1969 (10) TMI 19 - HC - Income Tax

Validity of a notice issued by the respondent-Income-tax Officer, under section 148 - failure on the part of the assessee to disclose facts - escapemnet of assessment

Summary

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income-tax Act, 1961.
2. Alleged failure of the petitioner to disclose material facts for the assessment year 1958-59.
3. Jurisdiction of the Income-tax Officer to issue the notice under Section 148.
4. Legal effect of the Tribunal's order and subsequent rectification.
5. Applicability of Section 150 and Explanation 2 to Section 153(3) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of the Notice Issued under Section 148 of the Income-tax Act, 1961:
The petitioner challenged the validity of a notice issued by the Income-tax Officer under Section 148 of the Income-tax Act, 1961. The notice dated December 7, 1965, was issued on the grounds that the petitioner's income chargeable to tax for the assessment year 1958-59 had escaped assessment within the meaning of Section 147 of the Act. The petitioner argued that there was no omission or failure on its part to disclose all material facts necessary for the purpose of its assessment for the year 1958-59.

2. Alleged Failure of the Petitioner to Disclose Material Facts for the Assessment Year 1958-59:
The respondent-Income-tax Officer claimed that the petitioner had not disclosed the effect of the sale of the colliery along with movable and immovable properties and the consequential profit and loss on this transaction in the return for 1958-59. It was asserted that the petitioner failed to disclose fully and truly all material facts necessary for the assessment, leading to the income escaping assessment. However, the court found this assertion to be baseless, noting that the original assessment order for 1958-59 expressly recorded the sale of the collieries and included a copy of the indenture on record.

3. Jurisdiction of the Income-tax Officer to Issue the Notice under Section 148:
The court examined whether the Income-tax Officer had reasonable grounds to believe that the income had escaped assessment due to the petitioner's failure to disclose material facts. The court referred to precedents, including Calcutta Discount Co. Ltd. v. Income-tax Officer, which established that the duty of the assessee is to disclose all primary relevant facts, but not to draw inferences of law. The court concluded that the Income-tax Officer's belief was not justified as the petitioner had disclosed all primary facts, and the alleged failure was due to a misunderstanding of the legal effect of the non-registration of the sale deed.

4. Legal Effect of the Tribunal's Order and Subsequent Rectification:
The Tribunal had earlier directed the exclusion of profits under Section 10(2)(vii) from the total income for the assessment year 1956-57, following the Supreme Court decision in Commissioner of Income-tax v. Bhurangya Coal Co. The Tribunal also observed that such profits were liable to be included in the total income for the assessment year 1958-59. However, this observation was rectified under Section 35 of the Income-tax Act, 1922, by deleting the words "liable to be included in the total income of the appellant in the assessment year 1958-59."

5. Applicability of Section 150 and Explanation 2 to Section 153(3) of the Income-tax Act, 1961:
Mr. Sen, representing the respondents, argued that under Section 150(1) and Explanation 2 to Section 153(3), the Income-tax Officer was empowered to issue a notice under Section 148 to give effect to the Tribunal's order. However, the court found this argument unconvincing, noting that the reason for the escapement of assessment was not due to any omission or failure on the part of the assessee but due to ignorance of the legal effect of non-registration of the sale deed, as clarified by the Supreme Court in Bhurangya's case.

Conclusion:
The court held that the Income-tax Officer was not justified in issuing the impugned notice under Section 148 of the Income-tax Act, 1961. The rule was made absolute, and a writ of certiorari was issued quashing the impugned notice and any proceedings taken thereunder. Additionally, a writ of prohibition was issued forbidding the respondents from taking any further steps in pursuance of the impugned notice. The petitioner was entitled to the costs of the application, to be paid by the respondent No. 1.