9911796707
TMI Blog1981 (8) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... ome from several immovable properties. The assessee was assessed to income-tax by the ITO, B-Ward, Nagpur. The assessments in question, and which are the subject-matter of this petition, are assessments made on the assessee for the years 1947-48, 1948-49 and 1949-50, i.e., accounting years 1946-47, 1947-48 and 1948-49. For the assessment year 1947-48, the assessee was assessed to tax on a total income computed by the ITO at Rs. 96,854. For the assessment year 1948-49, the said income was calculated at Rs. 1,10,514 and for the year 1949-50 at Rs. 81,532. While making the assessment orders which were made under s. 23(3) of the Act, which was then in force, the ITO observed with regard to certain items of income and certain items of expenditure which were shown to him that " huge withdrawals the assessee makes are utilised in some investments and this particular source is not disclosed by the assessee ". It appears that before the ITO, for the assessment years 1948-49 and 1949-50, the assessee failed to produce his account books for the money-lending business on the ground that the " account books for this business are alleged to have been taken away by Mr. Raojibhai, who was the man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued to him under s. 34 of the Act on the three dates mentioned above by us in the years 1956, 1957 and 1958, as to what transpired in these proceedings and to what stage they had reached, we have no record and information. It appears in any event that these proceedings for reassessment of income, which in the opinion of the ITO had escaped assessment for assessment years 1947-48, 1948-49 and 1949-50, bad not been finalised. On the death of Shamji Kheta on November 15, 1967, it appears that these proceedings under s. 34 were sought to be commenced and continued against the executors and legal representatives of the deceased and in particular the trustees under the will of deceased Shamji Kheta. On August 8, 1963, the deceased had executed a will by which he brought into existence a trust which was for the benefit of his grandsons and granddaughters and was to be administered by three persons including one of them who is the present petitioner, Vasanjee, s/o. Shamji Kheta. The petition was filed by the other two trustees, A.S. Bobde and M. M. Kinkhede, and they had subsequently retired from the petition and Vasanjee applied for substitution in their place, which application for s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITO to appear and take part in the proceeding ought to be quashed as also the notice under ss. 34(1) and 24B of the Act. It was contended that the proceeding could be continued under s. 34(1)(a) only in respect of the income accrued to the deceased for the previous year in the hands of the trustees, legal representatives, executors or administrators of his estate and not in respect of years in which the deceased himself had received that income and which event had occurred much before his actual death. It is the correctness and legality of this contention which has to be determined in this petition. Mr. Thakkar who appeared for the petitioners based his submissions on the provisions of the Act, which is common ground : Is the Act applicable in the present case and ss. 34 and 24B therein ? Section 34(1) is in two parts, part (a) and part (b). Sub-s. (3) of s. 34 prescribes different periods of limitation for reopening of assessments. In a case under cl. (b) of sub-s. (1) of s. 34 of the Act, an assessment can be reopened within a period of four years from the last date of the assessment year and in the case falling under cl. (a) of sub-s. (1) within 8 years from the end of the rele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of the assessee in that year. The ITO, he contended, had, notwithstanding what was the position, proceeded to assess the income of that year earned by the assessee. If that was so, then, according to him, where an assessment is made in that year, it would not be permissible at a later stage to turn round and say that there was no full or true disclosure of all material facts by the assessee. Where the consideration has resulted in an assessment, the assessment, he contends, operates as a bar for the reopening of any assessment where the ITO at the time of making of the assessment was not satisfied that a true and full disclosure was made. In other words, it was his contention that where assessments were made under s. 23(3), i.e., assessment of total income said to have been received by the assessee, according to the ITO determined by him, then that assessment or determination cannot be reopened. He pointed out that it is only income which has escaped assessment that could be reopened for assessment under s. 34. Where an assessment is made on the basis of the material and the ITO does not wait to collect the necessary material and facts relating to income suspected of having esca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ught to be taken not on the basis of the ITO having reason to believe that there is any escapement of income on account of " failure to disclose fully and truly all material facts ", but on account of certain information received by the ITO, subsequently. In other words, it was Mr. Thakkar's submission that the action, if at all sought to be taken under s. 34(1)(b) of the Act, which prescribed a shorter period of limitation, the notices not having been issued within a period of four years were also bad. On the other hand, on behalf of the Department, it was urged that an assessment has to be made within a specified period prescribed by s. 23 of the Act. It was contended that the assessments, in the instant case, were made under s. 23(3) for the assessment years 1947-48,1948-49 and 1949-50. The making of an assessment is no bar to the reopening of an assessment and to reassess the income which has escaped assessment, where the ITO has reason to believe that as a result of any one of the two contingencies, namely, failure to disclose fully and truly material facts or failure to file a return, income has escaped assessment. It was contended that it was not right for the assessee to co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... setting forth therein such particulars as may be necessary including total income and total earned income during that year. If such a return is filed, the ITO proceeds to make an assessment under s. 23 of the Act. In order, therefore, to enable the ITO to make an assessment, it is common place that person liable to pay tax, or a person whose income exceeds the maximum limit of income which is exempt from tax, has to state his total income from all sources and must make a true and full disclosure of all those sources of income, and the amount of income realised or received by him therefrom. Sub-ss. (1), (2) and (3) of s. 23 of the Act then deal with the procedure of assessment, returns , completion of returns and evidence. Where the ITO is satisfied that the return is complete and correct, then he proceeds to make an assessment. Sub-ss. (2) and (3) of s. 23 of the Act provide for contingencies where the return is defective or insufficient in some way or the other. It is subs. (4) which then provides for a contingency where the return is not made, or a return is not filed as required under sub-s. (3) of s. 22, or does not fully comply with the notices and requisitions issued under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lure to disclose truly or fully all material facts, action under s. 34 of the Act is precluded, can be accepted. We think that such a contention on the facts of the present case is most inapt. We have already pointed out as to what the ITO has said while completing the assessments for the years 1948-49, 1949-50 and 1950-51. He referred specifically to the failure to produce account books which undoubtedly amounts to a failure to disclose truly and fully all material facts on the basis of which assessments of the income of deceased Shamji Kheta could have been made. Not only that but the figures of income or expenses were not accepted and believed by the ITO. There was even a concession made before him that the assessee had no objection to proceeding under s. 34 of the Act. We think, that it is a most significant circumstance in this case, that though Shamji Kheta was alive till the year 1967 and though notices were issued to him in the years 1956, 1957 and 1958 under s. 34 of the Act, be did not seek to challenge those notices on the grounds which have now been urged before us by Mr. Thakkar. We think that if the contention raised before us had been correct, apart from the content ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the same set of facts, the jurisdiction to issue notice under s. 34 of the Act was not acquired. We fail to see how this case has any application to the facts of the present case. Nearly to the same effect is the case in Dunlop Rubber Co. Ltd. (London) v. ITO [1971] 79 ITR 349 (Cal). There also the British company which was a parent company was in receipt of monies from its subsidiary offices including Dunlop Rubber Company (India) Ltd. Dunlop Rubber Company (India) Ltd. used to pay certain monies to the U. K. company on account of expenses which the U. K. Company incurred for its research and development activities which it carried out in the United Kingdom. For passing on those benefits of research and development, the U.K. company used to charge its subsidiary companies of which the Indian company was one. The fact of such receipt of monies from the Indian companies was made known and was disclosed. The concerned ITO who made the assessment noted this fact, but did not take these receipts into account for purposes of tax. Subsequently, notices were issued under s. 34 of the Act, which were challenged by the U.K. company. It was then held that where the primary facts were p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essary inference could be drawn were before him. It was not for the assessee to point out what possible inference could by drawn by the ITO making the original assessment at the time when the assessment was made in 1947. " The Full Bench held in that case that the ITO who made the note had looked upon the transaction with some degree of suspicion. That all the facts from which the necessary inference " can be drawn by the ITO making the original assessment" were taken before him. It, therefore, held that " at the time of original assessment, all the primary facts having been placed before the ITO it was open to the ITO then not to accept the version of the assessee and to bring to tax the amount of Rs. 3,05,000. In the circumstances, the question whether this particular transaction between the assessee and M/s. K. Nagardas and Co. was genuine or not was an inference of fact to be drawn from the primary facts placed before the ITO ". In other words, therefore, the Full Bench held that there was true and full disclosure of all necessary and material facts on the basis of which subsequent inference was drawn bringing to tax the sum of Rs. 1,78,000 and, therefore, merely because when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke an assessment albeit on suspicion or makes a best judgment assessment, that operates as a bar to reopening of assessment under s. 34(1)(a) or (b), as the case may be. We may then refer to two important decisions in this connection of the Supreme Court which lay down the circumstances in which jurisdiction under s. 34 of the Act can be exercised by the ITO. The first of this case is the Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC), from which all subsequent deductions and applications have been made either by the Supreme Court or by the other High Courts. The majority judgment in this case held that the circumstances which confer jurisdiction upon an ITO to issue notice under s. 34 of the Act must be specified. The first, the ITO must have reason to believe that any income, profit or gain has either been under assessed and that, secondly, such under-assessment has arisen on account of the omission or failure to file a return and omission or failure to disclose fully and truly all material facts necessary for the making of the assessment. It was also laid down that the belief which the ITO must form is not any belief but must be a reasonable belief. A notice under s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the primary facts lies on the assessee ". Since in that case it was held that the primary facts leading to the inference which it was possible to be drawn on the basis of which a notice was sought to be issued could have been drawn existed, the notice was held bad as there was no failure to disclose all those primary facts. It will thus be seen from the two decisions of the Supreme Court to which we have made a reference, and in particular to the basic decision in Calcutta Discount Company's case [1961] 41 ITR 191 (SC), that the jurisdiction to issue notice under s. 34 of the Act, cl. (a) or (b), as the case may be, turns upon the circumstance and conditions prescribed as a condition precedent laid down in the section itself and nowhere else. If that is so, then the contention that the making of an assessment on the basis of material disclosed, or where no material is disclosed can bar the reopening of an assessment under s. 34 of the Act must be rejected as unsound. Mr. Thakkar is entitled to succeed on the second part of his contention against the requirement of participation of the trustees in s. 34 proceedings. To substantiate that contention, Mr. Thakkar relied upon the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24B did not authorise levy of tax on the income of the deceased person in the year of assessment succeeding the year, being the previous year in which such person died. It was pointed out that s. 24B " was enacted by the legislature to bring to tax, after his death, income received during his lifetime, and fill up the lacuna which was pointed out by the High Court in Ellis C. Reid v. CIT [1946] 14 ITR 70. " An assessment could not be, it was held in that case, against a dead person and, therefore, the decision pointed to the lacuna in the Act. It was to remedy that lacuna that s. 24B was enacted. Mr. Shelat appearing for the Department placed reliance upon some of the observations in this case. He pointed out that s. 24B in the words of the Supreme Court could be used against the person in possession of the estate of the deceased, for recovery of tax even beyond the lifetime of the deceased. Therefore, it was his submission that the death of the assessee is no bar to the continuation of the proceedings against the estate and also against his legal representatives, heirs, executors or administrators in whose hand the estate was. For that purpose, he relied upon the following observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordingly the income received by him before his death and that received by his heirs and legal representatives after his death in that previous year became assessable to income-tax in the relevant assessment year, but not receipts by the legal representatives after the expiry of the account year in which 'A' died." In view of this, it seems to us quite clear that the petitioners cannot be compelled by a notice under s. 34(1)(b) issued by the ITO either to file return or to produce any documents or information as contemplated by s. 24B of the Act. The directions to that effect issued by the ITO must be quashed. The petition is, therefore, entitled to succeed. There will be a direction to the respondent prohibiting him from requiring the trustees and executors under the will of the deceased, Shamji Kheta, to do anything in regard to the proceedings for reassessment of the deceased, Shamji Kheta, for the assessment years 1947-48 to 1949-50. We may also mention one more contention raised before us by Mr. Shelat, viz., that the trust virtually having come to an end on account of the purpose having been exhausted in the year 1978, the petition has become infructuous. We do not think ..... X X X X Extracts X X X X X X X X Extracts X X X X
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