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Jai Hind Printing Press Vs. Commissioner of Income-tax, Gujarat-i - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberIncome-tax Reference No. 14 of 1969
Judge
Reported in[1972]86ITR309(Guj)
ActsIncome Tax Act, 1961 - Sections 139 and 147
AppellantJai Hind Printing Press
RespondentCommissioner of Income-tax, Gujarat-i
Appellant Advocate K.C. Patel, Adv.
Respondent Advocate K.H. Kaji, Adv.
Cases ReferredCalcutta Discount Co. Ltd. v. Income
Excerpt:
.....material facts necessary for tis assessment and that the capital gain arising from the sale of the rotary machine escaped assessment by reason of such omission or failure on the part of the assessee. it is now well-settled as a result of several decisions of the supreme court commencing from calcutta discount co. the assessee is not bound to tell the assessing authority what inferences, whether of fact or law, should be drawn and his failure to communicate to the assessing authority the proper and correct inference to be drawn from the primary facts cannot be regarded as failure to disclose 'material facts'.the assessee is required to disclose only primary facts and the primary facts to be disclosed by him must be material or relevant to the decision of the question before the assessing..........firm and it carries on business of printing and publishing newspaper. the assessee had a rotary machine for the purpose of its business which it sold in the relevant year of account on 28th october, 1956. the original cost price of the machine was rs. 24,550 and it was sold for rs. 50,000. the assessee thus realiseed a profit or gain of rs. 25,450. now capital gains were made chargeable to tax with effect from 1st april, 1956, by introduction of section 12b in the indian income-tax act, 1922. section 12b provided, inter alia, that the tax shall be payable by an assessee under the head 'capital gains' in respect of any profits of any profits or gains arising from the sale, exchange, relinquishment or transfer of a capital asset effected after the 31st day of march, 1956, and.....
Judgment:

Bhagwati, C.J.

1. This reference raises a short question as to whether certain proceedings initiated by the revenue for reassessment of the assessment are valid under section 147(a) of the Income-tax Act, 1961. The assessment year with which we are concerned in this reference is 1957-58, the relevant precious year being Samvat year 2012, that is, 15th November, 1955, to 2nd November, 1956. The assessee is a registered firm and it carries on business of printing and publishing newspaper. The assessee had a rotary machine for the purpose of its business which it sold in the relevant year of account on 28th October, 1956. The original cost price of the machine was Rs. 24,550 and it was sold for Rs. 50,000. The assessee thus realiseed a profit or gain of Rs. 25,450. Now capital gains were made chargeable to tax with effect from 1st April, 1956, by introduction of section 12B in the Indian Income-tax Act, 1922. Section 12B provided, inter alia, that the tax shall be payable by an assessee under the head 'Capital gains' in respect of any profits of any profits or gains arising from the sale, exchange, relinquishment or transfer of a capital asset effected after the 31st day of March, 1956, and such profits and gains shall be deemed to be income of the previous year in which the sale, exchange, relinquishment or transfer took place. Since the rotary machine was a capital asset and it was sold by the assessee on 28th October, 1956, that is, after 31st March, 1956, the profit or gain of Rs. 25,450 arising to the assessee from the sale of the rotary machine was liable to be taxed in the hands of the assessee as capital gain under section 12B. The assessee, however, did not show this capital gain which had resulted to it in the return filed by it for the assessment year 1957-58. Section A of Part I of the return specified various heads of income and required the assessee to show the amount of income, profits and gains against each head of income. The last head of income set out in Section A of Part I of the return was 'capital gains' and the assessee should have, therefore, shown capital gain resulting to it from the sale of the rotary machine against this head of income but the assessee did not make any entry there, suggesting that no capital gain had resulted to the assessee during the year of account. So also in Part VII of the return which requires the assessee to set out particulars of capital gains, the entry made by the assessee was 'Nil.' The assessee filed a copy of the machinery account in its books of account along with the return and this account showed that the sum of Rs. 50,000 was debited on account of sale of the rotary machine but it did not show the date on which the sale of the rotary machine was effected. Nowthe written down value of the rotary machine at the commencement of the relevant previous year was Rs. 22,593 and since the sale price of the rotary machine exceeded its written down value by Rs. 27,407 a sum of Rs. 2,857 representing the difference between the original cost price of the rotary machine and its written down value was liable to be included in the total income of the assessee as balancing charge under the first proviso to section 10(2)(vii). The Income-tax Officer, accordingly, included the sum of Rs. 2,857 in the total income of the assessee and completed the assessment for the assessment year 1957-58 on 23rd November, 1959. Though the capital gain of Rs. 25,450 was liable to be taxed under section 12B, it was not included and it accordingly escaped assessment to tax. It appears that the revenue subsequently realised that the capital gain of Rs. 25,450 had escaped tax at the time of the original assessment and the Income-tax Officer, therefore, issued notice to the assessee seeking to reopen the assessment for the assessment year 1957-58 under section 147(a) of the Income-tax Act, 1961. The assessee contested the validity of the proceedings for reassessment on the ground that the conditions requisite for the applicability of section 147(a) were not satisfied and the Income-tax Officer had, therefore, no power to issue a notice seeking to reopen the assessment. The Income-tax Officer, however, took the view that the capital gain of Rs. 25,450 had escaped assessment by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment and the assessment was, therefore, liable to be reopened under section 147(a). The Income-tax Officer accordingly included the capital gain of Rs. 25,450 in the total income of the assessee and reassessed the assessee on the basis that it was liable to be taxed in respect of such capital gain under section 12B. The assessee being aggrieved by the order of reassessment made by the Income-tax Officer preferred an appeal to the Appellate Assistant Commissioner but the appeal was unsuccessful. The assessee carried the matter in further appeal to the Tribunal but the Tribunal also took the same view as the lower authorities and confirmed the reassessment made on the assessee. The assessee thereupon applied to the Tribunal for making a reference to this court and on the application of the assessee, the Tribunal referred the following question, namely : 'Whether, on the facts and in the circumstances of the case, proceedings for reassessment under section 147(a) of the Income-tax Act, 1961, were validly initiated ?' for the opinion of this court.

2. Now it is clear on a plain reading of section 147(a) that to confer jurisdiction under that section to issue notice in respect of assessments beyond the period of four years from the end of the relevant year, two conditions have to be satisfied. The first is that the Income-tax Officer must have reason to believe that income, profits or gains chargeable to tax have escaped assessment. The second is, that he must also have reason to believe that such escapement has taken place by reason of either, (i) omission or failure on the part of the assessee to make a return of his income under section 139; or (ii) omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year. Both these conditions are condition precedent to be satisfied before the Income-tax Officer could have jurisdiction to issue a notice for the assessment or reassessment beyond the period of four years from the end of the assessment year. Now it must be said in firness to Mr. K. C. Patel, learned advocate appearing on behalf of the assessee, that he did not contend that the first condition was not satisfied. He conceded that since profit or gian in the sum of Rs. 25,450 had resulted to the assessee from the sale of the rotary machine effected after 31st March, 1956, it was liable to be taxed in the hands of the assessee as capital gain and this capital gain has escaped assessment to tax at the time of the original assessment. But, his real contention was that the escapement of this capital gain from assessment had not taken place on account of any omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the assessment year 1957-58 and the second condition was not fulfilled. The question which, therefore, arises for consideration is whether the Income-tax Officer had reason to believe that there was some omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for tis assessment and that the capital gain arising from the sale of the rotary machine escaped assessment by reason of such omission or failure on the part of the assessee.

3. To arrive at a proper determination of this question it is necessary to understand what is meant by the expression 'material facts' which it is the duty of the assessee to disclose before the Income-tax Officer at the time of the assessment. It is now well-settled as a result of several decisions of the Supreme Court commencing from Calcutta Discount Co. Ltd. v. Income-tax Officer, Calcutta, that the 'material facts' which are required to be disclosed by an assessee at the time of his assessment are primary facts, material and necessary for the purpose of his assessment. The duty of the assessee is to disclose only primary facts and it is the for the assessing authority to decide what inference of facts can be reasonably drawn from the primary facts and what legal inferences must ultimately be drawn from the primary facts and the other facts inferred from them. The assessee is not bound to tell the assessing authority what inferences, whether of fact or law, should be drawn and his failure to communicate to the assessing authority the proper and correct inference to be drawn from the primary facts cannot be regarded as failure to disclose 'material facts'. The assessee is required to disclose only primary facts and the primary facts to be disclosed by him must be material or relevant to the decision of the question before the assessing authority so that the non-disclosure of such facts would have a material bearing on the question of escapement of income from assessment. If the assessee has disclosed primary facts which are material and necessary for the purpose of his assessment, his assessment cannot be reopened by the Income-tax Officer by taking resort to section 147(a). But, if there is omission or failure on the part of the assessee to disclose any material or relevant primary facts and, in consequence, there is escapement of income from assessment, such income can be got at by the revenue by reopening the assessment under section 147(a). We must, therefore, proceed to examine what were the primary, material or relevant, facts in the case of the assessment in the present case and whether there was any omission or failure on the part of the assessee to disclose any of them, in consequence of which capital gain arising to the assessee escaped assessment.

4. Now there can be no doubt that the assessee disclose to the Income-tax Officer at the time of the original assessment three primary facts relating to the rotary machine sold by it. The assessee disclosed that the cost price of the machine was Rs. 24,550, its written down value was Rs. 22,593 and its sale price was Rs. 50,000. The assessee thus intimated to the Income-tax Officer that profit or gain amounting to Rs. 25,450 had resulted to the assessee from the sale of the rotary machine. But in order that profit or gain arising to an assessee from sale of a capital asset should be chargeable to tax as capital gain under section 12B, it is necessary that the sale should have been effected after 31st March, 1956. The question whether the sale of the rotary machine was effected prior to 31st March, 1956, or after 31st March, 1956, was therefore, a material question from the point of view of assessability of the profit or gain arising from the sale of the rotary machine. If the sale of the rotary machine was effected prior to 31st March, 1956, the profit or gain arising from the sale would not be taxable while it would be taxable, if the sale was effected after 31st March 1956. It was, therefore, material for the Income-tax Officer to know as to what was the date when the sale of the rotary machine was effected by the assessee. Now the machinery account produced by the assessee was for Samvat Year 2012, that is for the period 15th November, 1955, to 2nd November, 1956, and the only information conveyed by the entries in the machinery account was that the rotary machine was sold during Samvat Year 2012, that is, between 15th November, 1955, and 2nd Novermber, 1956. It was not apparent from the machinery account as to whether the rotary machine was sold between 15th November, 1955, and 31st March, 1956, or between 1st April, 1956, and 2nd November, 1956. It could have been sold during either of the two periods. The actual date of sale of the rotary machine was not disclosed by the assessee. It is rather curious that, though the assessee did set out in the machinery account the dates on which different machines were purchased by the assessee during Samvat Year 2012, no date was mentioned so far as sale of the rotary machine was concerned. It is difficult to perceive any reason why the assessee should have followed a different practice in regard to sale of the rotary machine. But whatever be the reason, the fact remains that the actual date of sale of the rotary machine was a primary fact, material and necessary for the purpose of determining whether the profit or gain arising to the assessee from the sale of rotary machine was chargeable to tax and this primary material fact was not disclosed by the assessee at the time of the original assessment.

5. The question then arises as to whether the capital gain of Rs. 25,450 escaped assessment to tax at the time of the original assessment in consequence of the omission or failure of the assessee to disclose the actual date of sale of the rotary machine. The argument of Mr. K. C. Patel, learned advocate appearing on behalf of the assessee, was that the escapement of this capital gain from assessment was not due to the omission or failure of the assessee to disclose the actual date of sale of the rotary machine but it was entirely the result of inadvertence on the part of the Income-tax Officer and this inadvertence possibly occurred because capital gain was for the first time made chargeable to tax with effect from 1st April, 1957, and it is, therefore, quite possible that the Income-tax Officer might have overlooked it. We do not think this argument is well founded. There is nothing on record to support even a remote suggestion that the Income-tax Officer was not conscious of the fact that by reason of introduction of section 12B, capital gain had become chargeable to tax or that it was on account of his inadvertence that the profit or gain arising from the sale of the rotary machine escaped tax. Since the actual date of sale of the rotary machine was not mentioned and the column against the heading 'Capital gain' in section A of Part I of the return was kept blank and capital gain in Part VII of the return was shown as 'nil', it is reasonable to assume that the Income-tax Officer must have taken the view that the sale of the rotary machine was effected prior to 31st March, 1956, and the profit or gain resulting from the sale of the rotary machine was, therefore, not liable to tax in the hands of the assessee as capital gain. It would not be correct, in the absence of definite evidence on record to show to the contrary, to ascribe ignorance or lack of awareness of a provision of law to the Income-tax Officer. There can be no doubt that if the actual date of sale of the rotary machine had been disclosed by the assessee, the Income-tax would have been apprised that profit or gain resulting to the assessee from the sale of the rotary machine was capital gain assessable as such under section 12B and in that event he would have included it in the total income of the assessee. The conclusion is, therefore, inescapable that the capital gain arising from the sale of the rotary machine escaped assessment on account of the omission or failure of the assessee to disclosed the actual date of sale of the rotary machine.

6. We must, therefore, hold that the conditions requisite for the initiation of proceedings under section 147(a) were satisfied in the present case and the reopening of the assessment of the assessee for the assessment year 1957-58 was valid. We accordingly answer the question referred to us in the affirmative. The assessee will pay the costs of the reference to the Commissioner.


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