1989 (6) TMI 43 - HC - Income Tax

Summary

Issues Involved:
1. Legitimacy of the reassessment proceedings under Section 147 of the Income-tax Act.
2. Full and true disclosure of material facts by the petitioner.
3. Validity of the notice issued under Section 148 of the Income-tax Act.
4. Determination of the nature of compensation received for acquired land.
5. Jurisdiction of the Income-tax Officer to reopen assessments.

Detailed Analysis:

1. Legitimacy of the Reassessment Proceedings under Section 147 of the Income-tax Act:
The petitioner-company argued that the Income-tax Officer (ITO) had no reason to believe that any income had escaped assessment for the accounting year 1967-68. The petitioner claimed that all relevant materials were fully and truly disclosed during the original assessment proceedings. The court referenced the case of ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC), which established that two conditions must be satisfied before an ITO can issue a notice under Section 148 of the Income-tax Act for assessments beyond four years but within eight years. The court found that these conditions were not met in this case, rendering the reassessment proceedings illegitimate.

2. Full and True Disclosure of Material Facts by the Petitioner:
The petitioner-company disclosed the receipt of compensation in its balance-sheet and directors' report for the year ending December 31, 1966. The court cited Union Carbide (India) Ltd. v. ITO [1973] 87 ITR 529 (Cal), which held that facts disclosed in the directors' report and the profit and loss account are deemed to be full disclosure of relevant facts. The court concluded that the petitioner had fully and truly disclosed all material facts necessary for the assessment, and there was no suppression or concealment on their part.

3. Validity of the Notice Issued under Section 148 of the Income-tax Act:
The petitioner contended that the notice issued under Section 148 was a mere pretence and lacked a lawful basis. The court examined the principles laid down in various judgments, including Gemini Leather Stores v. ITO [1975] 100 ITR 1 (SC) and CIT v. Hindustan Housing and Land Development Trust Ltd. [1977] 108 ITR 380 (Cal). It was held that if the ITO had all the material facts before him during the original assessment, he could not later invoke Section 147(a) to remedy his own oversight. The court found that the conditions necessary for issuing the notice under Section 148 were not satisfied, making the notice invalid.

4. Determination of the Nature of Compensation Received for Acquired Land:
The petitioner received compensation for the acquisition of agricultural land by the Government of Assam. The ITO reopened the assessment on the basis that 5/8ths of the acquired land was non-agricultural, thus subject to capital gains tax. The court noted that the petitioner had disclosed the nature of the compensation in their returns and balance-sheet, and the matter was pending before the Assam High Court. The court referenced Lokendrasingh v. ITO [1981] 128 ITR 450, where similar reassessment proceedings were quashed because the compensation amount was not final and was pending appeal. The court concluded that the compensation amount was not determinate and hence not taxable.

5. Jurisdiction of the Income-tax Officer to Reopen Assessments:
The court examined whether the ITO had jurisdiction to reopen the assessments. The petitioner argued that the proceedings were initiated solely to reconsider or revise the original assessment decisions, which is contrary to law. The court referenced S. Narayanappa v. CIT [1967] 63 ITR 219 (SC), which held that the ITO's "reason to believe" must be held in good faith and not be a mere pretence. The court found that the ITO's satisfaction was not genuine and the reassessment proceedings were without jurisdiction.

Conclusion:
The court concluded that the petitioner had fully and truly disclosed all relevant facts, and there was no escapement of income. The reasons assigned by the income-tax authorities for issuing the impugned notices were legally infirm. The writ petition was allowed, and the rule was made absolute without costs. A writ of mandamus was issued, commanding the respondents to cancel the notice dated March 29, 1976, for the assessment year 1967-68 under Section 148 of the Income-tax Act and all proceedings thereto. The order was stayed for two weeks to allow for any further actions.