DHANWATE D R Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference under S. 66(1) of the IT Act. We are here concerned with the asst. year 1947 -48 the accounting year ending with 31st March, 1947. At the material time the assessee was a partner in a firm styled as Shivraj Fine Art Litho Works, Nagpur. The other partners being his wife Parvatibai and six sons, out of whom one Yeshwantrao was a minor. He was admitted to the benefits of partnership. The share of each partner was two annas in a rupee. The firm was being treated as registered for purposes of income -tax since 1939. On 26th Nov., 1947 the assessee submitted his return to the ITO. As regards his share of profits in the registered firm, he stated "as per firm's case". He further disclosed a certain income by way of interest and income from sources other than those mentioned in the form. In part (c) of disclosed that his minor son, Yeshwantrao Dhanawate, was admitted to the benefits of the partnership. In that column he also disclosed that in addition to the two annas share, he was being paid Rs. 6,800 as honorarium. The assessment of the firm as well as the assessments of the assessee and other partners of the firm were taken together on 25th Feb., 1948 by Mr. Bandwar, the then ITO (1st Addl.), Nagpur. He acting under sub -s. (6) of S. 23 of the Act, determined the total income of the firm at Rs. 2,00,176. Out of the income he apportioned Rs. 29,597 as the share of the assessee; Rs. 22,797 as the share of his wife Parvatibai and Rs. 22,797 as a share of his minor son, Yeshwantrao. On the same day he completed the assessment of the assessee as well as Parvatibai and Yeshwantrao. In the assessment order made by him, the ITO did not include the share of income of Parvatibai and Yeshwantrao in the income of the assessee. On the other hand, the ITO assessed that income and taxed it in the hands of Parvatibai and Yeshwantrao. It appears that some time in the year 1955, taking advantage of the voluntary disclosure scheme of the Government, the partners of the firm made some disclosures under the said scheme. As a result of compromise arrangement, the income of the firm was enhanced by a sum of Rs. 1,35,000. The ITO took action under S. 34 against the firm and enhanced its income by the said amount. The ITO also took action under S. 34 against the assessee and the other partners for the purpose of revising the assessment. This revised assessment was made on 29th Feb., 1956. The total income of the firm, as already stated, was enhanced by a sum of Rs. 1,35,000. Thus its total income computed amounted to Rs. 3,35,176. The said income was apportioned among the partners. The amount apportioned to the share of D.R. Dhanawate came to Rs. 46,472 and the ammount apportioned to the share of Parvatibai and Yeshwantrao came to Rs. 39,672 each. The revised assessment of the assessee also was done by the ITO on the same day and in that assessment he added a sum of Rs. 79,344 representing the income that had been apportioned to the share of Parvatibai and Yeshwantrao to the income of the assessee. The income of the assessee was thus computed at Rs. 1,26,276. Feeling aggrieved by the order so far as it went to include the share of profits of Parvatibai and Yeshwantrao in his income, the assessee preferred an appeal to the AAC, Nagpur. The appellate authority relying on a decision of the Nagpur High Court, D.R. Dhanwatary vs. CIT (1956) 29 ITR 257, allowed the appeal on 27th Feb., 1956, and directed the ITO to delete the addition of the aforesaid amount Rs. 79,344 from the total income of the assessee.

(2.) AT this stage it would be convenient to refer to the relevant facts giving rise to the decision in D. R. Dhanwatay vs. CIT (supra), which arose out of the assessee's assessment for the year 1946 -47. For that year also on reopening the assessment case by a notice under S. 34(1)(b) of the Act, the ITO had sought to revise the assessment of the assessee by including the share of income of his wife and a minor son.

(3.) AGAINST this order the assessee took an appeal to the AAC, who by his order dt. 22nd April, 1957, confirmed the order of the ITO. The assessee then took a second appeal before the Tribunal and that appeal also was dismissed. The Tribunal upheld the order of the ITO under both the parts of S. 34(1)(a). The assessee then moved the Tribunal under Sub -S. (1) of S. 66 praying that the case be referred on a reference to this Court. The Tribunal has now referred the case and the question of law arising out of the order of the Tribunal referred to us, is :