COMMISSIONER OF INCOME TAX Vs. RASIKLAL C NAGRI

JUDGEMENT

(1.) THE assessee is an individual and the assessment year index reference are 1968 -69 to 1970 -71. The assessee and his wife, Savitaben, were partners in the firm, Messrs. Pari Chimanlal Harilal. In his return of income for each of the assessment year under reference, the assessee had appended a note to the effects that interest income earned by his wife, Savitaben, from the firm of Messrs. Pari Chimanlal Harilal was not shown, relying on the decision of the Income -tax Appellate Tribunal ('the Tribunal' for short) for the assessment year 1960 -61. The Income -tax Officer, while framing the income -tax assessment, included the share income which Savitaben had received from Messrs. Pari Chimanlal Harilal in the total income of the assessee in each of the years under reference. He, however, did not include the interest received by Savitaben from the said firm in the assessee's total income. After the income -tax assessments were complete, the Income -tax Officer issued notice under section 148 read with section 147 of the Income -tax Act, 1961 (the 'Act' for short), seeking to reopen the income -tax assessments for the years under reference. There is a controversy as to whether the reopening of the assessments was under clause (a) or clause (b) of section 147 of the Act. According to the Revenue, the assessments were sought to be reopened under both the said clauses.

(2.) THE assessee resisted the action of the Income -tax Officer in reopening is income -tax assessments and contended that he had disclosed all the primary facts fully and truly and that, therefore, there was no justification to reopen the assessment. The Income -tax Officer, in his assessment orders passed under section 143(3) read with section 148, held that, in the instant case, 'the capital investment made by Smt. Savitaben in the firm of Messrs. Pari Chimanlal Harilal was her capital with the firm and interest was paid by the firm on the said capital. The income is, therefore derived by her as she is a partner in the firm in which her husband is a partner'. The Income -tax Officer held that, in these circumstance, the interest paid to Savitaben by the firm is taxable in the hands of the assessee. The Income -tax Officer held that, as the assessee had not disclose all primary fact for the purpose of assessment, the proceedings were right initiated.

(3.) BEING aggrieved by the decision of the Tribunal, the Revenue sought reference and, at its instance, the following questions have been referred to us, for our opinion, under section 256(1) of the Act :