2014 (9) TMI 690 - HC - Income Tax

Court rules share income exempt under Section 10 not undisclosed income

Jatin Mahendrabhai Chokshi Versus Dy. CIT (Assessment)

The High Court ruled that the share income received by the appellant from a firm, which was exempt under Section 10 of the Income Tax Act and not forming ... Scope of undisclosed income u/s 158B(b) – Block assessment proceedings - Whether non-filing of the return by the assessee and not disclosing the share income derived / received by the assessee from the partnership M/s. Chandulal Govindlal Choksi can be said to be 'undisclosed income' within the meaning thereof in Section 158B(b) under Chapter XIVB of the Act – Held that:- Assessee rightly contended that as such the firm itself filed the return of income disclosing the share income paid to the appellant and therefore, it cannot be said there was a nondisclosure of the said income and therefore, the same cannot be treated as 'undisclosed income' within the meaning of Section 158B(b) under Chapter XIVB of the Act – relying upon Assistant Commissioner of Income-tax Versus Enterprises and Commissioner of Income-tax vBR. Shah and others [2013 (1) TMI 345 - SUPREME COURT] - the computation of 'undisclosed income' for the purposes of Chapter XIVB of the Act, if any income which is not required to be included in computing the 'total income' assessable and chargeable to tax, cannot be declared as 'undisclosed income' within the meaning of 'undisclosed income' as contained in clause (b) of section 158B of the Act - nondisclosure of the share income received by the assessee as partner of the firm and from the firm and non-filing of the return and not disclosing the aforesaid share income is wrongly treated as 'undisclosed income' within the meaning of 'undisclosed income' as contained in clause (b) of section 158B of the Act and consequently the assessment proceedings are required to be held bad in law – thus, non-filing of the return and nondisclosure of the share income received by the assessee as a partner of firm M/s. Chandulal Govindlal Choksi from the firm is wrongly treated as 'undisclosed income' within the meaning thereof in section 158B(b) of the Act under Chapter XIVB and consequently the block assessment proceedings are non est – Decided in favour of assessee. Issues Involved:1. Whether the tribunal erred in law in holding that share income of the appellant from the firm, which had filed its return of income, was undisclosed income within the meaning of section 158B(b) of the Income Tax Act, 1961 under Chapter XIVB.2. Whether the deductions under Chapter VIA of the Income Tax Act, 1961 are to be given from the income computed as undisclosed income under Chapter XIVB thereof.3. Whether the non-disclosure of income exempted under Section 10 of the Act, and which would not form part of the 'total income,' can be treated as undisclosed income within the meaning of section 158B(b) of the Income Tax Act, 1961 under Chapter XIVB.Issue-wise Detailed Analysis:1. Tribunal's Error in Holding Share Income as Undisclosed Income:The assessee contended that since the firm had filed its return of income disclosing the share income, the share income could not be treated as 'undisclosed income' under section 158B(b) of the Income Tax Act. The Tribunal dismissed the appeal, holding that it was the assessee who was required to disclose the income, and the firm's filing did not amount to disclosure by the assessee. The High Court, however, found that the share income received from the firm, which was exempt under Section 10(2) of the Act and not forming part of the 'total income,' could not be treated as 'undisclosed income.' The Court relied on the Supreme Court's decision in Assistant Commissioner of Income Tax v. A.R. Enterprises, which stated that non-disclosure of income not assessable or chargeable to tax could not be treated as 'undisclosed income.'2. Deductions Under Chapter VIA:The judgment did not provide a detailed analysis on this specific issue, as the primary focus was on whether the share income could be treated as undisclosed income. However, the implication from the Court's reasoning suggests that if the share income is not considered 'undisclosed income,' the question of deductions under Chapter VIA may not arise in this context.3. Non-disclosure of Exempt Income:The High Court formulated an additional substantial question of law regarding whether non-disclosure of income exempt under Section 10 of the Act could be treated as 'undisclosed income.' The Court held that since the share income was exempt and not required to be included in the 'total income,' its non-disclosure could not be treated as 'undisclosed income.' The Court emphasized that only income assessable and chargeable to tax could be considered 'undisclosed income.' The decision was aligned with the Supreme Court's interpretation in A.R. Enterprises, which clarified that 'undisclosed income' must be assessable and chargeable to tax.Conclusion:The High Court concluded that the non-filing of the return and non-disclosure of the share income received by the assessee from the firm was wrongly treated as 'undisclosed income' under section 158B(b) of the Act. Consequently, the block assessment proceedings were deemed non est. The Court answered the additional question in favor of the assessee and against the revenue, allowing the tax appeal to the extent that the share income could not be treated as 'undisclosed income.' No costs were awarded.