E A VENKATARAMIER Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) WE are in this reference concerned with the assessment year 1955-56 for which the previous year ended on April 30, 1955. The assessee was a registered firm having eight partners of whom four were the relative husbands of other partners. For the year in question, the assessee returned a total income of Rs. 1, 21, 058 which was accepted by an order of the Income-tax Officer dated Octobers 11, 1956. The assessment was however reopened under section 34 of the Income-tax Act, 1922, and a sum of Rs. 10, 000 was added to the chargeable income on the view that it represented undisclosed income of the assessee. The propriety of this order was the subject-matter of an appeal and a further appeal, both of which failed. The Tribunal has, under section 66(1) of the Act, referred to this court the following question "Whether, on the facts and in the circumstances of the case, the reassessment on the assessee firm for 1955-56 assessment under section 34 is valid in law ?" *There is some controversy as to the precise scope of this question to which we will refer in the proper placeWE shall refer to certain further facts in order to appreciate the argument before us for the assessee. As on April 12, 1954, each of the lady partners was credited in the accounts of the firm with a sum of Rs. 15, 000 which included a sum of Rs. 2, 500. While making the original assessment, the Income-tax Officer noticed these credits and called upon the assessee to file written explanations as to the source of the sum of Rs. 2, 500 in each case.

(2.) THIS was on February 7, 1956. The explanation of the assessee dated February 24, 1956, was that the sum of Rs. 15, 000 related to the share capital of each of the lady partners, of which Rs. 2, 500 had been received from their mothers-in-law in each case in accordance with the wishes of her husband and that the balance was cash that remained with each since their drawal of the amounts from the savings bank account in the name of each lady about December, 1947. The firm also explained that the ladies were conducting Sannadi Knitting Work and were in a position to invest capital from their own earnings. On September 14, 1956, the books of the assessee were examined and it was also given an opportunity to explain and prove the nature and source of credits of Rs. 2, 500 in the accounts of each of the ladies. Request for further time was granted and finally on October 11, 1956, the Income-tax Officer recorded that the assessee obviously had no mind to furnish the evidence and was unnecessarily dragging the proceedings and went on to observe that "the credits will be considered in the hands of the partners and the assessment will be completed." *The notes of the Income-tax Officer dated September 28, 1956, showed that he had before him the savings bank pass book of each of the lady partners with the Madura Mercantile Bank Limited. The pass books did show withdrawal by each of the ladies in December, 1947, of a sum of Rs. 2, 450 from the bank. We also find that on April 4, 1956, one of the partners, E. A. V. Rangachary, gave a sworn statement before the Income-tax Officer who examined him for the purposeOn October 30, 1956, the assessments of two of the partners, E. A. V. Rangachary and E. A. V. Sundara Rao, were completed by including in each case a sum of Rs. 2, 500 standing in the name of the wife of each in the firm's books. It does not appear that any such inclusion was made in the assessment of the other two partners.

(3.) THIS fact of deletion, of course, was not before the Income-tax Officer while making the initial assessment. But can this fact be regarded as information that certain income, profits or gains had escaped assessment?In elucidating this question, citation of authorities has been made on either side of the Bar which we shall notice. In Commissioner of Income-tax v. Janab S. Khaderwalli Sahib, this court was of the view that mere change of opinion on the same facts and figures which were present in the mind of the Income-tax Officer at the time of the original assessment did not amount to discovery. Apparently this view was expressed with reference to the language of section 34 as it stood before the amendment in its present form. The Income-tax Officer there even at the outset was aware of the fact that the assessee had acquired properties worth Rs. 16, 000 and it was on that basis he came to the conclusion that this sum should have come from the assets of the partnership of which the assessee was a member. The Tribunal, on appeal, was, however, of a different view and thought that this sum of Rs. 16, 000 could not be considered to be the assessable income of the firm and accordingly reduced the assessment of the firm. It was thereafter on the basis and in the light of that finding of the Tribunal, the Income-tax Officer purported to reopen the assessment and added the sum of Rs. 16, 000 to the income of the assessee.