1996 (6) TMI 21 - HC - Income Tax

Assessment Proceedings, Failure To Disclose Material Facts, Gift Tax, Jurisdiction Of High Court, Quoted Equity Shares, Reassessment Proceedings

Issues Involved:
1. Justification of the Appellate Tribunal in cancelling the reassessment.
2. Applicability of Section 16(1)(b) of the Gift-tax Act, 1958.
3. Requirement of separate notice under Section 16(1)(b).
4. Awareness of the Income-tax Officer regarding escapement of assessment.
5. Compliance with statutory provisions and rules for valuation of shares.

Issue-wise Detailed Analysis:

1. Justification of the Appellate Tribunal in Cancelling the Reassessment:
The primary issue was whether the Appellate Tribunal was justified in cancelling the reassessment by holding that the assessee had not failed to disclose fully and truly the material particulars necessary for completing the assessment. The court noted that the balance-sheets of the company were already filed before the Gift-tax Officer, who had accepted the original valuation of the shares gifted based on the latest available balance-sheet figures. The Tribunal found that the necessary material was placed before the Gift-tax Officer at the time of the original assessment, and the assessee had disclosed the particulars through correspondence with the Department. Therefore, the Tribunal concluded that the assessee could not be said to have failed in disclosing material particulars.

2. Applicability of Section 16(1)(b) of the Gift-tax Act, 1958:
The court examined whether the provisions of Section 16(1)(b) could be invoked. The statutory provision allows the Gift-tax Officer to act if he has any information in his possession that leads him to believe that any taxable gift has escaped assessment. However, the court emphasized that this provision had not been contemplated or raised before the lower authorities. The proceedings had terminated up to the stage of the Tribunal based on Section 16(1)(a) alone, which deals with situational omission or failure on the part of the assessee regarding full and true disclosure of all material facts.

3. Requirement of Separate Notice under Section 16(1)(b):
The court referred to the decisions of various High Courts and the Supreme Court, which settled the question that it is not necessary for the Gift-tax Officer to issue separate and distinct notices for clauses (a) and (b) of Section 16(1). The court noted that if the notice is issued within the period provided by the provision, resort can be had to either of the two clauses.

4. Awareness of the Income-tax Officer Regarding Escapement of Assessment:
Learned senior tax counsel argued that the awareness of the Income-tax Officer regarding escapement of assessment could arise from information available in the papers filed before him, even if it occurred much after the filing of the papers and completion of the assessment. The court, however, found that there was no whisper or indication of such awareness before the three lower authorities. The court highlighted that the question referred to it was limited to whether the assessee failed to disclose fully and truly the material particulars necessary for completing the assessment.

5. Compliance with Statutory Provisions and Rules for Valuation of Shares:
The court examined the compliance with statutory provisions and rules for the valuation of shares. It referred to the Supreme Court's decision in Bharat Hari Singhania v. CWT, which laid down the steps for valuation in accordance with the concerned statutory provisions and rules. The court noted that the balance-sheet of the company would constitute the basis for working the rule and that the authorities under the Act must follow the prescribed rule without deviation. The court observed that the Gift-tax Officer had blindly accepted the balance-sheet produced by the assessee and the original valuation of the shares gifted based on the latest available balance-sheet figures, leading to an obvious escapement of assessment.

Conclusion:
The court concluded that the contemplation for resorting to Section 16(1)(b) was wholly absent before the three lower authorities. The question referred to the court was limited to whether the assessee failed to disclose fully and truly the material particulars necessary for completing the assessment, which had already been closed by the finality of the fact-finding. Therefore, the court answered the question in the affirmative, against the Revenue and in favor of the assessee. A copy of the judgment was ordered to be forwarded to the Income-tax Appellate Tribunal, Cochin Bench, as required by law.

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