Business Income

This query is : Resolved

bkishwar (Querist)
Follow

21 October 2007 Does an Illegal income received by an Assessee and against that illegal Income Claimaint has also been Proved i.e it has been confirmed that the Income belongs to a Particular person can be assessed as Income of the Person who has received it.There is no evidence of Refund to the claimant.Proceedings already been initiated for recovery under civil Court.

R.V.RAO

R.V.RAO (Expert)
Follow

22 October 2007 ACCORDING TO A FEW COURT DECISIONS, ILLEGAL CHARECTER OR NATURE OF THE INCOME DOES NOT AFFECT THE TAXABILITY.
THE INCOME LEGAL OR ILLEGAL WILL BE TAXED.
SOME OF THE CITATIONS ON THE SUBJECT ARE GIVEN BELOW
As for the citation given in K. C. Trunk and Bucket Factory, the full facts are that the assessee firm filed a return. While it was being subjected to scrutiny during the course of assessment, it was discovered that there was a bank deposit of Rs. 25,000 during the financial year in the name of wife of a partner of the assessee firm attributed to be out of `some business transaction' of the firm and offered for assessment by a revised return.

Penalty, which was sustained, was in respect of concealment in the original return. The assessee could not also prove that the source of additional sum of Rs. 25,000 offered as from legitimate business, which was bona fide omitted to be shown in the original return.

It was found that penalty was exigible, since even the amount shown in the revised return as business income was from `some business' as contended and that if it were business income, the particulars of the same were concealed. The question, therefore, was primarily for lack of explanation for source of income not offered in the original return, so that this could not nullify the law that a taxpayer, who discloses his income, cannot be penalised for lack of particulars of disclosed income, because concealment contemplated under Sec. 271(1)(c) is concealment of income even as indicated in title to Sec. 271(1). Particulars of income referred in Sec. 271(1)(c) relates to particulars of income not reported and not what is admitted.

While penalty may not be levied routinely even in the case of omission to report an income, if convincing explanation is offered, the law does not contemplate penalty for an income which is reported and offered for assessment. The yardstick for taxation of quantum of penalty is the tax sought to be evaded being the difference in tax between reported and assessed income, so that penalty base itself is absent in respect of reported income from whatever source.

when the law required the source to be indicated, it has specifically provided so in respect of settlement cases under Sec. 245H of the Act.

The argument that those who disclose the source are worse off in disclosing particulars are best met by the administration by avoiding cause for complaint from them.

Penalty cannot be levied merely for non-disclosure of the source of income disclosed. Similarly, disclosure of income even for past years, if admitted prior to detection, is entitled to waiver under Sec. 273A of the Act. It is in this sense that one need not wait for amnesty under another Voluntary Disclosure Scheme.

On the other hand, failure to disclose income may render the defaulter liable for tax and interest and possible prosecution if discovered.

One may, however, point out that in the case of persons covered by Prevention of Corruption Act, 1988, or Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976, or Prevention of Money Laundering Act, 2002, it may be necessary for them to explain their source of wealth, but that is because of the requirement of such special law, which do not apply for all. But the fact, that some persons coming within the purview of such laws may have to disclose their source, makes no difference even for them for income-tax purposes in the administration of income-tax law.
SOURCE:THE HINDU-OCTOBER 04-2004
R.V.RAO