P R MUKHERJEE Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) The assessee was Chief Engineer of Howrah Municipality and retired in 1967. In this reference, we are concerned with the assessment years 1962-63 to 1965-66. The cinema house called "Shyamasree Talkies" was constructed in the name of the assessee's wife in March 19, 1946. The land was purchased for a sum of Rs. 15,000 prior to 1946, with the assessee's funds. On the security of the land an overdraft was obtained from the Bengal Central Bank and with the, money obtained from 'the bank and the credit extended by the contractors, the cinema building was constructed and the total cost of land and building stood at Rs. 30,733 by March, 1946. In February, 1948, the assessee's wife submitted a voluntary return of income for the previous year ending 31st March, 1947, disclosing income from property and cinema house. In the course of the assessment proceedings, the ITO wrote to the lady as to the source of funds for capital contribution in the business. She replied that the capital came from dowry given by her father. The capital referred to was a sum of Rs. 25,381 shown in the balance-sheet of the cinema business as on 31st March, 1947. But the ITO was not satisfied with the explanation. He held that in the absence of any documentary and other evidence the capital must be held to have come from the assessee and the income from the business should, therefore, be included in the assessee's assessment under Section 16(3) of the Indian I.T. Act, 1922. He accordingly reopened the assessment of the assessee for the assessment year 1946-47, under Section 34 of the Indian I.T. Act, 1922, and included the income from the cinema business and the property in the assessment under Section 16(3) of the said Act. The assessee did not appeal against this assessment. Subsequently, after reopening the assessment of the assessee under Section 34 of the Indian I.T. Act, 1922, for the assessment year 1947-48, the ITO held that in the absence of any evidence in support of the explanation offered, viz., that the money was gifted to the assessee's wife by her father, it was income of the assessee from some undisclosed source and accordingly added the sum to the assessment. The assessee appealed against the order of the ITO before the AAC and ultimately to the Tribunal without any success. The matter was then taken up in reference and the High Court held that the Tribunal was justified in finding that the sum in question was the assessee's income from undisclosed source (see [1956] 30 ITR 535). For the assessment year 1948-49, also the assessee included the income from the cinema house in the return and the assessment was made accordingly. For the assessment year 1949-50, the assessee again included the income from the said business in his return but contested before the AAC without success that the same should be excluded from his assessment. He took up the matter in appeal before the Tribunal who returned the case to the AAC with a direction for re-deciding the issue after giving the assessee reasonable opportunity of producing such material as the assessee thought it necessary to prove that the assets with which the cinema was built and the business was run were not transferred directly or indirectly by the assessee to his wife, Sm. Lila Devi. The AAC reheard the appeal and passed a fresh order in which he found that the land, building, cinema machinery and furniture as also liquid capital utilised for carrying on the business were acquired from the following sources:

(2.) The AAC accordingly held that the entire investment in the cinema house as well as business had been made out of the assessee's savings from salary or income from undisclosed sources or from money borrowed from the securities of these sources or the money earned from the business carried on from these sources. It was, therefore, clear that the assessee, according to the AAC, was the owner of all these investments. The order of the AAC was accepted by the assessee.

(3.) Afterwards, right up to the assessment year 1965-66, the assessee had returned the income from cinema business in his personal assessment. He did not contest before the ITO during the assessment proceedings against the inclusion of that income in his assessment. Even before the AAC he did not raise this ground in the original appeal but raised it only later by way of an additional ground. It was contended by way of additional ground before the AAC that the entire income from the business of Shyamashree Cinema in the name of his wife should not be included in the assessee's income but only a portion thereof could be so included. It was urged that a sum of Rs. 65,270 was only transferred to the wife by the assessee. The hall was constructed in the name of the wife out of moneys given by the assessee and, excepting for land and buildings, the other assets were out of bank overdraft obtained from the Bank of Bengal and Central Bank, Howrah, in 1944-45 on the security of the house and building in her name. It was further argued that at best the income which could be attributed to flow from the amount transferred by the assessee to the wife should be included and not that portion which was referable to profits or accretions of out of borrowed capital of the lady. The "AAC, however, observed that Section 64 did not provide for pro rata division of income on the basis of assets transferred by the husband to the wife and out of accretions or loans taken By the wife. He was of the view that the loans and buildings were acquired out of the moneys advanced by the husband and profits and accretions were on the basis of the transfer of land and building. The bank overdraft was also on the security of the land and buildings. According to the AAC, Section 64(iii) of the I.T. Act, 1961, was fully attracted and the inclusion of the entire income in the name of the wife in the assessee's income for all the years was justified.