JAMNAPRASAD KANHAIYALAL vs. COMMISSIONER OF INCOME-TAX, M.P., BHOPAL

TAX REFERENCE CASE No. 19/1975Supreme Court[1981] 3 S.C.R. 84908 May 1981Bench: 3 JudgesAuthor: R.S. PATHAK, A.P. SEN, E.S. VENKATARAMIAH KANHAIYALAL15 pages
AI SummaryDismissed

What did the Supreme Court hold?

The Supreme Court held that Section 24 of the Finance (No. 2) Act, 1965, cannot be construed as conferring any benefit, concession, or immunity on any person other than the declarant. The scheme was designed to protect only those who disclosed their own earned income. The legal fiction created by Section 24(3), treating the declared amount as the declarant's total income, was limited in scope and could not be invoked in assessment proceedings relating to any person other than the declarant. Therefore, it did not preclude the ITO under Section 68 of the Income Tax Act, 1961, from rejecting an assessee's explanation for cash credits if it was unsatisfactory. The finality under Section 24(8) applied to the order of the Central Board of Revenue, not to the assessment of tax on the declaration. The Court found no question of double taxation, as the situation arose from the assessee's own making in obtaining false declarations to avoid higher tax slabs. Once it was found that the income declared by the creditors did not belong to them, it could be taxed in the hands of the assessee to whom it actually belonged. The ITO was justified in treating the cash credits as the assessee's income from undisclosed sources.

What were the facts?

During assessment proceedings for the assessment year 1967-68, the Income Tax Officer (ITO) noted cash credits of Rs. 9,250 each in the names of five minor sons of the assessee-firm's Managing Partner. The ITO found these minors had no independent income. The assessee argued these credits were voluntarily disclosed under Section 24 of the Finance (No. 2) Act, 1965, and accepted by the Commissioner. The ITO rejected this, treating the Rs. 46,250 as unexplained cash credits from undisclosed sources and adding it to the assessee's income. The Appellate Assistant Commissioner (AAC) reversed the ITO, holding that acceptance of disclosures and tax payment precluded the department from disputing the income belonged to the creditors, thus preventing double taxation. The Tribunal, however, disagreed with the AAC and upheld the ITO's order. The assessee then filed a reference to the Supreme Court.

What were the issues?

1. Whether the acceptance of a disclosure statement made by a declarant under Section 24 of the Finance (No. 2) Act, 1965, confers immunity on another person from tax liability in respect of the same sum of money, and if Section 24 has an overriding effect over Section 68 of the Income Tax Act, 1961, in such circumstances. Assessee's contention: The assessee contended that the voluntary disclosures made under Section 24 of the Finance (No. 2) Act, 1965, and accepted by the Commissioner, meant the income belonged to the declarants. Consequently, taxing the same income in the hands of the assessee would amount to double taxation, which is impermissible. The scheme of Section 24 should override Section 68 of the Income Tax Act, 1961, in this context. Revenue's contention: The revenue argued that the immunity granted by Section 24 of the Finance (No. 2) Act, 1965, was only to the declarant and did not extend to other persons. The ITO retained the power under Section 68 of the Income Tax Act, 1961, to investigate the source of cash credits in the assessee's books, even if such amounts were disclosed by others. There was no double taxation as the situation was created by the assessee's attempt to avoid higher taxation through false declarations.

Which sections of the Income-tax Act were involved?

Section 24,Section 68,Section 257,Section 18

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--"--,-- JAMNAPRASAD KANHAIYALAL v. COMMISSIONER OF INCOME-TAX, M.P., BHOPAL May 8, 1981 ( R.S. PATHAK, A.P. SEN AND E.S. VENKATARAMIAH, JJ.] 849 Voluntary Disclosure Scheme under section 24 of the Finance (No. 2) Act, 1965, Scope and effect of-Whether the acceptance of a disclosure statement made by a declarant under section 24 of the Finance Act, 1965 confers immunity on ano- ther person from tax liability in respect of the same sum of money-Whether section 24 has an overriding effect over section 68 of the Income Tax Act, 1961-Bar of double taxation-Section 18 of the Voluntary Disclosures of Income and Wealth Act, 1976 (Act 8of1976).

During the course of the assessment proceedings of the assessee-firm for the assessment year 1967-68, the Income Tax Officer"noticed cash credits of Rs. 9,250 each in the names of five sons of the Managing Partner, in the books of the assessee. The Income Tax Officer found that these creditors, who were minors, had no independent source of income. The assessee contended before the ITO that the five creditors had voluntarily disclosed the credits under section 24 of the Finance (No. 2) Act, 1965 and that the disclosures were accept

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