2001 (11) TMI 28 - HC - Income Tax

Reassessment, Amalgamations Of Companies - In this petition under article 226 of the Constitution, the petitioner-company, which is engaged in the business of financing and trading in shares, has challenged the notice, issued by the Additional Commissioner of Income-tax, Special Range-1, Surat, under section 148, stating that the said officer had reason to believe that the income chargeable to tax for the assessment year 1994-95 has escaped assessment within the meaning of section 147 of the Act and, therefore, the petitioner has been called upon to file a return of the petitioner s income for the said assessment year. The notice further states that the same has been issued after obtaining necessary satisfaction of the Commissioner of Income-tax, Surat. - the petition is summarily rejected, notice is discharged.

Issues Involved:
1. Legitimacy of the notice issued under section 148 of the Income-tax Act, 1961.
2. Whether the petitioner-company failed to disclose fully and truly all material facts necessary for its assessment.
3. Applicability of sections 49(2) and 47(vii) of the Income-tax Act for computing capital gains.
4. Jurisdiction of the High Court under article 226 of the Constitution to interfere with the notice under section 148.

Detailed Analysis:

1. Legitimacy of the Notice Issued under Section 148:
The petitioner challenged the notice dated May 28, 2001, issued by the Additional Commissioner of Income-tax under section 148 of the Income-tax Act, 1961. The notice stated that the officer had reason to believe that the income chargeable to tax for the assessment year 1994-95 had escaped assessment within the meaning of section 147 of the Act. The petitioner argued that the notice was issued beyond a period of four years and could only be issued if there was a failure to disclose fully and truly all material facts necessary for its assessment.

2. Disclosure of Material Facts:
The petitioner contended that all material facts were disclosed during the original assessment, including the cost of acquisition of shares and the computation of capital loss. However, the Revenue argued that the petitioner failed to disclose the actual date and cost of acquisition of shares in Vareli Textiles, which was amalgamated into Garden Silk Mills. The petitioner adopted the market rate of Rs. 91.25 per share of Garden Silk Mills as on March 31, 1988, instead of the actual cost price of Rs. 75,40,515 for the shares of Vareli Textiles purchased on April 6, 1987. This led to an inflated capital loss of Rs. 1,41,47,576 instead of the correct loss of Rs. 5,62,672.

3. Applicability of Sections 49(2) and 47(vii):
The court examined the provisions of sections 49(2) and 47(vii) of the Income-tax Act. Section 49(2) states that the cost of acquisition of shares in an amalgamated company should be deemed to be the cost of acquisition of shares in the amalgamating company. The petitioner failed to apply this provision and instead used the market rate of the shares of the amalgamated company. The court found that the petitioner's computation was incorrect and misleading, as it did not adhere to the statutory provisions.

4. Jurisdiction under Article 226:
The petitioner sought relief under article 226 of the Constitution, arguing that the notice under section 148 was unjustified and caused unnecessary harassment. The court, however, held that the petitioner misled the Revenue by not disclosing the correct cost and date of acquisition of shares. The court cited the Supreme Court's decision in Phool Chand Bajrang Lal v. ITO, which emphasized that reassessment proceedings could be initiated if fresh facts come to light or if previously disclosed facts are found to be untrue. The court concluded that the notice under section 148 was justified and there was no failure of justice warranting interference under article 226.

Conclusion:
The court dismissed the petition, holding that the petitioner failed to disclose fully and truly all material facts necessary for the assessment. The notice under section 148 was found to be valid, as it was based on the petitioner's failure to apply the correct statutory provisions for computing capital gains. The court also emphasized that its writ jurisdiction under article 226 should not be exercised to interfere with the notice, as the petitioner's actions were misleading and the reassessment was justified. The petition was dismissed with costs quantified at Rs. 5,000.

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