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Panama Private Ltd. Vs. Income-tax Officer, c Ward and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberMatter No. 304 of 1969
Judge
Reported in75CWN431,[1971]82ITR205(Cal)
ActsIncome Tax Act, 1961 - Sections 147, 148 and 148(1)
AppellantPanama Private Ltd.
Respondentincome-tax Officer, "c" Ward and ors.
Appellant AdvocateA.C. Mitter and ;D. Pal, Advs.
Respondent AdvocateAmiya Kumar Basu, Adv.
Cases Referred and R. B. Bansilal Abirchand Firm v. Commissioner of Income
Excerpt:
- .....the income-tax officer had information upon which he had reasons to believe that the petitioner's income escaped assessment i think this would at best constitute only change of his opinion and not the reasonable belief based on information and necessarily the income-tax officer cannot have any jurisdiction to reassess the petitioner's income on issuing notices under section 148 of the act, see manavedan tirumalpad v. commissioner of income-tax. it may be that the rate of depreciation allowance at 7% in the other cases was the correct rate allowable as set out in the relevant appendix to the income-tax rules but that fact by itself coming to the knowledge of the income-tax officer concerned after the completion of the petitioner's assessement income cannot be treated as information even.....
Judgment:

A.K. Sinha, J.

1. This rule was obtained by the petitioner for quashing several notices under Section 148 read with Section 147(b) of the Income-tax Act, 1961 (referred to herein as 'the Act') proposing to reopen the assessment for the assessment years 1964-65 to 1968-69.

2. The petitioner is an existing private limited company under the provisions of the Indian Companies Act, 1913. It carries on, inter alia, business of manufacture and sale of 'safety razor blades'. In due course it submitted its returns of income for the assessment years from 1964-65 to 1967-68 which were duly assessed allowing depreciation amongst other things on the blade manufacturing machineries at the rate of 10% for each year. Thereafter, by a subsequent order dated May 6, 1968, the Income-tax Officer also made certain rectification of the assessment. The petitioner, however, took an appeal before the Appellate Assistant Commissioner against the assessment for the year 1964-65 who by his order dated June 24, 1968, gave certain deductions in the total income of the assessee for this year.

3. Thereafter, the petitioner was served with five notices on March, 25, 1969, issued by the respondent No. 1 proposing to reopen the assessment for all these years, i.e., from 1964-65 to 1968-69, as it was said that in consequence of information in the possession of the Income-tax Officer he had reason to believe that the income for all these years chargeable to tax had escaped assessment under Section 147(b) of the Act. The Income-tax Officer also directed the petitioner to submit returns for each of the years. Then, after several correspondence the petitioner requested the Income-tax Officer to treat the original returns for all these assessment years as returns filed incompliance with his notices. As the Income-tax Officer in spite of representations of the petitioner did not withdraw the notices, the petitioner has come up to this court in writ jurisdiction and obtained the present rule.

4. Quite a number of grounds were taken attacking the jurisdiction of the Income-tax Officer but the main grievance as pressed by Mr. Mitter on behalf of the petitioner is that conditions precedent for issuing such notices were not fulfilled. It is contended that there was no material to show that the Income-tax Officer had reason to believe that the income for these years escaped assessment.

5. A preliminary objection as to the maintainability of the instant writ petition in this court has been raised on behalf of the respondents by Mr. Amiya Kumar Basu, learned standing counsel. It is said that the petitioner has an adequate and alternative remedy by way of an appeal against the order of assessment that may be made pursuant to the notice given and, therefore, the present writ petition is not maintainable.

6. Since the decision of the Supreme Court in Calcutta Discount Co. Ltd. v. Income-tax Officer, : [1961]41ITR191(SC) , which was a case under Section 34 of the Indian Income-tax Act, 1922, the law is fairly settled that so far as the question whether the Income-tax Officer had reasons to believe that underassessment had occurred on account of non-disclosure of fact was not a mere question of limitation only but was a question of jurisdiction which could be investigated by the High Court under Article 226 of the Constitution. This was a case of escaped assessment owing to omission or failure to disclose truly and fully all material facts necessary for a particular year. The Supreme Court held that two conditions has to be satisfied :

'The first was that the Income-tax Officer must have reason to believe that the income ofthe assessee had been under-assessed. The second was that he must have also reason to believe that such under-assessment had occurred by reason of, (i) omission or failure on the part of the assessee to make a return under Section 22, or (ii) omission or failure to disclose fully and truly all material facts necessary for the disputed years. Both these conditions were conditions 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 4 years but within a period of 8 years from the end of the year in question.'

7. In an earlier decision, Maharaj Kumar Kamal Singh v. Commissioner of Income-tax, : [1959]35ITR1(SC) which was a case under Section 34(1)(b) of the old Act, on a question whether information came into possession of the Income-tax Officer subsequent to the making of the original assessment leading to his belief that the income of the assessee chargeable to tax had escaped assessment, the Supreme Court held that two conditions must be satisfied before the Income-tax Officer could act under Section 34(1)(b), namely, (a) that he must have information coming to his possession subsequent to the making of the original assessment, and (b) that information must lead to his belief that the income chargeable to tax escaped assessment or had been underassessed or assessed at too low a rate or had been made the subject of excessive relief. In two later decisions of the Supreme Court, in Commissioner of Income-tax v. A. Raman & Co., : [1968]67ITR11(SC) , which was a case under Section 147(b) of the present Act and R. B. Bansilal Abirchand Firm v. Commissioner of Income-tax, [1969] 70 I.T.R. 74 (S.C.) substantially the same view was adopted.

8. It will thus appear from the principle indicated above that the question of jurisdiction is involved in issuing impugned notices and clearly the High Court would interfere in exercising its writ jurisdiction if it is satisfied that the income-tax authorities in issuing such notices acted in excess or without jurisdiction or failed to exercise its jurisdiction. I, therefore, do not think that there is much of substance in the preliminary objection raised.

9. I would now take up the question as to whether the two conditions which are precedent to the issuing of notices have been satisfied in thiscase, for, only on fulfilment of these two conditions the Income-tax Officer can be said to have jurisdiction to issue the impugned notices.

10. The relevant part of Section 147(b) of the Act is as follows :

'(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 chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in Sections 148 to 153 referred to as the relevant assessment year).

Explanation 1.--For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :--

(a) where income chargeable to tax has been under-assessed ; or

(b) where such income has been assessed at too low a rate ; or

(c) where such income has been made the subject of excessive relief under this Act or under the Indian Income-tax Act, 1922 (11 of 1922) ; or

(d) where excessive loss or depreciation allowance has been computed.'

11. Then, the procedure for assessment, reassessment or recomputation under Section 147 is laid down in Section 148 of the Act which is :

'148. Issue of notice where income has escaped assessment.--(1) Before making the assessment, reassessment or recomputation under Section 147, the Income-tax Officer shall serve on the assessee a notice containing all or any of the requirements which may be included in a notice under Subsection (2) of Section 139; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section.

(2) The Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so.'

12. In this case I am concerned with Sections 147(b) and 148 of the Act under which the notices have been issued on the ground that, consequent to information coming into his possession, the Income-tax Officer has reasons to believe that the income chargeable to tax has escaped assessment for several successive periods mentioned above, The enunciation of law on a construction of these sections made by the Supreme Court cannot be disputed, but then each case has to be judged on its own facts to see whether the Income-tax Officer could be said to have any jurisdiction in issuing the impugned notices.

13. Now, coming to the facts of the present case, the reasons recorded for issuing the impugned notices under Section 147(b) by the Income-tax Officer are stated in paragraph 3 of the affidavit-in-opposition on behalf of the Income-tax Officer which are :

'After the said assessments for the said years 1964-66 to 1968-69 were completed, information came into my possession that the petitioner was in fact entitled to claim depreciation at 7% on the said blade making machinery. Furthermore, in the assessments of the sister concern of the petitioner, M/s. Indo-Swing, depreciation allowance on the said machinery has all along been claimed and had been allowed at the rate of 4% only.'

14. Substantially, the same statement is made in paragraph 10 of this affidavit and it was asserted by the Income-tax Officer that the petitioner was not entitled to a higher rate of depreciation which, in fact, was allowed to the petitioner due to inadvertence and/or mistake and such information came into his possession subsequent to the completion of the said assessments, and, therefore, he had reason to believe and bona fide believed that the income chargeable to tax for the said assessment years had escaped assessment within the meaning of Section 148 read with Section 147(b) of the Act. At the time of hearing, the reasons recorded were also produced from the original records and I have directed a copy to be kept in this court with the records of this case.

15. Mr. Mitter's contention against this type of reasons as recorded by the Income-tax Officer are two-fold. First, it is said that it would be quite clear from the reason that there were no prima facie material in support of the so-called information which could possibly lead the Income-tax Officer to believe that the petitioner's income had escaped assessment for these years. Secondly, his contention is that the materials, viz., that the assessment of income of the sister concern of the petitioner, M/s. Indo-Swing, where depreciation allowance on the identical machineries had all along been claimed and allowed at the rate of 7% only could not be said to be connected with the information coming into the possession of the Income-tax Officer relying on which he could be said to have reasons to believe that the income of the petitioner escaped assessment. For, it is pointed out by Mr. Mitter that it began with the word 'furthermore' and, consequently, these materials could not be held to be a part of any such information on which the Income-tax Officer formed his belief. It is argued that it is quite clear from the reasons recorded that the belief of the Income-tax Officer was complete owing to information which came into his possession apart from these materials. According to Mr. Mitter, therefore, since such information did not disclose any material whatsoever which could reasonably be said to have enabled the Income-tax Officer to form such a belief, the Income-tax Officer could not have any jurisdiction to issue such notices.

16. Mr. Amiya Kumar Basu, learned standing counsel for the respondents, however, has sought to repel this contention on an argument that the word 'information' may mean knowledge even about the state of law. It need not be confined to factual information. The learned counsel has relied on the decision of the Supreme Court in support of this contention in Maharaj Kumar Kamal Singh's case', where, in meeting the argument of the learned counsel of the appellant that the context requires that the word 'information' should receive a narrow construction limiting it to facts or factual materials as distinguished from information as to the true state of the law, the Supreme Court held that :

'The word 'information' in Section 34(1)(b) includes information as to the true and correct state of the law and so would cover information as to relevant judicial decisions.'

17. And, accordingly, rejected on the facts of that case the argument that the Income-tax Officer was not justified in treating the Privy Council decision in question as information within Section 34(1)(b) of the Income-tax Act, 1922. This decision of the Supreme Court, as pointed out by the learned standing counsel, was followed in a Bench decision of this court in Commissioner of Income-tax v. Kalyanji Mavji & Co., : [1969]74ITR107(Cal) As noticed earlier the view taken in Maharaj Kumar Kamal Singh's case was also adopted in A. Raman's case. My attention was accordingly drawn by the learned standing counsel to Part I, Appendix I, item No. 111(1), of the Income-tax Rules, 1962, to show that for machineries or plants as mentioned therein general rates of 7 per cent, depreciation are prescribed. It is said that in case of specified class of machineries special rates of depreciation are provided in item III(1) of the Appendix which does not include the type of machineries of the petitioner on which rate of 10 per cent. depreciation may be allowed. But, I think, in the present case, however, absolutely there is no indication as to what information even on the state of the law the Income-tax Officer got in his possession after the completion of assessment. There must be some statement appearing in the reasons from which it may be possible to say that the Income-tax Officer concerned had no information as to the state of the law at the time of assessment. However, I leave the matter here for the present and shall deal with it further at the pro-per time.

18. The learned standing counsel has also argued that in any event there are factual information disclosed in the reasons recorded by the Income-tax Officer as it is stated that the sister concern of the petitioner has the same type of machineries and they were given deduction only at the rate of 7% upon those machineries in the course of assessment of their income. It is, however, already argued by Mr. Mitter, that these particulars are entirely unconnected with the information coming into the possession of the Income-tax Officer for they are merely casual as the statements regarding these particulars begin with the word 'furthermore' after the Income-tax Officer has concluded saying that in consequence of information coming into his possession he had reasons to believe that the petitioner's income has escaped assessment, I do not think that these materials which reveal an external source of information are entirely unconnected with the earlier part of the reasons recorded. In other words, it is not possible to segregate these materials from the information which came into his possession as stated by this particular Income-tax Officer in the reasons recorded by him. Even if it be treated as an additional information, then also it may very well form a part of the information which, as stated, reasonably constituted the belief of the Income-tax Officer. Then again, the word 'furthermore' does not occur in the reasons recorded. In any case, the reasons recorded by the Income-tax Officer may lack directness or precision but I am not prepared to say that the formation of belief of the Income-tax Officer was not at all dependent upon these materials from external source.

19. Even then, the question arises as to whether these materials could be treated at all for purpose of assessment or reassessment of the petitioner's income as information within the meaning of Section 147(b) of the Act. In my view, in order that the Income-tax Officer may have reason to believe that the income of the petitioner chargeable to tax has escaped assessment for any assessment year, the factual information that may come into his possession must have real relation with the income of the petitioner so that on the materials discovered leading to such information there is bound to be alteration or change in the original assessment of such income of the petitioner. But whereas, here, the Income-tax Officer forms his belief on information based on certain facts which are entirely unconnected with the petitioner's income, it cannot be said that there is information in the possession of the Income-tax Officer as contemplated by Section 147(b) of the Act.

20. Now, reverting back to the argument of learned standing counsel, the question is whether the materials disclosed could be treated as information as to the state of the law. Even assuming that the Income-tax Officer believed upon these materials that the petitioner's income was wrongly assessed under the law and should have been assessed according to the assessment of the income made in respect of an entirely different person or a company, can it be said that the Income-tax Officer had information upon which he had reasons to believe that the petitioner's income escaped assessment I think this would at best constitute only change of his opinion and not the reasonable belief based on information and necessarily the Income-tax Officer cannot have any jurisdiction to reassess the petitioner's income on issuing notices under Section 148 of the Act, See Manavedan Tirumalpad v. Commissioner of Income-tax. It may be that the rate of depreciation allowance at 7% in the other cases was the correct rate allowable as set out in the relevant Appendix to the Income-tax Rules but that fact by itself coming to the knowledge of the Income-tax Officer concerned after the completion of the petitioner's assessement income cannot be treated as information even as to the state of the law. It is true that the information contemplated under Section 147(b) may be either on facts or on law but that does not mean that each and every mistake of law in the assessment of the assessee's income subsequently discovered can be treated as information by the Income-tax Officer concerned for the purpose of reassessment of the petitioner's income. Information as to the state of the law contemplates such information as in normal course could not be either discovered with due diligence or be within the knowledge of the particular Income-tax Officer at the time of assessment. This is really the principle indicated in several decisions of the Supreme Court and other High Courts. See Maharaj Kumar Kamal Singh's case, Chatturam Horilram Ltd. v. Commissioner of Income-tax, : [1955]27ITR709(SC) , Commissioner of Income-tax v. A. Raman and Co., and R. B. Bansilal Abirchand Firm v. Commissioner of Income-tax. But where the law is clear and patient as in the instant case, subsequent discovery of a fact even from external sources showing that the assessment in question as made was erroneous in law cannot clothe the Income-tax Officer with jurisdiction to issue notice under Section 148(1) of the Act for reassessment of the petitioner's income as provided under Section 147(b) of the Act. In my opinion, on the facts and circumstances of the present case, mere information that in case of another company depreciation allowance of 7% was given in respect of identical machineries as claimed by that company is no information coming into the possession of the Income-tax Officer in consequence of which he may have reason to believe that the petitioner's income escaped assessment for the disputed period. It must be held, therefore, that the impugned notices for recomputation of the depreciation allowance were issued by the Income-tax Officer concerned without jurisdiction.

21. Mr. Mitter has raised a further point, viz., that in any event the materials disclosed may be treated as only information of a particular assessment made by one Mr. R. N. Bera, the Income-tax Officer, for the year 1968-69. It is said that the other Income-tax Officer, Mr. N. Bahadur, cannot be said to have completed the assessment without having any such information. It is argued that this information is peculiarly personal to Mr. Bera. On the view I have taken in this matter, I do not think it necessary to examine the correctness of this contention on this aspect of the matter, and I express no opinion on it.

22. For the reasons, however, already given, I quash the impugned notices.

23. The rule is made absolute to the extent indicated above, but there will be no order as to costs.

24. Let a writ both in the nature of mandamus and certiorari issue accordingly.


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