JETHMAL LAKHANI Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE question referred to this Court under s. 66(1) of the Indian IT Act is :

(2.) THE assessee was a member of an HUF until October, 1944. By a deed of partition the assessee separated from his brothers and this deed which purported to give the entire family holding was accepted by the Revenue authorities. After the partition the first assessment year of the assessee was the year 1946-47. He did not produce any account books nor did he specify any mode of accounting but claimed to go by the Dewali year. THE Dewali year 2002 ended some time in November, 1945. THE assessee was assessed to an income of Rs. 2,800 in his business of broking and another sum of Rs, 2,000 from "other sources" because of the fact that he had encashed two one thousand rupee notes for the possession of which he failed to give any satisfactory explanation. This assessment was made on 22nd March, 1949. THEreafter the ITO came to know that the assessee held a money- lender's licence and had a money-lending business which he had failed to disclose. On 6th July, 1954, a notice under s. 34 of the IT Act was issued on the assessee by the ITO stating that he had reason to believe that the assessee's income assessable to income- tax for the asst. yr. 1946-47 had escaped assessment and it was, therefore, proposed to reassess the said income escaping assessment." On 10th Sept., 1954, the ITO issued a notice under s. 22 (4) for the asst. yr. 1946-47 (2002 Dewali) pursuant to notice under s. 34 calling upon the assessee to produce his books of account along with the books for the year 2002 Dewali and bank pass books. On 27th June, 1955, the assessee filed a duly verified list of debtors against some of whom he had filed suits while other had filed insolvency petitions. He did not however, disclose three specific debts the particulars whereof are as follows : Being asked to explain the source of these investments the assessee stated that they had come out of his ancestral funds. This was rejected by the ITO who estimated that the assessee had invested Rs. 1,50,000 in his said business and that income therefrom was Rs. 18,000. In appeal the AAC confirmed the said estimated with regard to money-lending business but reduced the income from undisclosed sources. THE ITO treated the financial year 1945-46 as the previous year for this assessment.

(3.) IT will, therefore, be noticed the assessment being for the asst. yr. 1946-47 the previous year would end on 31st March, 1946, unless the assessee had exercised his option with regard to this source of income of the effect that his accounts had been made up to some other day within the 31st day of March, 1946, as claimed by him in this case for his business of broking on a date ending in November, 1945. The assessee did not exercise any option with regard to the money- lending business and never claimed before the ITO that he went by the Dewali year in respect of this source of income. He cannot therefore, complain if his income from money-lending had been computed for the year ending 31st March, 1946. This is the view taken by Sinha J. in the case of Sushil Chandra Ghose vs. ITO (1959) 35 ITR 379 (Cal). In that case the petitioner's assessment for the year 1945-46 was completed on 18th Aug., 1945. The petitioner there had declared his accounting year as beginning from May I of every year and ending on 30th April in the year following. According to this the asst. yr. 1945-46 would correspond to the accounting year of the assessee from 1st May, 1943, to 30th April, 1944. The petitioner was a director and a shareholder of a company which had resolved on February 28, 1945 that a sum of Rs. 60,395 was available in the shape of pre-incorporation assets purchased by the company against which there was no liability. This was distributed among the shareholders including the petitioner at the rate of Rs. 230 per share. According to the petitioner this was not income but a capital receipt and he had not disclosed it in his income-tax return. On 24th March, 1954, a notice was issued under s. 34 upon the petitioner stating that he had been under-assessed for the year ending 31st March, 1946, and directing him to file a return of total income for the year ending on that date. The petitioner thereupon filed a return but contended that the amount above- mentioned was not income or dividend and was not liable to payment of income-tax. On January 31, 1955 the ITO made the assessment order whereby the total income of the petitioner was reassessed at Rs. 70,808. On behalf of the petitioner it was contended that since he had declared his year of calculation to be from May to April 30 following the above income from the company would fall within "other sources" and the year of assessment therefor would not be the financial year but the year declared by the assessee. This was negatived by the learned judge who said that until the assessee declared his option with regard to the separate source of income the ordinary financial year would be applicable to his case.