1973 PLP 283 (PTD)

(i) from the membership of the wife in a firm of which her husband is a partner ; (ii) from the admission of the minor to the benefits of partnership in a firm of which such individual is a partner ; (iii) from assets transferred directly or indirectly to the wife by the husband otherwise than for adequate consideration or in connection with an agreement to live apart ; or (iv) from assets transferred directly or indirectly to the minor child, not being a married daughter, by such individual otherwise than for adequate consideration ; and (b) so much of the income of any person or association of persons as arises from assets transferred otherwise than for adequate consideration to the person or association by such individual for the benefit of his wife or a minor child or both." It is the case of the revenue that the income of the three ladies and their children came under sub‑clauses (iii) and (iv) of section 16(3)(a), on the supposition that they are his legally wedded wives and legitimate children. There is no dispute in this case that certain assets were transferred by the petitioner for the benefit of these ladies and their children, otherwise than for adequate consideration. If the three ladies are wives of the petitioner, the income derived by them from such transferred assets would certainly be includible, by virtue of sub‑clause (iii), and if their children are the legitimate children of the petitioner, their incomes from the assets transferred to them by the petitioner would be includible in the total income of the petitioner under sub‑clause (iv). But, the point is whether these details which are covered by section 16 are required to be shown in the return that the petitioner had to file under section

22. There is nothing in the Act which would warrant such a supposition. Section 16 cannot be read into section

22. Section 59 of the Act empowers the Board of Revenue to make rules and to provide for any matter, which by the Act has to be prescribed. In exercise of these powers, the Central Board of Revenue prescribed the. Rules. Rule 19 of those Rules provides that the return of the total income and total world income for individuals, Hindu undivided families, etc., required under subsections (1) and (2) of section 22, shall be the prescribed form and shall be verified in the manner indicated therein. There is nothing either in these Rules or in the form prescribed, making it obligatory on the part of the assessee to include in the return of his total income, the income of his wife and minor children. The absence of any such requirement In the form is fairly conceded by the learned counsel for the revenue also. There is thus nothing either in the Act, Rules or the form, which makes It obligatory upon the assessee to include in his return the deemed income which arose by reason of section

16. There is ample authority for this view. In D. R. Dhanwate v. Commissioner of Income‑tax ((1961) 42 I T R 253) the Bombay High Court held that: "No statutory obligation is cast on an assessee in filing a return of his total income to include therein the income of his wife or minor child arising directly or indirectly from her or its membership in a firm of which he is also a partner." The Division Bench went even a step further and held that: "Even assuming that it is obligatory on the assessee in making a return for any year to include in his total income the income of his wife or minor child arising directly or Indirectly from her or its membership in a firm of which he is also a partner, failure on his part to do so does not amount to failure to disclose fully and truly all material facts necessary for his assessment for that year' within the meaning of section 34(1)(a) of the Income‑tax Act and does not enable the Income‑tax Officer to Issue a notice of reassessment under section 34(1)(a)." This decision of the Bombay High Court was referred to with approval by a Division Bench of this Court (of which P. Jaganmohan Reddy, C. J. was a member) in Akula Venkata Subbaiah v. Commissioner of Income‑tax ((1963) 47 I T R 458). Chandra Reddv, C. J., speaking for the Bench, observed after referring to section 16(3) "Does this section cast any duty on the assessee to include the income of the minors within his total income ? In examin ing the scope of that clause it is useful to remember the phraseology in computing'. The import of the section is that the concerned Income‑tax Officer Is authorised to take into account the income of the minors in determining the total income of the assessee. We are unable to find anything in the language of either section 34 or of section 16 which warrants the conclusion that it is Incumbent on the assessee to include the income of the minor partners in his total income. Section 16 authorises and even casts a duty on the officer concerned to Include all the artificial incomes in the total income of the assessee. If the return contains all the material facts, which would put the officer in a position to compute the total income, it is his duty to include the income contemplated by section

16. There is no further obligation laid on the assessee." The Madras High Court, however, took a different view In V .D. M. RM. M. RM. Muthiah Chettiar v. Commissioner of Income‑tax ((1965) 55 I T R 147). In that case the assessee had three minor sons and they were entitled to the benefit of a partnership, in which the assessee was a partner. He submitted his return without disclosing the fact that the minors were his sons or that they had been admitted to the partnership. Separate returns were filed by the minor sons through the assessee' s wife, as their guardian. The learned Judges held that : "The relationship of the minors admitted to the benefits of the partnership in which the assessee was a partner was a primary fact, and as that primary fact was kept back from the knowledge of the assessing authority by the assessee, there was a failure to disclose material facts necessary for the assessment of the assessee, and proceedings for reassessment under section 34 were maintainable." Apart from the fact that this case before the Madras High Court is distinguishable on the facts from the instant case, the decision of the Madras High Court in this case was reversed by the Supreme Court in V. D. M. RM. M. RM. Muthiah Chettiar v. Commissioner of Income‑tax ((1969) 74 I T R 183). The question posed was : "Whether, on the facts and in the circumstances of the case, the re‑assessment made on the assessee under section 34 of the Act is valid in law for 1952‑53 to 1954‑55 ?" Shah, J., speaking for the Court, after referring to the relevant provisions of the Income‑tax Act, 1922, including the Rules framed under section 59 and the forms of returns, answered the question thus: "The Act and the Rules accordingly imposed no obligation upon the assessee to disclose to the Income‑tax Officer in his return, information relating to income of any other person by law taxable In his hands." Then the learned Judge referred to section 16(3) and observed: "The assesses was bound to disclose under section 22(5) the names and addresses of his partners, if any, engaged in business, profession or vocation together with the location and style of the principal place and branches thereof and the extent of shares of all such partners In the profits of the business, profession or vocation and any branches thereof, but the assessee was not required in making a return to disclose that any income was received by his wife or minor child admitted to the benefits of partnership of a firm of which he was a partner." Finally it was held: "Assuming that there were instructions printed in the forms of return in the relevant years In the absence of any head under which the income of the wife or minor child of a partner whose wife or a minor child was a partner in the same firm, could be shown, by not showing that income the tax‑payer cannot be deemed to have failed or omitted to disclose fully and truly all material facts necessary for his assessment. Section 16(3) imposes an obligation upon the Income‑tax Officer to compote the total income of any individual for the purpose of assessment by including the items of income set out in clauses (a)(i) to (iv) and (b), but thereby no obligation is Imposed upon the tax‑payer to disclose the Income liable to be included in his assessment under section 16(3). For failing or omitting to disclose that income proceedings for re‑assessment cannot therefore be commenced under section 34(1)(a). Section 22(5) required the assessee to furnish particulars of the names and shares of his partners, but Imposed no obligation to mention or set out the income of the nature mentioned in section 16(3) . . . Section 34(1)(a) sets out the conditions in which the power may be exercised. It did not give rise to an obligation to disclose information which enabled the Income‑tax Officer to exercise the power under section 16(3)(a)(ii), nor had the use of the expression necessary for his assessment' in section 34(1)(a) that effect." In this view, the Supreme Court reversed the decision of the High Court in V. D. M. RM. M. RM. Muthiah Chettiar v. Commissioner of Income‑tax. Thus, the law on the point has been settled beyond any doubt by the Supreme Court itself. There is, therefore, no duty cast on the assessee to disclose. In his return filed under section 22, any particulars relating to the incomes that can be included in his total income under section 16(3). This takes us to the second contention raised by the learned counsel for the petitioner. Sri Ananta Babu, appearing for the revenue, however, argues that simply because the petitioner was not obliged to show the Income includible under section 16(3), he is not absolved from the duty of disclosing fully and truly all material facts necessary for his assessment, when he was called upon to do so. After the returns were filed, the department called upon the petitioner and his agents to disclose the status of the three ladies and their children. But, neither the petitioner nor his agents dis closed the material facts fully or truly. Though in reply to the Department's query it was asserted on behalf of the petitioner that the three ladies in question were not his legally wedded wives, the petitioner continued to refer to them as his wives in the subsequent trust deeds. The learned counsel, therefore, contends that the revenue was fully justified in comic g to the opinion that the true nature of the petitioner's relationship with the three ladies and their children had not been disclosed and for that reason the income derived by those persons from the assets transferred to them by the petitioner had escaped from assessment in the four relevant years. The question is whether this contention is tenable. For the reasons we are going to give presently, we do not think that this contention has any substance. It is undoubted that the department has ample power under sections 23(2) and 23(3) to call upon an assessee, in the course of his assessment, to produce such other evidence as the Income‑tax Officer may require on special points. If the assessee fails to furnish the information required, he will become liable for action under section 34(1)(a). Sri Ananta Babu, the learned counsel for the revenue, relies upon Manikonda Venkata Narsimham v. Commissioner of Income‑tax ((1960) 39 I T R 575), Anne Nagendram & Bommareddy Venkayya & Co. v. Commissioner of Income‑tax ((1967) 66 I T R 46) which are decision of this Court, and on Calcutta Discount Co. Ltd. v. Income‑tax Officer ((1961) 41 I T R 191 (S C)), a decision of the Supreme Court in this connection. It is clear that, if the necessary information is not disclosed when asked for, the assessee will become liable to his assessment being reopened under section 34(1)(a). What is failure to disclose is, however, to be decided on the facts of each case. This power of the Income‑tax Officer to call for fresh information is not denied by the learned counsel for the petitioner. In fact, it is in exercise of this power that the Income‑tax Officer, who was dealing with the assessments .of the petitioner, called upon the petitioner to clarify his relationship with the three ladies in question. The three following queries were put to the petitioner : "(a) The rites and ceremonies attendant on legal marriages according to Muslim Law and how they were observed In the case of each of the four ladies, viz., Dulhan Pasha Begum Saheba ; Mazharunnisa Begum Saheba ; Laila Begum Saheba and Jani Begum Saheba. (b) What legal status is accorded to the children of Mazharunnisa Begum Saheba, Laila Begum Saheba and Jani Begum Saheba, vis‑a‑vis, the children of the late Dulhan Pasha Begum Saheba ? (c) Any other factor from the point of view of religion which distinguished the status of late Dulhan Pasha Begum Saheba from the other three ladies." In reply to these queries, Sri C. B. Taraporewala, the financial adviser and general power of attorney agent of the petitioner, filed a statement before the Income‑tax Officer, on September 9, 1957. It was stated therein that it was only with the late Dulhan Pasha Begum Saheba, the petitioner went through all the legal formalities of a marriage under Muhammadan law like a proposal, acceptance, witnesses and making provision for meher. Without these formalities, it was stated, there was no valid marriage under Muslim Jaw. The statement proceeded to state that, except in the case of Dulhan Pasha Begum Saheba, the formalities and requirements of a marriage were not gone through by the petitioner with any other lady, including the three ladies in question. According to the practice prevailing in the family of the petitioner, the ladies who had occupied high social position and who were received into his palace, were referred to as ladies of position. In view of the special favour's bestowed upon them, the petitioner also referred to them, in his trust deeds, as wives, though in the legal sense, such a terminology was incorrect. Consequently, the children of these three ladies were not the legitimate children of the petitioner and did not enjoy any legal status as his legitimate children. This statement of the agent made the position clear, that there was no valid marriage between the petitioner and these three ladies‑and it was only by courtesy, having regard to their background and special favours, they were called ladies of position and also referred to as "wives". The trust deeds do not disclose the facts any differently. As stated by the agent, the three ladies were referred to a s "wives" by the petitioner in the family trust executed on May 10, 1950, and in the miscellaneous trust executed on August 6, 1950. It is very significant to note that in family pocket money trust executed on December 29, 1950, Mazharunnisa Begum was again referred to as "wife" wile hails Begum and Jani Begum were referred to as "ladies of position", adding in the brackets the word "wife". These three trust deeds were available with the depart ment when the relevant assessments were made. Sri Taraporewala referred, in his statement, to these trust deeds also. It is thus clear that even by the time the assessments were made, sufficient material was placed before the Income‑tax Officer which shows that these three ladies were also referred to as "wives" of the petitioner. Why they were referred to as "wives" also was clearly and cogently explained by the petitioner's agent in his statement dated, September 9, 1957. This explanation obviously satisfied the Income‑tax Officer and removed the doubts in his mind, arising out of reference to these three ladies as "wives" in the trust deeds that had already been executed by the petitioner. Reliance is now sought to be placed on the Fernhil Trust and Race View Trust executed by the petitioner on March 21, 1957, and December 5, 1957, respectively, wherein the ladies were referred to as "wives" and their children as the children of the petitioner. But, it should not be fore gotten that the references‑‑ to them in the earlier trust deeds were only continued in these two trust deeds also. A reading of the earlier trust deeds also shows not only that these three ladies were referred to as "wives" in some of them but also that their children were acknowledged as the children of the petitioner. There is nothing in the later trust deeds, which is in any way different from tae earlier trust deeds, in so far as reference to the three ladies and their children are concerned. The petitioner's attitude and approach to them continued to be the same. The latter two trust deeds, on which strong reliance is placed by the Department, does not disclose any new facts or circumstances, different from those that were available from the original trust deeds, which the Department examined before it made the relevant assessments. Simply because the two trust deeds of March 21, 1957 and December 5, 1957, were not placed before the Income‑tax Officer when he made the original assessments. it cannot be said that material facts necessary for the assessment were not fully and truly disclosed. The Department called for information and the necessary clarification was furnished by the agent on behalf of the petitioner. It is said that the trust deed of December 5, 1957, was executed after the statement of the power of attorney agent was recorded and, therefore, it brings about new disclosures. As we have already said, there is nothing in that trust deed which creates a new situation or discloses a new relationship between the petitioner and the three ladies and their children in question. As the learned counsel for the petitioner pertinently points out, perhaps the petitioner and his advisers ventured to continue the same descriptions and references to the three ladies and their children in the latter trust deeds also, because of the fact that the Department had been satisfied with the clarification given by the power of attorney agent earlier. We cannot, therefore, accept the argument that these two trust deeds have created any new situation. Nor can we agree with the learned counsel for the revenue that the firman issued by the petitioner on June 7, 1959, on the occasion of the demise of Jani Begum, altered the situation in any way. It is significant to note that Jani Begum was referred to in this press note as the daughter of the late Sahebzada Yavar Jung and not as the wife of the petitioner, In paragraph (2), she was referred to as a lady of position, The petitioner does not deny that Jani Begum was connected with hi‑n. Nor does the petitioner deny that Sahebzada Imdad Jah, the son of Jani Begum, was the son of the petitioner through her. But, that does not advance the arguments of the Department. The question is whether the lady was his legally wedded wife and her son his legitimate son. This press note does not show anything of this nature. On the other hand, it is against the contention of the Department, inasmuch as it refers to Jani Begum only as a "lady of position". Lastly, great reliance is placed upon the statement of the petitioner himself, which was given on February 13, 1964, just on the eve of the reopening of the assessments. In the sworn statement, the petitioner on oath stated, that his only marriage conforming to ail the religious and legal requirement. of the Islamic law, was with Dulhan Pasha Begum and the other ladies were only admitted into his palace from time to time. According to the customary practice prevailing in his family, he conferred positions on ladies thus admitted into the palace, solely depending upon the social status they enjoyed. Those who had respectable family background were conferred the status of "ladies of position" and the other mistresses in the zenana were commonly referred to as khawasas. The three ladies In question, along with three other ladies, were conferred the special status as "ladies of position". Though Dulhan Pasha Begum was his only legitimate wife and that status was not enjoyed by any other lady in the palace, according to usual practice, he referred to the ladies of position as his "wives". But such reference was only as a matter of courtesy and to bestow special favours on the ladies concerned, and not because they were considered to be his wives in the legitimate sense. Far from giving any support to the Department's opinions and suspicions in this regard, this solemn statement made by the petitioner completely belies all such suspicions. There is no reason why this sworn statement of the petitioner cannot be accepted. It should not be forgotten that it has a great bearing on the social and legal status of several members of his personal establishment. This statement has obviously far‑reaching re proussions on the legal rights of these three and other ladies and their children vie‑a‑vie the huge estates possessed by the petitioner. It is unthinkable that the three ladies and their children would have kept quiet and filed returns separately, accepting the position that they had no legitimate connections with the petitioner, and this statement of the petitioner not been correct. This statement of the petitioner fully upholds the earlier clarification given by his agent on September 9, 1957, which was before the Income‑tax Officer when the assessments in question were made. There is no other material on which the Department relies in coming to the opinion that the petitioner had failed to disclose fully and truly all material facts necessary for the assessment. The reasons assigned by the respondent is reopening the assess ments singularly fail to come within the scope of omission or failure on the part of the petitioner to disclose fully and truly all material facts necessary for the assessments. On the other hand, as we have shown above, all the material facts were before the Department, when it made the assessments in question and no hang has been discovered which throws a different light on the matters already disclosed. There is no doubt that, having failed to act under clause (b) of section 34(1) within four years, the Department is only trying to clutch at the jurisdiction under section 34(1)(a) by making these allegations. We are satisfied that there is absolutely no substance or force in any one of them and that the respondent had no valid reason to believe that the petitioner had omitted or failed to fully and truly disclose all material facts, necessary for his assessments for the four years. It follows that he has no jurisdic tion to make reassessments for these four years. The claim of the petitioner in these writ petitions must be upheld. In the result, the respondent is prohibited from taking any proceedings instituted by him under section 147(a) of the Income‑tax Act, 1961, by the issue of notices under section 148 dated March 13, 1964, calling upon the petitioner to file return of the income for the assessment years 1955‑56, 1956‑57, 1957‑58 and 1958‑

59. The petitioner will have his cots from the respondent. Advocate's fee Rs. 250.