COMMISSIONER OF INCOME TAX Vs. DHAWAN M R

JUDGEMENT

(1.) THIS common order shall govern the disposal of ITC Nos. 65 of 1992 and 66 of 1992. In both the cases the parties and the facts and the question of law arising for decision are common except for a change of the assessment year and the amount of taxable income. ITC No. 65/92 relates to the asst. year 1967 -68 and ITO No. 66/92 relates to the asst. year 1966 -67.

(2.) THE facts in brief, in so far as relevant for the present purpose, may be noticed. The assessee is an individual. He had a business of share broker. One of his clients was the late Rana Babar Shamsher Jang Bahadur. On behalf of Rana the assessee was entering into transactions of purchase and sale of shares. Later on the Rana gave a power of attorney to the assessee who then started transacting business in his own name though according to him that was on behalf of his principal, the late Rana. Thus, the assessee was having under his name several shares of limited companies. The value of shares standing in the name of the assessee, but apparently on behalf of Rana, was worth about Rs. 38 lacs in the year 1961 -62. There were income -tax recoveries against the Rana and the Department in their efforts to recover the income -tax dues issued garnishee order on the assessee, because his books showed the Rana as creditor. The assessee did not make any payment. So the Department attached his property at New Delhi.

(3.) AGAINST the attachment and recovery proceedings the assessee took two lines of action. He denied his owing any money to the Rana and disputed the validity of the garnishee proceedings. The reason given for his denial was that although he did owe money to the Late Rana to begin with, with the passing away of the Rana on 12th May, 1960 and the legal heirs having not filed their claim with the assessee, the same had gone barred by limitation and hence nothing had remained due by him to Rana. The other step was in respect of his own assessments. Since the books of account showed large credits, they were subject to scrutiny by the Department. In fact the Department had made assessment for the asst. year 1961 -62 making an addition of Rs. 11,84,062 and Rs. 1,67,145. The assessee filed a petition before the CIT, New Delhi on 24th Aug., 1966 for settling his income -tax affairs. In this petition, he agreed that originally he was having dealings with the Rana on principal to principal basis, purchasing shares in his own name. The amount 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 as trading liability to him in the earlier orders and the liability in respect thereof had ceased, if proper entries were made in the account books indicating cessation of liability with a corresponding credit to the P&L account, these amounts could be offered under S. 41 of the IT Act 1961. To quote from his application (para 9) :