COMMISSIONEROF INCOME TAX Vs. M R DHAWAN

JUDGEMENT

(1.) This common order shall govern the disposal of ITCNo&.65/92 and 66/92. In both the cases the parties and the facts and the questionof law arising for decision are common except for a change of the assessment yearand the amount of taxable income. ITC No. 65/92 relates to the assessment year1967-68 and ITC No. 66/92 relates to the assessment year 1966-67.

(2.) The facts in brief, in so far as relevant for the present purpose, may benoticed. The assessee is an individual. He had a business of share broker. One ofhis clients was the Late Rana Babar Shansher Jang Bahadur. On behalf of Rana theassesses was entering into transactions of purchase and sale of shares. Later on theRana gave a power of attorney to the assessee who then started transactingbusiness in his own name though according to him that was on behalf of hisprincipal, the late Rana. Thus the assessee was having under his name severalshares of limited companies. The value of shares standing in the name of theassessee, but apparently on behalf of Rana, was worth about Rs. 38 lacs in the year1961-62. There were Income-tax recoveries against the Rana and the departmentin their efforts to recover the Income-tax dues issued garnishee order on theassessee, because his books showed the Rana as creditor. The assessee did notmake any payment. So the department attached his property at New Delhi.

(3.) Against the attachment and reccovery proceedings the assessee took twolines of action. He denied his owing any money to the Rana and disputed thevalidity of the garnishee proceedings. The reason given for his denial was thatalthough he did owe money to the Late Rana to begin with, with the passing awayof the Rana on 12.5.1960 and the legal heirs having not filed their claim with theassessee, the same had gone barred by limitation and hence nothing had remaineddue by him to the Rana. The other step was in respect of his own assessments. Sincethe books of account showed large credits, they were subject to scrutiny by thedepartment. In fact the department had made asssessment for the assessment year1961-62 making an addition of Rs. 11,84,062.00and Rs. 1,67,145.00. The assessee fileda petition before the CIT, New Delhi on 24/08/1966 for settling his Income-tax affairs. In this petition, he agreed that originally he was having dealings withthe Rana on principal to principal basis, purchasing shares in his own name. Theamount due by him to the Late Rana had become barred by limitation. However,he had stated that because the credit amounts had been claimed and allowed astrading liability to him in the earlier orders and the liability in respect thereof hadceased, if proper entries were made in the account books indicating cessation ofliability with a corresponding credit to the profit and loss account, these amountscould be offered under Section 41 of the Income Tax Act, 1961. To quote from hisapplication (Para 9):-