1. In this petition under article 226 of the Constitution the petitioners claim writ of prohibition and/or directions against the respondents preventing them from enforcing against the petitioners two reassessment orders dated July 29, 1961, made respectively under the provisions of section 34 of the Indian Income-tax Act and section 15 of the Excess Profits Tax Act. The petitioners' main contention is that these orders are illegal, because there is patent want of jurisdiction in the matter of these orders. The substance of the petitioners' contention is that they had disclosed all facts in the first instance and that there was no new information on the basis of which reassessment proceedings could be commenced.
2. The facts leading to this petition may be shortly summarised as follow :
The petitioners are a private limited company which was incorporated on May 6, 1943, with a paid up capital of Rs. 20,00,000. The Apollo Mills Co. Ltd. of Bombay with a capital of Rs. 50,00,000 divided into 25 lakhs share of Rs. 2 each had as its managing agents Messrs. E.D. Sassoon & Co. Ltd., who, for the sake of brevity, will be referred to in this judgment as 'the Sassoons'. They held 19,76,000 shares out of the 25 lakhs. The promoters of the petitioners' company entered into an agreement with the Sassoons on April 27, 1943, by which the Sassoons agreed to transfer their managing agency of the Apollo Mills for Rs. 12 1/2 lakhs and the whole of their holding of 19,76,000 shares at Rs. 4-4-0 per share, i.e., for Rs. 83,98,000, to the promoters of the petitioners' company. These shares were to be transferred to the petitioners' company which was being floated. By clause (3) of the agreement the sale of the managing agency and the transfer of the shares was agreed to be simultaneously completed. On November 1, 1943, a tripartite agreement was entered into between the Sassoons as assignors, the promoters of the petitioners' company as confirming parties and the petitioners' company as assignees. By that agreement the managing agency rights were formally transferred to the petitioners' company; so also the share certificates for the whole of the holding of the Sassoons, i.e., 19,76,000 shares of the Apollo Mills, and the necessary blank transfer deeds were delivered.
3. Before the agreement of April 27, 1943, the promoters of the petitioners' company entered into an arrangement with some share brokers for the sale of a large portion of the total holding of 19,76,000 shares of the Apollo Mills. The price for sale of these shares to the share brokers varied from Rs. 5-8-0 to Rs. 5-13-0. In all, 10,00,000 shares out of the total holding of 19,76,000 shares were sold to these brokers, who sold the same to a number of purchasers. There were further sales and in all 13,74,000 shares were sold to outside parties. For the sale of these shares to outside parties, the petitioners' company received a sum of Rs. 16,52,600 as excess over the pice that the petitioners' company agreed to pay and paid to the Sassoons. The balance of the shares continued to be retained by the petitioners' company. By the income-tax assessment order for the accounting period May 6, 1943, to October 31, 1944, made by B.S. Nadkarni, Income-tax Officer, Companies Circle 1(3), Bombay, dated October 30, 1945, the petitioners' company was assessed to income-tax. He was obviously bound to consider all the petitioners' dealings in connection with the matter of tax liability for the above accounting period. The petitioners' case in paragraph 5 of the petition is that the petitioners' company had disclosed and placed before B.S. Nadkarni the material facts necessary for that assessment and had recorded these facts in their letter to the officer dated October 29, 1945. A copy of the letter is annexed as exhibit B to the petition.
4. The petitioners have not mentioned relevant facts regarding the excess profits tax assessment made in connection with this very period ending October 31, 1944. The facts which ought to have been mentioned in the petition appear in the affidavit in reply of N.O. Parekh dated July 15, 1963. The petitioners appear to have proceeded in the petition on the footing that the excess profits tax assessment in respect of the above period was made by B.S. Nadkarni. That, however, is not true. In connection with the petitioners' liability for the above period to excess profits tax, notices dated December 6, 1945, under section 13(1) of the Excess Profits Tax Act were issued by B.S. Nadkarni, the then Excess Profits Tax Officer. The petitioners filed two returns both dated December 15, 1945, on or about December 19, 1945. The matter of the petitioners' liability to excess profits tax was not considered by B.S. Nadkarni and it appears that one C.H. Mehta was in charge of the proceedings for the excess profits tax liability. On May 10, 1946, C.H. Mehta wrote to the petitioners requesting them for interview to enable him to complete the excess profits tax assessment. The petitioners were requested to find out the standard profit of the Sassoons for the Apollo Mills' agency. The petitioners informed C.H. Mehta that they were unable to get such standard profit of the Sassoons and that they should be given percentage of standard profit. C.H. Mehta then made excess profits tax assessment order dated October 12, 1946, for the period ending October 31, 1944. That order is not annexed to the petition. A copy of the order is now tendered and is marked exhibit 1. The relevant part of the order runs as follow :
'With these remarks the E.P.T. liability is computed as under : Business income as determined for income-tax }assessment for the period 5-7-1943 to 31-10-1944 } Rs. 1,54,744.'
5. The contents of the above assessment orders and the facts alleged in paragraph 5 of the petition are relevant in connection with the petitioners' contention that all material facts were disclosed to C.H. Mehta and, therefore, there could be no fresh information entitling commencement of reassessment proceedings by issuing notice under section 15 of the Excess Profits Tax Act.
6. Before coming to that notice, it is necessary to mention certain facts that transpired after the above assessment orders were passed. After the Taxation on Income (Investigation Commission) Act, 1947, came into force, the case of the petitioners' company was referred to the Investigation Commission by the Central Government and the Investigation Commission made its report on November 9, 1949, in Case No. 406/A. By this report the Commission, inter alia, found :
(1) that a distinction should be made between the 6,00,000 shares which the petitioners' company intended to and did retain and the 13,00,000 odd shares which it intended to and did sell;
(2) that from the very beginning the intention of the promoters of the petitioners' company was to sell all the 13,00,000 odd shares and in pursuance thereof they were sold;
(3) that for payment of price to the Sassoons it was necessary and it was intended to sell the 13,00,000 odd shares, the inference drawn from this by the Commission being that a distinction had to be drawn between the 6,00,000 shares intended to be retained and in fact retained and the 13,00,000 odd shares which it intended to sell and did sell; and
(4) that the intention to sell which the petitioners' company entertained from the very outset was a complete answer to the argument that the acquisition was in the nature of an investment, the Commission's inference being that the sale of 13,00,000 odd shares was an adventure in the nature of trade.
7. The petitioners brought a reference before this court and from the decision of the High Court the petitioners also filed an appeal to the Supreme Court. The decisions of both the courts were against the petitioners. The High Court gave its decision on March 20, 1953, and the Supreme Court on April 12, 1961. After the High Court had given its decision, the question of validity of section 5 of the Taxation on Income (Investigation Commission) Act was argued before the Supreme Court in the case of Suraj Mall Mohta and Co. v. Visvanatha Sastri. By its decision given in that case on May 28, 1954, the Supreme Court held the provisions of section 5(4) of the above Act to be ultra vires the Constitution as infringing article 14. Within short intervals, in other matters which reached before it, the Supreme Court held certain other provisions of the Act to be ultra vires the Constitution. It appears that to meet with the situation which arose having regard to the above decisions of the Supreme Court, on June 17, 1954, the Central Government enacted Ordinance VIII of 1954 and followed it up with Act XXXIII of 1954. The promulgation of the Ordinance was necessitated by the decision of the Supreme Court in Suraj Mall Mohta's case. The Ordinance and the Act inserted two new sub-sections into section 34 of the Indian Income-tax Act. By the new sub-section (1A), the Income-tax Officer was authorised to serve a notice on the assessee for reassessment of income-tax if he had reason to believe that profits or gains chargeable to income-tax had escaped assessment for any year in respect of which the relevant previous year fell wholly or partly within the period beginning on September 1, 1939, and ending on March 31, 1946. It is at this stage unnecessary to notice the limitations put on this power by the sub-section.
8. It requires to be noticed that the Income-tax Investigation Commission had made investigations not only with reference to the above profits of Rs. 16,52,600, but also in connection with another sum of Rs. 4,50,000 relating to cotton transactions of the petitioners. In connection with this last amount, the petitioners had proposed a settlement which was acceptable to the Commission. Final orders had not been passed in respect of that amount by the Commission. In accordance with the finding of the Commission in respect of the above profits of Rs. 16,52,600, on November 19, 1949, the Central Government passed orders for taking action. Reassessment proceedings were accordingly started and reassessment orders were passed in respect of income-tax and excess profits tax respectively on January 23, 1950, and February 23, 1950. After the above reassessment orders were made recovery proceedings were started and ultimately a sum of Rs. 8,89,000 was recovered by the department from the petitioners towards their liability under the above reassessment orders.
9. Keeping in mind the judgment of the Supreme Court in Suraj Mall Mohta's case, and in pursuance of the amendment of section 34 of the Indian Income-tax Act, P. Sadagopan, Income-tax Officer, Central Circle II-C, Bombay, served a notice dated March 29, 1956, under sub-section (1A) of section 34 of the Act for the year ending March 31, 1946, on the petitioners. By this notice he mentioned that he had reason to believe that income, profits or gains assessable to income-tax for the above year had escaped assessment and that the income that escaped assessment amounted to or was likely to exceed Rs. 1,00,000 or more. He called upon the petitioners to file a return in the form attached to the notice. Thereafter, by two notices each dated November 28, 1959, served on the petitioners under section 15 of the Excess Profits Tax Act for the periods ending October 31, 1943, and October 31, 1944, S.V. Nerurkar, being Excess Profits Tax Officer, Central Circle II-C, Bombay, recorded that in consequence of definite information that had come into his possession, he had discovered that profits of the chargeable accounting periods chargeable to excess profits tax had escaped assessment and had been under-assessed and called upon the petitioners to deliver to him returns in the forms attached to the notices for reassessment purposes. Thereafter, K.T. Thakore, Income-tax Officer, Central Circle II-C, Bombay, served four notices dated May 5, 1960, under section 34(1)(a) on the petitioners for reassessment purposes respectively for the years 1945 to 1949. By these notices he recorded that he had reason to believe that income assessable to income-tax for these years had escaped assessment and had been under-assessed. He called upon the petitioners to file returns in the forms attached to the notices for reassessment purposes.
10. Thereafter, the Supreme Court gave its decision on April 12, 1961, in the petitioners' appeal, as already related above. By correspondence that took place in June/July, 1961, the petitioners challenged the reassessment orders made in January/February, 1950. The petitioners contended that the recovery of Rs. 8,89,000 that had been made was illegal, as the above reassessment orders were not binding on the petitioners and were invalid. The petitioners called upon the department to repay the whole of the amount of Rs. 8,89,000 to the petitioners. In the further correspondence that took place, the department accepted the petitioners' contention that the reassessment orders made in January/February, 1950, were not enforceable. The department, however, claimed to retain Rs. 8,89,000 and justified that action under section 49EE of the Income-tax Act.
11. By two letters each dated July 5, 1961, K.C. Thomas, Income-tax Officer, Central Circle II-C, Bombay, invited the petitioners' attention to the reassessment proceedings that had been started against the petitioners in respect of escaped income-tax and escaped excess profits tax liabilities. By these letters, he offered opportunity to the petitioners to be heard in respect of reassessment proceedings and fixed a meeting for hearing the petitioners on July 12, 1961. In the correspondence that took place the petitioners' attorneys referred to the above notices for reassessments and submitted that the notices were illegal and requested the Income-tax Officer to inform the petitioners as to whether the proceedings before him were continued under sub-section (1A) or sub-section (1)(a) of section 34. They also requested the officer to give them inspection of the reports made by the officer to the Commissioner in connection with issuance of these notices for reopening assessments. The above requests were refused, but the officer explained that the reference to both the sub-sections in the notices and in the proceedings was to be understood only in the sense that neither action had been formally dropped.
12. Hearing was afforded to the petitioners and their attorneys by K.C. Thomas on July 24, 1961, and subsequently, by K. Das Gupta, being the first respondent in this petition, on July 29, 1961. By the impugned assessment orders both made on July 29, 1961, the petitioners were reassessed to income-tax under section 34(1A) of the Indian Income-tax Act, and excess profits tax under section 14(1) of the Excess Profits Tax Act. Copies of these orders are annexed as exhibit H-1 (collectively) to this petition. By the order reassessing the petitioners to excess profits tax, the officer recorded the following :
'The assessee's contentions that the notices under section 15 of the Excess Profits Tax Act have been issued without jurisdiction and beyond the prescribed period are not acceptable because there is 'definite information' available from the report of the Income-tax Investigation Commission that the profit on sale of Apollo Mills' shares had escaped assessment and because there is no time limit for issue of notice under section 15 of Excess Profits Tax Act.'
13. By the impugned income-tax assessment order the Income-tax Officer found that Rs. 16,62,000 was a trading profit of the petitioners and as such was liable to be included in the income of the petitioners. On that very footing, the excess profits tax liability of the petitioners was determined.
14. As regards the above notices and the assessment orders, at the hearing of this petition, two contentions have been made on behalf of the petitioners. The first contention of the petitioners is based on the provisions of section 15 of the Excess Profits Tax Act, the relevant part whereof runs as follow :
'15. Profits escaping assessment. - If, in consequence of definite information which has come into his possession, the Excess Profits Tax Officer discovers that profits of any chargeable accounting period chargeable to excess profits tax have escaped assessment, or have been under-assessed, or have been the subject of excessive relief, he may at any time... serve on the person liable to such tax a notice containing all or any of the requirements which may be included in a notice under section 13, and may proceed to assess or reassess the amount of such profits liable to excess profits tax...'
15. The contention of the petitioners was that the notices dated November 28, 1959, which were issued under this section have been issued without the existence of the necessary conditions precedent and accordingly the first respondent had no jurisdiction to reassess the petitioners to excess profits tax liability as he has done by the order dated July 29, 1961. In support of this contention, the petitioners argued that they had made a full and true disclosure of all material facts to the Excess Profits Tax Officer (C.H. Mehta), who, in the first instance, made the assessment order dated October 30, 1945. The contention was that C.H. Mehta, who made the second order dated October 12, 1946, knew all relevant facts as regards the transaction of resale of 13,00,000 odd shares by the petitioners to third parties. As these facts were in the first instance disclosed by the petitioners, there were no new facts or definite information, in consequence of which the notices dated November 28, 1959, could be issued under section 15 of the Excess Profits Tax Act. According to the petitioners, there was neither 'definite information' nor discovery as necessary for issuing a notice of reassessment under section 15 of the above Act.
16. As regards these contentions, it is first necessary to find out as to what information or materials were with C.H. Mehta who passed the excess profits tax assessment order dated October 12, 1946. The averments in the petition in that connection are entirely vague. In fact, the petition proceeds on the footing that the above assessment order was made by B.S. Nadkarni. Reference is not made in the petition to C.H. Mehta at all. The only averments, on which reliance can be placed in this connection by the petitioners, are contained in paragraph 5 of the petition and the submission in paragraph 18, where it is stated that 'the petitioners say that they had made a full and true disclosure of all material facts necessary for their assessment at the time of the original assessment....' In paragraph 5 also the averment i : '... Excess Profits Tax Officer (reference being to Shri B.S. Nadkarni)... did not include the sum of Rs. 16,52,600 in the total income of the petitioners on the basis that the amount realised by sale of 13,74,000 shares of the Apollo Mills was not revenue profit and that the same was, therefore, not taxable as such, after the petitioner company had disclosed and placed before him all material facts necessary for their assessment, and recorded them in their letter to him dated the 29th October, 1945'. It is difficult to avoid observing that the petitioners have intentionally kept the whole petition vague as regards the information that they conveyed to the Excess Profits Tax Officer, C.H. Mehta. They failed to refer to him altogether. Even if it was their mistake in referring to B.S. Nadkarni in connection with this order, what they have mentioned regarding the facts disclosed to Nadkarni is also entirely vague. Mr. Jhaveri for the petitioners strongly relied upon the contents of the above letter dated October 29, 1945. I have, therefore, read that letter carefully as regards the information that the petitioners conveyed by that letter to Nadkarni. The first three paragraphs of the letter are only explaining the circumstances relating to the purchase and disposal of the shares of the Apollo Mills Ltd. and are not relevant for the purpose of this petition. The first part of paragraph 4 is a representation to the Income-tax Officer that since the capital of the petitioners' company was only Rs. 20,00,000, it was not possible for the petitioners' company to make arrangements for taking over all the shares that were agreed to be sold by the Sassoons. The further representation is that having regard to that liability, arrangements had been made for sale of a large block of shares to third parties even before the incorporation of the petitioners' company. The information that is specifically conveyed in the last sentence of this paragraph is as follow :
'The parties with whom the promoters made these cross-arrangements took delivery of the shares direct from Messrs. E.D. Sassoon & Co. Ltd. against cash payments to the company and credit was given to the company and its promoters in relief of their obligation to pay the price of the entire block of shares to Messrs. E.D. Sassoon & Co. Ltd.'
17. In the 5th paragraph the petitioners represented that they had not been a dealer in shares and that a part of the shares of the Apollo Mills had been retained because they were to be the managing agents of the Apollo Mills and had to maintain a substantial holding in shares. It is relevant to notice that the above letter is addressed to Nadkarni, one day previous to the date on which he made the assessment order dated October 30, 1945, in connection with the petitioners' liability for income-tax for the period expiring October 31, 1944.
18. As regards the facts of which B.S. Nadkarni had notice, the order made by him states as follow :
'2.... Though a copy of the agreement is not furnished it is stated that a total sum of Rs. 96,48,000 (only) was paid for this transaction.
4. In reply to the question whether the company made any profit on the sale of shares it is stated by Mr. Bhabha, Director, attending, that no such profit could have been made as the company is precluded from dealing in the business of shares by article 15 of the memorandum and that the assessee company in fact made arrangements whereby the parties to whom the surplus shares of the Apollo Mills Ltd. were sold took delivery of the shares direct from Messrs. E.D. Sassoon & Co. Ltd. against cash payments and credit was (merely) given for these payments to the assessee company and its promoters in relief of their obligation to pay the price of the entire block of shares to Messrs. E.D. Sassoon & Co. Ltd.......
5. Return of income and copies of the audited statements of accounts have been duly submitted........'
19. Reference is then made to the profit and loss account. Without discussing any reasons in the final assessment order, B.S. Nadkarni has not referred to or considered the question of the sum of Rs. 16,52,600 being excess over the purchase price that was received by the petitioners and as to whether the sum was or was not business profit.
20. Apparently, in the letter dated October 29, 1945, resale price of 13,00,000 odd shares is not mentioned. It is also clear from what I have quoted from the above assessment order that Mr. Bhabha clearly represented to the Income-tax Officer that no profit could have been made on resale of shares by the petitioners' company. He had contended that the memorandum of association did not permit the petitioners to make such profits. On these two documents, it is difficult to accept Mr. Jhaveri's contention that Nadkarni was in fact aware of the resale price at which the petitioners' company had sold these 13,00,000 odd shares to third parties. I would expect Nadkarni to deal with the sum of Rs. 16,52,600 being the excess over the price that the petitioners had paid for these block of shares in this order if he was aware of the facts, which, Mr. Jhaveri contends, were brought to his notice. On the contrary, it is a apparent from the contents of the assessment order dated October 30, 1945, that Nadkarni appears to be clearly unaware of the fact that the petitioners had recovered from third parties price in respect of these block of shares which varied from Rs. 5-4-0 to Rs. 5-8-0 as against the price of Rs. 4-4-0 per share which they were paying to the Sassoons. It is difficult to understand why the letter dated October 29, 1945, which was addressed specifically to make all facts clear to Nadkarni, does not refer to these facts at all. It appears to me that Nadkarni was impressed by the contentions put forward by Mr. Bhabha and particularly that the petitioners' company could not have made any profits on these block of shares. He, therefore, did not apply his mind at all to the facts of resale price of these block of shares. He proceeded to assess the petitioners' income-tax liability on the footing that the petitioners were in no manner concerned with these block of shares and could not make and had not made any business profits in the matter of the above share transaction.
21. Mr. Jhaveri contends that the petitioners had disclosed all contracts of resale along with their returns and assessment proceedings. He also contends that the petitioners had disclosed to the officer all their books of account. It is quite possible that these documents might have been disclosed by the petitioners in assessment proceedings. It was for the petitioners, in the first instance, to aver these facts in the petition. Whilst considering the question of want of jurisdiction of the assessing officers under article 226 of the Constitution, the court cannot launch upon investigation of true facts. If the petitioners had not made their petition vague and had made specific allegations or averment of fact in the petition, the same might have been dealt with in the affidavits in reply. It was for the petitioners, in the first instance, to allege that C.H. Mehta, the Excess Profits Tax Officer, was given all materials and documents disclosing to him the fact that the petitioners had resold 13,00,000 odd shares at the price of Rs. 5-4-0 to Rs. 5-8-0 per share which was an excess over their purchase price of Rs. 4-4-0 per share. The petitioners altogether failed to refer to C.H. Mehta in the petition. The petition has wholly been made on the basis of information conveyed to B.S. Nadkarni by the above letter dated October 29, 1945. The respondents have by their affidavits in reply denied that all material facts had been disclosed by the petitioners to the officers concerned. Under those circumstances, it is difficult for me to make a finding that C.H. Mehta, who, in the first instance, assessed the petitioners to excess profits tax liability by his order dated October 12, 1946, had been furnished by the petitioners with all relevant information and materials regarding the resale of 13,00,000 odd shares. On the contrary, from the contents of the assessment order made by Nadkarni and the letter dated October 29, 1945, the impression that I have gathered is that the petitioners were scrupulously avoiding statement of true facts relating to resale price of these 13,00,000 odd shares. The petitioners were depending on Nadkarni failing to go deeper into the matter to find out from the contracts or the books of account the true facts about the resale price. The petitioners succeeded in their attempt before Nadkarni.
22. A copy of the excess profits tax assessment order dated October 12, 1946, has been brought on record as exhibit 1. From the contents of that order and the correspondence which C.H. Mehta relied upon and copy whereof is annexed to the affidavit of the first respondent dated July 15, 1963, it appears that C.H. Mehta was anxiously inquiring of the petitioners as to the standard profits made by the Sassoons by carrying on the business of managing agency of the Apollo Mills Ltd. The petitioners expressed their inability to give any information about such standard profits. The officer, therefore, explained in the order the method which he had to adopt regarding ascertainment of excess profits tax liability of the petitioners without having any information as regards the standard profits made by the Sassoons. As regards the income made by the petitioners, he totally relied upon the assessment order dated October 30, 1945, passed by Nadkarni, in the following word :
'Business income as determined for }income-tax assessment for the } Rs. 1,54,744.'period 5-7-1943 to 31-10-1944 }
23. This action of C.H. Mehta is justified, because, generally, the same officer acts as Income-tax Officer and Excess Profits Tax Officer. In Practice there are no fresh separate proceedings for ascertaining business income for the accounting period by different officers. Having seen the order of Nadkarni dated October 30, 1945, C.H. Mehta justifiably accepted the business income ascertained by Nadkarni in his order as the basis for making the excess profits tax assessment order. C.H. Mehta, apparently, has never concerned himself with the question of larger business income having been made by the petitioners by resale of shares of the Apollo Mills. He never applied his mind to any facts relating to the 13,00,000 odd shares resold by the petitioners.
24. It appears to be recorded that if there were sufficient particulars and averments in the petition as regards these questions of facts, I would have insisted on the respondents getting an affidavit of C.H. Mehta disclosing complete particulars of the documents and information that he had in his possession in connection with the assessment of the petitioners to excess profits tax. I have found it unnecessary to insist on such an affidavit of C.H. Mehta having regard to the absence of any substantial averments of particular facts in the petition and the facts which are clear from reading the contents of the order dated October 12, 1946.
25. In the impugned order for reassessment of excess profits tax dated July 29, 1961, the first respondent, whilst dealing with the contention of the petitioners as to want of jurisdiction, has stated that 'there is definite information available from the report of the Income-tax Investigation Commission that the profit on sale of the Apollo Mills' shares had escaped assessment.' This ground has been developed by Mr. Joshi in the arguments advanced on behalf of the respondents as follow : As a matter of fact, the facts, viz., (1) the existence of the Taxation on Income (Investigation Commission) Act (XXX of 1947), (2) the reference to the Investigation Commission of the question of the petitioners having escaped liability to pay income-tax and excess profits tax, (3) The report of the Commission dated November 9, 1949, making the findings as already mentioned above, (4) the order of the Government under section 8 of the Act directing the department to proceed further to reassess the petitioners to income-tax and excess profits tax, (5) the orders for reassessment to income-tax and excess profits tax dated January 23, 1950, and February 23, 1950, (6) the recovery of Rs. 8,89,000 from the petitioners in pursuance of the reassessment orders made, (7) the reference on the findings of the Commission made at the instance of the petitioners to the High Court and the opinion given by the High Court by its judgment dated March 20, 1953, (8) the appeal from that judgment to the Supreme Court and the confirmation by the supreme Court by its judgment dated April 12, 1961, of the opinion given by the High Court, and (9) the enactment of Ordinance VIII of 1954 and Act XXXIII of 1954, having regard to the Supreme Court declaring the Taxation on Income (Investigation Commission) Act ultra vires in certain parts of its sections, are all necessary to be considered in connection with this question. Apparently, whilst considering the question of the validity of the notices dated November 28, 1959, issued by S.V. Nerurkar, Excess Profits Tax Officer, under section 15 of the Excess Profits Tax Act, the facts that came into existence subsequent to that date could not be considered as giving to that officer jurisdiction to issue notice under section 15. Before that date, the Investigation Commission had made its findings in connection with the evasion of tax by the petitioners. The conclusion that the Commission had arrived at was that the sale of 13,00,000 odd shares was an adventure in the nature of trade. The Commission had arrived at this conclusion by, inter alia, considering the fact of the resale price of these shares and the nature of the whole transaction made by the petitioners. The question is as to whether it was permissible for S.V. Nerurkar and the first respondent to treat these facts as definite information that came into their possession and as to whether in consequence of that definite information Nerurkar discovered that profits of the petitioners for the relevant accounting period chargeable to excess profits tax had escaped assessment or had been under-assessed. Mr. Jhaveri contends that the petitioners had given to Nadkarni and C.H. Mehta all relevant information as to the transaction that the petitioners had made in connection with the sale of managing agency and shares of the Apollo Mills to the petitioners. He contends that all facts relevant to the resale of the block of 13,00,000 odd shares had been disclosed to these officers. Having brought to the notice of these officers all relevant facts as regards the above transaction, the petitioners had not kept back any information from these officers. These officers had formed their own opinions on the basis of all relevant facts disclosed by the petitioners and, accordingly, passed the assessment orders dated October 30, 1945, and October 12, 1946. The contention is further developed by submitting that there were no new facts before the Investigation Commission. The Commission made and formed its own opinion on the same facts as the petitioners disclosed to the other two officers. In the reference before the High Court also, there were no new facts. The High Court formed its own opinion on the facts which had already been disclosed by the petitioners in the first instance to the above officer. Under these circumstances, according to Mr. Jhaveri, the contention of the respondents that in consequence of definite information which had come into their possession, Nerurkar in the first instance and the first respondent at the time of making the excess profits tax assessment order had discovered that profits of the petitioners for the relevant accounting period chargeable to excess profits tax had escaped assessment is untenable.
26. In connection with these arguments, Mr. Jhaveri has relied upon the cases of Fazal Dhala v. Commissioner of Income-tax, Commissioner of Income-tax v. Janab S. Khaderwalli Sahib, Chuni Lal Nayyar v. Commissioner of Income-tax and certain other decisions. He also relied upon the cases of Haji Ahmad Haji Esak & Co. v. Commissioner of Income-tax and Mohideen Thumby & Co. v. Commissioner of Income-tax. In Fazal Dhala's case, the Income-tax Officer was in the first instance informed that the assessee had his branch business at Madras. Whilst making the first assessment order, the officer inadvertently failed to include in the assessee's income the profits made at his Madras branch. Within a short time, upon receiving a letter from the officer of the department at Madras, he purported to issue notice under section 34 for reassessment purposes. The court held that the fact of the assessee having business at a branch office at Madras had been disclosed to the officer in the first instance and that mere failure of the officer to have not included the profits of that branch in the first order was not any definite information within the meaning of section 34(1)(b) (as it was before 1948). The reassessment proceedings were accordingly held to be invalid. In the case of Commissioner of Income-tax v. Janab S. Khaderwalli Sahib, the assessee was a partner in a firm. Before assessing the firm and the assessee to tax, the Income-tax Officer made inquiries and came to the conclusion that a certain sum invested by the assessee during the year of account in the acquisition of house properties was his share of profits of the partnership and added the sum to the income of the firm and assessed the firm to tax. On appeal, the Appellate Tribunal held that the sum could not be considered to be the income of the firm and reduced the assessment of the firm accordingly. Thereafter, the Income-tax Officer purported to issue reassessment notice and take further proceedings under section 34 of the Indian Income-tax and added the sum to the income of the assessee and assessed him afresh. The court held that a mere change of opinion based on the same facts and figures which were present to the mind of the Income-tax Officer at the time of the original assessment did not amount to discovery within the meaning of section 34 of the Income-tax Act (as existing before 1948). The court observed that 'the discovery must be the result of definite information, that is to say, new information that has come to the knowledge of the Income-tax Officer. The Income-tax Officer cannot act under the section even though the taxpayer has escaped assessment if he is acting on information which was already his possession and within his knowledge. Unless it can be said that there is fresh information which was not in his possession at the time when the original assessment was made, action under section 34 is not justified. The mere fact that a different opinion on the same facts was taken by somebody else is not definite information leading to discovery on the part of the Income-tax Officer who was in possession of the same facts and entire facts at the time of the original assessment.' Needless to state that Mr. Jhaveri contends with some emphasis that the facts in this case are exactly similar to the facts in the above case and the ratio of the decision in the above case applies in all particulars to this case.
27. I have already made my findings as to the data and information, which, having regard to the averments in the petition and evidence on record of this case, can be said to be in possession of C.H. Mehta, who made the excess profits tax assessment order dated October 12, 1946. I have come to the conclusion that C.H. Mehta did not take any trouble to ascertain afresh the business profits made by the petitioners during the relevant accounting period. In that connection he merely relied upon the order of Nadkarni dated October 30, 1945. He based his order on the information that was contained in the above order dated October 30, 1945. In the result, he was not in possession of the information relating to the resale price of the 13,00,000 odd shares. He had no idea whatsoever that the sum of Rs. 16,52,600 was recovered by the petitioners as excess over the price at which they had purchased the whole block of shares of the Apollo Mills. Under these circumstances, it is difficult to see how the facts of this case are similar to the facts in the case of Commissioner of Income-tax v. Janab S. Khaderwalli Sahib. On the contrary, there is no basis on which it is possible for the petitioners under the above circumstances to contend that C.H. Mehta had formed opinion on facts. All these facts came to be noticed subsequently as a result of the reference to the Income-tax Investigation Commission and further proceedings that took place in consequence of the findings made by the Commission.
28. Mr. Joshi has relied upon the cases of Haji Ahmad Haji Esak & Co. v. Commissioner of Income-tax and Mohideen Thumby & Co. v. Commissioner of Income-tax which were relied upon by Mr. Jhaveri. In the case of Haji Ahmad Haji Esak & Co. v. Commissioner of Income-tax a notice for reassessment had been issued under section 15 of the Excess Profits Tax Act. The facts leading to the issue of that notice were as follow : The assessee was assessed to excess profits tax on Rs. 4,03,269 and for this purpose the accounts were scrutinised by an officer. The assessee preferred an appeal to the Appellate Assistant Commissioner on the ground that the Income-tax Officer was wrong in disallowing a certain sum. The Appellate Assistant Commissioner, however, forwarded the case to another Income-tax Officer (not the first officer who had made the assessment order) for careful scrutiny of the accounts and report. On the basis of this second officer's report, the assessee was assessed to income-tax on a sum of Rs. 13,99,095 for the same year. Notice was then issued to the assessee under section 15 of the Excess Profits Tax Act and the assessee was reassessed to excess profits tax on the sum of Rs. 13,99,095. The Excess Profits Tax Officer in making the reassessment only drew the relevant and important information from the report of the second officer who had been entrusted with the work of scrutiny by the Appellate Assistant Commissioner. The Excess Profits Tax Officer did not allow his judgment to be fettered by the report. The contention of the assessee before the court was that all the books of account and all relevant materials and documents had been submitted on the behalf of the assessee to the first officer who had made the first order and assessed the assessee to excess profits tax on Rs. 4,03,269. As the books of account and documents had been in fact given to the first officer, it was not permissible for the department to issue a notice for reassessment purposes under section 15 of the Excess Profits Tax Act. The contention was similar to the contention raised on behalf of the petitioners in this case. The further contention was that there could be new no definite information from which it could in law be stated that there had been discovery of escapement from excess profits tax. Reliance was placed before the court on behalf of the assessee on the case of Fazal Dhala v. Commissioner of Income-tax, which I have mentioned above, and several other cases. Chagla C.J., in considering the true effect of section 15, observed as follow :
'Section 15 of the Excess Profits Tax Act is in terms similar to section 34 of the Income-tax Act as it was before the recent amendment. Section 15, as section 34, requires, as has been often pointed out, three conditions which have got to be fulfilled before the Excess Profits Tax Officer or the Income-tax Officer is empowered to reopen an assessment already made. There must be a discovery by him that assessment had escaped, or that the assessee has been under-assessed, or that he has been the subject of excessive relief, and this discovery must be the result of definite information and this definite information must have come into his possession. The officer cannot be act under this section even though assessment has escaped if he is acting on an information which was already in his possession. It must be an information which was not in his possession at the time when the original assessment was made, but an information which has subsequently come into his possession. It is also clear from the plain language of the section that what must come into the possession of the officer is information. Suspicion, opinion or apprehension is not enough. Information must consist of facts which for the first time he is apprised of, as a result of which he discovers that there has not been a proper assessment.'
29. After making the above observations, the learned Chief Justice examined the Officer who was appointed by the Appellate Assistant Commissioner to scrutinise the accounts of the assessee, several facts were pointed out. As regards these facts, the learned Chief Justice observe :
'There is a clear and explicit finding by the Tribunal that all these facts were fresh or new facts which came into the possession of the Excess Profits Tax Officer for the first time, as a result of which he made the discovery contemplated by section 15. It is also clear from the record that all the books which Mr. Dastur (the newly appointed officer) inspected and scrutinised were not inspected by Mr. Killawalla who was the Excess Profits Tax Officer and who made the first assessment.'
30. As regards the contention of Sir Jamshedji that the books of account were present before the first officer and all the facts which Mr. Dastur elicited from these books could have been elicited by the first officer, and that, therefore, no fresh information came into the possession of the officer, the learned Chief Justice observed as follow :
'Does section 34 or section 15 contemplate that if information could have come into the possession of the officer by due diligence, then although in fact he had no knowledge of that information for the purposes of these two sections it must be deemed that he had the information and he could not act on that information although in fact he came to know of it subsequently. In our opinion, the section does not and cannot bear that interpretation. 'Information' means something that the mind has acquired. The mere fact of the presence of a book before a person does not give him the information or the contents of that book unless he opens the book and reads it. According to Sir Jamshedji, the mere fact that a book was placed before an officer is sufficient to give him information of its contents. That may be constructive notice of the contents, but section 15 does not deal with constructive notice. Section 15 deals with actual notice, and in order that an officer should be incapacitated from acting under section 34 or section 15 he must have actual knowledge of certain facts, which knowledge he is again using for the purpose of acting under those sections. If actual knowledge was absent - it is immaterial how that actual knowledge was absent - then when the actual knowledge does come about it confers jurisdiction upon the officer to act under those two sections.'
31. I have no doubt that having regard to the findings which I have made as to the knowledge of facts that C.H. Mehta had when he made the order dated October 12, 1946, each and every word of the above observations of Chagla C.J. applies to the facts of this case. This would be the result even if it is assumed in favour of the petitioners that certain books of account had been disclosed to the Income-tax Officer, Nadkarni, and that the whole file that was with that officer was placed before C.H. Mehta. It may be quite true that with due diligence C.H. Mehta could have gone behind the findings made by Nadkarni as to the business profits made by the petitioners during the relevant period. It may also be true that with due diligence, C.H. Mehta, for himself, could have once more made deeper investigation into the transaction of the petitioners as regards the above shares and found out the resale price of those shares. He might have, thereafter, also come to the conclusion that the sum of Rs. 16,52,600 was not business profit. The contents of the order dated October 12, 1946, however, are much too clear and prevent a finding that C.H. Mehta was aware of relevant facts relating to this sum of Rs. 16,52,600, or considered the question of the same being not revenue profits.
32. In the case of Mohideen Thumby & Co. v. Commissioner of Income-tax, Subba Rao C.J. discussed all the previous decisions and summarised the effect of those decisions at page 264 as follow :
'Section 34 was enacted both in the interests of the State and the subject. If it is necessary to prevent evasion of tax, it is equally important to protect a citizen from undue harassment by over-zealous officers. The Act does not contemplate piecemeal assessment and ordinarily it is expected of an Income-tax Officer to complete his assessment for a particular year once and for all. He cannot resort to the method of piecemeal and compartmental assessment. But, at the same time, to detect evasion and to assess the escaped income, the section confers on an officer a power conditioned by the provisions of the section itself. Unless he gets definite information, i.e., clear and unambiguous information not based on gossip, rumour or surmises, which in its turn leads him to arrive at a reasonable belief that the income escaped assessment, etc., he has no power to start an enquiry under section 34. No doubt, the word 'discover' cannot in the context mean arriving at a final decision but it can be interpreted to mean only a reasonable belief on the part of the Income-tax Officer that the income had escaped assessment. There is also an essential distinction between discovery based upon a new fact brought to the notice of the Income-tax Officer and a change of opinion arrived at by him on the facts that existed prior to the assessment, for, in the latter case, he does not receive any new information. All the facts were already within his knowledge.'
33. The above observations in no manner detract from the observations made by Chagla C.J. in the case of Haji Ahmad Haji Esak & Co. v. Commissioner of Income-tax. Following the observations, I am of the view that it was permissible for Nerurkar, while issuing the notices dated November 28, 1959, under section 15 of the Excess Profits Tax Act to rely upon the facts which came to light by reason of the proceedings held before the Income-tax Investigation Commission and the findings made by the Commission. These facts were the facts regarding the resale price of the block of 13,00,000 odd shares and recovery by the petitioners of the sum of Rs. 16,52,600 as excess over the price at which they had purchased the shares from the Sassoons and that the resale of these shares was of the nature of business adventure. It is difficult to see how Nerurkar could not take notice of the findings of the Commission as also the judgment of the High Court in the reference that was made at the instance of the petitioners.
34. In my view, these facts were wholly unknown to C.H. Mehta and must be held to be definite information subsequently acquired by the Excess Profits Tax Officer (Nerurkar) who issued the above notices.
35. In this connection, Mr. Joshi has with some emphasis argued that the Income-tax Investigation Commission was a High Power Commission. It was obligatory on the department to take notice of the facts discovered by the findings made by the Commission as also by the opinion expressed by the High Court on the reference that was made to it at the instance of the petitioners. I find it unnecessary to give any opinion on that contention, as I am otherwise in favour of the respondents.
36. The second contention made on behalf of the petitioners is that the reassessment of the petitioners to income-tax under section 34(1A) by the order dated July 29, 1961, is all not sustainable. The contention is that from and after May 5, 1960, on which date notice under section 34(1)(a) had been issued and served on the petitioners, the prior notice dated March 29, 1956, issued under section 34(1A) was waived - not in existence - superseded. The further contention as regards this notice under section 34(1A) is that the section does not cover a case of change of opinion and notice cannot be issued under this section because another officer forms a different view. The third contention about this very notice was that proceedings under this subsection (1A) can only be taken on rational belief that income, profits or gains chargeable to income-tax had escaped assessment. This belief must be based on reasonable grounds. The notice is issued does not refer to any reasons at all and, therefore, is not based on rational belief nor on reasonable grounds and is invalid. In this connection, on the question of fact as to why the notice must be deemed to be waived or superseded, the only argument advanced by Mr. Jhaveri is that the provisions in section 34(1A) are extremely wide. In spite of notice having been issued under that wider sub-section, the department served the petitioners with notices dated May 5, 1960, issued under section 34(1)(a). Mr. Jhaveri contends that as notice under this narrower sub-section was issued, a finding ought to be made that the notice issued under the wider powers is superseded and waived. I have found it difficult to accept this contention. The department's case is mentioned in the 1st respondent's letter dated July 18, 1961, where, in connection with the queries of then petitioners about these notices, it is clarified tha :
'.... the reference to both the sub-sections in your letter as dated by me is to be understood only in the sense that neither action has been formally dropped.'
37. The facts that need be noticed in this connection are that the notice was issued under sub-section (1A) on March 29, 1956. The notices under section 34(1)(a) were issued on May 5, 1960. In response to all these notices, the petitioners made proposals for settlement to the Central Board of Revenue as they were entitled to do under the relevant provisions of the Act. The question for settlement related to two different matters, viz., (1) business profits of Rs. 16,52,600 in share transactions and (2) the alleged business loss suffered by the petitioners in the sum of Rs. 4,50,000 relating to cotton transactions. The notices under sub-section (1)(a) of section 34 were for the accounting periods 1945 to 1949. In respect of the alleged loss in cotton transactions, the Investigation Commission had accepted the petitioners' proposal for settlement and accordingly had not made any findings. Final orders had remained to be passed in that connection. In respect of the first item, the Commission had made findings as already mentioned above. Mr. Joshi contends that notices under sub-section (1)(a) of section 34 were thought necessary to be issued in connection with the claim of the petitioners for loss in cotton transactions. The purpose of the notice under section 34(1A) was different and to meet the contingency arising on the Supreme Court declaring the provisions of the Taxation on Income (Investigation Commission) Act invalid. The petitioners also treated both the notices in the above manner. The petitioners made two proposals, one for settlement of their claims and contentions regarding the loss in cotton transactions and the other for the above sum of Rs. 16,52,600. The Central Board of Revenue in fact accepted the petitioners' proposal for settlement in respect of the alleged loss in cotton transactions and that matter is now finally settled. The Central Board of Revenue rejected the petitioners' proposal for settlement regarding the sum of Rs. 16,52,600 in February, 1961. Much time had expired since the first notice of March 29, 1956. Formal proceedings against the petitioners were started after the Central Board of Revenue had considered both the proposals and rejected the proposal in connection with the sum of Rs. 16,52,600 in February, 1961. The petitioners were in June, 1961, given opportunity to appear before departmental officers in connection with reassessment of their liability to income-tax and excess profits tax. Formal notices both dated July 12, 1961, under section 23(2) of the Income-tax Act and section 13(2) of the Excess Profits Tax Act were served on the petitioners on July 13, 1961. The petitioners by their attorneys' letter dated July 10, 1961, made inquiries from the officers concerned as to whether proceedings were being held under section 34(1A) or section 34(1)(a). The final reply was that neither section had been formally dropped. The petitioners were, thereafter, heard on July 24, 1961, and, again, on July 29, 1961, and the impugned orders of assessments dated July 29, 1961, were passed. On these relevant facts it is not possible to make a finding that the department had waived the notice under section 34(1A) or that the notice under that sub-section had been superseded. It is to be noted that it appears from the final reassessment order for income-tax liability that the first respondent has proceeded only under section 34(1A) and action has not been taken under section 34(1)(a). The relevant provisions in sub-section (1A) run as follow :
'34. (1A) If, in the case of any assessee, the Income-tax Officer has reason to believe - (i) that income, profits or gains chargeable to income-tax have escaped assessment for any year in respect of which the relevant previous year falls wholly or partly within the period beginning on the 1st day of September, 1939, and ending on the 31st day of March, 1946; and
(ii) that the income, profits or gains which have so escaped assessment for any such year or years amount, or are likely to amount, to one lakh of rupees or more;
he may, notwithstanding that the period of eight years or, as the case may be, four years specified in sub-section (1) has expired in respect thereof, serve on the assessee..... a notice..... under sub-section (2) of section 22, and may proceed to assess or reassess the income, profits or gains of the assessee for all or any of the years referred to in clause (i).... : Provided that the Income-tax Officer shall not issue a notice under this sub-section unless he has recorded his reasons for doing so, and the Central Board of Revenue is satisfied on such reasons recorded that it is a fit case for the issue of such notice :....'
38. It is not the case of the petitioners that the department or the Income-tax Officer has not recorded his reasons for taking action under sub-section (1A) or that the Central Board of Revenue has not considered the reasons furnished to it by the Income-tax Officer or that the Central Board of Revenue was not satisfied or recorded reasons given to it by the Income-tax Officer that the petitioners' was a fit case for the issue of a notice. Mr. Jhaveri, for the petitioners, has clamoured before me that I should ask Mr. Joshi to give me the reasons submitted by the Income-tax Officer to the Central Board or Revenue and the action that the Central Board of Revenue directed in pursuance of those reasons by calling for these documents. I would have called for these documents if I had felt any doubts regarding the reasonableness of the reasons that must have been mentioned by the Income-tax Officer to the Central Board of Revenue. In that connection, I accept the statements made on behalf of the respondents in the affidavit in reply. From the facts of the petitioners' case as disclosed on the record of this case, I have no doubt, that having regard to the total failure of the machinery that had commenced with the Taxation on Income (Investigation Commission) Act and the findings made by the Investigation Commission in the case of the petitioners, there was a clear reason for the department to commence action by issuing notice under sub-section (1A) of section 34. Before the notice was issued on March 29, 1956, reassessment orders had been made in January and February, 1950, and recovery of Rs. 8,89,000 had also been made. It had become clear to all concerned that the petitioners had escaped payment of tax on business profits of Rs. 16,52,600. It is difficult to see why it was not rational for the Income-tax Officer under those circumstances to issue notice under sub-section (1A). I am unable to accept any of the contentions made on behalf of the petitioners in connection with the notice issued under sub-section (1A).
39. As I am in favour of the respondents on the merits of the case, I deem it unnecessary to deal with the diverse contentions made on behalf of the respondents.
40. There are some other contentions made in the petition, but the same have not been argued. The first prayer in the petition relates to the sum of Rs. 8,89,000. That sum has now been adjusted against the petitioners' liability to pay the amounts mentioned in the reassessment order dated July 29, 1961. The petitioners are, therefore, not entitled to any relief in connection with that sum of Rs. 8,89,000. Contentions have not been made to support the first prayer in the petition.
41. The petitioners are not entitled to any relief. Petition is dismissed with costs. Rule discharged.
42. Petition dismissed. Rule discharged.