K S MALIK Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) : The Tribunal has referred the following two questions of law for the decision of this Court :

(2.) THE reference arises out of proceedings for assessment to income- tax of Sri K. S. Malik, New Delhi, and relates to the asst. yr. 1957-58.

(3.) ON the other hand Sri Kirpal, learned counsel for the Revenue, contends that the source for this item of income is only the resolution passed by the company agreeing to forgo the debt due from the assessee. Though it suited the assessee's purpose to maintain one single set of accounts for all his transactions with the company it could hardly be said that he had only one source of income from which all this income was derived. His salary income was derived because of his agreement to serve the company as an employee. His dividend income was derived because of the shares he held in the company. The other items of income, if any, recorded in this set of books were derived because of the mutual transactions between the assessee and the company. This did not constitute the source for the notional income that is now sought to be taxed. This being a separate source of income, the assessee is liable to be taxed on the financial year as a previous year in respect of it unless he can I prove, that even in respect of this source he has opted for the same previous year as in respect of salary, dividend, etc. There is no such evidence of any action having been exercised by the assessee in this particular case. As pointed out by the Madhya Pradesh High Court in Binodi Ram Balchand vs. CIT (1962) 44 ITR 249 (MP) (subsequently affirmed in CIT vs. Binodiram Balchand (1970) 77 ITR 128 (SC) ), the exercise of an option involves an expression of an implicit claim or statement before the IT authorities by the assessee to show that be had applied his mind and that he had exercised the option given to him. The mere fact that the assessee has maintained certain books of account in which the amounts in question are included and that these accounts have been made up to a particular date does not by itself mean that the assessee has exercised the option to adopt that previous year for his tax purpose. That apart, in the present case, even while filing a return in response to the notice under s. 147 the assessee returned this item of income in s. F of the return. In other words, though he claimed that it was a receipt which did not constitute income, he did not put forward a specific claim that even assuming it was income it was taxable only in the previous year ending on September 30, 1957, and hence was not taxable in the previous year relevant to the asst. yr. 1957-58.