1968 (11) TMI 22 - HC - Income Tax

Whether proceeding could be commenced under section 148 of the new Act in respect of income which had escaped assessment in respect of the assessment year 1960-61 - Held, yes

Issues Involved:
1. Applicability of Section 147(a) of the Income-tax Act.
2. Validity of the reasons to believe that income had escaped assessment.
3. Applicability of the new Income-tax Act for the assessment year 1960-61.

Detailed Analysis:

1. Applicability of Section 147(a) of the Income-tax Act:
The first issue concerns whether Section 147(a) of the Income-tax Act, which authorizes the assessment of escaped income, applies to the case. The petitioner argued that the assessee had fully and truly disclosed all material facts necessary for the assessment, thus Section 147(a) should not apply. The court referred to the Supreme Court's elucidation in Calcutta Discount Company Limited v. Income-tax Officer, which clarified that the material facts under Section 147(a) are primary facts that must be disclosed. If these primary facts are true, there is no power to assess escaped income. The court concluded that if the assessee-company received a commission but stated it was a loan, this would constitute a concealment of a material fact necessary for the assessment. Therefore, Section 147(a) would apply if the assessee did not truly state the nature of the receipt.

2. Validity of the Reasons to Believe that Income had Escaped Assessment:
The second issue involves whether the Income-tax Officer had valid reasons to believe that income had escaped assessment. The court cited the Supreme Court's pronouncement in S. Narayanappa v. Commissioner of Income-tax, which stated that the sufficiency of the grounds inducing the belief is not a justiciable issue, although the assessee can contend that the Income-tax Officer did not truly entertain the belief. The court found that the Income-tax Officer had set out the entire chronology of events and circumstances, such as the non-repayment of the loan, absence of security, and lack of original invoices, which could induce a belief that the transaction described as a loan was actually a commission. The court concluded that the Income-tax Officer honestly entertained this belief and that the reasons were neither extraneous nor irrelevant.

3. Applicability of the New Income-tax Act for the Assessment Year 1960-61:
The third issue is whether the new Income-tax Act applies to the assessment year 1960-61. The petitioner argued that the new Act, which came into force on April 1, 1962, could only apply to assessment years starting from 1962-63. The court examined Section 147(a) and Section 297(2)(d)(ii) of the new Act. Section 297(2)(d)(ii) allows for the commencement of proceedings under Section 147 for escaped income for assessment years prior to 1962-63, provided no proceedings under Section 34 of the old Act were pending when the new Act commenced. Since no such proceedings were pending, the court concluded that the new Act could apply to the assessment year 1960-61.

Lastly, a contention was raised that the income should be assessed for the financial year beginning April 1, 1959, not 1960-61, based on a statement by the Income-tax Officer. However, this issue was not raised in the writ petition, and the court noted that the assessee could still argue this point before the Income-tax Officer.

Conclusion:
The court dismissed the writ petition, holding that Section 147(a) was applicable, the Income-tax Officer had valid reasons to believe income had escaped assessment, and the new Income-tax Act could apply to the assessment year 1960-61. The petition was dismissed with no costs.

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