Punjab & Haryana H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was right in cancelling the penalties of Rs. 2,288, Rs. 8,546 and Rs. 11,665 for the years 1973-74, 1974-75 and 1975-76, respectively, on the ground that when neither spouse had any income other than the share income from the firm in which they were partners, it could not even be determined under s. 64(1)(i) and Explanation 1 to s. 64(l) as to the income of which spouse was to be included in the income of the other assessee ?

High Court Of Punjab & Haryana

CIT vs. S.S. Gulati

Sections 271(1)(c), 64(1)

Asst. Year 1973-74, 1974-75, 1975-76

Gokal Chand Mital & S.S. Sodhi, JJ.

IT Ref. No. 86 to 88 of 1981

24th November, 1988

Counsel Appeared

Ashok Bhan & Ajay Mittal, for the Revenue : M.K. Sarin & Miss Jaishree Anand, for the Assessee

S. S. SODHI J. :

The matter here relates to the three asst. yrs. 1973-74, 1974-75 and 1975-76.

2. The assessee Shri S. S. Gulati, and his wife, Smt. Krishna Gulati, had 1/3rd share each in the firm, Belmont Rubber Industries, Faridabad. Both the assessee and his wife filed separate returns of income mentioning therein the amounts received by them from the said firm and they were assessed accordingly. Later, in the course of income-tax proceedings in the case of the firm for the year 1977-78, it came to the notice of the ITO that the assessee had not included his wife’s income from the firm in his income-tax return. He, consequently, initiated action under sec tion 147 of the IT Act, 1961 (hereinafter referred to as “the Act”), and issued notice to the assessee under s. 143 thereof. Fresh assessments for the three assessment years in question were thereafter completed and orders passed accordingly. During the course of these proceedings, the ITO also initiated action under s. 271(1)(c) of the Act for imposing penalty on the ground that while filing his original returns, the assessee had not disclosed the income of his wife from Belmont Rubber Industries. The ITO eventually held that the assessee had concealed his wife’s income and he consequently levied penalties upon the assessee for the three assessment years in ques tion in terms of s. 271 (1) (c) of the Act. This order was later upheld in appeal by the AAC. The Tribunal, however, took a contrary view and held that as the assessee and his wife did not have any income other than their share income from the said firm, Belmont Rubber Industries, there was no concealment of income by the assessee by not including the income of his wife from the firm in his return. The penalty imposed upon the assessee was consequently cancelled. 3. It is in this context that the following question of law has now been referred to this Court for its opinion :

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in cancelling the penalties of Rs. 2,288, Rs. 8,546 and Rs. 11,665 for the years 1973-74, 1974-75 and 1975-76, respectively, on the ground that when neither spouse had any income other than the share income from the firm in which they were partners, it could not even be determined under s. 64(1)(i) and Explanation 1 to s. 64(l) as to the income of which spouse was to be included in the income of the other assessee ?”

3. In dealing with this matter, the important point to bear in mind is that the assessee and his wife had no income other than their share income from the firm, Belmont Rubber Industries. The relevant provisions of law governing the matter are contained in s. 64(1)(i) r/w Expln. I thereof. These provisions read as: “64(1) In computing the total income of any individual, there shall be included all such income as arises directly of indirectly (i) to the spouse of such individual from the membership of the spouse in a firm carrying on a business in which such individual is partner … Expln. 1-For the purposes of cl. (i), (and cl. (ii)), the individual, in computing whose total income the income referred to in that clause is to be included, shall be the husband or wife whose total income (excluding the income referred to in that clause) is greater . . . Where, in a case like the present, the assessee and his wife have no other income except from the firm in question, a plain reading of the provisions of s. 64(1)(i) and Explanation I thereto would show that it cannot be determined in whose income the income of the other spouse is to be included.

In such a situation, no occasion was thus pro vided for imputing to the assessee any charge of concealment of income and there was, therefore, no warrant for the imposition of any penalty upon him.

The reference has thus to be answered in the affirmative, in favour of the assessee and against the Revenue. This matter is disposed of accordingly. The assessee shall be entitled to Rs. 500 as costs.

[Citation : 179 ITR 62]

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