This is a writ petition under article 226 of the Constitution. The relief claimed is for a writ of certiorari to quash two notices issued under section 148 of the Indian Income-tax Act, 1961, dated the 2nd March, 1964, corresponding to section 34(1) of the Income-tax Act, 1922, and for a writ of prohibition restraining the opposite party No. 1 from reassessing the petitioner for the assessment year 1955-56.
The facts leading up to this section are briefly these : The petitioner was assessed to income-tax for the assessment year 1955-56, by an assessment order dated the 29th of February, 1960, on a total income of Rs. 56,963 in the status of a Hindu undivided family. This family was carrying on business in the name and style of Ram Charan Lal Ram Narain as commission agents. During the assessment proceedings for 1955-56, a claim for partition under section 25A of the Act of 1922 was put forward on the basis of a partition deed dated the 26th of February, 1952. In that registered partition deed the history of the family was given showing that the common ancestor was one Lau Ram who had four sons, Jagannath, Ram Charanlal, Ram Narain and Sri Ram Adharlal; that during the lifetime of Lau Ram, Ram Charan Lal and Ram Narain had separated from him whereas Jagannath had taken up service. It was further asserted that Ram Charan Lal and Ram Narain had invested their own money and started a commission agency firm styled Ram Charan Lal Ram Narain and further that Ram Charan Lal and Ram Narain had built and purchased property during their state of separateness even during the lifetime and after the death of their father, Lau Ram, and over which they were in separate possession and occupation. The only property which was admitted to have been ancestral and in joint possession was a single-storeyed house and four double-storeyed shops. It was claimed that this was the only property which was ancestral and required to be separated and the parties had by mutual consent partitioned the same. This partition deed, admittedly, was present before the Income-tax Officer who made the original assessment on the 29th of February, 1960. In the opening paragraph of the assessment order the Income-tax Officer observed : 'During the course of assessment proceedings claim for partition was pressed but it was found untenable in the absence of any division of capital and profits between the various members of the Hindu undivided family. The business of the assessee was also admitted as joint before Samvat 2112 by Sri Ram Charan Lal, in paragraph 3 of his affidavit dated the 9th January, 1951. The mere ground of a division of the house and four shops between Ram Charan and Ram Narain on February 27, 1952, is therefore, not sufficient for a complete partition.'
The assessment order does not take into consideration the income from any house properties and not even the bona fide annual letting value of the house which was admitted to be ancestral and the claim for partition thereof, the Income-tax Officer would appear neither to have accepted nor denied. His finding merely was that there could be no complete partition justifying an order under section 25A because the business assets or the capital of the business had not yet been divided. The order would clearly indicate that he was prepared to accept the partial partition of the house property under the registered partition deed dated the 27th February, 1952. Here it may be mentioned that, during the assessment proceedings for 1956-57, a specific notice dated the 20th March, 1957, was issued by the Income-tax Officer to the Hindu undivided family. In this notice it was, inter alia, stated :
'You are further required to prove the date of the commencement of the construction of the house which you have stated to have been constructed in the year 1952-53. Please also mention the date of the completion of the house and also produce any record which you might have maintained regarding the investment over the construction.'
Notwithstanding this pointed enquiry, no income from property was assessed. This cannot possibly have been the result of an oversight as the Income-tax Officer was fully aware, as a result of the partition deed which was filed, that certain properties had been purchased and built during the lifetime of Lau Ram and also after his demise. Therefore, it cannot but have been a deliberate act.
After the expiry of the period of limitation for taking action under section 147(b), the department appears to have woken up and issued a preliminary notice on the 7th January, 1964. This runs :
'It appears that you have not shown income from property in the return for the year 1955-56, filed in the status of Hindu undivided family though the same was duly assessed in the succeeding and preceding years. Enquiries further revealed that the family owned properties other than that was assessed in the year 1956-57, namely the following :
(i) House of Purbiatola (ii) 3 shops in Brownganj (iii) Another house at Purbiatola (iv) A third house in Purbiatola (v) 2 shops in Brownganj purchased by the family.
You are requested to explain the reasons as to why income from these properties was not returned in the assessments of the Hindu undivided family. Also to show cause as to why action under section 147 should not be taken to assess income from the above properties.'
To this the petitioner replied on the 10th of January, 1964, the material portion whereof was as follows :
'It is submitted that the assessees family divided itself through registered deed of partition in February, 1952, and on the basis of the same it had also claimed the passage of an order under section 25A of the Act, 1922, but it could not succeed in this behalf. In the form of return the assessee showed its status as that of Hindu undivided family but as the properties were divided among the members of the family in the year 1952, the income under the head property was not returned.
In the course of the assessment proceedings your learned predecessor took an income of Rs. 250 as its income from property, but as the assessee was not assessed to any tax, no appeal was taken on this ground. However, it is stated that it is incorrect to say that the family owned properties other than that which was assessed in the year 1956-57. The assessee owned the properties as detailed in the notice and out of which only one house at Purbiatola was let out at Rs. 20 per month and the other properties were in its own use either in the business or for the residence.
In view of the deed of partition, which is a registered document, the Hindu undivided family ceased to own the properties in its own rights since February, 1952, and, therefore, its income cannot be assessed to tax in any case in its hands for the year 1955-56. In views of the above facts action under section 147 may not be taken against him and the proceedings may please be dropped.'
Notwithstanding this reply the notice under section 148 of the Act of 1961 was issued on the 2nd of March, 1964. The issue of the said preliminary notice and the notice under section 148 are challenged by this writ petition.
The short question which falls for consideration is whether the petitioner at the time of the original assessment had disclosed fully and truly all material facts necessary for the assessment for that year ?
The learned counsel for the department strenuously contended that in the present case it was the duty of the petitioner to have returned the property-income in the return filed by the Hindu undivided family that was filed for the relevant year of assessment 1956-57 and that not having been done the provisions of section 147(a) would be attracted and as such the condition precedent for the issue of such a notice was satisfied. It was further contended that even if the Income-tax Officer had the registered partition deed before him and had considered it, it was still the duty of the petitioner to have got a specific order from him excluding the property income from the assessment of the family. It was urged that in the reply given to the show cause notice by the petitioner on the 10th of January, 1964, there was an admission that the assessee owned the properties as detailed in the notice of the Income-tax Officer, dated the 7th of January, 1964, and, therefore, the matter was one which fell within the jurisdiction of the Income-tax Officer to decide and the proceedings ought not to be stifled by the issue of a writ at this stage.
These contentions are without force. If the assessee does not admit certain income to be his, there is no law which requires him to return that income in his return. His duty, as pointed out by the Supreme Court in Calcutta Discount Co. Ltd. v. Income-tax Officer, is to place all the primary facts before the Income-tax Officer. There is also no provision of law, under which, if an application under section 25A of the Act of 1922 is dismissed or rejected, the assessee must proceed to return the income which is the subject-matter of the deed of partition. It is for the Income-tax Officer to include such income in the assessment if he so deems fit but no blame can be apportioned to the assessee for his failure to return such income. He is only required to place the primary facts and leave it to the Income-tax Officer to draw the necessary legal inference therefrom.
Therefore, in the present case, all that is necessary to be seen is whether the petitioner did place all the primary facts before the Income-tax Officer at the time when he made the original assessment for 1955-56 During the assessment proceedings the assessee had applied for an order under section 25A on the basis of a registered partition deed wherein it was clearly stated that certain properties had been purchased during the lifetime of Lau Ram as well as after his demise and which properties were claimed as individual properties of the persons who had purchased them. The partition deed was, undoubtedly, considered by the Income-tax Officer and his only objection to granting an order under section 25A of the Act of 1922 was that as the capital of the business had not been partitioned, therefore, no complete partition of all assets could be said to have taken place and as such an order section 25A of the Act of 1922 could not be passed. The use of the words in the assessment order made by him that 'the division of a house and four shops between Ram Charan Lal and Ram Narain on February 27, 1952, is therefor, not sufficient for complete partition' makes it abundantly clear that he was inclined to hold, if not actually held, that there was a partial partition so far as the house and the four shops were concerned. This, coupled with the fact that no property income was included in the assessment made, leaves no matter of doubt that the Income-tax Officer was satisfied that there was a partial partition in respect of the property as alleged by the petitioner.
Section 25A of the Act requires a complete partition, and, unless there is a complete partition, an order under section 25A cannot be passed but that does not mean that the Income-tax Officer cannot accept a partial partition and exclude such income as arises from assets which have been the subject-matter of a partial partition. That is precisely what the Income-tax Officer appears to have done in the instant case. This conclusion is further buttressed by the fact that the Income-tax Officer had actually carried out an investigation, at least in respect of one of the properties which was the last one to be acquired and constructed in 1952-53, and which property, obviously, could not have been included in the deed of partition dated the 27th of February, 1952. If, after having made the necessary enquiries he still did not care to add the income from property in the assessment of the Hindu undivided family which was made by him, there can be no escape from the conclusion that he was satisfied that the property did not belong to the Hindu undivided family but to the individuals who had laid claim thereto. It may be that the Income-tax Officer was wrong in the conclusion that he arrived at. It may again be that the Income-tax Officer did not carry out as searching an enquiry as he ought to have done in order to ascertain the source from which these properties were acquired; but the failure of the Income-tax Officer to do his duty or to make a proper or searching investigation can be of little or no a vailto the department when it seeks to take assessment proceedings under the provisions of section 147(a) of the Act, i.e., after a period of four years have elapsed.
The whole complexion of the case changes if the department slumbers for more than four years and allows the grass to grow under its feet. The moment the department seeks to have the case re-opened under the eight year rule it is faced with the difficulty of satisfying the court that the necessary prerequisite conditions laid down in section 147(a) of the Act of 1961 for the exercise of jurisdiction under that section are satisfied. It has to show that the primary facts were not disclosed by the petitioner at the time when the original assessment was made. In this respect, the material on record is all one-sided and goes to show that all the primary facts were disclosed in respect of the ownership and source of the properties. It is true that there is no mention of the income from such property but the moment ownership is disclosed the provisions of assessment and taxation under the head 'property' automatically come into play. Income from property is assessable on the basis of ownership. It is idle to contend that, merely because the petitioner had not disclosed any income from property in the return filed, therefore there was failure to disclose truly all material facts necessary for the assessment. There would have been something in this contention if the petitioner had not disclosed the existence of the properties but when the ownership and existence of the properties was glaringly placed before the Income-tax Officer and he had considered the deed of partition, as well as the source for the acquisition of the house built in 1952-53, it cannot be said that it was incumbent upon the petitioner to have mentioned the income or the bona fide annual letting value of each such property in the return. The Income-tax Officer had first to give a finding that the property belonged to the Hindu undivided family and then the question would have arisen as to what is the income. It would indeed be a curious state of affairs if an assessee did not admit certain income to be his and yet he was obliged to return that income in the return and upon his failure to do so it could be said that all the material facts had not been fully and truly disclosed by him. As already observed, the petitioners stand all along was that there is no property belonging to the Hindu undivided family and it was, therefore, for the Income-tax Officer to find that there was some property which belonged to the Hindu undivided family and then either to call upon the petitioner to furnish the details of the income therefrom or upon his failure to do so to estimate such income. It cannot possibly be said that the failure to return the income from some property which was not admitted to be the property of the Hindu undivided family was failure to disclose any primary fact.
The last contention of the department which is based on the so-called admission of the petitioner in the reply given to the preliminary notice is nothing but clutching at a straw. The reply of the petitioner dated the 10th of January, 1964, to the preliminary notice issued on the 7th January, 1964, must be read as a whole and a sentence here or there cannot be torn from its context or a loose expression used cannot be made the basis for putting an admission into the mouth of the petitioner which he never made. A reading of paragraphs 1 and 3 in juxtaposition with paragraph 2 where the alleged admission is said to have been made leaves no doubt that what the petitioner was trying to say was that since February, 1952, there was a partition of the Hindu undivided family and, therefore, the income from property was not returned. This is what is stated in paragraph 1 and again reiterated in paragraph 3. In the middle paragraph in trying to give a reply to a pointed question asked in the notice issued as to why no appeal against the assessment for the year 1956-57 was filed it was stated :
'In the course of assessment proceedings your learned predecessor took an income of Rs. 250 as its income property, but as the assessee was not assessed to any tax, no appeal was taken on this ground. However, it is stated that it is incorrect to say that the family owned the properties other than that which was assessed in the year 1956-57. The assessee owned the properties as detailed in the notice and out of which only one house at Purbiatola was let out at Rs. 20 per mensem and the other properties were in its own use either in the business or for the residence.'
The sentence 'The assessee owned the properties as detailed in the notice' is the one which is sought to be taken as an admission of the petitioner that the Hindu undivided family which was the assessee in that case in fact owned the properties. The word 'assessee' used here cannot possibly be reconciled with paragraph 1 and 3 and the use of that word is unfortunate but no admission therefrom can possibly be spelt. It is wholly immaterial for the purpose of this case as to whether the property was let out or used for the business or residence of the family. The only relevant question is whether the primary facts which were necessary for the assessment were disclosed at the time when the original assessment was made. On the finding as given in the assessment order itself and the registered partition deed which has been referred to therein, there cannot be any doubt that all the material facts regarding the ownership of the property were fairly and squarely placed before the Income-tax Officer, who, as already observed, was prepared to accept that there was a partial partition but not a complete partition.
In these circumstances I am satisfied, that the primary facts were all placed before the Income-tax Officer and, therefore, on the facts and circumstances of this case, the ratio decidendi of the Supreme Court in Calcutta Discount Co. Ltd. v. Income-tax Officer would apply with full force. The facts of that case may have been different but the ratio was that it was only necessary for the assessee to disclose the primary facts and if such primary facts have been disclosed then the Income-tax Officer would have no jurisdiction to issue a notice in respect of an assessment year beyond the period of four years but within a period of eight years from the end of the relevant year. This condition, which was held by the Supreme Court to be a necessary condition, not having been satisfied in the present case, it necessarily follows that the Income-tax Officer had no jurisdiction whatsoever to issue the notice under section 147(a) of the Income-tax Act of 1961. The rulings relied upon by Mr. Gulati have no application as they relate to the question of limitation which is a matter not pertaining to or affecting the jurisdiction of the Income-tax Officer to issue a notice under section 147. The question of limitation, manifestly, is a matter which does not touch the question of jurisdiction and, therefore, those rulings are of little or no assistance to the department in the present case.
For the reasons given above, I would direct that a writ of certiorari will issue quashing the notices dated the 2nd March, 1964. The petition is accordingly allowed with costs.