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Rameswar Goenka and Ors. Vs. Income-tax Officer, 'A' Ward and Ors. (30.05.1969 - GUHC) - Court Judgment

LegalCrystal Citation
Subject;Direct Taxation
CourtGuwahati High Court
Decided On
Case NumberCivil Rule Nos. 356, 357, 358, 359, 360, 361 and 362 of 1965
Judge
ActsIncome Tax Act, 1961 - Sections 147 and 148; Income Tax Rules, 1962 - Rules 4 and 6A; Income Tax Act, 1922 - Sections 2A; High Court Rules - Rule 1; Constitution of India - Article 226
AppellantRameswar Goenka and Ors.
Respondentincome-tax Officer, 'A' Ward and Ors.
Appellant AdvocateS.M. Lahiri, S.K. Ghose, J.P. Bhattacharjee and S.N. Medhi, Advs.
Respondent AdvocateJ.C. Medhi and G.K. Talukdar, Advs.
Prior history
Sen, J.
1. These seven writ applications are taken up together as the points involved therein are common. It is prayed that the respondents, namely, the Income-tax Officer, 'A' Ward, Shillong, and others, should be called upon to forbear from giving effect to the impugned notices as also the impugned order dated March 31, 1962, passed by the respondent No. 1. It is also prayed that the order dated May 4, 1966, passed on appeal by the respondent No. 1 should not be given effect to. We shall
Excerpt:
- - similar notices were issued in respect of other assessment years as well. as to interference by the high court under article 226 of the constitution on the said grounds, it is now well-settled that the high court may issue a writ of certiorari to quash quasi-judicial proceedings taken by the income-tax authorities in excess of his jurisdiction and to quash an order which is vitiated by an error apparent on the face of the record or if it is passed in violation of the principles of natural justice. this provides that in the event of the income-tax officer being satisfied that the certificate granted under rule 4, or under rule 6a, has been obtained without there being a genuine firm in existence he may cancel the certificate so granted. it was clearly stated that the senior partner,..... sen, j. 1. these seven writ applications are taken up together as the points involved therein are common. it is prayed that the respondents, namely, the income-tax officer, 'a' ward, shillong, and others, should be called upon to forbear from giving effect to the impugned notices as also the impugned order dated march 31, 1962, passed by the respondent no. 1. it is also prayed that the order dated may 4, 1966, passed on appeal by the respondent no. 1 should not be given effect to. we shall mainly refer to the facts of the case stated in civil rule no. 357/65, as they are common to all the rest of the cases. the assessment years involved are 1947-48, 1948-49, 1949-50, 1950-51, 1951-52, 1952-53 and 1953-54. 2. there is a hindu undivided family under the name of ganeshdas sreeram which.....
Judgment:

Sen, J.

1. These seven writ applications are taken up together as the points involved therein are common. It is prayed that the respondents, namely, the Income-tax Officer, 'A' Ward, Shillong, and others, should be called upon to forbear from giving effect to the impugned notices as also the impugned order dated March 31, 1962, passed by the respondent No. 1. It is also prayed that the order dated May 4, 1966, passed on appeal by the respondent No. 1 should not be given effect to. We shall mainly refer to the facts of the case stated in Civil Rule No. 357/65, as they are common to all the rest of the cases. The assessment years involved are 1947-48, 1948-49, 1949-50, 1950-51, 1951-52, 1952-53 and 1953-54.

2. There is a Hindu undivided family under the name of Ganeshdas Sreeram which originally owned all the businesses of the family and carried on the same as such, till the assessment year 1946-47. Thereafter, there was partial partition in the year 2003, Ramnavami, corresponding to 1946, in respect of the business carried on and some movable properties owned by the Hindu undivided family. With respect to these divided businesses, a partnership was formed under the instrument of partnership dated September 19, 1947, consisting of the petitioners Nos. 1 to 4 and their late father, Jivan Ram Goenka. On the death of Jivan Ram Goenka on February 20, 1950, a fresh deed of partnership dated July 26, 1950, was executed and the petitioner No. 5, the mother of petitioners Nos. 1 and 2, was taken in as a partner in place of Jivan Ram Goenka. Thereafter, another partnership deed was executed on May 18, 1954, on attainment of majority of a minor by the name of Sankarlal Goenka. The partnership firm applied for registration under Section 26A of the Income-tax Act, 1922, hereinafter called the 'old Act', for the assessment year 1947-48 in the form prescribed giving all necessary particulars as required. The Income-tax Officer by his order dated February 14, 1952, rejected the application

for registration of the firm, but, on appeal, his order was set aside and registration was granted to the firm by the appellate officer's order dated May 14, 1952, in consequence whereof, the assessment for the year 1947-48 was made in the hands of the partnership firm and separate assessment was made with regard to the properties in the hands of the Hindu undivided family so far as other income of this family was concerned. This fact has not been denied by the department. For all subsequent years, renewal of registration was duly granted and assessments were made in the hands of the partnership firm and taxes so assessed were duly paid. This fact has also not been denied.

3. What happened next was that a notice dated March 12, 1962, was issued to the partnership firm asking it to show cause why registration granted for the assessment year 1948-49 should not be cancelled. Similar notices were also issued for the other assessment years, namely, 1947-48 and 1949-50 to 1953-54. According to the petitioner, it is important to note that such notices were issued 19 days before the coming into force of the new Income-tax Act of 1961, hereinafter called 'the Act.' In such notices, no grounds for cancellation was given. It was followed by a letter dated March 20, 1962, issued by the Income-tax Officer mentioning the alleged facts which led him to believe that there was no genuine firm in existence. We shall deal with the contents of the letter at the time of discussion of the merits of the case. On receipt of this notice and the letter as aforesaid, an application dated March 23, 1962, was filed on behalf of the firm to the Income-tax Officer stating that the senior partner of the firm, Sri Rameswar Goenka, would be undergoing an operation in the hospital on that date and as such two months' time was prayed for in order that the grounds made by the Income-tax Officer for cancellation of registration might be explained. The Income-tax Officer, however, in reply informed the firm by letter dated March 26, 1962, that the prayer for extension of time cannot be granted, as a time-bar question was involved and granted him as a special case time till March 29, 1962. The partnership firm under such circumstances had to submit a reply on March 29, 1962, mentioning, inter alia, that the time allowed was too short and the difficulties in the matter of submission of reply was due to the illness of the senior partner, and for which no other materials could be placed. In spite of it, the cancellation order was passed and against this order an appeal was preferred, but the Appellate Assistant Commissioner of Income-tax dismissed the appeals as they were not maintainable.

4. Thereafter, after the lapse of about three years, notice dated March 20 1965, was issued by the Income-tax Officer under Section 148 of the Act for the assessment year 1948-49 to the Hindu undivided family alleging that the Income-tax Officer had reason to believe that the income chargeable to tax of the said Hindu undivided family had escaped assessment within the

meaning of Section 147 of the Act. Similar notices were issued in respect of other assessment years as well. On receipt of such notice, a letter was written as to how under Section 148, such a proceeding had been started and at the same time a return was submitted by the Hindu undivided family under protest showing the same income as was shown in the original return already filed. From paragraph 2 of the affidavit-in-opposition, it appears that it was admitted that for the assessment year 1947-48, two returns were filed--one by the Hindu undivided family showing the income from the property and dividend income and the other by the partnership firm showing the income from the business

5. Upon these facts, the aforesaid orders of cancellation of registration and issue of notices under Section 148 of the Act have been challenged.

6. Before the matters were heard on merits, Dr. Medhi, appearing for the department, raised a preliminary objection that the joinder of the firm and the Hindu undivided family as petitioners in all these cases is not maintainable in law. In support of his contention, he has referred us to Rule I of the Rules governing applications under Article 226 of the Constitution at page 44 of the Rules of the High Court of Judicature of Assam at Gauhati. It is provided therein that separate applications should be filed for each individual, where interests are not identical even if there is one common impugned order governing several cases and the facts of each case should be separately supported by affidavits. He has referred us to several decisions in which it has been held that each aggrieved person must file a petition for relief and a joint petition although based on common interest does not lie. In this connection, it should not be forgotten, however, that an application under Article 226 is a proceeding in a court of civil jurisdiction and the provisions of the Civil Procedure Code may be invoked. In these particular cases it appears that the right to relief had arisen out of the same transaction of cancellation of registration as also the notice under Section 148 of the Act and, therefore, it should be treated as inseparably mixed up, in the sense that the Hindu undivided family and the firm constituted out of it, are mainly concerned in the matter of burden of taxation, if the cancellation of registration stands. Accordingly, it cannot be said that there has been any misjoinder of parties in these applications. Apart from that it may be said that since objection regarding misjoinder of parties was not taken at the earliest stage, it cannot be entertained at the time of hearing of these petitions. Accordingly, the preliminary objection made by Dr. Medhi is overruled.

7. In the first instance, we shall deal with the question whether the cancellation of registration was done without giving any reasonable opportunity to the firm and whether natural justice was denied to it. As to interference by the High Court under Article 226 of the Constitution on the

said grounds, it is now well-settled that the High Court may issue a writ of certiorari to quash quasi-judicial proceedings taken by the income-tax authorities in excess of his jurisdiction and to quash an order which is vitiated by an error apparent on the face of the record or if it is passed in violation of the principles of natural justice.

8. Before dealing with the question as to the propriety of the cancellation order, it is necessary to set out briefly certain facts which weighed in favour of cancellation: The Income-tax Officer cancelled the registration when he came to know that late Jivan Ram Goenka executed two powers-of-attorney--one in the year 1949 and another in 1950 executed in favour of Rameswar Goenka. The bank account in the name of Ganeshdass Sreeram, the Hindu undivided family, with the State Bank of India, Shillong, was converted into the partnership account only on December 22, 1951. Thirdly, the share income from the firm, A. V. Morello & Co., Shillong, in which the Hindu undivided family of M/s. Ganeshdass Sreeram was partner was not shown as the income of the partnership firm in the assessment year 1948-49 and 1949-50. Fourthly, he relied on other papers and records submitted by late Jivan Ram Goenka after the partition of 1946, stating that the business was the proprietary concern. He concluded that the powers-of-attorney and other documents were sufficient to show that the Hindu undivided family was not disrupted on the creation of a colourable firm. As regards the fourth matter, serious objection was taken that there was denial of natural justice and no reasonable opportunity was given to explain away other documents on which the Income-tax Officer relied.

9. These proceedings for cancellation were taken up by the Income-tax Officer under Rule 6B of the Rules under the old Act. This provides that in the event of the Income-tax Officer being satisfied that the certificate granted under Rule 4, or under Rule 6A, has been obtained without there being a genuine firm in existence he may cancel the certificate so granted. The new Act came into force on April 1, 1962, and we have already said that before this date, the cancellation proceedings were taken up and it cannot be questioned that it is deemed to have continued after the new Act came into operation. Under Rule 6B of the old Act, the firm was already assessed and the Income-tax Officer could reassess the firm under the old Section 34 in the status of an unregistered firm. We have already stated that a partnership deed was executed on September 16, 1946, and the firm was duly registered. Thereafter, two partnership deeds were executed, respectively, on February 20, 1950, and May 18, 1954, on account of the death of Jivan Ram Goenka in order to make juxtaposition of shares amongst the surviving partners, and Sankarlal Goenka, who was a minor, was made a full-fledged partner. We have already stated as to the grounds why the registration of the firm was cancelled. Daring the cancellation proceedings.

it appears that on the 12th March, 1962, the firm of Messrs. Ganeshdass Sreefam was asked to show cause by March 23, 1962, as to why the renewal of registration granted to the firm under Section 26A of the old Act for the assessment year 1947-48 should not be cancelled. This was followed by letter dated March 20, 1963, as per annexure 'F ' of the petition. Therein it was said that the first and second powers-of-attorney given by Jivan Ram Goenka show that these were executed for the purpose of management of properties and business. Secondly, an account in the State Bank of India was converted into a partnership account on December 26, 1951. We have already .dealt with the matter of A. V. Morello & Co. The most important point for consideration is whether the petitioners were given reasonable opportunity to say anything against the contemplated cancellation based on other papers and records on which also conclusion was reached that the partnership deed was a mere paper transaction purported to evade taxation and there never existed a genuine firm. The partnership firm showed cause in pursuance of this notice, vide annexure ' G ', that the senior partner, Sri Rameswar Goenka, was going to be operated on March 23, 1962, and, as such, a request was made to grant the firm two months' time for giving necessary reply to the alleged matter under reference. This was refused and the reasons given for granting time as prayed for do not appear to be based on natural justice. The Income-tax Officer replied on March 26, 1962, that the prayer for extension of time was rejected as a time-bar matter is involved. However, as a special case, time for three days was allowed till March 29, 1962. Against this, the firm replied on March 29, 1962, that the time for showing cause was too short and the matter being very old and complicated for which at least a fortnight's time should have been allowed. It was clearly stated that the senior partner, Sri Rameswar Goenka, was in hospital for a major operation which was performed on March 23, 1962, and he was lying in hospital. In so far as the first and second documents are concerned, explanations were given which was not accepted by the Income-tax Officer. As regards the bank account, an explanation was given, that after the creation of the firm of partnership, it was decided by the partners to continue the bank account as before. So far as the firm of Messrs. A. V. Morello was concerned, it was explained that the partner of the firm, Messrs. Ganeshdas Sreeram, was never a partner in this firm and the share income was assessed in their hands individually. The 'other documents' on which reliance was placed by the Income-tax Officer were not disclosed to the firm, and hence, they could offer no explanation therefor.

10. On the above, it has been argued by Mr. Bhattacharjee appearing for the petitioners that the impugned orders dated March 31, 1962, cancelling the registration of the firm was passed without giving any reasonable

opportunity of being heard to the firm. As such, the said impugned order passed in violation of the principles of natural justice and denial of reasonable opportunity is liable to be set aside and quashed. Dr. Medhi appearing for the respondents has first urged that Rule 6B of the old Act does not in any way contemplate that the petitioners should be heard in person, and he further argued that the question whether the rules of natural justice have been observed in a particular case must itself be judged in the light of the constitution of the statutory body which has to function in accordance with the rules laid down by the legislature. As such, his contention is that Rule 6B not having contemplated such a procedure, the question of denial of natural justice does not arise at all. In so far as his argument that no adjournment was prayed for would by itself gives rise to the fact that the contention of the petitioners is not at all genuine, we must say in this connection that the question of prayer for adjournment could never arise in this case, inasmuch as there was a peremptory order, as stated before, that if within March 29, 1962, nothing was done, the case would be decided ex parte. We are of the opinion that on such order being given, there could not be any scope for any prayer for adjournment and the petitioners were left at the mercy of the Income-tax Officer. In such circumstances, it goes without saying that the Income-tax Officer wanted to proceed with the matter in a break-neck speed which clearly goes against the principles of natural justice. It has been observed in the case of Y. Narayana Chetty v. Income-tax Officer, Nellore, [1959] 35 I.T.R. 388; [1959] Supp. 1 S.C.R. 189.

that if the power under Rule 6B is exercised by the Income-tax Officer against a firm, without giving it a notice in that behalf and without affording it an opportunity to satisfy the officer that it is a genuine firm, it may be open to the firm to question the validity of the order on that ground. On reference to the explanation given by the firm as per annexure 'I' of the petition, it appears that regarding the documents stated before, no opportunity was given to the firm to explain the contents thereof after they were disclosed. In our opinion, although we agree with Dr. Medhi that no hearing is necessary, it is incumbent upon the Income-tax Officer to give the partnership firm a reasonable opportunity to explain. Such a course was not adopted by the Income-tax Officer and in his anxiety to reassess the entire Hindu undivided family for a larger realisation of income-tax, he decided to take up the matter ex parte. In such circumstances, we are of the view that since reasonable opportunity was not given, it offends against the principles of natural justice and, therefore, the cancellation orders in respect of the assessment years in question commencing from the assessment year 1948-49 should be quashed. Now the question has arisen as to which of the authorities should

be called upon to reconsider the matters after giving reasonable opportunity to the firm to explain.

11. It appears that against the orders of cancellation by the Income-tax Officer, appeals were preferred and the said appeals were dismissed by the order of the Appellate Assistant Income-tax Commissioner on May 4, 1964, as incompetent. Dr. Medhi has argued that since the Appellate Assistant Commissioner has equal powers with that of the Income-tax Officer to call for any document and receive other evidence, it is in the fitness of things desirable that the matter should be sent back to him for reconsideration. We are of the view that since the appeals were found infructuous on the ground that they were incompetent, it seems that they were not at all entertained although under the appropriate law and the rules, appeals against such orders of the Income-tax Officer lay. As such, we are of considered opinion that since the appeals were not considered by the appellate authority, the matter should go back to the Income-tax Officer concerned for reconsideration of the matters, in the terms set forth above.

12. Another question which arises for our consideration is whether the cancellation order in respect of the assessment year 1947-48 should be set aside. Against the order of cancellation (sic--refusal) of registration by the Income-tax Officer, an appeal was taken to the Appellate Assistant Commissioner, who set aside the orders of the Income-tax Officer and directed grant of registration to the firm by his order dated May 14, 1952. This fact has not been disputed. Dr. Medhi with reference to Rule 6B has argued before us that in spite of the order by the appellate authority, it was open to cancel the registration by the Income-tax Officer, as it depended upon his own satisfaction. This rule is not clear to show whether he could cancel the registration which has been granted by the appellate officer. In this connection, we may quote here the relevant portion of Section 31(3) [part of (b) and (c)] of the old Act. It is provided, inter alia, that in case of an order cancelling registration of a firm ... or refusing to register a firm . . . under Section 26A . . . the Appellate Assistant Commissioner may confirm such order or cancel it and direct the Income-tax Officer to register the firm or to make a fresh assessment as the case may be. This clearly shows that by an appellate order a direction was made to the Income-tax Officer to register a firm. In such circumstances, the question of satisfaction for cancellation of an appellate order does not arise as under the ordinary principles of law an inferior authority cannot set at naught an appellate order. In such circumstances, we are of the view that in so far as the order of cancellation regarding 1947-48 is concerned, the order of cancellation of registration must be set aside and further enquiry in respect of the assessment year 1947-48 must not be embarked upon.

13. At the next place, we are required to decide a very important question of law, namely, whether a notice under Section 148 of the new Act is sustainable or not.

14. It is an admitted position that notices under Section 148 of the Act were issued on March 20, 1965, on the allegation that the Income-tax Officer had reason to believe that the income chargeable to tax of the said Hindu undivided family had escaped assessment, within the meaning of Section 147 of the Act. The karta of the Hindu undivided family submitted a petition to the Income-tax Officer, Shillong, requesting him to intimate the reasons for initiation of such proceedings. Although he did so, he, at the same time, filed a return under protest. In the affidavit-in-opposition, it is clearly admitted by the department that for the assessment year 1947-48 two returns were hied, one return by the Hindu undivided family showing income from property and dividend income and the other by the partnership firm showing income from business. It also appears that the balance-sheet of the firm was also incorporated. In so far as the other assessment years are concerned, it does not appear that such a course was not followed. The crux of the whole position, therefore, is whether the income chargeable has escaped assessment for that particular year.

15. On the basis of these facts, it had been argued on behalf of the petitioners that the conditions precedent for issue of notice under Section 148 of the Act are non-existent in the present case and as such the impugned notice is wholly illegal and without jurisdiction. Moreover, it has been submitted that the ground alleged for the issue of the notice under Section 148 of the Act not being governed by Clause (a) of Section 147, the impugned notice is barred by limitation under the provisions of Clause (b) of Section 147 of the Act.

16. In deciding this point, it is found that the notice under Section 148 was issued long after the year of cancellation, namely, three years, and as such, prima facie, it appears to me that the order of cancellation was the pivot round which the whole factum of notice under Section 148 moved. Section 147 runs as follows :

' 147. Income escaping assessment.--If-

(a) the Income-tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under Section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or

(b) notwithstanding that there has been no omission or failure as mentioned in Clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year,

he may, subject to the provisions of Sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereinafter in Sections 148 to 153 referred to as the relevant assessment year).'

17. It has been urged on behalf of the department that the case falls under Section 147(a), inasmuch as there has been a non-disclosure of the income by the Hindu undivided family and therefore the case clearly falls within the ambit of this Clause (a). In Section 147(a) the expression 'material facts' is very important, inasmuch as the criterion for decision is whether they were not fully and truly disclosed. It is undoubtedly true that there is no duty on the part of the Income-tax Officer to hear the assessee before the notice is issued, and in such circumstances it is in the fitness of things desirable to refer to the points of law as argued from the Bar. The petitioners rely upon the decision of the Supreme Court in Calcutta Discount Co. Ltd. v. Income-tax Officer, Companies District 1, Calcutta, [1961] 41 I.T.R. 191, 199; [1961] 2 S.C.R. 241.

. Their Lordships, inter alia, observed as follows :

'To confer jurisdiction under this section (Section 34(1)(a) of the Income-tax Act, 1922--Section 147(a) of the Act) to issue notice in respect of assessments beyond the period of four years, but within a period of eight years, from the end of the relevant year two conditions have therefore to be satisfied. The first is that the Income-tax Officer must have reason to believe that income, profits or gains chargeable to income-tax have been under-assessed. The second is that he must have also reason to believe that such 'under-assessment' has occurred by reason of either, (i) omission or failure on the part of an assessee to make a return of his income under Section 22, or (ii) omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for that year. Both these conditions are conditions precedent to be satisfied before the Income-tax Officer could have jurisdiction to issue a notice for the assessment or reassessment beyond the period of four years, but within the period of eight years, from the end of the year in question. '

18. This decision was made regarding the true import of Section 34 of the old Act, the terms whereof are in all material particulars incorporated in Section 147 of the Act. From this decision, it appears that the expression 'material facts' used in Clause (a) of Section 147 of the Act refers only to primary facts and the duty of the assessee is only to disclose the primary facts and he is not required to indicate what factual or legal inference should be drawn from the primary facts. In the aforesaid decision, it appears that the assessee had disclosed all primary facts regarding sale of shares and the Supreme Court held that action under Clause (a) of Section 34 of the old Act could not be taken on the ground that the assessee had

claimed it to be a mere change of investment and had not disclosed the true intention behind the sale. It is not disputed that the expression 'reason to believe' is the test for issuing a notice under Section 148 and as such the whole question hinges upon the fact whether the primary facts were not disclosed before the issue of notice was embarked upon. We have already said that the returns for the previous years were submitted by the petitioners partly for the Hindu undivided family and partly for the firm and, therefore, the question is whether the petitioners were guilty of nondisclosure. In so far as non-disclosure is concerned, it will appear from the affidavit-in-opposition at page 141 of Civil Rule No. 357, that the Hindu undivided family, the assessee in 1948-49, had a total income of Rs. 1,00,247 out of which it did not disclose Rs. 75,168 in its return and this amount is liable to assessment in the hands of the Hindu undivided family as it escaped assessment. Similar is the case with other assessment years. It will not be out of place to mention here once again that the old partnership firm ceased to exist and new partnership documents were created on some change of devolution of shares, arising out of the death of Jivan Ram Goenka and it is stated by the petitioners that subsequent to the assessment years in dispute these partnership firms were duly registered and that the assessment of tax was based on such registration. For the purpose of this case, it is unnecessary to refer to it, but it may be said in passing that the original partnership business remained unbroken and it was only the interest of the partners which underwent changes. We have discussed this aspect of the law only to show that the argument on behalf of the department that the registration of the firm on the basis of new partnership deeds had no nexus to the original partnership does not stand to reason.

19. Now turning to the matter whether the impugned notices come within the ambit of Section 147(a) of the Act, it has been argued on behalf of the department that the non-existence of the firm occasioned by cancellation is the test on which it can be said that the petitioners were guilty of lapses, in not truly and fully disclosing the material facts. So it seems that the order of cancellation is the originating circumstance on which the notices were issued and as such we shall presently refer to the reasons as recorded by the Income-tax Officer under Sub-section (2) of Section 148 of the Act, which enjoins that the Income-tax Officer shall, before issuing any such notice under this section record his reasons for doing so.

20. Dr. Medhi has in support of his argument regarding escapement of assessment referred us to the observation of the Supreme Court in paragraph 15 of the judgment in Calcutta Discount Co. case, which runs as follows:

'The position therefore is that if there were in fact some reasonable grounds for thinking that there had been any non-disclosure as regards any

primary fact, which could have a material bearing on the question of 'under-assessment', that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notices under Section 34. Whether these grounds were adequate or not for arriving at the conclusion that there was a non-disclosure of material facts would not be open for the court's investigation. In other words, all that is necessary to give this special jurisdiction is that the Income-tax Officer had when he assumed jurisdiction some prima facie grounds for thinking that there had been some non-disclosure of material facts.'

21. This proposition of law can never be disputed and it is also true that it is not for the High Court to decide whether the ground was adequate or inadequate. We have already said that cancellation of registration was the originating circumstance to set in motion the provision of Section 147(a) and therefore we shall have to look into the reasons of the Income-tax Officer as to whether there was a prima facie case for issuing notice under Section 148.

22. It goes without saying that every case must be decided on its own merits. In the instant cases it appears that there was prima facie no nondisclosure in so far as the firm and the Hindu undivided family were concerned before the date of cancellation of registration. We have had the advantage of going through the reasons recorded by the Income-tax Officer for approval by the appropriate authority and in all these cases it appears that in the course of investigation in respect of another sister concern of this assessee, namely, the Hindu undivided family, it was found that the alleged partial partition of the Hindu undivided family was not correct and in fact the Hindu undivided family continued to remain as before. Accordingly, the registration for the aforesaid assessment years were cancelled. Therefore, his conclusion was that some income of the Hindu undivided family escaped assessment. Such is the case in respect of all the years concerned. In his notes submitted to the Commissioner of Income-tax, he has stated that the cases come within the ambit of Clause (a) of Section 147 of the Act, burin none of the reasons given, any reference to omission or failure on the part of the assessee to make a return or to disclose fully or truly all material facts necessary for its assessment for that year has been made. The main consideration which weighed with the Income-tax Officer after the lapse of three years from the date of cancellation of registration was that in the course of an investigation of another sister concern, the partial partition of the Hindu undivided family was found not to be correct, and therefore, the registration was cancelled and this was the sheet-anchor for taking action for service of notice under Section 147(a) of the Act. In our opinion, such a reason does not come within the ambit of Section 147(a) on the face of the unchallenged averment of the petitioners that disclosure

of income of the Hindu undivided family and the firm was fully and truly made. In such circumstances, the factum of cancellation of registration and the consequential fact that the firm's income is the income of the Hindu undivided family does not amount to non-disclosure by the Hindu undivided family within the meaning of Section 147(a) of the Act.

23. A large number of decisions have been referred to us from the Bar, but we need not enter into the question of their applicability in the instant cases, as it is considered that the Calcutta Discount case is the true guide for disposal of such matters. Furthermore, we may observe that income cannot be held to have escaped assessment within the meaning of Section 147(a) merely on the ipse dixit of the Income-tax Officer. It is for him to establish that he had reasons to believe in the first instance that there was non-disclosure of income. Such reasons are absent in his notes, and, accordingly, it is hardly possible to hold that the notices come within the ambit of the said clause.

24. Since we have quashed the cancellation orders, it need not be considered whether they will be considered as the principal reason for issuing a notice under Section 147(a) of the Act. In our opinion, the foundation having been snapped, the matters remain at large and the notices under Section 148 of the Act for this reason also cannot be said to be operative.

25. The other question which requires consideration is, if the notices do not come within the ambit of Section 147(a), whether they should be deemed to be notices under Clause (b). In cases where there has been no failure on the part of the assessee to make a return of his income and to disclose fully and truly all material facts necessary for his assessment, Clause (b) comes into operation. It appears from this clause that the Income-tax Officer should receive the information after the original assessment and the information should lead him to believe that income has escaped assessment. It appears to us on examination of the records of the case that for all intents and purposes, the Income-tax Officer has sought to issue a notice under Section 148 on an

information which he had received in connection with a sister concern and

which gave rise to the cancellation of proceedings. This in our opinion brings

the notices within the ambit of Clause (b) and not under Clause (a) of Section 1.47 of the Act. It is very important to note that in the affidavits of the department and the reasons for issuing notices, it has nowhere beers specifically stated as to what was the extent and nature of non-disclosure within the, meaning of Clause (a), in the face of disclosure of the primary facts by the firm and the Hindu undivided family. In such circumstances, it appears to us that resort was taken by the Income-tax Officers under Clause (a) in order to circumvent the period of limitation as enjoined in Section 149(1)(b) of the Act. It requires that in cases falling under Clause (b) of Section 147, at any

time after the expiry of four years from the end of the relevant assessment year, proceedings for notices may not be embarked upon. It is now the established principle of law that where a period of limitation is prescribed under the statute, it imposes a fetter upon the Income-tax Officer to take action beyond certain dates. In such circumstances, it is open to the Income-tax Officer whether resort should be had for issuing fresh notices under Section 148 in terms of Clause (b) of Section 147

26. For the reasons given above, our conclusion is that the cancellation of registration for the assessment year 1947-48 must stand quashed and the registration for this assessment year must be allowed to stand. In so far as the assessment years 1948-49, 1949-50, 1950-51, 1951-52, 1952-53 and 1953-54 are concerned, the orders of cancellation of registration passed by the Income-tax Officer must stand set aside on the ground that natural, justice was denied and reasonable opportunity was not given. The matter shall go back to the Income-tax Officer for reconsideration after giving reasonable opportunity to the petitioners to explain the circumstances against the contemplated cancellation of registration. In so far as the impugned notices under Section 148 are concerned, they are hereby quashed and we direct that the Income-tax Officer must forbear from giving effect to the same.

27. In the result, the rules are made absolute in the above terms. A consolidated hearing fee of Rs. 200 is allowed for all these seven cases.

S.K. Dutta, C.J.

28. I agree.


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