COMMISSIONER OF INCOME TAX Vs. KALLU BABU LALCHAND

JUDGEMENT

(1.) The relevant corresponding previous years for assessment years 1951-52, 1952-53 and 1953-54 are Dewali years 2007, 2008 and 2009 respectively. The assessee is a Hindu undivided family consisting of two brothers, Sri B. K. Rohatgi and Sri R.K. Rohatgi, and their families. A limited company called the India Electric Works Ltd. was incorporated some time in 1930. Under Article 132 of the articles of association of the aforesaid company, Sri R. K. Rohatgi was appointed the first managing director of the company and in accordance with the aforesaid article an agreement was entered into between the company and Mr. Rohatgi on the 31st January, 1934, under which Mr. Rohatgi was appointed the managing director, at an annual remuneration or a commission whichever might be higher. Until the assessment year 1943-44 the assessee-Hindu undivided family included the remuneration of Sri Rohatgi as managing director in its total income and was assessed accordingly. For the assessment year 1943-44 it was contended by the assessee that the remuneration earned by Mr. Rohatgi was his personal income and was not liable to be included in the assessable income of the family. .This contention was rejected by the Income-tax Officer and the Appellate Assistant Commissioner. On appeal, the Tribunal held that a "part of the remuneration was attributable to the personal services rendered by Mr. Rohatgi and as such was his personal income and the balance was assessable as income of the Hindu undivided family. On a reference, this court held that the managing director's remuneration was earned by Mr. Rohatgi under contract of service and should not be treated as the income of the family. The decision of the High Court was pronounced on the 8th September, 1955, Kalu Babu Lalchand v. Commissioner of Income-tax [1956] 29 I.T.R. 281. . The assessments of the assessee-Hindu undivided family for 1951-52, 1952-53 and 1953-54 were completed after the High Court's decision on 17th December, 1955, 31st October, 1956, and 30th July, 1957, respectively. In accordance with the decision of the High Court, the managing director's remuneration from the company was excluded from assessment of the Hindu undivided family for all these years. There was an application for leave to appeal to the Supreme Court and, as this court refused to grant leave, the Commissioner of Income-tax made an application and obtained special leave from the Supreme Court to appeal from such decision of the High Court. The Supreme Court, on hearing the appeal, allowed the Commissioner's appeal and held that the managing director's remuneration received by Mr. B. K. Rohatgi was, as between him and the Hindu undivided family, the income of the family and should be assessed in its hands. The decision of the Supreme Court was pronounced on the 15th May, 1959, Commissioner of Income-tax v. Kalu Babu Lalchand. Thereafter, the Income-tax Officer initiated proceedings under Section 34(1)(a) of the Indian Income-tax Act, 1922, after obtaining the necessary sanction of the Commissioner of Income-tax and served the requisite notices on the assessee on the 3rd March, 1960, 13th March, 1961, and 23rd March, 1962, for the assessment years 1951-52, 1952-53 and 1953-54 respectively. It appears, therefore, that the said notices were issued and served beyond four years but within eight years from the end of the respective assessment years. Thereafter, the assessments were made under Section 34(1)(a) of the said Act on the 28th February, 1961, 4th August, 1961, and 21st May, 1962, respectively, including the total income of the assessee's managing director's remuneration received from M/s. India Electric Works Ltd. for each of the said years.

(2.) The assessee preferred appeals before the Appellate Assistant Commissioner against the said assessment orders of the Income-tax Officer. The Appellate Assistant Commissioner held that, as the assessee had not shown the managing director's remuneration from the company for any of these years, there was an omission or failure on the part of the assessee to disclose material facts necessary for its assessment. He was therefore of the opinion that the reassessment proceedings had been properly initiated under Section 34(1)(a) of the Indian Income-tax Act, 1922, and accordingly dismissed the appeals.

(3.) The assessee thereupon preferred appeals to the Tribunal, The Tribunal came to the conclusion that all the material facts, namely, the payment of the remuneration by the company and receipt of the same by the assessee, were in the possession of the Income-tax Officer at the time the original assessments were made. There was according to the Tribunal, therefore, no failure or omission on the part of the assessee to disclose any material fact which could attract the provisions of Section 34(1)(a) of the Indian Income-tax Act, 1922. The Tribunal further held that the escapement of income was due to the change in the judicial decision. The Tribunal, in the premises, came to the conclusion that there was no valid reason for issuing notices under Section 34(1)(a) of the Indian Income-tax Act, 1922. The Tribunal further observed that, inasmuch as the reassessment proceedings were started beyond 4 years from the end of the respective assessment years, they were barred and the Tribunal was of the opinion that this bar of limitation could not be saved under the second proviso to Section 34(3) of the Income-tax Act as the order of the Supreme Court was not, according to the Tribunal, an order under Section 66A of the Indian Income-tax Act, 1922. In that view of the matter the Tribunal allowed the appeals in respect of these years.