1943 (9) TMI 11 - HC - Income Tax

Court rules against IT Officer in assessment reopening; wife's income inclusion justified. Refund ordered.

Commissioner of Income-Tax, Bombay Versus Sir Mahomed Yusuf Ismail

Commissioner of Income-Tax, Bombay Versus Sir Mahomed Yusuf Ismail - [1944] 12 ITR 8 Issues Involved:1. Whether the Income-tax Officer was entitled to reopen the assessment under Section 34 of the Indian Income-tax Act.2. Whether the income received by the wife of the assessee has been rightly included in the income of the assessee under Section 16(3)(b) of the Act.Issue-wise Detailed Analysis:1. Reopening of Assessment under Section 34:The primary issue was whether the Income-tax Officer (ITO) was justified in reopening the assessment under Section 34 of the Indian Income-tax Act. The facts of the case reveal that a Wakf was executed in 1929, and the trustees were required to pay 21% of the income to the settlor's wife. This income was not included in the husband's income for tax purposes until 1939-40. After the assessment, a superior officer opined that the amended Section 16(3) had been misconstrued, prompting the reopening of the assessment under Section 34, alleging that part of the income had escaped assessment.The court analyzed the amended Section 34, which necessitates that the ITO must discover that income has escaped assessment based on 'definite information' that has come into his possession. The term 'discovers' was scrutinized with reference to English cases, including Rex v. Kensington Income-Tax Commissioners, Anderton and Halstead Ltd. v. Birrell, and Williams v. Trustees of W.W. Grundy, which interpreted 'discovers' to mean 'finds out' or 'has reason to believe,' but not merely a change of opinion on the same facts and figures.The court concluded that the ITO's action was not based on any new fact or definite information but merely a disagreement with his superior officer. Therefore, it was held that the reopening of the assessment was not justified under Section 34, and the answer to the first question was in the negative.2. Inclusion of Wife's Income under Section 16(3)(b):The second issue was whether the income received by the wife of the assessee should be included in the assessee's income under Section 16(3)(b) of the Act. Although it was not necessary to decide this question due to the negative answer to the first issue, the court expressed an opinion for completeness.Section 16(3)(b) mandates the inclusion of income arising from assets transferred by an individual to any person or association for the benefit of his wife or minor child. The court noted that the subsection was intended to cover indirect transfers through trustees. The argument for the assessee was that there were no specific assets transferred for the wife's benefit, but the Commissioner contended that the assets transferred to the trustees were beneficial to the wife, who received 21% of the income.The court sided with the Commissioner, stating that the transfer of assets for the benefit of the wife falls within the scope of Section 16(3)(b), and thus, the income should be included in the assessee's income. However, it was noted that this formal answer was not necessary due to the resolution of the first issue.Conclusion:The court concluded that the reopening of the assessment under Section 34 was not justified as it was not based on definite information. The inclusion of the wife's income under Section 16(3)(b) was deemed correct, although a formal answer to this was unnecessary. The Commissioner was ordered to pay costs and refund the Rs. 100 deposited by the assessee.