1970 (6) TMI 10 - HC - Income Tax

Notice issued under section 148 of the Income-tax Act, 1961, seeking to reopen the assessment of the petitioner on ground that assessee had failed to disclose primary facts

Summary

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income-tax Act, 1961.
2. Fulfillment of conditions under Section 147(a) for reopening the assessment.
3. Obligation of the assessee to disclose material facts.

Issue-Wise Detailed Analysis:

1. Validity of the Notice Issued Under Section 148 of the Income-tax Act, 1961
The petition challenges the notice dated 28th March 1969, issued by the Income-tax Officer under Section 148 of the Income-tax Act, 1961, seeking to reopen the assessment for the year 1960-61. The petitioner had purchased 1,332 acres of land in 1930 and sold plots over several years. In the assessment year 1936-37, profits from these sales were taxed. The Bombay High Court in In re K. H. Mody observed that the purchase and sale of the land constituted an adventure in the nature of trade, and profits should be assessed when the venture was completed. This interpretation was accepted by the Income-tax Officer for subsequent years, including 1960-61, leading to the exclusion of profits from the sale of plots from the petitioner's total income.

2. Fulfillment of Conditions Under Section 147(a) for Reopening the Assessment
The notice was issued after four years but before eight years from the end of the assessment year 1960-61. Under Section 147(a), two conditions must be satisfied: (i) the Income-tax Officer must have reason to believe that income chargeable to tax has escaped assessment, and (ii) such escapement must be due to the assessee's omission or failure to disclose fully and truly all material facts necessary for the assessment. The petitioner did not dispute the first condition. The dispute centered on whether the second condition was met. The revenue argued that there was an omission by the assessee to disclose material facts, leading to the escapement of income.

3. Obligation of the Assessee to Disclose Material Facts
The Supreme Court in Calcutta Discount Co. Ltd. v. Income-tax Officer clarified that the duty of the assessee is to disclose fully and truly all primary facts necessary for assessment. The assessee is not required to disclose inferences to be drawn from these facts. The revenue contended that two primary facts were not disclosed: (i) the true ratio of the judgment in In re K. H. Mody, and (ii) the fact that the petitioner had recouped the cost of the land from the sale proceeds before the relevant year. The court found that the first fact was a matter of legal interpretation, not a primary fact. The second fact, although a primary fact, did not cause the escapement of income. The Income-tax Officer's erroneous view that profits were not assessable until the venture was completed led to the non-assessment of profits, regardless of whether the cost had been recouped.

Conclusion
The court concluded that the Income-tax Officer had no reason to believe that the petitioner omitted or failed to disclose any material facts necessary for the assessment, which led to the escapement of income. Therefore, the second condition under Section 147(a) was not satisfied, and the Income-tax Officer lacked jurisdiction to reopen the assessment. The petition was allowed, and the notice dated 28th March 1969, was quashed. The respondent was ordered to pay the costs of the petition to the petitioner.