1967 (7) TMI 2 - SC - Income Tax

Assessee contended that the ITO had no jurisdiction to issued notices as he had submitted all the informations - High Court quashed the notices - HC rightly quashed the notices - Revenue appeal dismissed

Summary

Issues:
Jurisdiction of Income-tax Officer to reopen assessments under section 147(b) of the Income-tax Act, 1961.

Detailed Analysis:
The case involved the assessees, M/s. A. Raman & Company, who were dealers in "mill stores" and sold these stores to other dealers, including Hindu undivided families trading under different names. The Income-tax Officer sought to reopen the assessments for the years 1959-60, 1960-61, and 1961-62 based on the belief that profits were diverted to the Hindu undivided families to evade taxation. The High Court quashed the notices issued under section 147 of the Income-tax Act, leading to an appeal by the Commissioner of Income-tax to the Supreme Court.

The key issue revolved around the jurisdiction of the Income-tax Officer to reopen assessments under section 147(b) of the Income-tax Act, 1961. This section allows reassessment if the officer has reason to believe that income chargeable to tax has escaped assessment due to information in his possession. The Supreme Court emphasized that the condition precedent for reassessment is the officer's belief based on information in his possession.

The Court highlighted that the term "information" refers to knowledge derived externally concerning facts or law relevant to the assessment. The presence of such information empowers the Income-tax Officer to reassess income. The Court clarified that the officer's jurisdiction is not affected even if the information could have been obtained during the previous assessment but was not. The High Court's role under article 226 of the Constitution is limited to determining the existence of the jurisdictional condition, not reassessing evidence or inferences made by the officer.

Regarding the specific case, the Income-tax Officer's plea that profits were diverted to Hindu undivided families through a contrivance was found lacking. The Court held that the officer failed to establish that income chargeable to tax had escaped assessment. Merely dividing income between the assessee and another person through a device does not automatically warrant reassessment. The Court emphasized that income earned by the assessee is taxable, not potential income that was not realized. Since the officer did not provide sufficient grounds for reassessment, the High Court's decision to quash the notices was upheld.

In conclusion, the Supreme Court dismissed the appeal, confirming the High Court's decision to quash the notices. No costs were awarded in both courts.