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Seth Kirorimal Adwani and ors. Vs. Income-tax Officer, e Ward and ors. - Court Judgment

LegalCrystal Citation
Subject;Direct Taxation
CourtGuwahati High Court
Decided On
Case NumberCivil Rule Nos. 194 to 204 of 1966
Judge
ActsIncome Tax Act, 1961 - Sections 147 and 148; Constitution of India - Article 226
AppellantSeth Kirorimal Adwani and ors.
Respondentincome-tax Officer, "e" Ward and ors.
Appellant AdvocateS.K. Ghose, J.P. Bhattacharjee and S.N. Medhi, Advs.
Respondent AdvocateG.K. Talukdar, Adv.
Excerpt:
.....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,.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 (hereafter in sections 148 to 153 referred to as the relevant assessment year)..8. mr. bhattacharjee's contention is that, in view of the facts stated before, the impugned notice can never come within the ambit of clause (a) of section 147 of the act, inasmuch as the petitioner during the assessment year disclosed fully and truly all material facts necessary for his assessment for that year and there was no failure in this regard..........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,.... 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 (hereafter in sections 148 to 153 referred to as the relevant assessment year).....' 8. mr. bhattacharjee's contention is that, in view of the facts stated before, the impugned notice can never come within the ambit of clause (a) of section 147 of the act, inasmuch as the petitioner during the assessment year disclosed fully and truly all material facts necessary for his assessment for that year and there was no failure in.....
Judgment:

Sen, J.

1. Civil Rule No. 194/66 arises out of a writ petition under article 226 of the Constitution, whereby the petitioner has prayed that the respondents should be asked to cancel, recall or otherwise forbear from giving effect to the impugned notice dated the 14th March, 1966, issued by the respondent No. 1, Income-tax Officer, 'E' Ward, Gauhati, and/or why a writ in the natute of certiorari or a writ of like nature should not be issued and the impugned notice dated the 14th March, 1966, should not be set aside and quashed.

2. The petitioner made another prayer that the respondents should show cause why Section 297(2)(d)(ii) of the Income-tax Act of 1961 (hereinafter called 'the Act') should not be declared and adjudged as null and void. This part of the prayer has been given up at the time of arguing the case and so we need not embark upon any discussion on this matter.

3. The petitioner's case is that he was a partner during the accounting year 1957-58 of two registered partnership firms, and the petitioner was the financing partner of the said firms, having the special responsibility of arranging finances for the said firms by way of loan, whenever required. The petitioner was all along assessed to tax and during the assessment year 1958-59, a return was filed showing the income received by the petitioner in his shares from the partnership firm. In response to the notice issued under Section 23(2) of the Income-tax Act, 1922, the petitioner appeared before the Income-tax Officer through his pleader and produced account books, bank pass books aud other evidence in support of the return filed. He also produced a statement showing the amounts taken on loan by the petitioner from different hundi dealers during the accounting year 1957-58. He usually made a prayer before the income-tax authority to deduct the interest already paid to them. It is stated that he disclosed and produced all evidence and materials necessary for the purpose of assessment of the year in question, truly and fully before the Income-tax Officer at Gauhati and after he was satisfied from these documentary evidence, he allowed the deduction of the interest from assessability to taxation.

4. It is alleged that all of a sudden the petitioner received a notice dated March 14, 1966, issued by the respondent No. 1, purporting to have exercised jurisdiction under Section 148 of the Act, in respect of the assessment year 1958-59. On these facts the main submission by Mr. Bhatta-charjee, appearing for the petitioner, is that the case clearly comes within Section 147(b) of the Act, and accordingly, it is barred by limitation and that the whole matter hinges upon the question whether in such circumstances as stated before, the Income-tax Officer had any jurisdiction to issue notice under Section 147(a) of the Act.

5. It will be necessary to note that the Income-tax Officer duly deducted the interest which was paid by the petitioner as per his order dated the 20th March, 1959, and the petitioner's contention is that these related to the borrowings which were taken from the persons, who ordinarily issue hundies in Calcutta and Bombay. From annexure 'B' to the affidavit-in-opposition filed on behalf of the respondent, it will be found that in the course of the proceedings for the assessment year 1964-65, a scrutiny was made regarding the large number of cash credits introduced in the names of 'hundi' dealers of Calcutta and Bombay and it was found that there are cash credits during the accounting year 1957-58 of more than Rs. 75,000 in the names of a number of bogus hundi dealers. In such circumstances, he took the permission of the Commissioner of Income-tax to issue notice under Section 147(a) of the Act and it will appear from annexure 'C' to the afidavit-in-opposition that such permission was granted.

6. It will be necessary to note in this connection that in the affidavit-in-opposition the facts stated in paragraphs 1 to 6 of the petition have not been denied. But it is contended that in course of the assessment proceeding for the assessment year 1964-65, the Income-tax Officer found that in the books of accounts of the assessee, several cash credits appeared in the names of hundi bankers of Calcutta and Bombay and that there is no mention in the affidavit-in-opposition as to who were the hundi bankers involved in the alleged fictitious hundi loans. Only a general averment has been made therein to the effect that the Government of India through their intelligence department got the information about the method of evading tax by introducing some hundi bankers and after strenuous efforts the Government was able to make out a list of such hundi bankers, who lend their names to be shown as lenders in the accounts of the tax dodgers without advancing any money as loan in fact. Further it appears therein that some of the hundi bankers admitted that they were merely name lenders to enable the tax dodgers to introduce their secreted profits in the books of accounts.

7. In our opinion the respondent not having disclosed any specific facts connected with the assessee about the said allegations and not having actually denied the averments made in paragraphs 1 to 7 of the petition, the principal fact remains unchallenged that all disclosures were truly and fully made before the income-tax authorities, at the time of the assessment during the relevant assessment year. We will again point out that there is a clear statement of fact in the petition that books of accounts were produced before tne income-tax authorities and along with them a statement showing the amount taken on loan by the petitioner from different hundi dealers during the accounting year was also produced. As such the main question for consideration would be whether the case comes within the ambit of Section 147(a) of the Act. Section 147(a) reads as follows :

'147. 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,....

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 (hereafter in Sections 148 to 153 referred to as the relevant assessment year).....'

8. Mr. Bhattacharjee's contention is that, in view of the facts stated before, the impugned notice can never come within the ambit of Clause (a) of Section 147 of the Act, inasmuch as the petitioner during the assessment year disclosed fully and truly all material facts necessary for his assessment for that year and there was no failure in this regard as contemplated by the Section. Mr. Talukdar appearing for the respondent has argued that it is actually a case under Section 147(a) of the Act, as the petitioner failed to fully and truly disclose the material facts regarding the hundi bankers and as such the assessee's statement is fictitious and is also fraught with fraudulent concealment of true facts. Accordingly, the Income-tax Officer was justified in issuing a notice under the aforesaid clause. It is also contended by him that if his exercise of jurisdiction is based upon Clause (a) of Section 147 of the Act, it cannot be said that the notice is barred by limitation or otherwise unjustifiable.

9. In our opinion the contention as raised by Mr. Talukdar does not appear to be sound, as he has not controverted the material facts as stated by the petitioner and, moreover, this case is hit by the dicision 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 (S.C.). Their Lordships in this case have, inter alia, held 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 'underassessment' 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.'

10. This apart, it appears from the said decision that the expression 'material facts' refers only to primary facts and the duty of the assessee is only to disclose primary facts and he has not also to indicate what factual or legal inference should properly be drawn from these primary facts. In view of this decision we are of the view that the primary facts as appearing from the return were disclosed to the Income-tax Officer and as such his conduct cannot be said to come within the ambit of Clause (a) of Section 147 of the Act.

11. Now, the question remains whether in such circumstances the issue of notice under Section 147(a) of the Act was within the jurisdiction of the Income-tax Officer, and whether the Income-tax Officer sought to embark upon a fishing inquiry regarding the tax liability of the petitioner under the aforesaid clause. In this connection reference may be made to the Supreme Court decision in S.S. Gadgil v. Lal and Co., [1964] 53 I.T.R. 231, 238; [1964] 3 S.C.R. 72 (S.C.), wherein their lordships of the Supreme Court have held, inter alia, as follows;

'A proceeding for assessment is not a suit for adjudication of a civil dispute. That an income-tax proceeding is in the nature of a judicial proceeding between contesting parties, is a matter which is not capable of even a plausible argument. The income-tax authorities who have power to assess and recover tax are not acting as judges deciding a litigation between the citizen and the State: they are administrative authorities whose proceedings are regulated by statute, but whose function is to estimate the income of the taxpayer and to assess him to tax on the basis of that estimate. Tax legislation necessitates the setting up of machinery to ascertain the taxable income, and to assess tax on the income, but that does not impress the proceeding with the character of an action between the citizen and the State ....

The period prescribed by Section 34 for assessment is not a period of limitation. The section in terms imposes a fetter upon the power of the Income-tax Officer to bring to tax escaped income. It prescribes different periods in different classes of cases for enforcement of the right of the State to recover tax.'

12. From this decision it appears that, where a period of limitation is prescribed under the statute, it imposes a fetter upon the Income-tax Officer to take actions beyond certain dates. It is undoubtedly true, that if this case comes within Section 147(a) of the Act, the question on this aspect does not arise. If it does not arise, it is now for us to consider whether the facts as stated above come within Clause (b) of Section 147 of the Act. If it comes within the ambit of this clause really a fetter is put upon the jurisdiction of the Income-tax Officer for embarking upon a proceeding beyond four years from the date of the last assessment. Clause (b) of Section 147 of the Act provides:

'147. If-

(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 (hereafter in Sections 148 to 153 referred to as the relevant assessment year).'

13. In this connection Mr. Bhattacharjee has referred us to another decision of the Supreme Court in Commissioner of Income-tax v. A. Raman and Co., [1968] 67 I.T.R. 11, 17 (S.C.). It has been held, inter alia, in this case that:

'By adopting a device, if it is made to appear that income which belonged to the assessee had been earned by some other person, that income may be brought to tax in the hands of the assessee, and if the income has escaped tax in a previous assessment, a case for commencing a proceeding for reassessment under Section 147(b) may be made out. Avoidance of tax liability by so arranging commercial affairs that charge of tax is distributed is not prohibited. A taxpayer may resort to a device to divert the income before it accrues or arises to him. Effectiveness of the device depends not upon considerations of morality, but on the operation of the Income-tax Act. Legislative injunction in taxing statutes may not, except on peril of penalty, be violated, but it may lawfully be circumvented.'

14. From this decision it appears clear that, if any assessee wants to circumvent the provisions of the Act and wants to divert the income not being of his own, such a condition may be treated as a subterfuge and in such circumstance the cases like this may come within the ambit of Section 147(b) of the Act.

15. Without much repetition we may say that the Income-tax Officer had in his mind the provisions of Section 147(b), as otherwise he would have specifically stated in his affidavit-in-opposition that the petitioner was out to dodge the tax authorities by making false and frivolous statements in the matter of interest which he had deposited with the hundi bankers. Such a statement is absolutely absent in the affidavit-in-opposition of the Income-tax Officer and as such it may be said that he was definitely conscious as to the fetter put under Section 149(1)(b) of the Act. Otherwise, it would have been open to him to come with clean hands before this court and state that the assessee really adopted a fraudulent and capricious method under which the case ought to come within the ambit of Section 147(a). Section 149(1)(b) provides that no notice under Section 148 shall be issued 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. According to the fact as discussed before, in our opinion, this case really comes within the four corners of the provision of Clause (b) of Section 147 of the Act and as such the Income-tax Officer acted without jurisdiction in issuing a notice under Section 147(a) of the Act.

16. This apart the record in Civil Rule No. 203/66 shows that no reference to hundi bankers and payment of interest to them was made in the return. In the absence of any datum in this regard we consider that the Income-tax Officer did not apply his mind, whether he should have resorted to Section 147(a) of the Act and the issue of notice ought not to have been embarked upon on a fishing enquiry.

17. The next question for consideration is whether this court can exercise its jurisdiction under article 226 of the Constitution. We are of the view that, if the Income-tax Officer has reason to believe, in the circumstances as stated in Section 147 of the Act, that income has escaped assessment and within his jurisdiction he honestly acts on such belief, this court will not exercise its jurisdiction under a writ petition; nor will the court quash by a writ of certiorari an order of assessment made under this section merely because it is erroneous on points of fact or law. But if the Income-tax Officer initiates proceedings under this Section after the period of limitation has expired or proposes to make an assessment after issuing a notice which is invalid, as found by us in the instant cases or it was not served in accordance with law or seeks to recover tax under assessment orders which were made without or in excess of the jurisdiction, a writ of certiorari, or prohibition or other appropriate writs should ordinarily issue. In this connection reference may be made to a decision of the Supreme Court in Madhya Pradesh Industries Ltd. v. Income-tax Officer, Special Investigation Circle 'B', Nagpur, [1965] 57 I.T.R. 637 (S.C.).

18. In the result this application must succeed and the rule is made absolute. Let a writ in the nature of mandamus be issued directing the respondents to cancel, recall of otherwise forbear from giving effect to the impugned notice dated the 14th March, 1966, issued by the Income-tax Officer, 'E' Ward, Gauhati.

19. The order passed in this rule shall govern Civil Rules Nos. 195 to 204 of 1966, also and the rules issued on those petitions are also made absolute in terms set forth above.

20. Parties shall bear their own costs in all these cases.

S.K. Dutta, C.J.

21. I agree.


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