1979 (7) TMI 30 - HC - Income Tax

Judgment: Disclosure by Creditors Not Ground to Delete Amount from Assessment.

The High Court held that the provisions of the Finance (No. 2) Act of 1965 do not support deleting an amount from the assessment of the assessee based on ... Any Person, Cash Credits, Voluntary Disclosure Issues:Interpretation of s. 24 of the Finance (No. 2) Act of 1965 regarding voluntary disclosure petitions and tax payments by creditors, Assessing the legitimacy of credits in the books of the assessee, Application of s. 68 of the Income-tax Act, 1961 in cash credit explanations, Dispute over whether the income belonged to the creditors or the assessee, Consideration of legal precedents in similar cases.Analysis:The case involves a reference under s. 256(1) of the I.T. Act, 1961, where the Tribunal questioned the deletion of an amount from the assessment of an HUF assessee based on voluntary disclosure petitions and tax payments made by creditors under the Finance Act, 1965. The assessee argued that the credits in the books belonged to the creditors who had disclosed the income voluntarily, which precluded the department from assessing the same income twice. The AAC allowed the appeal, but the Tribunal dismissed the department's appeal, leading to the reference to the High Court for interpretation.The primary issue revolves around the interpretation of s. 24 of the Finance (No. 2) Act of 1965 and whether it confers benefits on persons other than the declarant. The court analyzed legal precedents, including Badri Pd. and Sons v. CIT and Manilal Gafoorbhai Shah v. CIT, which emphasized that the voluntary disclosure scheme aimed to tax undisclosed income of the declarant, not convert income of others into the declarant's. The court disagreed with a previous decision, Rattan Lal v. ITO, stating that the legal fiction under s. 24(3) does not extend to assessment proceedings of other persons, and s. 68 of the I.T. Act allows for assessing unexplained cash credits in the hands of the assessee.The judgment concluded that the provisions of the Finance (No. 2) Act of 1965 do not support the deletion of the amount from the assessment of the assessee based on voluntary disclosures by creditors. The court held that the Tribunal's interpretation was not aligned with the Act and ruled against the assessee. The decision clarifies that the acceptance of declarations under s. 24 does not absolve the assessee from explaining cash credits under s. 68 of the I.T. Act, emphasizing the distinction between undisclosed income of the declarant and income belonging to others.