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Mrs. Leela Nath Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 489 of 1974
Judge
Reported in[1987]164ITR216(Cal)
ActsIncome Tax Act, 1961 - Section 147; ;Wealth Tax Act
AppellantMrs. Leela Nath
RespondentCommissioner of Income-tax
Excerpt:
- .....returns would not absolve the assessee from showing the capital gains made by her on the sale of shares of m/s. electrical . which were sold on january 3, 1959. it was the duty of the assessee to show the fact about the sale of shares of m/s. electrical . in her return of income which she originally filed on june 27, 1959. in this view of the matter, we hold that the appellate assistant commissioner was riot justified in holding that the assessment proceedings started by the income-taxofficer under section 148 of the 1961 act were based on mere change of opinion on the part of the income-tax officer.'6. on the aforesaid facts, the following question of law has been referred to this court at the instance of the assessee :'whether, in the facts and circumstances of the case,.....
Judgment:

Ajit K. Sengupta, J.

1. This is a reference under Section 256(1) of the Income-tax Act, 1961, at the instance of the assessee, for the assessment year 1959-60.

2. During the accounting year relevant to the assessment year 1959-60, the assessee had sold 1,000 shares of M/s. Electrical Manufacturing Company Limited to a trust created by her. However, the assessee had not shown the capital gains on the sale of the shares in her return of income originally filed with the Income-tax Officer. The Income-tax Officer completed the assessment on January 27, 1962, on the basis of the return filed by the assessee. Subsequently, it was noticed by the Income-tax Officer that even though the assessee had sold shares of M/s. Electrical Manufacturing Company Limited on January 13, 1959, and even though she had capital gains on the sale of these shares, she had failed to furnish the necessary particulars in her return of income originally filed by her. Thereafter, on January 20, 1968, the Income-tax Officer reopened the assessment by issuing notice under Section 148 of the 1961 Act on the assessee calling upon her to file a return of income. In response to the notice, the assessee filed her return of income on April 28, 1968, showing the income of Rs. 70,459 which was the income determined by the Income-tax Officer in the original assessment. The Income-tax Officer completed the assessment under Section 143(3) read with Section 147(a) of the 1961 Act on March 25, 1972, where he treated a sum of Rs. 4,64,000 as the capital gains made by the assessee on the sale of the 1,000 shares.

3. Being aggrieved by the order of the Income-tax Officer, the assessee preferred an appeal to the Appellate Assistant Commissioner and submitted that since she had furnished all the necessary facts relevant to the assessment year under reference to the Income-tax Officer at the time of the original assessment regarding the shares held by her of M/s. Electrical Manufacturing Company Limited, the Income-tax Officer was not justifiedin reopening the assessment under Section 148 of the 1961 Act. It wasfurther submitted that the facts about the holding of shares of M/s. Electrical Manufacturing Company. Limited were clearly 'furnished in herwealth-tax returns for the assessment years 1958-59 to 1960-61. . If theIncome-tax Officer had considered her wealth-tax return for the assessmentyear 1959-60 which was filed along with the original return under theIncome-tax Act on June 27, 1959, as well as for the assessment year 1960-61which was filed on August 4, 1960, the Income-tax Officer could havenoticed that the assessee had sold her shares of M/s. Electrical Manufacturing Company Limited on January 3, 1959. Further, it was stated thatthe Income-tax Officer was aware of the assessee's acquiring shares ofM/s. Electrical Manufacturing Company Limited as could be seen from theletter of the Income-tax Officer dated February 27, 1960. In this view of thematter, it was finally submitted that as the assessee had furnished all thenecessary facts at the time of the original assessment, the Income-tax Officerwas not justified in reopening the assessment under Section 148 of the1961 Act. The Appellate Assistant Commissioner, in his order dated September 14, 1972, accepted the submissions of the assessee and concludedthat no fresh facts had come to light which disclosed any concealed incomeon the part of the assessee and which would justify the action for reassessment. Accordingly, he held that the Income-tax Officer was not justifiedin issuing notice under Section 148 of the 1961 Act.

4. Being aggrieved by the order of the Appellate Assistant Commissioner, the Revenue came up in appeal before the Tribunal.

5. The Tribunal held as follows :

'The assessee had furnished her original return of income on June 27, 1959, and she had also furnished her wealth-tax return for the assessment year 1959-60 on the same date. In the income-tax return, she did not show the capital gains made by her on the sale of the aforesaid shares, while in the wealth-tax return, she had shown the fact of acquisition of the shares and nothing further. It is only in her wealth-tax return for the assessment year 1960-61 which was filed on August 4, 1960, that the reduction in the aforesaid shares could be found out. In our opinion, merely filing the income-tax as well as wealth-tax returns would not absolve the assessee from showing the capital gains made by her on the sale of shares of M/s. Electrical . which were sold on January 3, 1959. It was the duty of the assessee to show the fact about the sale of shares of M/s. Electrical . in her return of income which she originally filed on June 27, 1959. In this view of the matter, we hold that the Appellate Assistant Commissioner was riot justified in holding that the assessment proceedings started by the Income-taxOfficer under Section 148 of the 1961 Act were based on mere change of opinion on the part of the Income-tax Officer.'

6. On the aforesaid facts, the following question of law has been referred to this court at the instance of the assessee :

'Whether, in the facts and circumstances of the case, reopening of the assessment under Section 147(a) of the Income-tax Act is justified ?'

7. Dr. Pal, learned counsel appearing for the assessee, has contended that in this case even assuming that there was any omission to disclose the sale of shares, there was no escapement of income. He has contended that the Income-tax Officer changed the basis of ascertaining the capital gains which is not permissible. In this connection, he has relied on the decision in the case of CIT v. Mrs. Leela Nath : [1980]121ITR965(Cal) , where this court held that, apart from the fact that the market price of the asset transferred was higher than the transfer price, the Income-tax Officer had no further material or evidence before him so that he could have reason to believe that the object of the assessee in making the transfer was to avoid or reduce the tax liability. The sale of shares did not come within the purview of Section 52 and the assessee was not liable to pay any tax under Section 45.

8. The next decision cited by Dr. Pal is in the case of K.P. Varghese v. ITO : [1981]131ITR597(SC) , where the Supreme Court has held that Sub-section (2) of Section 52 of the Income-tax Act, 1961, can be invoked only where the consideration for the transfer of a capital asset has been understated by the assessee, or, in other words, the full value of the consideration in respect of the transfer is shown at a lesser figure than that actually received by the assessee, and the burden of proving such understatement or concealment is on the Revenue. The Sub-section has no application in the case of an honest and bona fide transaction where the consideration received by the assessee has been correctly declared or disclosed by him.

9. Dr. Pal has also relied on a decision of the Gujarat High Court in the case of L.B. Kharawala v. ITO : [1984]147ITR67(Guj) , where the proceedings were initiated under Section 147(b) read with Section 52 of the Act. There, the Gujarat High Court held (headnote):

'One of the conditions which must be satisfied in order to confer jurisdiction upon the Income-tax Officer to initiate proceedings for reassessment of income under Section 147(b) read with Section 52 is that the Income-tax Officer must have reason to believe, on the strength of information in his possession, that income chargeable to tax has escaped assessment for any assessment year and that such escapement has taken place because the actual consideration received by the assessee was not disclosed and theconsideration in respect of the transfer was shown at a lesser figure than that actually received. Before assuming jurisdiction for reassessment by issuance of a notice under Section 148, it is essential for the Income-tax Officer to reach such a tentative conclusion in consequence of the information in his possession. Mere reference to the provisions of Sub-section (1) and/or Sub-section (2) of Section 52 in the notice issued under Section 148 or in a communication which might have preceded or followed upon such notice would not help the Income-tax Officer in cases where the notice is challenged in a court of law specifically on the ground that there was no material before the Income-tax Officer as regards the satisfaction of the said pre-condition or where it is alleged that even a tentative conclusion in that behalf was not reached by the Income-tax Officer before initiating proceedings for reassessment. If the material on record and even the affidavit-in-reply fall short of establishing the satisfaction of the said precondition, the notice of reassessment would not be valid and would be liable to be quashed.'

10. Dr. Pal then contends that on the facts found by the Tribunal, there is no escapement of income and as such the proceedings initiated under Section 147(a) are without jurisdiction and the Tribunal fell into error in setting aside the order of the Appellate Assistant Commissioner.

11. We arc, however, not impressed by the submissions of Dr. Pal. In this reference, we are only concerned with the jurisdiction of the Income-tax Officer to initiate the proceedings under Section 147(a) of the Act. We are not concerned with the validity of the reassessment or with the correctness of the computation of the capital gains. The cases cited by Dr. Pal, therefore, have no application to the facts of this case.

12. The Income-tax Officer found that the assessee sold her share in the 'structures' at 136, Jessore Road, on July 1, 1958, and 1,000 shares of M/s. Electrical ., on January 3, 1959, and made substantial capital gains. The facts relating to the sale of these assets and the capital gains were not disclosed by the assessee at the time of the original assessment. As a result of omission or failure on the part of the assessee to disclose fully and truly all the material facts necessary for her assessment for the assessment year 1959-60, income chargeable to tax had escaped assessment.

13. The Tribunal also found that the assessee had made capital gains on the sale of shares of M/s. Electrical . which were sold on January 3, 1959. The assessee did not show the capital gains made by her in the original return of income filed on June 27, 1959. It was the duty of the assessee to show the fact about the sale of shares of M/s. Electrical . in the said return. The Tribunal also found that in the wealth-tax return for the relevant year, she had only disclosed the fact of acquisition of the shares and nothing further. Only in the subsequent year in the wealth-tax return, the reduction in the holding of shares was shown.

14. The assessee had a duty to disclose all primary facts necessary for the assessment of income for the particular assessment year. The fact of sale of shares is a material fact in determining whether any capital gains resulted in such transaction. It cannot be disputed that the assessee was under an obligation to furnish the particulars regarding the sale of shares and consideration received therefor. The contention raised before the Income-tax Authorities that the disclosure was made in the wealth-tax return is also without any substance. An assessee cannot be absolved from his obligation of disclosing the relevant fact under the Income-tax Act even if such disclosure was made under the Wealth-tax Act. The fact, however, remains that it is in the return for the subsequent assessment year 1960-61 under the Wealth-tax Act that the disclosure was made regarding the reduction in the holding of the shares. It cannot, therefore, be said that the assessee made a full or true disclosure of all primary facts.

15. The finding of the Tribunal that there was omission or failure on the part of the assessee to disclose the primary fact relating to the sale of the shares as a result whereof the capital gains escaped assessment has not been challenged in this proceeding. We have to confine ourselves to the facts as found by the Appellate Tribunal and answer the question in the setting and context of those facts. On the facts found by the Tribunal, the reopening of the assessment under Section 147(a) of the Act is justified. In that view of the matter, the question in this reference must be answered in the affirmative and in favour of the Revenue.

16. There will be no order as to costs.

Dipak Kumar Sen, J.

17. I agree.


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