1971 (7) TMI 21 - HC - Income Tax

Simultaneous notices of reassessment on members and association - whether the ITO had any such facts or material before him on the basis of which he could, prima facie, have reason to believe that the income of the petitioner or the association of persons named in the notice had escaped assessment and that such an association of persons did presumably exist.

Issues Involved:
1. Validity of the notices issued under Section 148 of the Income-tax Act, 1961.
2. Jurisdiction of the Income-tax Officer to issue the notices.
3. Impact of the previous settlement under Section 34(1B) of the Indian Income-tax Act, 1922.
4. Alleged simultaneous proceedings against the petitioner individually and as part of an association of persons.
5. Proper addressing of the notice to the association of persons.

Detailed Analysis:

1. Validity of the Notices Issued under Section 148 of the Income-tax Act, 1961:
The petitioner argued that there was no material before the Income-tax Officer to have reason to believe that the income liable to tax had escaped assessment, either as a member of an association of persons or as an individual. The court noted that the expression "reason to believe" in Section 147 of the Act does not require the Income-tax Officer to be fully satisfied about the correctness of the information at the stage of issuing the notice. It is sufficient if there are reasonable grounds for the belief, which must be held in good faith. The court emphasized that the facts need not be irrebuttably conclusive at this stage.

The respondents provided a statement of brief reasons for issuing the notices, which included specific items such as the cost of shares in Punjab National Bank, the cost of shares in Madhusudan Mills, joint ventures, and assets left out of the wealth statement. The court found these reasons relevant to the formation of the belief that income had escaped assessment and that an association of persons existed. Therefore, the Income-tax Officer had the jurisdiction to issue the notices.

2. Jurisdiction of the Income-tax Officer to Issue the Notices:
The petitioner contended that the Income-tax Officer, Special Investigation Circle, New Delhi, did not have jurisdiction as the previous assessment was made by the Income-tax Officer, Special Circle, Charge IV, Patna. The court noted that the jurisdiction issue had already been determined by the Commissioner of Income-tax by an order dated May 25, 1964. According to Section 124(1) of the Act, the Commissioner has the authority to direct the jurisdiction of Income-tax Officers. The court found no rebuttal to this and concluded that the Income-tax Officer had the jurisdiction to issue the notices.

3. Impact of the Previous Settlement under Section 34(1B) of the Indian Income-tax Act, 1922:
The petitioner argued that the previous settlement under Section 34(1B) barred any further proceedings under Sections 147 and 148 of the Act. The court examined the settlement and found that it covered the period from January 1, 1939, to December 31, 1947. The proposed assessment in the impugned notices was for the period subsequent to this. Additionally, Clause (10) of the settlement allowed the income-tax department to tax any concealed income not covered by the settlement. The court concluded that the settlement did not bar the proposed assessment.

4. Alleged Simultaneous Proceedings against the Petitioner Individually and as Part of an Association of Persons:
The petitioner contended that initiating simultaneous proceedings against the association of persons and the petitioner individually indicated a fishing or roving inquiry. The court rejected this argument, stating that the items of escaped income were specific, and the question of whether the income was earned by one person or jointly was a matter of inquiry. The court cited the case of Lalji Haridas v. Income-tax Officer, where it was held that it is permissible to start proceedings against multiple parties if it is unclear who received the income.

5. Proper Addressing of the Notice to the Association of Persons:
The petitioner argued that the notice issued to the association of persons was illegal as it was not addressed to the principal officer but to the association through the petitioner. The court found no substance in this argument, stating that according to Clause (c) of Sub-section (2) of Section 282 of the Act, the notice could also be addressed to any member of the association. Since the petitioner was stated to be a member of the association, there was no infirmity in the notice.

Conclusion:
The court dismissed both petitions (C. Ws. 316-D/65 and 318-D/65) and upheld the validity of the notices issued under Section 148 of the Income-tax Act, 1961. The court found that the Income-tax Officer had jurisdiction, the previous settlement did not bar the proposed assessment, and the simultaneous proceedings were permissible. Additionally, the notice was correctly addressed to the association of persons. The petitions were dismissed with no order as to costs.

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