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Trustees and Executors of the Late Shri Shamji Kheta Vs. Income-tax Officer, Central Circle-v, Nagpur - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberWrit Petition No. 2085 of 1976
Judge
Reported in[1984]148ITR219(Bom)
ActsIncome Tax Act, 1922 - Sections 34(1)
AppellantTrustees and Executors of the Late Shri Shamji Kheta
Respondentincome-tax Officer, Central Circle-v, Nagpur
Excerpt:
direct taxation - notice - section 34 (1) of income tax act, 1922 - jurisdiction to issue notice under section 34 (1) turns upon circumstances and conditions prescribed as condition precedent laid down in section itself and nowhere else - contention of making assessment on basis of material disclosed or where no material of assessment on basis of material disclosed can bar reopening of assessment under section 34 must be rejected as unsound - petitioners cannot be compelled by notice under section 34 to either file return or produce any document or information - direction to that effect issued by income tax officer must be quashed. - - 23(3) of the act, which was then in force, the ito observed with regard to certain items of income and certain items of expenditure which were shown.....tulpule, j.1. this petition by the trustees appointed under the will of deceased shamji kheta under arts. 226 and 227 of the constitution challenges the issuance of a notice to the trustees under s. 23(2) of the indian i.t. act, 1922, hereinafter referred to as 'the act', on november 15, 1975. this was preceded by earlier letters in 1971 requiring the executors to attend, by the ito, in the matter of proceedings which were started under s. 34 of the act against the deceased assessee, shamji kheta.2. the facts giving rise to this litigation and challenge are that shamji kheta owned extensive immovable properties and was carrying on numerous business and had lucrative properties. he was an owner of cinema house in nagpur, gondia and jabalpur wherein he ran the business of exhibition of.....
Judgment:

Tulpule, J.

1. This petition by the trustees appointed under the will of deceased Shamji Kheta under arts. 226 and 227 of the Constitution challenges the issuance of a notice to the trustees under s. 23(2) of the Indian I.T. Act, 1922, hereinafter referred to as 'the Act', on November 15, 1975. This was preceded by earlier letters in 1971 requiring the executors to attend, by the ITO, in the matter of proceedings which were started under s. 34 of the Act against the deceased assessee, Shamji Kheta.

2. The facts giving rise to this litigation and challenge are that Shamji Kheta owned extensive immovable properties and was carrying on numerous business and had lucrative properties. He was an owner of cinema house in Nagpur, Gondia and Jabalpur wherein he ran the business of exhibition of films. Besides, he had also money-lending business and also earned large income from several immovable properties. The assessee was assessed to income-tax by the ITO, B-Ward, Nagpur. The assessment in question, and which are the subject-matter of this petition, are assessments made on the assessee for the years 1947-48, 1948-49 and 1949-50, i.e., accounting years 1946-47, 1947-48 and 1948-49. For the assessment year 1947-48, the assessee was assessed to tax on a total income computed by the ITO at Rs. 96,854. For the assessment year 1948-49, the said income was calculated at Rs. 1,10,514 and for the year 1949-50 at Rs. 81,532.

3. While making the assessment orders which were made under s. 23(3) of the Act, which was then in force, the ITO observed with regard to certain items of income and certain items of expenditure which were shown to him that 'huge withdrawals the assessee makes are utilised in some investments and this particular source is not disclosed by the assessee'. It appears that before the ITO, for the assessment years 1948-49 and 1949-50, the assessee failed to produce his account books for the money-lending business on the ground that the 'account books for this business are alleged to have been taken away by Mr. Raojibhai, who was the manager of the assessee'. The ITO did not wait until the account books were produced and proceeded to make the assessment on the basis of information and assessed that income at Rs. 20,000 instead of Rs. 16,844, which was voluntarily disclosed by the assessee. He observed that this he was taking 'subject however to revision under s. 34 in case the actual income is found to be higher afterwards'.

4. Similarly, the ITO found that the account books of the business of Shamji Kheta & Co., were similarly not produced and that they were in the possession of the court. According to the assessee, he had suffered losses in that business and the ITO was not prepared to accept that statement without verification and, therefore, proceeded to ignore the loses as it was not quantified and assessed that also as an income stating therein that the assessee was 'willing to submit to any action under s. 34 in case there is any income found on verification of the account books when they will be released'.

5. For the assessment year 1949-50, the same was the position with regard to account books of the money-lending business. The ITO noted that the 'position remains the same this year. The assessee's ex-munim, Shri Raojibhai, is alleged to have absconded with the set of account maintained in respect of money-lending business'. He did not accept that statement and felt it to be suspicious. In that year, there is a reference to income received on account of the assessee being a partner in two firms, 'Bhawanji-Maoji' and 'Shyamji Kheta', of Cuttack and the income was also estimated like last year subject to verification and rectification on the production of accounts. He again observed that 'the assessee is also willing to submit to any action under section 34 if necessary.' The income was, therefore, estimated in regard to both these businesses on the basis of the material of the previous years and the assessment order made.

6. Thereafter, it appears that notices were issued by the I.T. Department, acting under s. 34 of the Act, to Shamji Kheta for the assessment year 1947-48 on March 31, 1956, for the assessment year 1948-49 on March 30, 1957, and for the assessment year 1949-50 on March 24, 1958. These facts are admitted and there is no dispute in this petition in regard to what we have stated above.

7. On November 15, 1967, Shamji Kheta died. Regarding the notices which were issued to him under s. 34 of the Act on the three dates mentioned above by us in the years 1956, 1957 and 1958, as to what transpired in these proceedings and to what stage they had reached, we have no record and information. It appears in any event that these proceedings for reassessment of income, which in the opinion of the ITO had escaped assessment for assessment years 1947-48, 1948-49 and 1949-50, had not been finalised. On the death of Shamji Kheta on November 15, 1967, it appears that these proceedings under s. 34 were sought to be commenced and continued against the executors and legal representatives of the deceased and in particular the trustees under the will of deceased Shamji Kheta. On August 8, 1963, the deceased had executed a will by which he brought into existence a trust which was for the benefit of his grandsons and grand-daughters and was to be administered by three persons including one of them who is the present petitioner, Vasanjee, s/o. Shamji Kheta. The petition was filed by the other two trustees, A. S. Bobde and M. M. Kinkhede, and they had subsequently retired from the petition and Vasanjee applied for substitution in their place, which application for substitution we have allowed as also the prayer for retirement by the two earlier petitioning trustee. The trust was to continue till the last of the grandsons and grand-daughters had attained the age of 21.

8. The grievance of the petitioner in short is that they are the trustees under the will of the deceased Shamji Kheta. Under s. 24B(1), no tax liability can be fastened upon them nor any enquiry or proceeding could be started and continued against them in which they are called upon to participate, except for the year which is the previous accounting year of the deceased. It is their contention that proceedings under s. 34 read with s. 24B of the Act cannot be continued against the trustees and legal representatives of the deceased. That if at all could be continued against the heirs and persons who could have and must be deemed to have been possessed of the properties of Shamji Kheta from out of which this alleged suppressed income was said to have been received. It was contented that Shamji Kheta during his lifetime disbursed his properties amongst his sons and grandsons. That these sons and grandsons who are legal heirs are recipients of these properties which were the source of income and which is alleged to have escaped assessment. It is they, therefore, who should have been noticed to appear in the proceeding and the proceeding continued against them. The trustees being responsible for the beneficiaries who are the grandsons and grand-daughters, who have not received any of the properties which could be and could have been the subject of acquisition from the escaped income, the trustees as well as the legatees could not be held to be responsible. The trustees pointed out that the properties which are the subject-matter of the trust were acquired by the assessee long before the disputed assessments were sought to be reopened, namely, prior to the accounting year 1946-47. Therefore, it was the contention of the trustees that in any even either because the property which is alleged to be the source of suppressed income or from out of which this income is said to have been made is not in the possession of the trustees or beneficiaries, as well as that the notice under s. 34(1) of the Act read with s. 24B and the proceeding thereupon after the death of Shamji Kheta would be without jurisdiction against the trustees. Therefore, the directions of the ITO to appear and take part in the proceeding ought be quashed as also the notice under ss. 34(1) and 24B of the Act. It was contended that the proceedings could be continued under s. 34(1)(a) only in respect of the income accrued to the deceased for the previous year in the hands of the trustees, legal representatives, executors or administrators of his estate and not in respect of years in which the deceased himself had received that income and which even had occurred much before his actual death. It is the correctness and legality of this contention which has to be determined in this petition.

9. Mr. Thakkar who appeared for the petitioners based his submission on the provisions of the Act, which is common ground : Is the Act applicable in the present case and ss. 34 and 24B therein Section 34(1) is in two parts, part (a) and part (b). Sub-s. (3) of s. 34 prescribes different periods of limitation for reopening of assessments. In a case under cl. (b) of sub-s. (1) of s. 34 of the Act, an assessment can be reopened within a period of four years from the last date of the assessment year and in the case falling under cl. (a) of sub-s. (1) within 8 years from the end of the relevant assessment year. In the present case, the notices under s. 34 relating to the assessment years 1947-48, 1948-49, and 1949-50, have been issued in the years respectively 1956, 1957, 1958. It is obvious, therefore, that these notices fall under s. 34(1)(a) of the Act, and the proceedings are under that part. Mr. Thakkar's contention, firstly, therefore, was that these were not assessments attempted to be reopened on the basis of information subsequently received, but on the basis either of a failure to file a return under s. 22 or failure 'to disclose fully and truly all material facts necessary' for the assessments of those years. It was pointed out that the first part of s.34(1)(a) does not apply inasmuch as the deceased assessee had filed a return. Therefore, it was pointed out that the only clause available under s. 34(1)(a) was that there was a failure on the part of the assessee 'to disclose fully and truly all material facts necessary'. It was, however, contended by Mr. Thakkar that looking to the inspection notes and looking to the record in this case and looking to what has been stated, the assessments seem to have been attempted to be reopened, not because there was a failure to disclose fully and truly all material facts, but on the basis of some information received subsequent to the assessments on these deceased in those years. Mr. Thakkar pointed out in this connection a letter written to the ITO by one of the sons of Shamji Kheta.

10. So far as Sub-s. (1)(a) of s. 34 of the Act and the relevant part thereof are concerned, namely, 'failure to disclose fully and truly all material fact,' Mr. Thakkar submitted, firstly, that the question whether all facts necessary for the purpose of assessment had been disclosed fully and truly in an objective fact or circumstance. In the present case, according to him, the deceased had disclosed all that was available and with him at the time when the assessments were made truly and fully. It was his contention that if the ITO was not satisfied that there was a ture and full disclosure of all necessary facts by the deceased, then the ITO was not authorised, and it was not open for him to proceed to make an assessment. He could have then and there started proceeding under s. 34 of the Act and required the assessee to produce all such material facts as were necessary in his opinion for the assessment of the income of the assessee in that year. The ITO, he contended, had, notwithstanding what was the position, proceeded to assess the income of that year earned by the assessee. If that was so, then, according to him, where an assessment is made in that year, it would not be permissible at a later stage to turn round and say that there was no full or true disclosure of all material facts by the assessee. Where the consideration has resulted in an assessment, the assessment, he contends, operates as a bar for the reopening of any assessment where the ITO at the time of making of the assessment was not satisfied that a true and full disclosure was made. In other words, it was his contention that where assessments were made under s. 23(3), i.e., assessment of total income said to have been received by the assessee, according to the ITO determined by him then the assessment or determination cannot be reopened. He pointed out that it is only income which has escaped assessment that could be reopened for assessment under s. 34. where an assessment is made on the basis of the material and the ITO does not wait to collect the necessary material and facts relating to income suspected of having escaped assessment for the failure of true and material disclosure of facts, and proceeds to make an assessments of income accrued in that year, that is final. Mr. Thakkar contends that the ITO at that stage of assessment is free to estimate the income in respect of which the necessary material facts have not been disclosed fully and truly, at any figure. Once he does not do so and makes an assessment, his jurisdiction to reopen an assessment under s. 34 of the Act and the authority to do so is a lost. According to him in that case such an income cannot be deemed to have escaped assessment, inasmuch at it has already been assessed and taxed.

11. It was then contended that the jurisdiction to issue a notice under s. 34 of the Act is firstly derived where the ITO forms a belief or opinion which must be conditioned by either of two circumstances, (i) failure to file a return; or (ii) failure to disclose truly and fully all material facts. Besides, the belief entertained by the ITO must relate to the escaping of assessment on account of the aforesaid two circumstances. In other words, the ITO must form an opinion and must have reason to believe that either as a result of failure to file a return or as a result of failure to disclose truly and fully all material facts, income has escaped assessment. It is then only that a notice can be issued. It was not contended in this case, and it cannot be possibly so contended in view of the specific a varmints in the assessment order to which we have made a reference, that there was reason for the ITO to form such a belief. What was urged was that having reason to believe or to form an opinion, is not the same thing changing as opinion already formed once in regard to the existence of the two circumstances already referred to. Mr. Thakkar contended, therefore, that if as a result of the failure to disclose fully and truly all material facts, the ITO proceeded to make an AA assessment, it was his opinion as to what was the total income when he taxed that income and assessed it. It then cannot be said that such income has escaped for the reason to believe goes away. In the present case, it was his contention that this had happened on account of the making of the assessment by the ITO.

12. Lastly, it was submits that the material on record discloses that the action is sought to be taken not on the basis of the ITO having reason to believe that there is any escapement of income on account of 'failure to disclose fully and truly all material facts', but on account of certain information received by the ITO, that the action, if at all sought to be taken under s. 34(1)(b) of the Act, which prescribed a shorter period of limitation, the notices not having been issued within a period of four years were also bad.

13. On the other hand, on behalf of the Department, it was urged that an assessment has to be made within a specified period prescribed by s. 23 of the Act. It was contended that the assessments, in the instant case, were made under s. 23(3) for the assessment years 1947-48, 1948-49 and 1949-50. The making of an assessment is no bar to the reopening of an assessment and to reassess the income which has escaped assessment. Where the ITO has reason to believe that as a result of any one of the two contingencies, namely, failure to disclose fully and truly material facts of failure to file a return, income has escaped assessment. It was contended that it was not right for the assessee to contend, as was done, that assessment cannot be piecemeal. It was urged that this was not a piecemeal assessment. It was an assessment on the basis of material and facts which were available at that time. Where in the process of assessment there were reason for the ITO to believe that any income was suppressed, then his making of such an assessment is not piecemeal assessment and does not take away his jurisdiction to reassess, and to commence proceedings under s. 34 of the Act. It was urged that assessment is no bar to reassessment or reopening of assessment, and indeed it was contended that the concept of reassessment pre-supposes an earlier assessment. No income could be deemed to have escaped assessment if it is already assessed. It is only when it is assessed and later discovered, or an opinion is formed that some part of the income has not been assessed, then an enquiry under s. 34 of the Act could be undertaken. An assessment does not operate as a bar to the reopening of assessment and reassessment proceedings contemplated under s.34 of the Act.

14. Neither the section nor the pronouncements on the scope of the section by the Supreme Court lay down any other condition for issuance of a notice under s. 34 of the Act. It was urged that the section lays down only certain circumstances in which a notice under s. 34 could be issued. Where these circumstances are satisfied, the jurisdiction to issue a notice is acquired. The section does not say that no such notice could be issued where assessment proceeding has been completed and there has been an assessment. Were that to be the intent of the legislature, then some such words like 'before making an assessment' would have occurred in s. 34(1) of the Act. Such words are absent and, therefore, it was urged that the contention should not be accepted.

15. A number of decisions were relied upon and referred to support the contention that the ITO will cease to have jurisdiction to issue a notice under s. 34 of the Act and reopen an assessment where he has already assessed the income at any figure. We shall presently refer to some of these decisions. Before, however, proceeding to consider these decisions, it would be proper to have a look at s. 23 of the Act. It is common ground that a person whose income exceeds the prescribed limit of exemption and whose income is taxable has to file a return in the prescribed form, setting forth therein such particulars as may be necessary including total income and total earned income during that year. If such a return is filed, the ITO proceeds to make an assessment under s. 23 of the Act. In order, therefore, to enable the ITO to make an assessment, it is common place that is person liable to pay tax, or a person whose income exceeds the maximum limit of income which is exempt from tax, has to state his total income from all sources and must make a true and full disclosure of all those sources of income, and the amount of income realised or received by him therefrom. Sub-ss. (1), (2) and (3) of s. 23 of the Act then deal with the procedure of assessment, returns, completion of returns and receiving evidence. Where the ITO is satisfied that the return is complete and correct, then he proceeds to make an assessment.

16. Sub-ss. (2) and (3) of s. 23 of the Act provide for contingencies where the return is defective or insufficient in some way or the other. It is sub-s. (4) which then provides for a contingency where the return is not made, or a return is not filed as required under sub-s. (3) of s. 22, or decided ones not fully comply with the notices and requisitions issued under sub-ss. (2) and (3) of s. 23, that the ITO proceeds to make what is known as 'best judgment assessment'. Where the proceeds to make a best judgment assessment, he proceeds to do so either on the ground that the return is not made or that the return is not full and complete in accordance with the notice. If the making of such an assessment were to operate as bar to a proceeding under s. 34 of the Act, then it seems to us that s. 22(4) would have been worded in the manner in which it has been worded.

17. We do not also think it proper to read into s. 34 of the Act, any other pre-conditions than the ones which are there to acquire jurisdiction for issuance of a notice under s. 34. If a proceeding under s. 34 of the Act, as is urged, were to be barred on the making of the assessment, then there would certainly be found some words in s. 34 of the Act indicating it to be so. We may state that in no decided case, which was cited before us, has it been so laid down. It was frankly conceded that there was no decision which says in terms that where an assessment is made, may be under s. 23(3) or s. 23(4) of the Act,no proceeding under s. 34 would lie. It seems to us on the other hand that a best judgment assessment made under s. 23(4) of the Act is at best a estimate of the income which might have been, and must have been received by the assessee. It is not determination of the income which the assessee had received. It is only an estimate and at best guess founded upon the material which is available, and information or result of an enquiry which the ITO makes. The proceeding which is contemplated under s. 34 is for the purpose of determining as to what is the income which has escaped assessment. The foundation therefor is only a formation of a belief and opinion by the ITO in the twin circumstances mentioned in sub-s. (1) that income has escaped notwithstanding that an estimate of the income which must have been received by the assessee is made and taxed, that would not prevent or preclude the power to determine exactly as to what was the income which has escaped assessment. We do not think, therefore, that the contention that on making an assessment on the basis of income on available and produced material, or as estimated by the ITO, where there is absence of material resulting in a failure to disclose truly or fully all material facts, action under s. 34 of the Act is precluded,can be accepted.

18. We think that such a contention the facts of the present case is most inapt. We have already pointed out as to what the ITO has said while completing the assessments for the years 1948-49, 1949-05 and 1950-51. He referred specifically to the failure to produce account books which undoubtedly amounts to a failure to disclose truly and fully all material facts on the basis of which assessments of the income of deceased Shamji Kheta could have been made. Not only that but the figures of income or expenses were not accepted and believed by the ITO. There was even a concession made before him that the assessee had no objection to a proceeding under s. 34 of the Act. We think, that it is a most significant circumstance in this case, that though Shamji Kheta was alive till the year 1967 and though notices were issued to him in the years 1956, 1957 and 1958 under s. 34 of the Act, he did not seek to challenge those notices on the grounds which have now been urged before us by Mr. Thakkar. We think that if the contention raised before us had been correct, apart from the contentions which were advanced before us of any estoppel or the rights of the executors to challenge the issue of notices, Shamji Kheta himself would have challenged these notices. In the circumstances we do not think it necessary to go into the subsidiary contentions raised on behalf of the Department that in view of the concession made by the deceased and in view of the conduct of Shamji Kheta in filing a return pursuant to notices under s. 34, the trustees under the will are now precluded from challenging the issuance of notice under s. 34 of the Act. We are not impressed by the contention advanced principally on behalf of petitioners to challenge the notices issued under s. 34 of the Act. We think that in the circumstances, the fact of making an assessment by the ITO does not bar the issuance of notices under s. 34 of the Act where the conditions precedent laying down the circumstances in which the ITO acquires jurisdiction to issue a notice under s. 34 of the Act are satisfied. The making of an assessment is no bar to such a proceeding. We think that the assessments made in this case particularly for the years 1948-49 and 1949-50 must be deemed to be composite assessment, both made under s. 23(3) and (4) of the Act.

19. We will now refer to some of the cases to which a reference was made. Mr.Thakkar placed considerable reliance on the decisions T. Manavedan Tirumalpad v. CIT : [1955]28ITR615(Mad) . He submitted that a change of opinion as to what is a certain item of receipt or income cannot confer jurisdiction upon the ITO to reopen an assessment under s. 34 of the Act. In the above case, the income in question was received by the assessee from his various lands. That was treated for the assessment years 1939-40 to 1941-42 as agricultural income and, therefore, exempt from taxation. The ITO was succeeded was of the opinion that this was not agricultural income as it was not income derived from timber from private forests, but was business income. In that view of the matter notices were issued under s. 34 of the Act proposing to reopen assessments of assessment year 1939-40 to 1941-42. It was held that all the material facts were disclosed and were before the ITO. As to what inference should be raised on those material facts truly and fully disclosed was for the ITO. Merely because another ITO was inclined to take a different view or draw another conclusion from the same set of facts, the jurisdiction to issue notice under s. 34 of the Act was not acquired. We fail to see how this case has any application to the facts of the present case.

20. Nearly to the same effect is the case in Dunlop Rubber Co. Ltd. (London) v. ITO : [1971]79ITR349(Cal) . There also the British company which was a parent company was in receipt of monies from its subsidiary offices including Dunlop Rubber Company India) Ltd. Dunlop Rubber Company (India) Ltd., used to pay certain monies to the U.K. company on account of expenses which the U.K. Company incurred for its research and development activities which it carried out in the United Kingdom. For passing on those benefits of research and development, the U.K. company used to charge its subsidiary companies of which the Indian company was one. The fact of such receipt of monies from the Indian companies was made known and was disclosed. The concerned ITO who made the assessment noted this fact, but did not take these receipts into account for purposes of tax. Subsequently, notices were issued under s. 34 of the Act, which were challenged by the U.K. company. It was then held that where the primary facts were placed before the ITO there cannot be said to be any omission on the part of the assessee to disclose truly and fully all material facts. Under the circumstances, the very condition precedent for acquiring jurisdiction was not satisfied. From what we have pointed out from the assessment orders, it would be clear that the documents were not forthcoming and some of the documents which were not accepted were found to be suspicious.

21. Considerable reliance was placed by Mr. Thakkar on the Full Bench decision in Poonjabhai Vanmalidas & Sons (HUF) v. CIT [1974] 95 ITR 2511. In that case, the assessee was a HUF and the assessment year in question was 1945-46. The income of the family was then assessed at Rs. 67,605. In that year a receipt of Rs. 78,000 only was shown by the assessee in respect of a transaction of sale of a plot of land situate at Ghee Khanta, Ahmedabad. A firm M/s. K. Nagardas & Company appeared to be concerned in that transaction which was situate at Wadhwan in the State of Wadhwan which was then not a part of British India over which the ITO, Ahmedabad had control. Later, information was received through the ITO, Surendranagar, when that area came within the financial control, that the transaction disclosed by the assessee in his return for assessment year 1945-46, was not what was represented to be but something different. When the assessment was completed, the ITO had noted that there was a dispute between K. Nagardas & Company and the assessee. He observed that K. Nagardas & Company seems to have come as a handy person, but he left that matter at that only, saying, 'that the matter has not yet been finally settled'. In that proceeding, the assessee was assessed and it was held finally by the Appellate Tribunal that the undisclosed income in that, year was Rs. 1,78,000. It was thereafter that a reference was obtained from the Income-tax Appellate Tribunal, to the High Court, which was heard. The High Court held that the notice under s. 34(1)(a) was not justified. Mr. Thakkar placed reliance on the headnote reading (of 95 ITR) : '.....The ITO himself, when he made the original assessment, was not fully satisfied with the explanation given by the assessee regarding the receipt of Rs. 3,05,000 and the note placed by him in the records showed that he treated the whole transaction with a certain degree of suspicion. All the facts from which the necessary inference could be drawn were before him. It was not for the assessee to point out what possible inference could by drawn by the ITO making the original assessment at the time when the assessment was made in 1947.'

22. The Full Bench held in that case that the ITO who made the note had looked upon the transaction with some degree of suspicion. That all the facts from which the necessary inference 'can be drawn by the ITO making the original assessment' were taken before him. It, therefore, held that 'at the time of original assessment, all the primary facts having been placed before the ITO it was open to the ITO then not to accept the version of the assessee and to bring to tax the amount of Rs. 3,05,000. In the circumstances, the question whether this particular transaction between the assessee and M/s. K. Nagardas and Co., was genuine or not was an inference of fact to be drawn from the primary facts placed before the ITO'. In other words, therefore, the Full Bench held that there was a true an full disclosure of all necessary and material facts on the basis of which subsequent inference was drawn bringing to tax the sum of Rs. 1,78,000 and, therefore, merely because when full and true facts were disclosed, the necessary inference was a possible inference which could have been drawn was not drawn would not be a ground for re-opening of the assessment under s. 34 of the Act. It may be mentioned that in that case the assessment was for the assessment year 1945-46. The assessment was sought to be reopened under s. 34 in the year 1954. It was clearly, therefore, relating to s. 34(1)(a) which gives an ITO, the period of limitation of eight years. The basis for issuing of the notice was, however, information received from the ITO, Surendranagar, after the merger of Wadhwan State in the Union of India. No proceedings that time on the basis of information a s contemplated under s. 34(1)(a) could have been started. The Full Bench decision, therefore, in our opinion, turns upon the facts which were established and found in that case, namely, that a true and full disclosure of facts was made. It was merely a matter of inference as to which inference was to be drawn from the facts disclosed which then appeared to be suspicious but were allowed to rest at that by the ITO concerned. We fail to se how this decision can be stretched or extended to support a proposition that an assessment having been made, it cannot be reopened subsequently under s. 34, where even while making that assessment it is found that there is no true and full disclosure of all material facts. The very finding of the ITO that all true and full material facts were disclosed goes against the grain of that contention. On the other hand before us the assessment orders are clear in making the statement that all material facts have not been disclosed. The very documents relating to money-lending transactions and with regard to the accounts of the partnership firms were not produced before the ITO. The Full Bench decision does not hold that where in the absence of true and full disclosure of material facts, the ITO proceeds to make an assessment, the circumstance and the fact of making an assessment will operate as a bar to subsequent reopening of the assessment, where the condition prescribed and the circumstance, in which such a notice could be issued are satisfied. In our present case, there is failure to disclose truly and fully all material facts. We also do not think that the decision can be said to be an authority for the proposition that where the ITO proceeds to make an assessment albeit on suspicion or makes a best judgment assessment, that operates as a bar to reopening of assessment under s. 34 of (1)(a) or (b), as the case may be. We may then refer to two important decisions in this connection of the Supreme Court which lay down the circumstances in which jurisdictions under s. 34 of the Act can be exercised by the ITO. The first of this case is the Calcutta Discount Co. Ltd. v. ITO : [1961]41ITR191(SC) , from which all subsequent deductions and applications have been made either by the Supreme Court or by the High Courts. The majority judgment in this case held that the circumstances which confer jurisdiction upon an ITO to issue notice under s. 34 of the Act must be specified. The first, the ITO must have reason to believe that any income, profit or gain has either been under assessed and that, secondly, such under-assessment has arisen on account of the omission or failure to file a return and omission or failure to disclose fully and truly all material facts necessary for the making of the assessment. It was also laid down that the belief which the ITO must form is not any belief but must be reasonable belief. A notice under s. 34 of the Act was liable to be challenged under article 226 of the Constitution and could be challenged; and the assessee need not be driven to the remedy of an appeal and a further appeal to the Tribunal. The decision also laid down that where the assessee had produced all primary facts which were necessary for the purpose of making an assessment, and where a true and fully disclosure has been made, there is no further duty upon the assessee. It is not for the assessee to inform as to what inference therefrom should be deduced by the ITO. It was for the ITO to draw his own inference. Where the ITO draws an inference and then proceeds to make an assessment, another ITO merely because he chooses to draw a different inference, cannot proceed to reopen the assessment under s. 34(1) of the Act on he ground that there is any failure to disclose fully and truly all material facts. The drawing of an inference is within the power of the ITO and is none of the functions of the assessee. If there was no disclosure of primary facts leading to the assessment, then the jurisdiction would be acquired.

23. In that case a receipt of Rs. 5,48,002 was shown by the assessee-company on account of sale of shares and securities. The company was an investment company and the question was whether the sale was by way of business of dealing in shares and securities, or was merely change of form of investment. It was held that since there was a true and full disclosure of all material facts, the company was not liable. The question as to whether this was a business income or not, depended on the finding of several facts and material and an inference properly drawn therefrom. As to what inference should be drawn from those facts was for the ITO to decide.

24. This decision was later followed and re-affirmed in CIT v. Hemchandra Kar : [1970]77ITR1(SC) It was observed that 'in every assessment proceeding the assessing authority will, for the purpose of computing or determining the proper tax, require to know all the facts which help him in coming to the correct conclusion. From the primary facts in his possession whether on disclosure... or otherwise, the assessing authority has to draw inference as regards certain other facts and ultimately from the primary facts and the further facts inferred from them the authority has to draw proper legal inferences. Therefore, the duty of disclosing all the primary facts lies on the assessee'. Since in that case it was held that the primary facts leading to the inference which it was possible to be drawn on the basis of which notice was sought to be issued could have been drawn existed, the notice was held bad as there was no failure to disclose all those primary facts.

25. It will thus be seen from the two decisions of the Supreme Court to which we have made a reference, and in particular to the basic decision in Calcutta Discount Company's case : [1961]41ITR191(SC) , that the jurisdiction to issue notice under s. 34 of the Act, cl. (a) or (b), as the case may be, turns upon the circumstance and conditions prescribed as a condition precedent laid down in the section itself and nowhere else. If that is so, then the contention that the making of an assessment on the basis of material disclosed, or where no material of an assessment on the basis of material disclosed, or where no material is disclosed can bar the reopening of an assessment under s. 34 of the Act must be rejected as unsound.

26. Mr. Thakkar is entitled to succeed on the second part of his contention against the requirement of participation of the trustees in s. 34 proceedings. To substantiate that contention, Mr. Thakkar relied upon the provisions of s. 24B(1). He pointed out that in the present case it is s. 24B(3) which is attracted. The assessee in this case had died after the filing of a return. The question, therefore, was where the assessee had died after the filing of the return under s. 24B, whether his legal representatives or heirs, administrators and executors could be proceeded against and for the purpose of s. 24B made liable to pay out of the estate of the deceased persons any tax which was liable to be paid by the deceased. Mr. Thakkar contended that the liability of the executors, administrators or legal representatives of a deceased assessee to pay tax out of the estate of the deceased was confined only to the income of year of death of the assessee. In other words, it is only for the year in which the assessee died that proceeding under s. 24B can be resorted to for assessing any tax payable by the deceased out of the estate in the hands of the executors, administrators, legal representatives. In support of this contention Mr. Thakkar relied upon two decisions, in CIT v. Amarchand N. Shroff [1963] 45 ITR 59 and CIT v. James Anderson : [1964]51ITR345(SC) . In both these cases, the proceedings were under s. 34. Notices were also issued in those cases against either the heirs or legal representatives or executors of the deceased assessee. In the case of Amarchand N. Shroff, the assessee had died on July 7, 1949. He was a partner of firm of solicitors and income due to him in that year was paid to his heirs subsequently in the years 1950-51 to 1954-55, in various sums. The sums so paid were on account of income which had accrued and due to the assessee, but was not actually received. They were outstandings realised by the company and were paid to the legal representatives and heirs of Amarchand. After the death of the assessee, the amounts which the heirs and legal representatives received from the solicitor firm out of the outstandings of the assessee were assessed as a HUF. It was later that the assessments for the years 1950-51 to 1954-55 were sought to be reopened under s. 34(1)(b) of the Act with the aid of s. 24B. It was sought to be treated as income in the hands of deceased Amarchand by his heirs and legal representatives. Upon a reference, the Bombay High Court held that the notices were bad and discharged them. That findings was confirmed. It was held that s. 24B did not authorise levy of tax on the income of the deceased person in the year of assessment succeeding the year, being the previous year in which such person died. It was pointed out that s. 24B 'was enacted by the legislature to bring to tax, after his death, income received during his lifetime, and fill up the lacuna which was pointed out by the High Court in Ellis C. Reid v. CIT [1946] 14 ITR 70.' An assessment could not be, it was held in that case, against a dead person and, therefore, the decision pointed to the lacuna in the Act. It was to remedy that lacuna that s. 24B was enacted.

27. Mr. Shelat appearing for the Department placed reliance upon some of the observations in this case. He pointed out that s. 24B in the words of the Supreme Court could be used against the person in possession of the estate of the deceased, for recovery of tax even beyond the lifetime of the deceased. Therefore, it was his submission that the death of the assessee is no bar to the continuation of the proceedings against the estate and also against his legal representatives, heirs, executors or administrators in whose hand the estate was. For that purpose, he relied upon the following observations 48 ITR 65 :

'By s. 24B the legal personality of a deceased assessee is extended for the duration of the entire previous year in the course of which he died and therefore, the income received by him before his death and that received by his heirs and legal representatives after his death but in that previous year becomes assessable to income-tax in the relevant assessment year.'

28. Mr. Shelat placed reliance on the sentence -

'the income received by him before his death and that received by his heirs and legal representatives after his death.'

which becomes susceptible to tax in the relevant year. In doing so, Mr. Shelat is obviously omitting certain parts of that observation which would not support his contention. We do not think such a course is permissible. The observations which we have extracted above, if read fully, means nothing else but that the extension of the personality of the deceased assessee is only for the recovery of tax for the previous year in the hands of his legal representatives and heirs. If there was any doubt, that was made clear by the Supreme Court itself in the following sentence which reads as under (at p. 65 of 48 ITR) :

'The provisions of s. 24B do not extend to tax liability of the estate of a deceased person beyond the previous or the account year in which that person dies.'

29. We think that this is a complete answer to the contention raised by Mr. Shelat and feel that in view of the effect of the provisions of s. 24B as pronounced by the Supreme Court, the trustees or executors could not be called upon to participate in a proceeding relating to reassessment of the deceased assessee not for the previous year of his death, but many years earlier. Mr. Shelat frankly conceded that apart from s. 24B of the Act, there is no section by which the executors, legal representatives or heirs of a deceased assessee can be called upon to participate in a proceeding relating to assessment of the deceased assessee other than the previous year of his death.

30. This has also been similarly affirmed and stated in James Anderson's case : [1964]51ITR345(SC) . We may extract the following portion from the judgment (at p. 351) :

'It was held that s. 24B did not authorise the levy of tax on receipts by the legal representative of a deceased person in the years of assessment succeeding the year of account in which such person died and accordingly the income received by him before his death and that received by his heirs and legal representatives after his death in that previous year became assessable to income-tax in the relevant assessment year, but not receipts by the legal representatives after the expiry of the account year in which 'A' died.'

31. In view of this, it seems to us quite clear that the petitioners cannot be compelled by a notice under s. 34(1)(b) issued by the ITO either to file a return or to produce any documents or information as contemplated by s. 24B of the Act. The directions to that effect issued by the ITO must be quashed. The petition is, therefore, entitled to succeed. There will be a direction to the respondent prohibiting him from requiring the trustees and executors under the will of the deceased, Shamji Kheta, to do anything in regard to the proceedings for reassessment of the deceased, Shamji Kheta for the assessment years 1947-48 to 1949-50.

32. We may also mention one more contention raised before us by Mr. Shelat, viz., that the trust virtually having come to an end on account of the purpose having been exhausted in the year 1978, the petition has become infructuous. We do not think so. The trust would continue for purpose of administration and accounts and until the final discharge is obtained. Besides the notices

33. The result, therefore, is the petition is allowed and the rule made absolute in the above terms. There will be no order as to costs. Petition allowed.


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