas of Petlad (in Gujarat State) in the name of Daulatram Chooharmal Vahivatkarta Shah Muljibhai Dahyabhai, Karachi.
In this account there were credits of Rs. 18,000 on January 3 1, 1946, Rs. 32,000 on January 28, 1946, Rs. 10,000 on February 16, 1946, Rs. 10,000 on March 15, 1946, Rs. 15,000 on May 10, 1946, and Rs. 15,000 on August 6, 1946. These credits had come by cheques on Habib Bank Ltd., Bombay, from one Damodar Rahmandas. Interest also was credited to this account from year to year and there were small credits and withdrawals also. In S. Y. 2008 (ending on 18th October 1952) an amount of Rs. 74,000 was debited to this account and the recital for this debit was that Rs. 2,500 were cash taken by the creditor and an amount of Its. 71,000 was adjusted by way of the creditor taking over the debts of two persons, viz. Nana Mahiji and Ranchhod Bakor who in their turn, were indebted to Narayandas Purshottamdas. Similarly, an amount of Rs. 7,047 was debited to this account with the recital that a flour factory called Pancball Ranchhod Dhura Flour Factory was transferred to the creditor. Thereafter a small amount was carried forward in that account.
5. The Income‑tax Officer, Petlad, started proceedings against Muljibhai Dahyabhai in respect of the amounts credited to the account referred to in the earlier paragraph in the books of Narayandas Purshottamdas in the accounting period relevant to the assessment years 1946‑47 and 1947‑48. Proceedings for the year 1946‑47 became ineffective as a result of the order of the Appellate Assistant Commissioner as they were time‑barred under the Income‑tax Act of Baroda State, by which income‑tax proceedings in Petlad were governed at the relevant time. In the course of proceedings for 1946‑47 and 1947‑48, Mu1jibhai had died. The case put forward on behalf of Muljibhai was that the account did not belong to him, that in his will dated July 19, 1945, this account with Narayandas Purshottamdas was not mentioned and that the account really belonged to Chooharmal and his heirs. An assessment was made by the Income‑tax Officer on the legal heirs of Muljibhai on a total income of Rs. 37,701 for 1947‑48. The matter ultimately went to the Tribunal and the Tribunal by its order dated 16th January 1.960, in I. T. A. No. 8258 of 1958‑59 recorded the finding that "Muljibhai was carrying on business jointly with Chooharmal. Muljibhai would not have been just an employee of Chooharmal because even in 1945 he was in the position of creditor to Narayandas Purshottamdas to the extent of over Rs. 15,000 and he had the authority to enter into monetary transactions on behalf of the concern Daulatram Chooharmal. Since the basis of assessment is the fact of a credit of Rs. 30,000 in the account year in the books of Narayandas Purshottamdas, it will be reasonable to estimate the assessee's share of income accruing to him at Karachi at of the figure estimated by the Income‑tax Officer, i.e. Rs. 17,500." The order of the Tribunal in I. T. A. No. 8255 of 1958‑59 dated 16th January 1960, is made Annexure "C" and forms part of the case.
6. In the meantime, the Income‑tax Officer, Surat, started proceedings under section 34(I)(a) against the legal heirs of Chooharmal Wadhuram for the assessment years 1946‑47 and 1947‑48 in respect of the amounts deposited in the account of Daulatram Chooharmal referred to earlier. Approval of the Commissioner was taken for initiating the proceedings for the assessments of the amounts in the hands of the legal heirs who were described as "association of persons". Notice for the assessment year 1946‑47 was served on March 29, 1955, while the notice for the assessment year 1947‑48 was served on March 29, 1956. The notices were issued in the name of Shri Chooharmal Wadhuram by his legal representatives, Shri Daulatram and others. The notices were served on Daulatram and it was Daulatram who attended in the course of the proceedings. The assessments were completed in the first instance on March 24, 1956 for 1946‑47 and on January 31, 1957, for 1947‑48 under section 23(4). But they were set aside by the Appellate Assistant Commissioner on February 17, 1958, who directed the Income‑tax officer to make fresh assessments after giving the assessees a proper opportunity to explain their position. And it is the assessments made under the direction of the Appellate Assistant Commissioner which are the subject‑matter of reference. The original as well as subsequent orders of the Income‑tax Officer for the assessment years 1946‑47 and 1941‑48 (collectively), the order of the Appellate Assistant Commissioner setting aside the original orders, notices under section 34 issued by the Income‑tax Officer (collectively), report of the Income‑tax Officer to the Commissioner at the time of initiating proceedings under section 34 and the order of sanction by the Commissioner are all made Annexures "D", "E", "F", "G" and "H", respectively, and form parts of the case.
7. For the assessment years 1950‑51 to 1953‑54 also proceedings were taken under section 34 after taking the Commissioner's approval. For these years, however, the proposals themselves indicated the status of the assessee to be that of an individual. Notices under section 34 were served on the assessee on March 6, 1959 and they were issued in the names of Daulatram Chooharmal, Arjandas Chooharmal, Sobraj Chooharmal, Sukhdas Choobarmal and Bai Lila, widow of Chooharmal Wadburam, legal representatives of the deceased, Shri Chooharmal Wadhuram, and served on each of the legal representatives separately for all these years. The assessments were completed on November 25, 1959, but they were set aside by the Appellate Assistant Commissioner for fuller inquiries on October 5, 1960. And it is the fresh assessments made in consequence of the Appellate Assistant Commissioner's order that are the subject‑matter of dispute. The original orders dated November 25, 1959 (collectively), the order of the Appellate Assistant Commissioner setting aside the assessments, and the subsequent assessment orders (collectively) made in pursuance of the order of the Appellate Assistant Commissioner are made Annexures "I", "J" and "K", respectively, and form parts of the case.
8. The Income‑tax Officer took the view that the whole of the amounts credited to the account of Daulatram Chooharmal with Narayandas Purshottamdas belonged to the late Shri Chooharmal and he added an amount of Rs. 70,000 in the assessment year 1946‑47 and Rs. 30,000 in the assessment year 1947‑48. He also added the full amounts of interest credited to the account for the assessment years 1946‑47 and 1947‑48 as also for the subsequent years. For the assessment year 1946‑47 he further estimated business income at Rs. 6,001 out of business of yarn which the assessee was doing in that year. For the assessment year 1947‑48 he similarly made an addition of Rs. 7,000. When the matters went up to the Appellate Assistant Commissioner he held, bearing in mind the order of the Tribunal in I. T. A. No. 8258 of 19`8‑59, that only an amount of Rs. 35,000 could be added to the income of Chooharmal for the assessment year 1946‑47 and an amount of Rs. 15,000 for the assessment year 1947‑48. With regard to the interest he held that for the assessment years 1946‑47 and 1947‑48 only half the interest credited to the account was includible in the assessments but in the remaining years the whole interest was to be added to the assessment because ultimately the amounts lying to the credit of the account were taken over by Daulatram, one of the legal heirs of late Shri Choobarmal. The Appellate Assistant Commissioner confirmed the additions of Rs. 6,000 and Rs. 5,000 on account of yarn business in the assessment years 1946‑47 and 1947 48. The consolidated order of the Appellate Assistant Commissioner dated 23rd July 1963, is made Annexure "L" and forms part of the case. (Orders of the Income tax Officer are already made Annexures in earlier paragraphs). The statement of Sakerchand Dahyabhai, brother of Muljibhai Dahyabhai, and the statement of Cbimanlal Damodardas, document writer recorded by the Income‑tax Officer, Surat, are also made Annexures "M" and "N", respectively, and forms part of the case. A copy of the dissolution agreement dated November 7, 1948 for dissolution of the partnership between Muljibhai and Chooharmal referred to in the order of the Appellate Assistant Commissioner is also made Annexure "O" and forms part of the case.
9. The assessee thereafter appealed to the Tribunal and it was inter alia contended on his behalf (1) that the Income‑tax Officer, Surat, did not have the jurisdiction to assess the legal heirs of Chooharmal for the assessment years 1946‑47 and 1947‑48 since Chooharmal was a resident of and/or was carrying on business at Karachi and he was assessed to income‑tax in Pakistan and, therefore, only Pakistani Income‑tax Officer had the jurisdiction to assess him under the agreement of avoidance of double taxation, (2) that since the sanction of the Commissioner of Income‑tax was obtained for the purpose of initiation of proceedings under section 34 of the Act in the status of an association of persons, the assessments made in the status of an individual were all invalid and illegal in law, (3) that the assessments made directly on partner Chooharmal without assessing the firm whose funds were impugned were bad, invalid and illegal in law, (4) that notices under section 34(1)(a) of the Act for the assessment years 1946‑47 and 1947‑48 were bad in law since they were issued before March 31, 1956, (5) that the assessments made were all invalid and illegal in law because the service of the notice under section 34 of the Act only on Daulatram, was defective, particularly in view of the fact to at the Income‑tax Officer was aware of the existence of other legal heirs as was clear from the assessments for 1952‑53 and 1953‑54 made on Bai Lilabai as legal representatives and (6) that there was neither any evidence that the said amounts of Rs. 70,000 and Rs. 35,000 belonged to Chooharmal, nor that the said amounts were concealed or undisclosed income of Chooharmal, or that the amounts of Rs. 6,000 and Rs. 5,000 were earned from any business carried on by Chooharmal in the relevant years of account. The department in course of its appeals for the years 1946‑47 and 1947‑48 objected to the reduction of the amounts added by way of income from undisclosed sources in the years 1946‑47 and 1947‑48 given by the Appellate Assistant Commissioner and reliance was placed on behalf of the department on the orders of the Income‑tax Officer which are already made annexures.
10. The Tribunal held, (1), that even after partition, assessments both in India and Pakistan had to be made according to the laws in force in each country and the only relief that the assessee would be entitled to was by way of abatement under the agreement of avoidance of double taxation for the assessment year 1947‑48 onwards and that before any relief could be given to the assessee he had to establish that he was assessed to tax in Pakistan which in this case he had failed to do ; (2) that only for the assessment years 1946‑47 and 1947‑48 sanction was obtained from the Commissioner for starting proceedings against an association of persons but that even for those years it was clear that the authority was given to proceed against the estate of late Shri Chooharmal in respect of income which it was believed belonged to him in his lifetime, that at worst specifying of a wrong status was an error in the nature of an irregularity which did not vitiate the sanction and that in any case since the items of income were reasonably indicated and the assessee whose income had escaped assessment was identified with reasonable accuracy, the mistake in the definition of status did not nullify the sanction ; (3) that there can be no bar to the assessee's share in the deposits in the name of the firm, which were not satisfactorily explained, being assessed in his hands without assessment being made in the hands of the firm in the first instance ; (4) that provisions of section 34 (1‑A) were not applicable to the assessment years 1946‑47 and 1947‑48 in this case and that notices under section 34(1)(a) were issued within time for the assessment years 1946‑47 and 1947‑48 ; (5) that there was nothing wrong in the income‑tax authorities serving the notices only on Daulatram as legal representative of the deceased because that part of the estate of late Shri Chooharmal which was the subject‑matter of the dispute was administered by Daulatram and in the notices it is clearly stated that they were meant for all the legal heirs of late Shri Chooharmal and Daulatram accepted them as such without a murmur ; (6) that the income‑tax authorities were justified in treating the amount of Rs. 35,000 in the first year and Rs. 15,000 in the second year as the assessee's income from undisclosed sources ; (7) that only half the interest credited to the account of Daulatram Chooharmal in the Petlad firm could be added to the total income of the assessee in the years in question and (8) that the estimates of business profits at Rs. 6,000 and Rs. 5,000 for the assessment years 1946‑47 and 1947‑48 were justified. The order of the Tribunal is made annexure "P" and forms part of the case.
11. The assessee claimed that the following questions of law arose from the order of the Tribunal and requested that the same should be referred to the High Court.
"(1) Whether the Tribunal was right and or misdirected itself and/or justified in law in holding that half of the deposits viz, Rs. 70,000 and Rs. 30,000, belonged to deceased Chooharmal ?
(2) Whether there was any evidence or material before the Tribunal to hold (a) that half of the deposits ; viz., Rs. 70,000 and Rs. 30,000, belonged to the deceased and/or (b) that the same was the undisclosed income of the deceased ?
(3) Whether the Tribunal was right and/or misdirected itself and/or justified in law contrary to or inconsistent with or without any evidence or material on record in holding that (a) the assessee had failed to explain the source of the said amount: of Rs. 35,000 and/or Its. 15,030 and/or that the primary responsibility to explain the source of the funds in so far as the half share was concerned was on the assessee?
(4) Whether the Tribunal was right and/or justified and/or misdirected itself in law and/or acted without or contrary to or inconsistant with the evidence or material on record in holding that at least half the interest on the said amount of deposits viz. Rs. 70,000 and Rs. 30,000, should be included in the income of the deceased or the assessee on the ground of accrual or otherwise ?
(5) Whether, on the facts and in the circumstances of the case, the Tribunal was right and/or justified and/or misdirected itself in law and/or acted contrary to or inconsistent with and/or without any evidence or material on record in holding that (a) the Income-tax Officer in India had jurisdiction to assess the income of the deceased and/or (b) that there was nothing to show that the deceased was assessed under the Income‑tax Act in Pakistan ?
(6) Whether, on the facts and in the circumstances of the case, and particularly in view of the fact that the Commissioner of Income‑tax's sanction was obtained by the Income‑tax Officer against and/or the status of association of persons constituted by the legal heirs of the deceased, the assessment made or completed in the status of an `individual' was proper or valid in law ?
(7) Whether, on the facts and in the circumstances of the case, the Tribunal was right and/or justified and/or misdirected itself in law in holding that half the amount of deposits, viz., Rs. 70,000 and Rs. 30,000 could be assessed or included in the income of the deceased without the same being assessed in the hands of the firm ?
(8) Whether, on the facts and in the circumstances of the case, notices issued under section 34(t)(a) of the Act were valid in law ?
(9) Whether, on the facts and in the circumstances of the case, the Tribunal was right and/or justified and/or misdirected itself in law in holding that there was nothing wrong in the Income‑tax Officer serving the notices only on Daulatram inspite of the facts that there were other legal heirs known to the Income‑tax Officer as the legal representatives of the deceased and/or the assessments made after such service of notice was proper or valid in law ?
(10) Whether there was any evidence or material before the Tribunal to hold that the deceased had made profit of Rs. 6,000 in the assessment year 1946‑47 and Rs. 5,000 in the assessment year 1947‑48 ?"
12. Questions Nos. (1), (2), (3) (4) and (10) relate to the findings of the Tribunal which are pure findings of fact based on the evidence on record. This is clear from the following extract from the order of the Tribunal concerning the additions of R s. 35,000 and Rs. 15,OU0 on the account of the deposits in the account with the Petlad firm;
"(8) In our view, the conclusion of the Appellate Assistant Commissioner that half of the deposits belonged to late Shri Chooharmal is quite logical and in conformity with the facts as we read them. That was also the view of the Tribunal in I. T. A. No. 8258 of 1958‑59 and after considering the facts de novo we are in respectful agreement with that view. We find it impossible to dissociate Chooharmal and his legal heirs from at least the part ownership of the deposits in the account in the light of admitted facts that large amounts had been adjusted in that account by Daulatram taking over some of the assets of the debtor. The claim now made that the take‑over was on behalf of Muljibhai is not supported by any contemporaneous evidence. It is clear that, while Muljibhai did have some degree of control over the account, at least in the years of account in question and till his death, it has so happened that the bulk of the amounts have been paid to the legal heirs of Chooharmal. The most reasonable conclusion in the circumstances would, therefore, be that the account belonged jointly to Muljibhai and Chooharmal and each one of them was under an obligation to explain the source of the deposits to the extent of his respective share. Muljibhai's legal heirs have already been saddled with the liability in respect of his share and it is but fair that the remaining half of the liability should be fastened on the legal heirs of Chooharmal. We are unable to accept the contention of the learned counsel that the amounts in the account could not be treated as income from undisclosed sources. The primary responsibility to explain the source of the funds in so far as his half share was concerned was on the assessee and on the failure on his part or on the part of his legal heirs to explain the source, the amounts could rightly be treated as his income from undisclosed sources."
Question No. (10) relates to the…
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