1975 (2) TMI 3 - SC - Income Tax

Trading Receipt - challenging the validity of six notices dated September 7, 1965, issued under section 148 - sanction for re-assessment accorded by the member after the work was transferred from the Chairman was valid - order of HC is set aside - appeal of revenue s allowed

Summary

Issues Involved:
1. Validity of notices issued under section 148 of the Income-tax Act, 1961.
2. Requirement of sanction from the Central Board of Direct Taxes under section 151 of the Act.
3. Authority of the Member of the Central Board of Direct Taxes to grant sanction.
4. Necessity of a formal order expressing the approval of the Central Government.

Issue-wise Detailed Analysis:

1. Validity of Notices Issued Under Section 148 of the Income-tax Act, 1961:
The respondent challenged the validity of six notices issued under section 148 of the Income-tax Act, 1961, for the assessment years 1949-50, 1950-51, and 1951-52. These notices were issued based on the findings of the Vivian Bose Commission, which investigated the affairs of various companies associated with the appellant. The High Court quashed these notices, accepting the contention that the required sanction from the Central Board of Direct Taxes (CBDT) had not been obtained.

2. Requirement of Sanction from the Central Board of Direct Taxes Under Section 151 of the Act:
Section 151(1) of the Income-tax Act, 1961, mandates that no notice shall be issued under section 148 after eight years from the end of the relevant assessment year unless the CBDT is satisfied that it is a fit case for issuing such notice. The respondent argued that the necessary sanction from the CBDT was not obtained before issuing the notices, rendering them invalid.

3. Authority of the Member of the Central Board of Direct Taxes to Grant Sanction:
The High Court found that the sanction for reopening assessments was granted by Shri S. A. L. Narayana Row, a Member of the CBDT, instead of the Chairman, who was originally assigned all assessment work. The respondent contended that Shri Narayana Row had no authority to deal with cases for reopening assessments, as the work was not formally reassigned to him with the approval of the Central Government.

4. Necessity of a Formal Order Expressing the Approval of the Central Government:
The High Court held that the reassignment of work to Shri Narayana Row was invalid due to the absence of a formal order expressing the Central Government's approval. The High Court observed discrepancies between the office notes and the affidavits provided, leading to the conclusion that the notices were issued without proper jurisdiction and authority.

Supreme Court's Analysis:

Authority and Approval:
The Supreme Court examined the affidavits of Shri J. P. Singh, the then Chairman of the CBDT, and Shri P. G. Gandhi, Under Secretary, CBDT. The affidavits indicated that the reassignment of work to Shri Narayana Row was approved by the Central Government, as evidenced by discussions and notes in the office file. The Court found that the statements in the affidavits were consistent with the office notes and supported the claim that the reassignment had the necessary approval.

Formal Order Requirement:
The Supreme Court addressed the argument that a formal order was necessary to express the approval of the Central Government. The Court held that the approval was a matter of internal arrangement within the CBDT and did not affect the rights of the assessees. The approval was adequately evidenced by the office notes and discussions, and there was no requirement for a formal order.

Validation of Proceedings Act:
The appellants referred to the Central Board of Direct Taxes (Validation of Proceedings) Act, 1971, which validates actions taken by the Chairman and other members of the Board, even if they were not validly entrusted with the powers or duties. However, the Supreme Court found it unnecessary to consider this Act, as the impugned notices were issued in compliance with the requirements of rule 4 of the Central Board of Direct Taxes (Regulation of Transaction of Business) Rules, 1964.

Conclusion:
The Supreme Court allowed the appeals, setting aside the judgment and orders of the High Court. The High Court was directed to dispose of the writ petitions on other grounds raised therein. The appellants were entitled to their costs in the Supreme Court.

Appeals allowed.