1974 (10) TMI 9 - HC - Income Tax

Assessment Proceedings Bona Fide Gift Tax Income Tax Authorities Market Value Reason To Believe Reassessment Proceedings

Issues Involved:
1. Jurisdiction of the Income-tax Officer to issue notices under section 148 of the Income-tax Act, 1961.
2. Alleged escapement of income due to non-disclosure of memorandum, articles of association, and world balance-sheet.
3. Legitimacy of the transfer of shares and the resultant profit.
4. Validity of successive notices under section 148.
5. Good faith and pretence in issuing the impugned notices.

Detailed Analysis:

1. Jurisdiction of the Income-tax Officer to Issue Notices under Section 148:
The primary issue was whether the Income-tax Officer had jurisdiction to issue the notice dated 20th May 1970 under section 148 for the assessment year 1962-63. The court examined whether the conditions precedent for invoking section 148 were satisfied. It was noted that the Income-tax Officer issued the notice alleging that the appellant failed to disclose its memorandum, articles of association, and world balance-sheet, leading to an alleged escapement of income. The court found that these documents were already in the possession of the Income-tax Officer since 1961 and were produced during the assessment proceedings. Therefore, the jurisdictional prerequisite of non-disclosure was not met, rendering the notice without jurisdiction.

2. Alleged Escapement of Income Due to Non-disclosure:
The Income-tax Officer alleged that the appellant did not disclose its memorandum, articles of association, and world balance-sheet, leading to an escapement of income amounting to Rs. 14 crores. The court found that the appellant had indeed disclosed all relevant documents, including the memorandum and articles of association, during the assessment proceedings. The court emphasized that the duty of the assessee is to disclose all primary facts, and it is the responsibility of the Income-tax Officer to draw inferences from those facts. The court concluded that there was no omission on the part of the appellant to disclose material facts, and therefore, the alleged escapement of income was unfounded.

3. Legitimacy of the Transfer of Shares and the Resultant Profit:
The court examined the nature of the transactions involving the transfer of shares by I.C.I. (India) Ltd. to the appellant. It was noted that the transactions were part of a pre-arranged scheme involving loans and advances by the appellant to its subsidiary for the acquisition of shares. The court referred to the findings of the Income-tax Appellate Tribunal and the Supreme Court, which had previously concluded that the transactions were bona fide and not aimed at avoiding tax. The court reaffirmed that the transfer of shares at par value was in accordance with the agreement and did not result in any escapement of income.

4. Validity of Successive Notices under Section 148:
The court addressed the issue of the second notice under section 148 issued on 20th May 1970 after dropping the first notice on 7th May 1970. The court found that the reasons for issuing the second notice were substantially the same as those for the first notice, with additional allegations regarding the appellant's business as a financier. The court held that the issuance of successive notices under section 148 was not permissible as it circumvented the statutory limitation period for reassessment. The court concluded that the second notice was invalid and without jurisdiction.

5. Good Faith and Pretence in Issuing the Impugned Notices:
The court critically examined the conduct of the Income-tax Officer in issuing the impugned notices. It was observed that various proceedings under different sections of the Income-tax Act and the Gift-tax Act were initiated against the appellant and its subsidiary. The court found that the impugned notices were not issued in good faith and were mere pretences. The court emphasized that the belief of the Income-tax Officer must be held in good faith and cannot be a mere pretence. The court concluded that the impugned notices lacked bona fides and were issued without proper jurisdiction.

Conclusion:
The appeal was allowed, and the impugned notices under sections 148, 142(1), and 143(2) of the Income-tax Act, 1961, were set aside. The court issued appropriate writs and made the rule absolute, with no order as to costs.

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