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Fateh Chand Jairam Dass Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtPunjab and Haryana High Court
Decided On
Case NumberIncome-tax Reference No. 27 of 1970
Judge
Reported in[1973]88ITR226(P& H)
ActsIncome Tax Act, 1961 - Sections 149 and 149(1)
AppellantFateh Chand Jairam Dass
RespondentCommissioner of Income-tax
Appellant Advocate Bhagirath Dass and; B.K. Jhingan and; S.K. Hirajee,
Respondent Advocate D.N. Awasthy and; B.S. Gupta, Advs.
Cases ReferredIn Manik Chand Nahata v. Income
Excerpt:
.....and are as under :the next objection of shri ganesan is that the right of the income-tax officer to reopen the assessments under the income-tax act, 1922, having lapsed after the expiry of eight years from the end of the relevant assessment years, the provisions of the new act of 1961 authorising reopening of the assessments within the extended period of sixteen years, if the income which had escaped assessment was rs. same considerations hold good for the amount of rs. at the time when he made the estimate, the income-tax officer could not possibly conceive the origin of the amount which was clearly not recorded in the books produced before him earlier. 83,000 and the income-tax officer was, therefore, well within his rights in initiating the proceedings under section 148. the fact..........proceedings under section 147(a) was valid as the income-tax officer hat1 reasons to estimate the escaped income at rs. 83,675? 2. if the answer to question (1) be in the affirmative then whether the assessment was validly made because the ultimate assessed income was rs. 34,504 ? 3. whether, on the facts and in the circumstances of the case, the reopening of the assessment was permissible under section 34 of the old act of 1922, in view of the finding that the estimate of total escaped income was more than rs. 1 lakh ' 2. the status of the assessee is of a hindu undivided family. at the relevant time it consisted of jairam dass and his sons, madan lal, sri kishan, rattan lal, mohan lal and om parkash, along with the sons of banwari lal, brother of jairam dass, namely, ram sarup, ram.....
Judgment:

1. The Income-tax Appellate Tribunal (Chandigarh Bench) has referred the following questions of law for our opinion :

' 1. Whether, on the facts and in the circumstances of the case, the initiation of reassessment proceedings under Section 147(a) was valid as the Income-tax Officer hat1 reasons to estimate the escaped income at Rs. 83,675?

2. If the answer to question (1) be in the affirmative then whether the assessment was validly made because the ultimate assessed income was Rs. 34,504 ?

3. Whether, on the facts and in the circumstances of the case, the reopening of the assessment was permissible under Section 34 of the old Act of 1922, in view of the finding that the estimate of total escaped income was more than Rs. 1 lakh '

2. The status of the assessee is of a Hindu undivided family. At the relevant time it consisted of Jairam Dass and his sons, Madan Lal, Sri Kishan, Rattan Lal, Mohan Lal and Om Parkash, along with the sons of Banwari Lal, brother of Jairam Dass, namely, Ram Sarup, Ram Bhagat and Ram Kumar. In the present reference we are only concerned with the assessment for the year 1947-48, In this year the assessee was assessed to tax on the income of Rs. 16,535 on December 22, 1949. In a litigation in respect of a firm styled as M/s. Jagan Nath Ram Sarup of Khanewal, in which Ram Sarup, a member of the, assessee-family, was a partner as representing the -Hindu undivided family along with one Jagan Nath, certain facts came to light. On examination of that information, the Income-tax Officer took the view that the income of the assessee for the assessment years 1946-47, 1947-48 and 1948-49 had escaped assessment. For the assessment year in question, namely, 1947-48, the escapement was estimated to be Rs. 1,87,545, Thereupon, the assessment for this year including the earlier years was reopened and for the year in question, the assessment was made by the Income-tax Officer of the escaped income at Rs. 1,74,080. The Income-tax Officer then added Rs. 1,57,542 to the income originally assessed. Similar additions were made in the remaining two years. Separate appeals were preferred to the Appellate Assistant Commissioner and the Appellate Assistant Commissioner annulled all the assessments made by the Income-tax Officer under Section 147 of the 1961 Act. The reasons which prevailed with the Appellate Assistant Commissioner may be best stated in his own words and are as under :

' The next objection of Shri Ganesan is that the right of the Income-tax Officer to reopen the assessments under the Income-tax Act, 1922, having lapsed after the expiry of eight years from the end of the relevant assessment years, the provisions of the new Act of 1961 authorising reopening of the assessments within the extended period of sixteen years, if the income which had escaped assessment was Rs. 50,000 or more, could not have been invoked in this case because there is no indication in Section 297(2)(d)(ii) to show that it has retrospective effect. Section 297 is a saving provision which does not confer a new right on the Income-tax Officer to reopen the assessment in a case where the right had been lost before the new Act came into force. For this view Shri Ganesan relies on the ruling of the Gujarat High Court in the case of Induprasad Devshanker Bhatt v. J. P. Jani, Income-tax Officer, Ahmedabad, [1965] 58 I.T.R. 559 (Guj.) and the ruling of the Punjab High Court in the case of S. Darshan Singh Chawla, Civil Writ No. 65-D of 1966--Unreported in Civil Writ No. 65-D of 1966. A certified copy of the judgment in the latter case has been filed before me. In the case of Induprasad Devshanker Bhatt, [1965] 58 I.T.R. 559 (Guj.) some profit on the sale of a plot of land which was more than Rs. 50,000 but less than Rs. 1 lakh had escaped assessment for the year 1947-48. With a view to assess this profit, the Income-tax Officer issued a notice under Section 148 on November 13, 1963, and followed it up by another notice dated January 16, 1964, under Section 142(1)(i). The assessee filed a writ petition challenging the validity of the two notices and praying for issue of writs to quash the proceedings. The learned judges accepted this prayer. They have held that here the right to reopen the assessment for 1947-48 under Section 34(1) of the old Act was barred, the new Act which provides an enlarged period of time for reopening an assessment, does not give a fresh right to the Income-tax Officer to reopen the assessment, as it is settled law that if the right of the Income-tax Officer to reopen an assessment is barred under the law for the time being in force, no subsequent enlargement of the time can revive such right in the absence of express words or necessary intendment. The rule of interpretation on which this principle is based is that no statute should be construed as retrospective in operation if it has the effect of altering, modifying or attracting existing rights unless the statute says so in express words or by necessary implication. This rule of interpretation is equally applicable whether the occasion which calls for its application is an amendment of an existing statute or the repeal of an existing statute by enactment of a new Act. There is no indication in Section 297(2)(d)(ii) either in its express words or by way of necessary implication to indicate that it has retrospective effect. Section 297 is a saving provision and it would not be right to say that the legislature in the guise of a saving provision enacted a provision conferring a new right on the Income-tax Officer to reopen an assessment where the right had been lost before the new Act came into force. The same view of law has been laid down by the Circuit Bench of the Punjab High Court at New Delhi in the case of S. Darshan Singh Chawla.'

3. On 25th March, 1963, notices were issued under Section 148, with regard to the assessment year 1947-48, The Appellate Assistant Commissioner assessed the income that had escaped assessment for the year 1947-48 at a figure of Rs. 34,504 and inasmuch as this was below Rs. 50,000, he came to the conclusion that no action could be taken under Section 149 read with Section 147. Against this decision of the Appellate Assistant Commissioner the department preferred an appeal to the Appellate Tribunal. The order of annulment regarding the two other years was not challenged.' The Tribunal allowed the appeal with the following observations :

' In our view if it could be established that when he initiated proceedings under Section 148, the Income-tax Officer had reasonable ground for believing that income that had escaped assessment amounted to or was likely to amount to Rs. 50,000 or more, the assessment completed in accordance with these proceedings could not be challenged on the ground that the income ultimately determined as having escaped assessment was less than Rs. 50,000. It goes without saying that the belief of the Income-tax Officer must be a rational and reasonable belief, the amount included by him in his estimate must be such that on the evidence available with him at the time any reasonable man could believe that the amount represented the assessee's income. The Income-tax Officer could not include in his estimate any amount arbitrarily or capriciously according (sic) that certain amount which were in all reasonable probability of the nature of income belonged to the assessee, his competence to reopen the assessment on the basis of estimate of such income cannot be subsequently challenged. Now, in the present case, no doubt the Income-tax Officer in the first instance believed that income which escaped assessment for the year 1947-48 was Rs. 1,87,545. The Appellate Assistant Commissioner of Income-tax thoroughly scrutinized the items included in this estimate and found that an amount of Rs. 83,675 could reasonably be treated by the Income-tax Officer as items of the assessee's income at the time of initiation of the proceedings. This included Rs. 62,000 on account of speculation profits earned by Ram Sarup, Rs. 6,875 on account of credit in the account of Ram Sarup and Rs. 15,000 on account of estimated expenses incurred by the family on the marriage of Shrimati Bimla Devi. The basis on which the items were treated as the assessee's income were evidence of one Ram Bhagat in course of litigation between Jagan Nath and Ram Sarup referred to earlier. In the light of the evidence before him, the Income-tax Officer was fully justified in including these amounts, in his estimate of the assessee's income, which had escaped assessment. Ram Bhagat had specified Rs. 50,000 as speculation profits earned by the family not shown in the books. Similarly, another amount of Rs. 12,000 was stated to have been earned by Ram Sarup, a member of the Hindu undivided family, in contracts of speculation at Khanewal. Ram Sarup was a partner in the Khanewal firm as a representative of the Hindn undivided family and there was nothing to show that the transactions in his name represented his individual transactions and not the transactions of the Hindu undivided family which he represented in the firm. Same considerations hold good for the amount of Rs. 6,675 credited in the account of Ram Sarup in the books of Khanewal firm. As stated earlier, the learned representative pointed out that an item related to an earlier accounting year. But, there is no denying the fact that the amount was credited to the account ofRam Sarup in this year of account. The claim that it was referable to an earlier period could be verified only after further scrutiny. At the time when he made the estimate, the Income-tax Officer could not possibly conceive the origin of the amount which was clearly not recorded in the books produced before him earlier. Similarly, in regard to the expenditure of Rs, 15,000 on the marriage of Smt. Bimla Devi, the information was culled out only from the statement of Ram Bhagat. The fact that the District Judge accepted the explanation of the family that a certain withdrawal of Rs. 50,000 was for expenditure on the marriage did not in any way finally settle the source of the funds with which the marriage expenses were met. No expenditure was recorded in the books of the family for the marriage. In fact at one stage it was suggested that the expenditure was not incurred by the family, on the other hand in the litigation it was brought out that the family had at least incurred expenditure to the extent of Rs. 15,000. In this state of evidence the Income-tax Officer was justified in treating the amount of Rs. 15,000 as representing assessee's income from undisclosed sources utilised for meeting the expenditure on the marriage. It is, therefore, clear that the estimate of income that had escaped assessment for the year 1947-48 was in the neighbourhood of Rs. 83,000 and the Income-tax Officer was, therefore, well within his rights in initiating the proceedings under Section 148. The fact that ultimately according to the Appellate Assistant Commissioner of Income-tax only an amount of Rs. 34,504 was included in the assessment did not in any way impair his competence to initiate the proceedings or the validity of the assessment initiated by him. '

4. The assessee being dissatisfied with the decision of the Tribunal made an application under Section 256(1) of the Income-tax Act, 1961, and that application was allowed and that is how the matter has been placed before us.

5. This matter is not res integra. In Manik Chand Nahata v. Income-tax Officer, Calcutta, [1970] 78 I.T.R. 204, 208 (Cal.) while dealing with Section 34, it was observed as follows :

' In my view, this contention of Mr. Sen is without any merit. The expression ' likely to amount to ', in my view, means that the Income-tax Officer must form some kind of belief or even a suspicion before the notice under Section 34 is issued that the amount of escaped income for the year or any other year may amount to rupees one lakh or more in the aggregate. The satisfaction or belief or suspicion must necessarily be tentative because after the final adjudication it may be found that no income had escaped assessment at all. This is the context and background in which the expression ' likely to amount to ' is to be construed. Mr. Sen did not contest the position that unless the factual basis, viz., that the amount of actual income was likely to exceed rupees one lakh, could be established, the revenue could not possibly get out of the mischief of the decision of the Supremo Court which I have mentioned above. '

6. The contention of the learned counsel for the assessee was that the actual income which had escaped assessment was determined below Rs. 50,000. No notice under Section 149 could be issued after the period of more than eight years had elapsed and for that purpose reliance was placed on Section 149(1)(ii). The language of Sub-clause (ii) is very clear. All that it says is that the income that was likely to have escaped assessment should be more than Rs. 50,000. In the present case there is a finding that the income which was likely to have escaped assessment was more than Rs. 83,000. That being so, the Income-tax Officer could initiate proceedings under Section 147 read with Section 149 and the notices issued under Section 148 were valid and so also the proceedings taken thereunder.

7. For the reasons recorded above, we answer all the three questions referred to us in the affirmative, that is, in favour of the department and against the assessee. There will be no order as to costs.


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