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Eastern Coal Co. Ltd. Vs. Income-tax Officer, a Ward and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberMatter No. 88 of 1966
Judge
Reported in[1970]78ITR700(Cal)
ActsIncome Tax Act, 1961 - Sections 147 and 148; ;Income Tax Act, 1922 - Section 34(1)
AppellantEastern Coal Co. Ltd.
Respondentincome-tax Officer, "a" Ward and ors.
Cases ReferredKantamani Venkata Narayana & Sons v. First Addl. Income
Excerpt:
- k.l. roy, j.1. this is an application under article 226 of the constitution challenging the validity of a notice issued by the respondent-income-tax officer, under section 148 of the income-tax act, 1961 (hereinafter referred to as 'the act'). the petitioner is a company incorporated under the indian companies act having its registered office at b-4, gillander house, calcutta. it used to carry on business as colliery owners. by an indenture of sale executed and registered on the 28th september, 1957, the petitioner sold its collieries to m/s. bhowra kankanee collieries ltd. with effect from 1st january, 1955, for a total consideration of rs. 62 lakhs with a abatement of rs. 5 lakhs on account of the retrenchment compensation liability of the vendor taken over by the purchaser. the.....
Judgment:

K.L. Roy, J.

1. This is an application under Article 226 of the Constitution challenging the validity of a notice issued by the respondent-Income-tax Officer, under Section 148 of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'). The petitioner is a company incorporated under the Indian Companies Act having its registered office at B-4, Gillander House, Calcutta. It used to carry on business as colliery owners. By an indenture of sale executed and registered on the 28th September, 1957, the petitioner sold its collieries to M/s. Bhowra Kankanee Collieries Ltd. with effect from 1st January, 1955, for a total consideration of Rs. 62 lakhs with a abatement of Rs. 5 lakhs on account of the retrenchment compensation liability of the vendor taken over by the purchaser. The petitioner-company went into voluntary liquidation on the 26th June, 1958, and the present petition has been filed on behalf of the petitioner-company by the liquidators. The company's accounting year ended on the 30th September, in each year. The petitioner-company's assessment for 1956-57 was completed by the then Income-tax Officer, Ward-A, District II, Calcutta, on the 29th December, 1960, and after considering the aforesaid conveyance of sale, the said Income-tax Officer purported to include the excess of the sale price over the written down value of the assets in the total income of the petitioner under the proviso to Section 10(2)(vii) of the Income-tax Act, 1922. The petitioner preferred an appeal against the aforesaid assessment order to the Appellate Assistant Commissioner, but did not challenge the inclusion of the said profits under Section 10(2)(vii). The petitioner's assessment for the assessment year 1958-59, for which the corresponding accounting year ended on the 30th September, 1947, was completed by the same Income-tax Officer on the 28th February, 1961. In the order of the said assessment it was recorded as follows :

'The company sold all its collieries to M/s. Bhowra Kankanee Collieries Ltd., 5, Royal Exchange Place, Calcutta, vide indenture dated September 28, 1957, with effect from January 1, 1955. Copy of the indenture is on record. After the sale of collieries till its voluntary liquidation on June 26, 1958, the company has been deriving income only from interest and dividends. There was absolutely no business during the year of account nor in subsequent years. That coal business has been discontinued from January 1, 1955, is further established from the report of the auditors on the balance-sheet for the account year ending September 30, 1956, where it is clearly written. As the company has ceased to carry on business, no distinction has been made between capital and revenue reserves and the accumulated losses have been set off against them. This has also been accepted by the company as would be seen from the report of the directors to shareholders from the year ending September 30, 1956, which is as under.

'The company ceased to trade after the transfer of its properties to Bhowra Kankanee Collieries Ltd. on January 1, 1955.'

2. Accordingly, for this year the assessment was made only on the interest on securities and dividend income of the petitioner and expenses debited to the head 'Loss on working' were disallowed.

3. In respect of the assessment year 1956-57 the petitioner went on further appeal to the Appellate Tribunal and at the time of the hearing the petitioner asked for and obtained leave to urge a fresh ground of appeal, namely, that the profits under the aforesaid proviso to Section 10(2)(vii) amounting to Rs. 2,21,057 in respect of the immovable properties could not be included in the income for the assessment year 1956-57, as the sale of the immovable properties was not completed till the registration of the conveyance of sale. In view of the decision of the Supreme Court in Commissioner of Income-tax v. Bhurangya Coal Co., : [1958]34ITR802(SC) , the Tribunal accepted the contention of the assessee and directed the Income-tax Officer to exclude from the total income of the appellant for the assessment year 1956-57, the amount of the profits under Section 10(2)(vii) consequent upon the sale of the immovable properties. The Tribunal also observed in its aforesaid order that such profits were liable to be included in the total income of the appellant in the assessment year 1958-59. This order was made on the 21st July, 1965. Subsequently, by an order under Section 35 of the Income-tax Act, 1922, the Tribunal purported to rectify its aforesaid order by deleting the words 'liable to be included in the total income of the appellant in the assessment year 1958-59' in paragraph 9 of the said order following the decision of the Supreme Court in Income-tax Officer, A-Ward, Sitapur v. Murlidhar Bhagwan Das, : [1964]52ITR335(SC) .

4. The following notice, purported to be under Section 148 of the Act, dated the 7th December, 1965, was issued by the present Income-tax Officer being respondent No. 1 herein to the petitioner:

'Whereas I have reason to believe that your income chargeable to tax for the assessment year 1958-59 has escaped assessment within the meaning of Section 147 of the Income-tax Act, 1961 :

I, therefore, propose do reassess the income for the said assessment year and I hereby require you to deliver to me within 30 days from the date of service of this notice, a return in the prescribed form of your income assessable for the said assessment year.

This notice is being issued after obtaining the necessary satisfaction of the Commissioner of Income-tax, W. B.-II, Calcutta.'

5. In respect of the said notice the petitioner filed its return under protest on the 19th January, 1966, and requested the Income-tax Officer not to proceed further with the proposed assessment of the petitioner for the said year.

6. This application was moved and the rule obtained on the 4th February, 1966.

7. I have set out the contents of the said two assessment orders in detail because of the averments made in the affidavit-in-opposition affirmed by the respondent-Income-tax Officer. Apart from the usual stereotyped averments to be found in such affidavits, certain strange features are noticeable. In paragraph 3 it is, inter alia, claimed that the petitioner had not disclosed in the return for the year 1958-59, the effect of sale of the colliery along with movable and immovable properties and the consequential profit and loss on this transaction. It is further asserted that the petitioner had not disclosed fully or truly all material facts necessary for the purpose of assessment for the year 1958-59, as it was within the knowledge of the petitioner that the profit on the sale of immovable properties arose only when the sale was registered and, accordingly, it was incumbent on the petitioner-company to declare and/or disclose the profit in the return for the assessment year 1958-59. The petitioner-company having failed and neglected to do so there was a clear failure and/or omission on the part of the petitioner to disclose fully and truly all material facts necessary for the purpose of assessment and as such the income of the petitioner-company had escaped assessment and/or has been under-assessed. As the above statements have been affirmed as being based on information received from the record, no comments are called for. But in paragraph 6, which is affirmed at true to his knowledge, the respondent states as follows :

'It appears that for the assessment year 1958-59, the petitioner failed to disclose fully and truly all material facts necessary for the assessment of that year. Each assessment year is separate and distinct. Disclosure of the fact of sale in connection with the assessment year 1956-57 is not a disclosure for the purpose of assessment for the assessment year 1958-59. In the assessment year 1958-59, the petitioner did not offer the income arising from the sale of the property for taxation nor did the petitioner specifically disclose the fact of sale to the income-tax authorities in that year.'

8. It is a very strange statement affirmed as true to knowledge in the face of the record, namely, the original assessment order for 1958-59 where it is expressly recorded that the petitioner had sold its collieries under the indenture dated September 28, 1957, with effect from January 1, 1955, and a copy of the said indenture was on the record. There is a limit to irresponsible statements being made on oath. But in this case, in my opinion, even such limit has been exceeded. Whatever be the result of this application I direct that the respondent No. 1 do personally pay the petitioner's costs of this application.

9. Dr. Pal pointed out that before the decision of the Supreme Court in Bhurangya Coat Co. case, it was, more or less, accepted that the profits arising out of a sale was assessable under Section 10(2)(vii) in the year in which the sale became effective irrespective of the date of the registration of the conveyance of sale. In this case both the petitioner and the Income-tax Officer acted under that impression when the profit under Section 10(2)(vii) was included in the petitioner's assessment for 1955-56. It was only at the stage of the appeal before the Tribunal that the Supreme Court decision was reported and the additional ground was urged with the leave of the Tribunal.

10. Dr. Pal further sumited that there has been no omission or failure on the part of the assessee to disclose all material facts for the purpose of its assessment for the year 1958-59. Full details of the sale of the collieries including the sale deed were furnished to the Income-tax Officer at the time of the assessment for both the years 1955-56 and 1958-59. What was the legal effect of the transfer and the registration of the deeds have been determined by the Income-tax Officer. It was no part of the duty of the assessee to have disclosed to the Income-tax Officer that the profit of the sale of the immovable properties arose only when the sale registered as claimed in the affidavit-in-opposition. Dr. Pal referred to the classical exposition of the provisions of Sections 34 of the 1922 Act, which corresponds to Sections 147 to 153 of the present Act, in Calcutta Discount Co. Ltd. v. Income-tax Officer, Companies District I, Calcutta, : [1961]41ITR191(SC) of the report, the following observations:

'The words used are 'omission or failure to disclose fully and trulyall material facts necessary for his assessment for that year'. It postulatesa duty on every assessee to disclose fully and truly all material factsnecessary for his assessment. What facts are material and necessaryfor assessment will differ from case to case. In every assessmentproceeding, the assessing authority will, for the purpose of computingor determining the proper tax due from an assessee, require to knowall the facts which help him in coming to the correct conclusion. From the primary facts in his possession, whether on disclosure by the assessee, or discovered by him on the basis of the facts disclosed, or otherwise, the assessing authority has to draw inferences as regards certain other facts; and ultimately, from the primary facts and the further facts inferred from them, the authority has to draw the proper legal inferences, and ascertain on a correct interpretation of the taxing enactment, the proper tax leviable. Thus, when a question arises whether certain income received by an assessee is capital receipt or revenue receipt, the assessing; authority has to find out what primary facts have been proved, what other facts can be inferred from them, and, taking all these together, to decide what the legal inference should be.

There can be no doubt that the duty of disclosing all the primary facts relevant to the decision of the question before the assessing authority lies on the assessee. To meet the possible contention that when some account books or other evidence has been produced, there is no duty on the assessee to disclose further facts, which on due diligence, the Income-tax, Officer might have discovered, the legislature has put in the Explanation which has been set out above. In view of the Explanation, it will not be open to the assessee to say, for example--I have produced the account books and the documents: You, the assessing officer examine them, and find out the facts necessary for your purpose : My duty is done with disclosing these account books and the documents.' His omission to bring to the assessing authority's attention those particular items in the account, books, or the particular portions of the documents, which are relevant, wilt amount to 'omission to disclose fully and truly all material facts necessary for his assessment'.... and the position remains that so far as primary facts are concerned, it is the assessee's duty to disclose all of them--including particular entries in account books, particular portions of documents, and documents and other evidence which could have been discovered by the assessing authority, from the documents and other evidence disclosed.

Does the duty, however, extend beyond the full and truthful disclosure of all primary facts? In our opinion, the answer to this question must be in the negative. Once all the primary facts are before the assessing authority, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody also--far less the assessee--to tell the assessing authority what inferences, whether of facts or law, should be drawn.... The Explanation has not the effect of enlarging the section, by casting a duty on the assessee to disclose-'inferences--' to draw the proper inferences being the duty imposed on the-Income-tax Officer.

We have, therefore, come to the conclusion that while the duty of the assessee is to disclose fully and truly all primary relevant facts, it does not extend beyond this.'

11. In that case the contention of the department was that the assessee has failed to disclose the principal intention behind the sale of shares, and the court held that there was no failure on the part of the assessee to disclose material facts as the assessee had disclosed the investment in shares held by it and the sales made during the year. Whether the assessee was an investor or dealer in shares was an inference to be drawn by the Income-tax Officer.

12. That decision is also an authority for the proposition that even if income had escaped assessment or been under-assessed the reason for the Income-tax Officer's belief that such escapement was due to the failure on the part of the assessee to disclose was justifiable.

13. The above exposition of Section 34 was reiterated by the Supreme Court in S. Narayanappa v. Commissioner of Income-tax, : [1967]63ITR219(SC) , where it was observed that the two conditions, namely, (i) the Income-tax Officer must have reason to believe that income, profits or gains chargeable to income-tax had been under assessed; and (ii) that he must have reason to believe that such 'under assessment' had occurred by reason of either, (a) omission or failure on the part of the assessee to a 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 the material facts necessary for his assessment for that year were conditions precedent to be satisfied before the Income-tax Officer acquired jurisdiction to issue a notice under the section. If there were, in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact which could have a material bearing on the question of under-assessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice. Whether these grounds were adequate or not was not a matter for the court to investigate. In other words, the sufficiency of the grounds which induced the Income-tax Officer to act is not a justiciable issue.

14. The other decision cited by Dr. Pal, a decision of this court, in SudhirKumar Bhose v. Income-tax Officer, 'H' Ward, District III (I), [1968] 69 I.T.R. 446 (Cal.), is relevantas the facts are somewhat similar to the facts here. In that case theassessee sold his share in a certain property in August, 1960. At the timeof the original assessment for 1961-62, the income from this property wasnot shown in the return but the interest from securities in which the saleproceeds had been invested, according to the assessee, were shown. Thesame Income-tax Officer also completed the assessee's assessment for wealth-tax for the corresponding year and the fact of the sale of the property wasdisclosed to him. On the 22nd February, 1966, the successor Income-tax. Officer served a notice under Section 148 on the ground that the assessee's capital gains on the sale of the property had escaped assessment in 1961-62. The learned judge held that there had been no omission or failure on the part of the assessee to disclose the material facts necessary for his assessment and omission to fill in Part VII of the return did not amount to such a failure or omission. This case was relied on for the proposition that there is no obligation on an assessee to show any particular item of income in his return.

15. To the similar effect is another recent decision of the Bombay High. Court in Commissioner of Income-tax v. Balvantrai S. Jain, [1969] 72 I.T.R. 59 (Bom.). In that case the assessee, who was a partner in a firm, did not fill in Part III of the return for 1943-44 and 1944-45, but his auditors informed the department by two letters that there was a dispute in the partnership, that the assessee's share was 0/8/0 therein and that the firm had incurred loss. The assessee's share of income from the firm was not included in his assessment as the firm's assessment for these years had not then been completed. When notice under Section 34 (1) (a) of the 1922 Act was served on the assessee in respect of these years, the court observed :

'Section 34 specifies no act or acts as constituting an omission or failure to disclose the material facts but the tax authorities have to come to a conclusion upon the totality of the facts and circumstances whether there has been an omission or failure to disclose the material facts. The mere failure to fill up a part of the income-tax return cannot amount to a failure or omission to disclose material facts.'

16. Dr. Pal submits that the aforesaid order of the Tribunal might have constituted information to enable the Income-tax Officer to reopen the assessment under Section 147(b) and cited the Supreme Court decision in R.B. Bansilal Abirchand Firm v. Commissioner of Income-tax, : [1968]70ITR74(SC) , in support thereof. But in this case the time limit for a notice under Section 147(b) had already expired in terms of Section 149(1)(b).

17. Lastly, Dr. Pal referred me to a very recent decision in Income-tax Reference No. 44 of 1965 of this court in Commissioner of Income-tax v. Kallu Babu Lalchand, : [1969]73ITR138(Cal) where, in the facts of that case, it was held that the income had escaped assessment because of the view of law taken by the Income-tax Officer which was subsequently reversed by the Supreme Court and not because of any omission or failure on the part of the assessee to disclose any material facts. The facts in that case were as follows :

One Rohatgi was the karta of a Hindu undivided family which held asubstantialfpart of the shares in a company called the India Electric WorksLtd. Sri Rohatgi was appointed as the managing director of the company for life and in accordance with the articles and the agreement between Sri Rohatgi and the company he was entitled to certain remuneration and commission on the net income of the company. The question arose as to whether such income of Rohatgi was his personal income or the income of the joint family. Following a decision of the Calcutta High Court, the Income-tax Officer excluded Rohatgi's remuneration from the company from the total, income of the joint family for the assessment years 1951-52 to 1953-54. The High Court's decision was subsequently reversed by the Supreme Court and the Income-tax Officer initiated reassessment proceedings under Section 34(1)(a) and assessed the managing director's remuneration in the hands of the assessee-Hindu undivided family. It was in this connection that the above observations were made by this court. It would be instructive to notice the last reported decision of the Supreme Court on Section 34(1)(a) of the 1922 Act. In Muthiah Chettiar v. Commissioner of Income-tax, : [1969]74ITR183(SC) the question was-whether an assessee was bound to disclose in his return the income of his minor children admitted to the benefits of partnership in a firm in which he was partner so as to be included in his total income under Section 16(3). The Supreme Court was unable to agree with the Madras High Court that Section 34 imposed an obligation upon the assessee to disclose any income of his wife or minor children to be included in his assessment by reason of Section 16(3). It was observed :

'Section 34(1)(a) sets out the conditions in which the power may be exercised ; it did not give rise to an obligation to disclose information which enabled the Income-tax Officer to exercise the power under Section 16 (3)(a)(ii), nor had the use of the expression ' necessary for his assessment ' in Section 34(1)(a) that effect. '

18. Mr. Sen, appearing for the respondents, cited the decision of the Patna High Court in State of Bihar v. Maharajadhiraj Sir Kameshwar Singh Bahadur of Darbhanga, [1952] 21I.T.R. 382 (Pat.) where, on a consideration of the authorities, the court held that, when an item of income is not charged, it has escaped assessment either because it is not included in the return or because of a mistake or omission on the part of the assessing authority. On appeal, the Supreme Court in Maharajadhiraj Sir Kameshwar Singh v. State of Bihar, : [1959]37ITR388(SC) went further and held that income would escape assessment even when disclosed in the return but excluded by the Income-tax Officer in the belief that it was exempt.

19. Dr. Pal does not dispute that the profit under proviso to Section 10(2)(vii) might have escaped assessment. His contention is that such escape was not due to any omission or failure on the part of the assessee to disclose any material facts necessary for its assessment.

20. A reference was also made to the Supreme Court decision in Kantamani Venkata Narayana & Sons v. First Addl. Income-tax Officer, Rajahmundry, : [1967]63ITR638(SC) , but in that case the court was satisfied that the assessee had failed to disclose unexplained increase in its investment and its wealth. What was relied on by Mr. Sen was the observation in that case that the assessee does not discharge his duty to disclose fully or truly material facts necessary for his assessment by merely producing the books of account and other documents ; he has to bring to the notice of the Income-tax Officer particular items in the books of account or portions of documents which are relevant. But similar observations had already been made in the Calcutta Discount case in connection with the Explanation to Section 34(1). The above decision was followed in Sowdagar Ahmed Khan's case, : [1968]70ITR79(SC) , where a bank account maintained in the benami of the assessee's father-in-law was not disclosed at the time of the original assessment.

21. The main contention of Mr. Sen was that in any event there was a failure on the part of the petitioner to disclose truly and fully all material facts necessary for its assessment for the year 1958-59. Mr. Sen referred to the original assessment order for 1958-59, and pointed out that the Income-tax Officer has recorded in the said order that the assessee had ceased to carry on its mining business as from May 1, 1955, and this fact was established from the report of the auditors in the balance-sheet for the corresponding accounting year and also from the report of the directors quoted in the said assessment order. It was on this information and material supplied by the petitioner that the Income-tax Officer originally held that the assessee had ceased to carry on its business in the accounting year and there was no question of any assessment under Section 10. Mr, Sen contended that in this case there has been both, (i) active and (ii) passive concealment. In this year there was no disclosure to the Income-tax Officer that there was a sale of the immovable property of the assessee ; on the other hand, all materials produced, supported the assessee's claim that the colliery had been transferred as on May 1, 1955. Mr. Sen referred me to the relevant passages in the Supreme Court decision in Calcutta Discount Company's case, and Narayanappa's case, which have already been quoted above, for the proposition that the duty of disclosing all the primary facts relevant to the question lies on the assessee and the position remains that so far as the primary facts are concerned it is the duty of the assessee to disclose all of them including particular entries in account books, particular portions of documents and other evidence which could have been discovered I by the assessing authority from the documents and other evidence disclosed.

22. The learned counsel contended that it was the duty of the assessee to point cut to the Income-tax Officer that under the deed of sale the immovable properties of the assessee had not been transferred on May 1, 1955. There has been thus a misrepresentation of facts and it could not be said that full and true disclosure of all primary facts have been made in this case. It was further contended that as the first stage of making full and true disclosure by the assessee had not been arrived at, the second stage of drawing inference by the Income-tax Officer could not have arisen. It was, accordingly, submitted that there was some material on the original assessment order, for the year 1958-59, for the present respondent-Income-tax Officer to have come to the belief that the assessee's income had escaped assessment.

23. I am entirely unable to accept this contention of Mr. Sen. There does, not appear to have been any misunderstanding of the contents of the sale deed by the Income-tax Officer making the original assessment on the petitioner. Both the Income-tax Officer and the petitioner accepted the position that the declaration in the deed of sale that the sale became effective from the 1st January, 1955, resulted in the transfer and sale of the colliery to the purchaser on and from that date. It was only on the subsequent decision of the Supreme Court in Bhurangya's case that it was realised that the transfer of immovable property was not effected till the registration of the relevant sale deed and as such the immovable property of the petitioner was not transferred to the purchaser till the 28th September, 1967. The reason for the escapement of assessment, if there was any such escapement, was not due to any omission or failure on the part of the assessee, but to the ignorance of the legal effect of non-registration of the document of sale of immovable properties as pointed out by the Supreme Court in the aforesaid case. As such the ratio of the decision of this court in Kallu Babu Lalchand applies and it must be held that the respondent-Income-tax Officer was not justified in issuing the impugned notice under Section 148 of the Act.

24. An argument, prompted by Dr. Pal's reference to Abirchand's case was advanced by Mr. Sen which caused me some moments of anxiety. Though Dr. Pal objected that as such a contention was not raised in any of the affidavits, the contention being one of law requiring no further investigation of facts was allowed by me to be argued. Mr. Sen submitted that whatever might have been position under the provisions of the old Section 34, the 1961 Act has made substantial differences in respect of reassessment proceedings resulting from the decision of any appellate authority. While Section 149 of the Act prescribes the periods within which the notice's under section 148 are to be issued, Section 150(1), which corresponds to a part of the proviso to the old Section 34(3), enacts that notwithstanding anything contained in Section 149, the notice under Section 148 may be issued at any time for the purpose of making an assessment or reassessment or recomputation in consequence of or to give effect to any finding or direction contained in an order passed by any authority in any proceedings under this Act by way of appeal, reference or revision. As the corresponding provision in the old Act, authorising the assessment or reassessment of any person other than the assesses in consequence of or to give effect to any finding or direction given in appeal, was held to be ultra vires by the Supreme Court in Prashar's case, : [1963]49ITR1(SC) , and doubts were also expressed as to the validity of the provision for making a reassessment on the assessee after the period of limitation to give effect to any such direction, a new provision was enacted in the 1961 Act in Explanation 2 to Section 154(3). Under Section 154(3) the limitations prescribed by sub-sections (1) and (2) of that section are not to apply in certain cases and the said Explanation 2 provides as follows :

'Where, by an order under Section 250, 253, 260, 262, 263 or 264 any income is excluded from the total income of the assessee for an assessment year, then, an assessment of such income for another assessment year shall, for the purposes of Section 150 and this section, be deemed to be one made In consequence of or to give effect to any finding or direction contained in the said order.'

25. Mr. Sen submitted that the said Explanation empowered the respondent-Income-tax Officer to issue a notice under Section 148 to give effect to the order of the Tribunal which had held that the profit under Section 10(2)(vii) was not assessable for the assessment pear 1956-57, and as such the same could be assessed in the year 1958-59. On the face of it this argument appears to be a plausible one. Mr. Sen further submitted that under the provisions of Section 297(2)(d)(ii) of the Act the notice of reassessment in this case could be issued under Section 148 subject to the provisions of Sections 149 and 150, as no such notice had been issued under Section 34 of the old Act. Accordingly, the respondent-Income-tax Officer could have issued such a notice without any time limit and the notice in this case should be sustained on the ground that in any event the respondent-Income-tax Officer had jurisdiction to issue such a notice. Mr. Sen relied on the decision of the Supreme Court in Damodhar Bhat's case, : [1969]71ITR806(SC) where it was held that in a case falling under Section 297(2)(j) of the 1961 Act a notice of demand under Section 156 of that Act could be validly issued in a proceeding for recovery of tax and penalty under the old Act of 1922. Even if this court was of opinion that the respondent-Income-tax Officer was not entitled to issue the impugned notice on the grounds mentioned in theaffidavit-in-opposition, the notice and the proceedings thereunder should not be quashed as the court would not issue a writ which would be infructuous as in this case, the Income-tax Officer could issue a fresh notice under the above section' as authorised by Sections 150 and 153(3), Explanation 2. Without prejudice to his objection that the new point raised could not be taken by the respondent, Dr. Pal submitted that had that contention been raised in the pleadings he could have challenged the constitutional validity of the provisions of Section 297(2)(d) as it was in conflict with Section 297(2)(a). The latter sub-section provides that where a return of income had been filed before the commencement of the 1961 Act for any assessment year, proceedings for the assessment of that person for that year might be taken and continued as if this Act had not been passed. The learned counsel pointed out that under Section 2(8) an assessment includes reassessment and as such the reassessment proceedings in this case could have been taken under the old Act, and, consequently, Section 297(2)(d), enabling the Income-tax Officer to issue a notice under Section 148 in the case of an assessee who had filed its return of income before the commencement of the present Act, is in conflict with the provisions of sub-clause (a) and to that extent void. Further, in Section 297(2)(d)(ii), Section 153 is not specifically mentioned and, therefore, the Explanation to that section did not come into play. Learned counsel further submitted that the aforesaid Explanation 2 created a fiction by deeming an assessment to be made in consequence of an order or to give effect to a finding or direction which was not there. But there is no provision that the proceedings under the 1922 Act should be deemed to be proceedings under the new Act. There is, therefore, a case of double deeming which is not permitted. Reliance was placed on the decision of the Supreme Court in the case of Elphinstone Spinning and Weaving Mills Co. Ltd., : [1960]40ITR142(SC) and Amarchand N. Shroff's case, : [1963]48ITR59(SC) . It was further submitted, by reference to Section 131 of the 1961 Act, that where the legislature intended the provision of the new Act to apply to proceedings under the old Act it was careful to say so expressly and Bhat's case, relied on by Mr. Sen, had no application, as in that case a garnishee order was issued under the new Act and the contention was that unless the assessee was in default no notice under Section 226 was permissible and this was rejected. It is further submitted that the said decision is under Section 297(2)(j) which deals with a procedural matter, namely, recovery of tax. It does not cover a case where jurisdiction is to be assumed on the fulfilment of certain conditions. An interpretation which would tend to nullify a procedural section should not be accepted.

26. These are very substantial questions to be considered on a proper occasion, I think Dr. Pal is justified in his objection to Mr. Sen being allowed to raise the last contention. In any event if Mr. Sen's contention is correct the department would not be prejudiced because the respondent-Income-tax Officer would be justified in issuing a fresh notice under Section 148 in accordance with Sections 150 and 153(3).

27. In the premises the rule must be made absolute. A writ of certiorari would be issued quashing the impugned notice and any proceedings taken thereunder, and also a writ of prohibition forbidding the respondents from giving any effect to or taking any further steps in pursuance of the impugned notice. As I have already stated above, the petitioner is entitled to the costs of this application which should be paid by the respondent No. 1.


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