COMMISSIONER OF Income Tax vs R. LEELA VASANTH NAIR AND OTHERS.

K. P. RADHAKRISHNA MENON J. - The Revenue is before us. The question referred reads :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessees were partners and not co-owners in respect of the grape gardens in Hyderabad and thereby cancelling the penalty levied u/s 271(1)(c) in respect of these five assessees for the assessment year 1970-71 ?"

These references arise out of proceedings initiated u/s 271 of the Income Tax Act against the five assessees, respondents herein.

The year of assessment is 1970-71 and corresponds to the accounting year ending on March 31, 1970. Accepting the returns submitted by the assessees, the Income Tax Officer had made the assessments. The assessments were reopened on the basis of the information that the amounts credited to the accounts of the assessees as agricultural income, in fact, did not actually represent agricultural income but represented income from undisclosed sources. Rejecting the explanations given by the assessees that the income proposed to be treated as income from undisclosed source, in fact represented agricultural income they had received from the grape garden by name "Draksha Kunju", purchased by them with the fund obtained from the firm, National Cashew Company, of which they are the partners, the reassessments were completed.

The Income Tax Officer thereafter initiated penalty proceedings u/s 271(1)(c) and since the minimum penalty imposable would exceed Rs. 1,000, he referred the matter to the Inspecting Assistant Commissioner u/s 274(2) of the Income Tax Act as it stood then. The Inspecting Assistant Commissioner, in his turn, enquired into the matter and found that there was concealment of income and accordingly a sum of Rs. 54,620 was levied as penalty on each of the assessees. Annexures F to K are the penalty orders. The assessees filed appeals before the Appellate Tribunal. The Appellate Tribunal consolidated the appeals and disposed of them by a common order, annexure K. The Appellate Tribunal set aside the orders levying the penalty on the ground that it was not the assessees who had concealed the particulars of income but the firm, said to own the grape gardens, of which they are the partners.

The question aforesaid arises from this order of the Appellate Tribunal.

The law relating to the levy of penalty for concealment of particulars of income of furnishing inaccurate particulars of such income is contained in section 271(1)(c). We shall read the material portion of the section :

"271. (1) If the Income Tax Officer or the Appellate Assistant Commissioner, in the course of any proceedings under this Act, is satisfied that any person - ........

(c) has concealed the particulars of his income or furnished inaccurate particulars of such income,

he may direct that such person shall pay by way of penalty, - .....

(iii) in the cases referred to in clause (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed twice, the amount of tax sought to be reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income;........"

The wordings of the section clearly indicate that the person who could be made liable for the penalty is the one against whom assessment or any other proceedings under the Act have been initiated. In the course of such proceedings, if the authority concerned is satisfied that the assessee has concealed the particulars of his income or furnished inaccurate particulars of such income, he can levy a penalty, in terms of clause (iii) of section 271(1) against the said person. The scheme of the section is such that the person who has concealed the particulars of his income or furnished inaccurate particulars of such income alone will be liable for the penalty.

It is in this backdrop that the findings entered in the order of the Tribunal require to be considered. It is discernible from the order from which the question arises that the conclusions therein are based partly on the findings entered by the Tribunal in the order by which similar penalty order, for the year 1969-70, had been passed by the authority concerned and partly on the basis of the findings disposing of certain fresh facts the parties had pressed into service in the course of the course of the hearing of the appeals.

Disposing of the fresh contentions of the assessees, that the incomes treated as incomes from undisclosed source should have been assessed "in the hands of the Hyderabad partnership and not in the hands of the assessees", the Tribunal has held as follows :

"Besides, the assessees have shown in their returns a part of the share from this firm as interest and have courted assessments on such assessments. The assessments of such interest income have not been disputed.

It is thus clear that the Tribunal has accepted the case of the Department that the incomes treated as undisclosed incomes, in fact, belonged to the assessees and not to the Hyderabad firm, supposed to have been constituted by the assessees and one Ramanujam Thampi. That the case of the assessees that the grape garden, Draksha Kunju, at the relevant time belonged to the firm, is nothing but a travesty of truth, is clear from the following excerpts from annexure F at page 32 of the paper book :

"It appears that on July 19, 1970, a partition deed was made which effected a division of the properties among the 6 members. It is categorically stated in the preamble that the parties were in possession of the properties after its purchase as absolute joint owners in equal shares.

In COMMISSIONER OF Income Tax Vs. B. RAMANUJAM THAMPI AND OTHERS., it was represented that the property was jointly owned by the purchasers in the status of tenants-in-common. There is no partnership between them and it is not an association of persons as presumed by you. So the capital invested by the assessee on the said property cannot be included in his net wealth up to the assessment year 1970-71. Your surmise that it is capital invested by him in the partnership at Hyderabad is incorrect. It represents the purchase cost of the assessees share of property, (See para, 2 of letter dated October 29, 1973, addressed to the Income Tax Officer, C-Ward, Trivandrum, relating to the assessment years 1971-72, 1972-73 and 1973-74)."

If that be the position, the argument of the assessees that the grape garden, "Draksha Kunju" belonged to a partnership, had rightly been rejected by the Inspecting Assistant Commissioner. The investigation into the question, whether the grape garden, "Darksha Kunju", belonged to a firm or to the assessees along with Ramanujam Thampi in co-ownership by the Tribunal, according to us, was unwarranted. It is all the more so because no proceedings to assess the income of such a firm at any time had been initiated by the Income Tax Officer. For that matter no assessment proceedings could be initiated against the said Hyderabad firm because admittedly the income received by that firm is only agricultural income. The Tribunal, therefore, has misirected itself in considering the question whether or not the undisclosed income belonged to the firm aforesaid.

The case of the Department regarding the undisclosed income has been dealt with and disposed of by the Appellate Tribunal in these terms :

"the assessee had intentionally boosted up the income from grapes and to give the colour of agricultural income to his otherwise taxable income."

This findings forms part of the order disposing of the appeals the assessee had filed against the orders of the Inspecting Assistant Commissioner levying penalty u/s 271 for the assessment year 1969-70. This is what the Inspecting Assistant Commissioner in annexure F order has stated :

"In the appeal order against penalty u/s 271(1)(c) for assessment year 1969-70, the Income Tax Appellate Tribunal has clearly held that there is concealment of income (see paras. 18,19 and 20 of their order dated January 25, 1978, referred to earlier). The Income Tax Appellate Tribunal has come to a finding that "the assessee had intentionally boosted up the income from grapes and to give the colour of agricultural income to his otherwise taxable income."

These findings have been upheld by the Appellate Tribunal.

From the discussions above, it is clear that the Appellate Tribunal has not considered the question involved in the case in the right perspective. The very approach of the Tribunal to the issue is erroneous. The materials available on record would clearly show that the Appellate Tribunal has wrongly interfered with the orders of the Inspecting Assistant Commissioner levying penalty. The orders of the Inspecting Assistant Commissioner are, in fact, based on the findings of the Tribunal disposing of the appeals the assessees had filed against the orders levying penalty for the year of assessment 1969-70.

Learned counsel for the assessees, however, submitted that inasmuch as this court declined to answer an identical question which arose for consideration in ITR Nos, 56 to 61 of 1979 COMMISSIONER OF Income Tax Vs. B. RAMANUJAM THAMPI AND OTHERS., ) and consequently remitted the matter to the Tribunal for fresh disposal, a similar order requires to be passed in this case also. This argument at first blush appears to be sound. But on a probe into the matter we are convinced that this argument is without substance and hence the same is liable to be rejected. The earlier case was remitted only on account of the fact that there was no determination as such of the quantum of concealed income, without which no penalty could be levied. This is what we have stated in the said judgment (at p. 835) :

"The Tribunal, however, did not determine the quantum of concealed income and thus left open the question relating to quantification of penalty because, according to the Tribunal, the concealment of income is not attributable to the assessees but only to the firm which is a distinct legal entity for the purpose of assessment under the Income Tax Act. 1961."

From the materials available on record, it is clear that no further investigation into the questions as to who concealed the income is necessary. Even at the risk of repetition, we would state that on the showing of at least one of the purchasers, Rajmohan, the grape garden belonged to the co-ownership. There was no firm at all. Even assuming that the grape garden belonged to a firm, it is irrelevant to consider as to whether or not the firm concealed the income, because the said income admittedly is agricultural income and hence not liable to be assessed under the Income Tax Act. The authorities concerned, in fact, have been investigating into only one question, namely, whether "the assessees have intentionally boosted up the income from grapes and to give the colour of agricultural income to his otherwise taxable income." Regarding this aspect, there are clear findings both in the orders of assessment and penalty that the assessees did boost up the income from the grape garden and thereby camouflaged the real income liable to be assessed under the Income Tax Act. These findings have become final in the absence of any reference at the instance of the assessees. To this extent, there is concealment, the Tribunal has held, while disposing of the appeal against the order levying penalty for 1969-70. The entire proceedings, as already stated, related to the assessment of the incomes of the assessees. The incomes treated as undisclosed incomes of the assessees, at no point of time, have been treated as their agricultural income.

Sir P. K. Ravindranatha Menon, learned counsel for the Revenue, however, submits that in the light of the specific finding by the Tribunal that "There is enough material to hold that the assessee had intentionally boosted up the income from grapes and to give the colour of agricultural income to his otherwise taxable income" resulting in concealment of income by the assessees, the observation, in our judgment (extracted above), namely, "because, according to the Tribunal, the concealment of income is not attributable to the assessees, but only to the firm which is a distinct legal entity for the purpose of assessment under the Income Tax Act, 1961" was not necessary. He, therefore, submits that in the interests of justice, we must make it clear that we should not have conveyed to the Tribunal the impression that it was open to them to ignore its own findings mentioned above while determining the quantum of penalty. Learned counsel for the Revenue is right that consideration of the points other than the point relating to the quantum would be opposed to the facts found by the Tribunal itself. We have given sufficient indications that the only point left open for consideration by that judgment pertains to the determination of the quantum of penalty; more so, in the absence of any reference challenging the finding that there was concealment of the particulars of income in the orders of assessment and penalty. Similarly, the point relating to the jurisdiction of the Inspecting Assistant Commissioner has also become final.

We are, therefore, of the view that the Tribunal has wrongly come to the conclusion that the assessees have not concealed the particulars of the income within the meaning of section 271(1)(c). The facts discussed above would show that the Inspecting Assistant Commissioner had rightly found that there was concealment of particulars of income within the meaning of section 271(1)(c) and hence the assessees were liable for the penalty.

The facts dealt with by us would show that the Tribunal has not properly framed the question. The question, accordingly, is recast as follows :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in cancelling the penalty levied u/s 271(1)(c) ?"

For the reasons stated above, we answer the question aforesaid in the negative, i.e., in favour of the Revenue and against the assessees.

We direct the parties to bear their respective costs in these tax referred cases.

A copy of this judgment under the seal of the High Court and the signature of the Registrar shall be forwarded to the Income Tax Appellate Tribunal, Cochin Bench.