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Veeriah Reddiar Vs. Income-tax Officer, Alleppey. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKerala High Court
Decided On
Case Number Original Petition No. 642 of 1961
Reported in[1964]52ITR292(Ker)
AppellantVeeriah Reddiar
Respondentincome-tax Officer, Alleppey.
Cases ReferredCalcutta Discount Co. Ltd. v. Income
Excerpt:
- - kurien, learned counsel for the petitioner, as well as by mr. and, inasmuch as the notice, exhibit p-1, in the present case has been issued on march 27, 1961, well within the period, according to the decision of the supreme court, it follows that the first contention of the learned counsel for the petitioner cannot be accepted. in short, his contention is that the conditions precedent to the issue of the notice giving jurisdiction to the officer, like the respondent officer in this writ petition, to take action under section 34 of the act, do not exist in this case. later, the officer further adverts to the fact that his predecessor applied to the commissioner for sanction to initiate proceedings under section 34, and that the commissioner was also satisfied, on the reports.....in this writ petition, mr. p.k. kurien, learned counsel for the petitioner, challenges the proceedings sought to be taken by the respondent, the income-tax officer, alleppey, on the basis of a notice issued, purporting to be under section 34 of the indian income-tax act, 1922, evidenced by exhibit p-1 dated 27th march, 1961.a perusal of the notice, exhibit p-1, will show that the income-tax officer states that he has reason to believe that the petitioners income assessable to income-tax for the assessment year 1952-53 ha : (a) escaped assessment, and (b) been under-assessed. it is also stated that the officer proposes to reassess the said income that ha : (a) escaped assessment, and (b) been under-assessed. on this basis, the income-tax officer requires the petitioner to deliver to him,.....
Judgment:

In this writ petition, Mr. P.K. Kurien, learned counsel for the petitioner, challenges the proceedings sought to be taken by the respondent, the Income-tax Officer, Alleppey, on the basis of a notice issued, purporting to be under section 34 of the Indian Income-tax Act, 1922, evidenced by exhibit P-1 dated 27th March, 1961.

A perusal of the notice, exhibit P-1, will show that the Income-tax Officer states that he has reason to believe that the petitioners income assessable to income-tax for the assessment year 1952-53 ha : (a) escaped assessment, and (b) been under-assessed. It is also stated that the officer proposes to reassess the said income that ha : (a) escaped assessment, and (b) been under-assessed. On this basis, the Income-tax Officer requires the petitioner to deliver to him, within the period mentioned therein, a return of the total income and total world income, assessable for the year, ending 31st March, 1953. There is a further statement in the said notice to the effect that the notice was being issued, after obtaining the necessary sanction of the Commissioner of Income-tax, Kerala, Ernakulam.

The jurisdiction of the officer to initiate proceedings on the basis of the notice, exhibit P-1, is attacked by Mr. P.K. Kurien, learned counsel for the petitioner, particularly on two ground : (1) that in taking action under section 34 of the Indian Income-tax Act, 1922, in a case where the income which is alleged to have been under-assessed, is below Rs. 1,00,000 when proceedings are initiated in respect of the same under section 34(1)(a) of the Indian Income-tax Act, 1922, the notice should have been issued within eight years of the last day of the accounting year. And, in this case, the learned counsel urged that the period of eight years expired on August 15, 1959, whereas the notice, exhibit P-1, is issued only on March 27, 1961.

The second contention of the learned counsel for the petitioner is that the conditions precedent for the exercise of jurisdiction for issuing a notice under section 34 of the Act, as laid down recently by the decision of the Supreme Court, do not exist in this case, and, therefore, the initiation of proceedings under exhibit P-1 must be quashed by this court. I will elaborate this contention a little later.

No doubt, both these stands taken by the learned counsel for the petitioner are very seriously controverted by Mr. G. Rama Iyer, learned counsel appearing for the revenue.

Before I advert to the various aspects that have presented before me Mr. P.K. Kurien, learned counsel for the petitioner, as well as by Mr. Rama Iyer, learned counsel for the revenue, I will refer to certain admitted facts.

There was an assessment for the assessment year 1952-53 in respect of the petitioners business, corresponding to the accounting year 1127 (M.E.), i.e., August 16, 1950, to August 15, 1951. There is also no controversy that the order of assessment was passed on December 31, 1954, and was the subject of an appeal, and also a further appeal before the Income-tax Appellate Tribunal, and the order of the Income-tax Appellate Tribunal in those proceedings is dated May 27, 1958. It is after those proceedings had culminated, that the notice under attack in these proceedings, namely, exhibit P-1, has been issued on March 27, 1961, under section 34 of the Indian Income-tax Act.

I can dispose of the first contention raised by the learned counsel for the petitioner, because, in my view, the stand taken by Mr. G. Rama Iyer, learned counsel appearing for the revenue, that the year mentioned in section 34(1)(a) of the Act is not the accounting year, but the assessment year, will have to be accepted. On that basis, the period of eight years will expire only on March 31, 1961, and the notice, exhibit P-1, has been issued a few days earlier, namely, on March 27, 1961.

No doubt, there may have been some justification for the petitioner having taken up such a stand in this writ petition filed on March 30, 1961, that the period mentioned in section 34(1)(a) of the Act is the accounting year, in view of the decision of the Mysore High Court in H.N.S. Iyengar v. First Additional Income-tax Officer No doubt, in that decision, the learned judges had to consider this question, and ultimately they have taken the view that the starting point of limitation, so far as it relates to a matter falling under section 34(1)(a) of the Income-tax Act (for the service of notice of reassessment proceedings) is the end of the accounting year, for which the return has to be made under section 22, and that is the year previous to the year of assessment.

No doubt, there was an attempt for review of the judgment cited above, and it is also reported in the same volume. But that attempt does not appear to have succeeded, and ultimately the view of the learned judges was as indicated earlier.

But the said judgment of the learned judges of the Mysore High Court directly came under attack before the Supreme Court. The decision of the Supreme Court is in First Additional Income-tax Officer v. H.N.S. Iyengar. It is not really necessary for me to go into the various other aspects dealt with by the learned judges of the Supreme Court in that case, except to say that at page 440 of the report the learned judges disagree with the view of the Mysore High Court and also observe that the view taken by the learned judges of the High Court and also observed that the view taken by the learned judges of the High Court as to the meaning of the expression 'any year' is erroneous, and the correct way of interpreting section 34(1)(a) is that the words 'for any year' mean for any assessment year, although of the income which accrued in the previous year.

The learned judges of the Supreme Court ultimately wind up the discussion on this point by stating that from the various sections of the Indian Income-tax Act that had been adverted to by them in the earlier part of the judgment, as also the provisions of the Indian Finance Act, 1948, it is clear that the words 'that year' in section 34(1)(a) have reference to the assessment year and not to the accounting year.

That is why I mentioned earlier that it may be that the petitioner has some justification for raising an attack as against the notice, exhibit P-1, on the basis of the view then prevailing, at any rate of the Mysore High Court. But since the filing of this writ petition, and as pointed out by Mr. G. Rama Iyer, learned, counsel for the revenue, that decision of the Mysore High Court stood abrogated. Therefore, it is now clear as per the decision of the Supreme Court that the period of eight years is to be calculated from the expiry of the last day of the assessment year, in which case, it will be seen that the period in this case will expire on March 31, 1961, only. And, inasmuch as the notice, exhibit P-1, in the present case has been issued on March 27, 1961, well within the period, according to the decision of the Supreme Court, it follows that the first contention of the learned counsel for the petitioner cannot be accepted.

The second contention of Mr. P.K. Kurien, learned counsel for the petitioner, and which has been very strenuously urged before me, and equally strenuously controverted by the learned counsel for the revenue, is that there are no grounds whatsoever in this case for initiating proceedings under section 34 of the Act and there are no reasons whatsoever to enable the Income-tax Officer to believe that the petitioners income for the year in question has escaped assessment or has been under-assessed. And the learned counsel urged that, according to his client, there is no information available with the officer, which alone will enable him to issue the notice under section 34 of the Act. In short, his contention is that the conditions precedent to the issue of the notice giving jurisdiction to the officer, like the respondent officer in this writ petition, to take action under section 34 of the Act, do not exist in this case.

The learned counsel for the petitioner, no doubt, naturally, very strongly relied upon the recent decision of the Supreme Court rendered on 1st November, 1960, in Calcutta Discount Co. Ltd. v. Income-tax Officer. In the affidavit filed in support of this writ petition, it has been categorically stated that the issue of the notice, exhibit P-1, is without jurisdiction and in contravention of the provisions of the Indian Income-tax Act, 1922. It is also stated that there are no grounds whatsoever for initiating proceedings under section 34 of the Income-tax Act and that there are also no materials whatever which would enable the Income-tax Officer to believe that the income of the petitioner for the year in question has escaped assessment or has been under-assessed.

When this was the challenge made in the affidavit filed by the petitioner in the counter-affidavit that had been filed on behalf of the respondent officer dated July 5, 1961, and filed in this court on July 17, 1961, it is stated in paragraph 3 tha : 'Recently information was received that the petitioner had concealed large portions of his income liable to assessment in 1952-53'. It is also stated in the same paragraph that 'on the basis of this information in the possession of the department, the notice in question was issued to the petitioner' and that 'the action taken is valid and justified by materials, and fully within my jurisdiction'.

Later, in paragraph 5 of the same affidavit, the respondent officer, while dealing with the averments in paragraph 7 of the petitioners affidavit, states that the notice in question was issued only on the basis of information leading to a reasonable belief that the income of the petitioner has to a considerable extent escaped assessment, and after obtaining the sanction of the Commissioner. It is further stated that the action taken is neither mala fide nor arbitrary, as alleged by the petitioner.

While these were the averments that were made in the counter-affidavit of the respondent officer dated July 5, 1961, and filed on July 17, 1961, it must also be stated that the deponent of that counter-affidavit was the officer who had issued the notice, exhibit P-1. But at the time of the swearing of the said counter-affidavit it is seen even from the averments therein that he had since been transferred as Income-tax Officer, Trivandrum.

When the matter came up for hearing on an earlier occasion and during the course of arguments, especially when the learned counsel for the petitioner was relying very strongly upon the decision of the Supreme Court in Calcutta Discount Co. Ltd. v. Income-tax Officer, wherein the principles governing exercise of jurisdiction under section 34 of the Income-tax Act have been, if I may say so, exhaustively dealt with, I felt that the averments made by the Income-tax Officer in the original counter-affidavit dated July 5, 1961, and which was the only material on record on the side of the department, may require further clarification or reconsideration. I also felt whether it was not necessary for the department to consider as to whether they should place any further materials before this court to enable this court to properly consider the attack made by the petitioner in these proceedings that the conditions precedent for the exercise of jurisdiction under section 34 of the Act do not exist in this case.

Quite naturally, Mr. G. Rama Iyer, learned counsel for the revenue, took time to consider the matter, and the result is the filing of a supplementary counter-affidavit in this court on July 24, 1962. That counter-affidavit is dated July 18, 1962, and sworn to by the officer who is at present functioning as the Income-tax Officer at Alleppey.

It is mentioned in the supplementary counter-affidavit that this writ petition relates to the validity of a notice under section 34 of the Income-tax Act, issued by his predecessor in office to the petitioner in respect of the assessment year 1952-53. The officer also states that he is now in charge of petitioners assessment proceedings, and he is posted with the facts of the case. He further states that the present counter-affidavit is supplementary to the one already filed, dated July 5, 1961.

The officer again states that the grievance of the petitioner that at the time the notice in question was issued, there were no materials with the Income-tax Officer to believe that any income had escaped assessment during the year in question, is not correct.

Then he refers in paragraph 3 to information received by the Commissioner of Income-tax in November, 1960, that the petitioner has been systematically concealing considerable portions of his income as a result of which income to the extent of ten and odd lakhs had been suppressed during the years 1117 to 1126 (M. E.) and about five and odd lakhs thereafter.

Pausing here for a minute, it may be stated that the particular year in respect of which the notice, exhibit P-1, has been issued under section 34 of the Act is the accounting year 1126 alone, though the various years beginning from 1117 to 1126 have been referred to in paragraph 3 of the supplementary counter-affidavit.

The Income-tax Officer further states that the details of the mode of concealment followed by the petitioner were also disclosed therein, and the Commissioner of Income-tax forwarded this information to the predecessor of the deponent for investigation. The officer further proceeds to state that his predecessor conducted confidential inquiries, recorded some evidence, and came to the conclusion that there was sufficient reason to believe that the income of the petitioner had escaped assessment during the year mentioned in the information received by the Income-tax Commissioner.

The deponent further states that his predecessor in office submitted a report to the Income-tax Commissioner on December 9, 1960, wherein the materials collected by him and the conclusions were recorded. He also states that it was on the basis of the materials so gathered in the inquiry that the Income-tax Officer had come to the conclusion that there were sufficient grounds for taking action under section 34 of the Income-tax Act.

Later, the officer further adverts to the fact that his predecessor applied to the Commissioner for sanction to initiate proceedings under section 34, and that the Commissioner was also satisfied, on the reports received by him, that were sufficient grounds for the proposed action, and that sanction was accordingly accorded by the Commissioner and the notice in question was issued to the petitioner.

The respondent further states in the supplementary counter-affidavit that the subsequent inquiries conducted by him have also confirmed that there was escaped of income from the assessment during the year in question.

Pausing here again for a minute, this statement is absolutely irrelevant, because we are only concerned with the state of affairs as they existed on March 27, 1961, when the notice, exhibit P-1, under section 34 the Act was issued to the petitioner.

Then the deponent further say : 'I am placing before this honourable court for perusal the information received by the Commissioner, and also the Income-tax Officers report referred to above, so that the court may be satisfied that there was sufficient justification for the action taken.'

So far as the concluding part of paragraph 4 of the supplementary counter-affidavit is concerned, I must observe that Mr. G. Rama Iyer, learned counsel for the revenue, indicated more than once in the course of argument that he could only place the file before this court for perusal, but that he is not able to make it available for inspection or otherwise by the petitioner or his learned counsel. I may straightaway say that I was not inclined to accept this request for the reasons which I will mention later in this judgment.

Therefore, it will be seen that the original counter-affidavit, which was rather bald as I should call it, referred to some information recently received by the officer of the concealment of large portions of the income. But in the second counter-affidavit, the officer has referred to the information received by the Income-tax Commissioner which was passed on to the predecessor of the respondent, and also to the investigations conducted and report made by him, and sanction given by the Commissioner of Income-tax, and also the offer of the department to place the materials before this court alone for consideration.

The second contention of Mr. P.K. Kurien, learned counsel for the petitioner, as I mentioned earlier, is that the conditions precedent to the exercise of jurisdiction by the Income-tax Officer to initiate proceedings under section 34 of the Income-tax Act do not exist in this case. But before I proceed to consider this ground of objection, it is desirable to refer to the material part of section 34 of the Act which reads as follow :

'34. (1) if -

(a) the Income-tax Officer has reason to believe that by reason of the omission or failure on the part of an assessee to make a return of his income under section 22 for any year or to disclose fully and truly all material facts necessary for his assessment for that year, income, profits or gains chargeable to income-tax have escaped assessment for that year, or have been under-assessed or assessed at too low a rate, or have been made the subject of excessive relief under the Act, or excessive loss or depreciation allowance has been computed, or

(b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income, profits or gains chargeable to income-tax have escaped assessment for any year, or have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under this Act, or that excessive loss or depreciation allowance has been computed,

he may in cases falling under clause (a) at any time and in cases falling under clause (b) at any time within four years of the end of that year, serve on the assessee, or, if the assessee is a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in notice under sub-section (2) of section 22 and may proceed to assess or reassess such income, profits or gains or recompute the loss or depreciation allowance; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice issued under that sub-sectio :

Provided that the Income-tax Officer shall not issue a notice under clause (a) of sub-section (1) -

(i) for any year prior to the year ending on the 31st day of March, 1941;

(ii) for any year, if eight years elapsed after the expiry of that year, unless the income, profits or gains chargeable to income-tax which have escaped assessment or have been under-assessed or assessed at too low a rate or have been made the subject of excessive relief under this Act, or the loss or depreciation allowance which has been computed in excess, amount to, or are likely to amount to, one lakh of rupees or more in the aggregate, either for that year, or for that year and any other year or years after which or after each of which eight years have elapsed, not being a year or years ending before the 31st March, 1941.'

No doubt, in this case, Mr. P.K. Kurien, learned counsel for the petitioner, also urged that it is not clear from the notice, exhibit P-1, as to whether the Income-tax Officer proposes to take action on the basis of section 34(1)(a) or on the basis of section 34(1)(b), because the learned counsel urged that the period within which action has to be taken will differ under sub-section (1)(a) and sub-section (1) (b). The learned counsel also urged that the various matters mentioned in the original counter-affidavit as well as the supplementary counter-affidavit filed by the respondent officer, clearly indicate that the notice was issued only on the basis of clause (b) of sub-section (1) of section 34, namely, the Income-tax Officer has, in consequence of information in his possession, reason to believe that income, profits or gains chargeable to income-tax have escaped assessment for any year, or have been under-assessed. Therefore, on this ground, Mr. P.K. Kurien urged that this court will be perfectly justified and even competent to allow the writ petition, because, admittedly, action has been taken beyond the four years period, which governs proceedings taken under section 34(1)(b).

No doubt, Mr. G. Rama Iyer, learned counsel for the revenue, urged that it is unnecessary, when a notice section 34 is issued, to state as to whether action is being taken under section 34(1)(a) or section 34(1)(b); and that, in this case, it is clear that the authorities are relying upon the larger period, namely, 8 years, and, therefore, the officer was well within his jurisdiction to initiate proceedings under section 34.

There is considerable difficulty in accepting this contention of the learned counsel for the revenue. Whatever may have been the position or the intention at the time when exhibit P-1 was issued, now there is, I should say, a duty on the part of the authorities to state clearly as to how they want to avail themselves of the larger period for taking action, which can only apply if action is to be taken under sub-section (1)(a) of the Act. If action is to be taken under sub-section (1)(b) it must only be in consequence of information in the possession of the officer who has reason to believe that income, profits or gains chargeable to income-tax have escaped assessment or have been under-assessed and a shorter period is provided for.

On the other hand, Mr. P.K. Kurien, learned counsel for the petitioner, is perfectly justified in his contention that there is absolutely no averment, either in the original counter-affidavit or in the supplementary counter-affidavit, to the effect that the Income-tax Officer has reason to believe that by reason of the omission or failure on the part of an assessee to make a return of his income under section 22 for any year or to disclose fully and truly all material facts necessary for that year, income, profits or gains chargeable to income-tax have either escaped assessment or have been under-assessed. The expression used in exhibit P-1 notice is that the officer has reason to believe that the petitioners income ha : (a) escaped assessment, and (b) been under-assessed.

I must frankly state that there is no averment in the counter-affidavit which may probably bring the case under section 34(1)(a) of the Act. I will be perfectly justified in allowing the writ petition on this ground, inasmuch as the averments in the two counter-affidavits by the respondent only show that action is being taken in consequence of information in the possession of the Income-tax Officer. Even on the basis that the averments in the counter-affidavits that the officer in consequence of information in his possession has reason to believe that the petitioners income has escaped assessment or has been under-assessed, it can only come under section 34(1)(b) of the Act.

So far as that is concerned, it is specifically provided in the section that when action is being taken section 34(1)(b), it must be taken within four years of the end of that year. And in this case it is perfectly clear that the notice, exhibit P-1, is far beyond the period of four years for taking action under section 34(1)(b).

But I am not inclined to interfere with the notice, exhibit P-1, which is under attack in these proceedings, on this sole ground, because Mr. G. Rama Iyer, learned counsel for the revenue, urged that there is a larger question that arises for consideration in this case. According to him, the claim is made by the department for having the benefit of the extended period, and that can only be related to action taken under section 34(1)(a) of the Act. On this basis, I will consider the conditions precedent which should exist before action can be taken under section 34(1)(a).

A perusal of the relevant part of section 34 clearly shows that under sub-section (1)(a) it is necessary that the officer has reason to believe that by reason of the omission or failure on the part of an assessee to make a return of his income under section 22 for any year or to disclose fully and truly all material facts for his assessment for that year, income, profits or gains chargeable to income-tax, have escaped assessment for that year, or have been under-assessed, or assessed at too low a rate, etc. Surely it is not the case of the department in this case, at any rate, that there has been a failure or omission on the part of the assessee to make a return of his income under section 22 of the Act, because I have already adverted to the facts that there was an assessment in respect of the petitioners business for the assessment year 1952-53 and that the order of assessment had been taken up in appeal before the appellate authority and in further appeal before the Income-tax Appellate Tribunal, and the order of the Appellate Tribunal is dated May 27, 1958.

Therefore, this part of sub-section (1)(a) will not be of assistance to the department, and they will have to establish that the officer has reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year, income, profits or gains chargeable to income-tax, have escaped assessment for that year, or have been under-assessed.

Apart from the clear words of the statute itself, the question has been considered in the recent decision of the Supreme Court in Calcutta Discount Co. Ltd. v. Income-tax Officer, already referred to. This judgment was rendered on 1st November, 1960. I am specially referring to the date of this judgment, because Mr. G. Rama Iyer, learned counsel for the revenue, has referred to two or three decisions of some of the High Courts wherein it has been held that there is no obligation on the part of the department to make available to the assessee the material that was available before the department on the basis of which action is proposed to be taken under section 34 of the Act. I will immediately show that those decisions relied on by the learned counsel for the revenue are all prior to 1st November, 1960. No doubt I will advert to those decisions of the High Courts also after dealing with the judgment of the Supreme Court.

Das Gupta J., delivering the judgment on behalf of the majority of their Lordships of the Supreme Court, had to consider the attack made by the assessee in that case regarding the action sought to be taken under section 34 of the Indian Income-tax Act. In that case it is also clear that on receipt of the notice under section 34, no doubt, the assessee promptly filed return, but sought relief at the hands of the High Court under article 226 of the Constitution and prayed for a writ of prohibition being issued as against the Income-tax Officer from proceeding further with the matter on the basis of the notice issued under section 34. The learned single judge as well as the Division Bench on appeal in the High Court do not appear to have accepted this contention. But the learned judges of the Supreme Court reversed the decision of the High Court and quashed the entire proceedings sought to be taken by the department on the basis of the notice issued under section 34 of the Act.

In connection with that, if I may say so with great respect, learned judges have exhaustively considered the conditions which have to be satisfied before the department can take action under section 34.

Das Gupta J., at page 199 of the report, deals with the conditions, the existence of which alone will give jurisdiction to the Income-tax Officer to initiate proceedings under section 34 of the Indian Income-tax Act, as follow :

'To confer jurisdiction under this section to issue notice in respect of assessments beyond the period of four years, but within a period of eight years, from the end of the relevant year two conditions have the refore to be satisfied. The first is that the Income-tax Officer must have reason to believe that income, profits or gains chargeable to income-tax have been under-assessed. The second is that he must have also reason to believe that such under-assessment has occurred by reason of either (i) omission or failure on the part of an assessee to make a return of his income under section 22, or (ii) omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for that year. Both these conditions are precedent to be satisfied before the Income-tax Officer could have jurisdiction to issue a notice for the assessment or reassessment beyond the of four years, but within the period of 8 years, from the end of the year in question.'

From the passage extracted above, it will be seen that, according to the learned judges, before action can be taken in respect of assessments, beyond the period of four years, but within a period of eight years, from the end of the relevant year, two conditions have to be satisfied, namely, (i) that the Income-tax Officer must have reason to believe that income, profits or gains chargeable to income-tax have been under-assessed and (ii) that the Income-tax Officer must have also reason to believe that such 'under-assessment' has occurred by reason of either (a) omission or failure on the part of the assessee to make a return of his income under section 22, or (b) omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year. The learned judges also emphasised that both these conditions are conditions precedent to be satisfied before the officer can be said to have jurisdiction to issue a notice for assessment or reassessment beyond the period of four years, but within the period of eight years, from the end of the year in question.

So far as the present case before me is concerned, the two conditions that will have to be satisfied according to the principles laid down by the Supreme Court will be (a) that the Income-tax Officer must have reason to believe that the income, profits or gains chargeable to income-tax has escaped assessment or have been under-assessed, and (b) that he must have also reason to believe that such under-assessment of the income has occurred by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the particular year.

The other requirement undeer the second condition, namely, omission or failure on the part of the assessee to make a return of his income under section 22 of the Act, does not arise in this case, because I have already pointed out that the petitioner had sent a return under section 22 and there had been an assessment as early as December 31, 1954.

After laying down the two conditions precedent which are necessary to give jurisdiction to the Income-tax Officer to act under section 34 of the Act, the learned judge considers as to what exactly is the duty of the assessee who wants the court to hold in his favour that jurisdiction was lacking in the officer, in such circumstances. In considering the question, the learned judge says that all that is necessary to give this special jurisdiction to the officer is that the officer had, when he assumed jurisdiction, some prima facie grounds for thinking that there had been some non-disclosure of material facts. And in considering as to what is the duty of the assessee in such cases when he makes a grievance about the lack of materials, the learned judge, at page 202, states as follow :

'Clearly, it is the duty of the assessee, who wants the court to hold that jurisdiction was lacking, to establish that the Income-tax Officer had no material at all before him for believing that there had been such non-disclosure. To establish this, the company has relied on the statements in the assessment orders for the three years in question and on the statement of Kanakendra Narayan Banerjee in the report made by him to the Commissioner of Income-tax the purpose of obtaining sanction to initiate proceedings under section 34 and also on his statement in the affidavit on oath in reply to the writ petition.'

It will be seen from the above extract that, according to the learned judges, there is a duty on the part of the assessee, who wants the court to hold that jurisdiction was lacking in the officer, to establish that the Income-tax Officer had no material at all before him for believing that there had been such non-disclosure.

In that particular context it will be seen that in order to establish an attack on the ground of lack of jurisdiction in the officer, the assessee before the Supreme Court had before him the statements in the orders of assessment passed previously, then the statement of the Income-tax Officer in question in his report to the Commissioner of Income-tax for the purpose of obtaining the sanction of the Commissioner to initiate proceedings under section 34, and also the statements made by the Income-tax Officer in the affidavit filed in court.

These matters do assume some importance in this case, in view of the stand taken by the revenue, especially in the supplementary affidavit filed, namely, that they are placing before this court for perusal the information received by the Commissioner of Income-tax, and also the Income-tax Officers report referred to earlier, so that this court may be satisfied that there was sufficient justification for the action taken by the officer. Though there is no such averment in the counter-affidavit that the department is not prepared to give access to these records to the assessee or his counsel, Mr. G. Rama Iyer, learned counsel for the revenue, made it clear before me that his client is not willing to make available either to the petitioner or his counsel here, either the information received by the Commissioner of Income-tax or the report made by the Income-tax Officer for sanction to take action under section 34, or the order of the authority giving such sanction. Apart from that, I have already indicated that there is nothing in the original affidavit or in the supplementary affidavit to show the nature of the materials available before the department, or how exactly the assessing authority has come to the conclusion that because of non-disclosure of material facts by the assessee, the Income-tax Officer has reason to believe that income has escaped assessment in this case.

It is really with reference to these averments in the counter-affidavits that the observations of the Supreme Court assume considerable importance, because the Supreme Court categorically says that when an assessee comes to court complaining that there is absolutely no jurisdiction in the authority to take action under section 34, the said contention will have to be established before the court. In my view, it would be absolutely impossible for persons, like the petitioner, to establish the contention that jurisdiction is lacking in particular cases, unless they are able to know as to what are the materials or the information on the basis of which the authority states that he has come to a conclusion. In the case before the Supreme Court, as I mentioned earlier, the income-tax department had made available, not only to the court, but also to the assessee, the report made by the officer in question to the Commissioner of Income-tax for obtaining sanction to take action under section 34; and it is also seen that the officer had given various other particulars sworn to by him and filed in the court proceedings. They became not only available to the court but also to the assessee himself to establish his contention that jurisdiction was utterly lacking in the particular circumstances of that case.

Even at risk of repetition, I have to state that the Supreme Court has laid down that there is clearly a duty on the part of the assessee, who wants the court to hold that jurisdiction was lacking, to establish that the Income-tax Officer had no material at all before him for believing that there had been such non-disclosure. It is the view of the learned judges that the Income-tax Officer had also made available the materials that were before the department, on the basis of which the Income-tax Officer claims to have come to the conclusion that there is reason to believe that the income of the assessee has escaped assessment or has been under-assessed due to non-disclosure by the assessee of material facts.

And it is not without significance that the Supreme Court considers, in considerable detail, the very severe attack made by the assessee that, on the materials that were made available to him and also to the court, there was no basis for the authority to believe that income has escaped assessment, or has been under-assessed, due to omission or failure on the part of the assessee to disclose material facts. Their Lordships of the Supreme Court ultimately came to the conclusion that, on the materials placed before them, it is not possible to come to the conclusion that there is any material from which the officer could have believed that income has escaped assessment, or has been under-assessed, due to omission of the assessee to disclose material facts.

Now, the position in this case according to the assessee, is that there is not even an averment in the two counter-affidavits filed by the respondent, that income has escaped assessment, or has been under-assessed, due to non-disclosure of material facts by the assessee. Even apart from this aspect, the petitioner also urges that there are absolutely no materials available with the Income-tax Officer from which he could have come to any such conclusion. The petitioner also urges that whether the source of information is disclosed or not, the respondent is bound at least to place the material available with him on record, so that it will be possible for him to consider whether action under section 34 was justified. On the other hand, the revenue takes up the position that they will not disclose the materials to the assessee, but only to the court. Having due regard to the nature of the onus cast upon an assessee, under such circumstances, by the Supreme Court, I am of the view that there is an obligation on the part of the respondent officer to make available to the assessee and the court the materials, on the basis of which he claims to have come to the conclusion that there has been a non-disclosure of material facts by the assessee, which resulted in income escaping assessment, or being under-assessed. It may be that the source which furnished the materials need not be disclosed. But, the materials, as such, must be disclosed not only to the court, but also to the assessee. Unless the materials are made available to the assessee also, it will be impossible for an assessee to sustain his contention about lack of materials and, in consequence, lack of jurisdiction. Only if the materials are made available both to the assessee and the court, the court can properly and effectively adjudicate upon the question as to whether the assessee has discharged his onus and whether, from the materials disclosed, the Income-tax Officer could be said to have reason to believe that income has escaped assessment, or has been under-assessed, due to non-disclosure by the assessee of material facts. Such an adjudication has become impossible in this case, in view of the attitude adopted by the respondent. The court alone, looking into the materials offered to be placed before it by the revenue for the courts scrutiny, will serve no effective purpose. That is why, though Mr. G. Rama Iyer, learned counsel for the revenue, during the course of the proceedings, repeatedly stated that he is prepared to place the information received from the Commissioner of Income-tax and also the officers report to the Commissioner, for perusal by this court, for being satisfied whether the action is justified or not, I have not acceded to the said request. Such a request cannot also be accepted, because, as will be seen from the decision of the Supreme Court, there is no secrecy which could be claimed by the department in respect of such materials.

No doubt, Mr. G. Rama Iyer, learned counsel for the revenue, also urged in the course of arguments, that revealing of the information that was available to the Commissioner of Income-tax in November, 1960, or the further revealing of the contents of the report or other matters, on the basis of which action has been proposed to be taken by the department, is prejudicial to the revenue and that the very object of the initiation of proceedings under section 34 will be frustrated. I may frankly state that no such stand has been taken by the department in either of the counter-affidavits filed on their behalf. But I am prepared to consider this aspect also, emanating as it does from a counsel appearing for a party. But the question of prejudice or such allied difficulties, in may opinion, cannot certainly be allowed to operate in the mind of the court in considering the question as to whether a party in the position of an assessee can successfully attack the proceedings on the ground of lack of jurisdiction unless he is made aware of those materials.

In this case, admittedly, the materials have not been made available to the petitioner, and, therefore, he had no opportunity of criticising the nature of the materials, and this court also is not in a position to consider as to whether the materials available before the Income-tax Officer, if any, can be considered to justify taking action on the basis of section 34 of the Act.

In my view, inasmuch as the principles relating to this matter have been very clearly laid down in the decision of the Supreme Court, there was certainly an obligation on the part of the department of place the necessary materials before the assessee and the court in order to enable the court to come to a conclusion one way or the other; but, nevertheless, in this case it has not been done.

Later, the Supreme Court, after considering in considerable detail the report of the Income-tax Officer, as well as the various other matters, which were stated in the counter-affidavit by the Income-tax Officer in those proceedings, ultimately came to the conclusion that they are not able to accept the plea of the department that from those materials it is possible to come to a conclusion that income has either escaped assessment or that there has been an under-assessment, due to the non-disclosure of material facts by the assessee in the case. In fact, the learned judges, after adverting to the report, which was made by the officer for sanction to the Commissioner of Income-tax and which formed part of the record in that case, also consider that there was an affidavit sworn to by the same officer who initiated the proceedings under section 34. And, the learned judges emphasise that it is reasonable to expect that in that affidavit, at any rate, which was his opportunity to tell the court what non-disclosure he took into consideration he would state as clearly as possible the material facts, in respect of which there had not been in his view, a full and true disclosure.

If really the view of the Supreme Court was that there was no obligation on the part of the department to disclose to the assessee the various materials which were available before them, on the basis of which they had come to the conclusion that there was non-disclosure, this observation of the Supreme Court can have no significance whatsoever. On the other hand, in this case, apart from the original counter-affidavit filed by the department, one more opportunity was given to the department to place before the court the exact circumstances, under which action under section 34 was proposed to be taken and that opportunity could have been availed of when the department filed the supplementary affidavit in this court. But that has not improved matters.

The learned judges of the Supreme Court, after adverting to the various matters mentioned in the affidavit filed by the department, ultimately affidavit filed by the officer are sufficient to give jurisdiction to the officer to initiate the proceedings.

Nevertheless, even that minimum requirement in this case is not forthcoming from the department, either as part of the record or as averments of facts, in the two counter-affidavits filed on behalf of the revenue.

Ultimately, the learned judges of the Supreme Court came to the conclusion that it must be held that the Income-tax Officer, who issued the notices, had not before him any non-disclosure of a material fact, and further came to the conclusion that the officer could have no material before him for believing that there had been any material non-disclosure, by reason of which as under-assessment had taken place. On this ground, the learned judges, ultimately, held that the conditions precedent to the exercise of jurisdiction under section 34 of the Income-tax Act did not exist in that case and the Income-tax Officer had, therefore, no jurisdiction to issue the impugned notices for the three years, in question, after the expiry of four years.

Incidentally, before closing the discussion on this part of the case, it may be mentioned that the learned counsel for the revenue appears to have urged before the Supreme Court that the question whether the Income-tax Officer had reason to believe that under-assessment had occurred 'by reason of non-disclosure of material facts', should not be investigated by the courts in an application under article 226 of the Constitution. The Supreme Court summarily rejected this contention, and stated that it is wholly incorrect to suppose that the periods mentioned in section 34 is a question of limitation only, not touching the question of jurisdiction. The learned judges also state that 'the scheme of the law clearly is that where the Income-tax Officer has reason to believe that an under-assessment has resulted from non-disclosure, he shall have jurisdiction to start proceedings for reassessment within a period of eight years; and where he has reason to believe that an under-assessment has resulted from other causes, he shall have jurisdiction to start proceedings for reassessment within four years'. The learned judges further state that 'both the conditions, (i) the Income-tax Officer having reason to believe that there has been under-assessment and (ii) his having reason to believed that such under-assessment has resulted from non-disclosure or material facts, must co-exist before the Income-tax Officer has jurisdiction to start proceedings, after the expiry of four years'.

The learned judges also rejected the argument that the court ought not to investigate the existence of one of these conditions, namely, that the Income-tax Officer has reason to believe that under-assessment has resulted from non-disclosure of material facts.

The learned judges also advert to the plea raised on behalf of the department that, when the Income-tax Officer issued the notices, he was not acting judicially or quasi-judicially and, therefore, a writ of certiorari or prohibition cannot issue. Here again, the learned judges observer that 'it is well settled, however, that though the writ of prohibition or certiorari will not issue against an executive authority, the High Courts have power to issue in a fit case an order prohibiting an executive authority from acting without jurisdiction'. And the view of the Supreme Court further is that 'where such action of an executive authority acting without jurisdiction, subjects or is likely to subject a person to lengthy proceedings and unnecessary harassment, the High Courts, it is well-settled, will issue appropriate orders or directions to prevent such consequences.'

There was a further plea raised on behalf of the revenue in the case before the Supreme Court to the effect that the assessee would have sufficient opportunity to raise the question of lack of materials or the question of jurisdiction and allied matters before the Income-tax Officer himself when assessment proceedings are started under section 34, and if a party is unsuccessful there, he can come up in appeal before the appellate officer or the Appellate Tribunal or even in the High Court under section 66(2) of the Indian Income-tax Act. The learned judges, again, repelled this contention by stating that the existence of such alternative remedy is not, however, always a sufficient reason for refusing a party quick relief by a writ or order prohibiting an authority acting without jurisdiction from continuing such action.

The learned judges further emphasise that when the Constitution confers on the High Courts the power to give relief, it becomes the duty of the courts to give such relief in fit cases, and the courts would be failing to perform their duty, if relief is refused without adequate reasons. And in the particular case before them, the learned judges are of the view that they can find no reason for which relief should be refused.

I have adverted in considerable detail to the various aspects dealt with by the learned judges of the Supreme Court because the points arising for consideration in this case are concluded by that decision, as against the revenue.

Therefore, apart from the fact that there is an obligation on the part of the revenue to make known not only to the court, but also to the assessee, the materials which were available with them and on the basis of which they have come to the conclusion that there has been an escaped assessment or under-assessment which resulted from the non-disclosure of materials facts, it is clear from the decision of the Supreme Court that the two conditions must co-exist, namely, (1) that the officer should have reason to believe that there has been an under-assessment, and (2) his having reason to believe that such under-assessment has resulted from non-disclosure of material facts. It is the view of the Supreme Court that the two conditions must co-exist. It is also the view of the Supreme Court that the court can investigate into the existence of one of those conditions, namely, whether the officer has reason to believe that under-assessment has resulted from non-disclosure of material facts. It would be absolutely next to impossible for any court, for the matter of that, to investigate that aspect and come to a conclusion one way or the other, unless the revenue places unequivocally and unconditionally the materials available before them, not only before the court, but also make it available to the assessee, who, as I mentioned earlier, according to the Supreme Court, has got an obligation to establish the contention raised by him, namely, lack of materials. That certainly in impossible of being discharged by the assessee, inasmuch as he has not got the materials, on the basis of which action was initiated by the department.

Therefore, it will be seen that according to the decision of the Supreme Court it is clear that the two conditions referred to must co-exist.

But I am prepared to assume in this case, accepting the averments in the supplementary counter-affidavit filed by the respondent, that the first requirement may be considered to be satisfied. Even in that regard Mr. P.K. Kurien, learned counsel for the petitioner, was prepared to take up the position that unless the revenue makes available to the assessee the information received by the Commissioner of Income-tax and the report of the officer, this court should not act upon it. But for the purposes of argument, I am prepared to accept the statement in paragraph 3 of the supplementary counter-affidavit that the Commissioner of Income-tax has received information in November, 1960, that the petitioner has been systematically concealing considerable portions of his income, that the said information was passed on to the officer, who conducted an inquiry and also made a report to the Commissioner. Prima facie, I am prepared to accept that averment. That will only establish one of the conditions necessary that the officer has reason to believe that there was an under-assessment of the petitioners income or that the income has escaped assessment. But that alone is not sufficient, for, according to the decision of the Supreme Court, the second condition is whether the officer has reason to believe that such under-assessment or escaped assessment is the result of omission of failure on the part of the assessee to disclose fully and truly all material facts.

So far as that is concerned, there is no averment in the counter-affidavits filed on behalf of the revenue, and as I have already indicated, there is nothing before this court, which has been made available to the assessee, on the basis of which an investigation can be conducted and adjudication made by this court. Therefore, I have to proceed on the basis that the second condition in this case has not been satisfied. If that is so, it follows that the proceedings initiated under exhibit P-1 will have to be struck down.

Mr. G. Rama Iyer, learned counsel for the revenue, referred me to two decisions of the Calcutta High Court, one of the Kerala High Court and one of the Punjab High Court, wherein, according to the learned counsel, it has been categorically laid down that the materials available before the department, on the basis of which action is being taken under section 34 of the Act, need not be divulged to the assessee; and that there will be sufficient compliance with the provisions of the statute, if the department makes available those records to the court. The decision relied upon by the learned counsel ar : the decision of the Calcutta High Court by the learned judge, Sinha J., reported as Daulatram Rawatmal v. Income-tax Officer, the decision of my learned brother Mr. Justice S. Velu Pillai reported as Kunjannamma Philipose v. Income-tax Officer, decision of the Punjab High Court reported as Dwarka Dass Murli Dhar v. Commissioner of Income-tax and also the Division Bench decision of the Calcutta High Court reported as Rungta Engineering & Construction Co. Ltd. v. Income-tax Officer.

So far as the judgment of my learned brother, Mr. Justice Velu Pillai, in Kunjannamma Philipose v. Income-tax Officer, already referred to, is concerned, if I may say so with respect, the learned judge has practically adopted the view of the Calcutta High Court in Daulairam Rawatmal v. Income-tax Officer and the learned judge has that it is open to the assessee, during the course of the assessment proceedings to ask for all the materials, and if that is refused, he can move this court under article 226 for compelling such disclosure at least to the court. The learned judges view, as I mentioned earlier, is based upon the decision of the Calcutta High Court.

I must frankly state that the observations contained in the decisions mentioned above will, prima facie, support Mr. G. Rama Iyer, learned counsel for the revenue, in the stand taken by him that there is no obligation on the part of the department to disclose to the assessee the materials, when taking action under section 34 of the Act. It must be pointed out that those decision, in their order, have been rendered on May, 21, 1959, March 3, 1960, January 20, 1960, and May 19, 1960. And all these decisions of the various High Court are before the decision of the Supreme Court in Calcutta Discount Co. Ltd. v. Income-tax Officer which was rendered on November 1, 1960. If I may say so with respect to the learned judges, whose decisions have been referred to and relied upon by Mr. G. Rama Iyer, learned counsel for the revenue, those decisions may require reconsideration in view of the decision of the Supreme Court in Calcutta Discount Co. Ltd. v. Income-tax Officer, wherein the nature of the jurisdiction exercised by the Income-tax Officer, under section 34 of the Act, if I may say so with great respect, has been elaborately considered and the principles governing such jurisdiction have been laid down.

Therefore, though I would otherwise consider each one of these decisions and devote more time for a consideration of those decision, in the view that I am taking that the position is now clearly concluded by the Supreme Court decision referred to above, I do not think it necessary to go into the decisions of the Calcutta, Kerala and Punjab High Courts, relied upon by Mr. G. Rama Iyer, learned counsel for the revenue.

Ultimately, the position is, as I have already pointed out, that even assuming that I am prepared to accept the averments contained in the counter-affidavits filed on behalf of the department - especially the averments in the supplementary counter-affidavit - on that basis I can only hold that the condition necessary for exercising the jurisdiction under section 34 of the Indian Income-tax Act is present in this case. But the second condition, which must co-exist along with the first, namely, that the Income-tax Officer has reason to believe that such under-assessment or escaped assessment of income has resulted from non-disclosure of material facts by the assessee does not exist in this case.

Therefore, in the result, the notice, exhibit P-1, issued to the petitioner will stand cancelled and quashed, and a writ of prohibition, as prayed for, will issue, restraining the respondent officer from proceeding further on the basis of exhibit P-1. The writ petition is accordingly allowed. But there will be no order as to costs.

Petition allowed.


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