Judgment

K. RAMASWAMY

( 1 ) BY proceeding dated 21/01/1959 the respondent was assessed to income-tax for the assessment year 1957-58 ending with financial year 31/03/1957. On transfer on point of jurisdiction, the Income-tax Officer, Special IV Circle, Cuttack had drawn his proceeding on 2/07/1965 to reopen the assessment under Sections 147 (a) and 148 of the Incometax Act, 1961 (for short the Act) and obtained the approval of the Commissioners of Income-tax, Cuttack, Bihar and Calcutta thus:.

"the assessee sold his mining business during the relevant accounting year to a Company named Messrs. B. Patnaik Mines (P.) Ltd. and earned a profit of Rs. 15 lakhs which was assessable as capital gains but was not shown by the assessee in his return. The transfer of the business was stated by the assessee to have been made on 31-3-1956 and as such the amount of capital gains was not liable to taxation, it was claimed by the assessee since capital gains was not subjected to taxation in the assessment year 1956-57. But from information now available it appears that the transfer of the business took place on 3-11-1956 and thus the assessee was liable to be taxed on the capital gains earned in the accounting year ended 31-3-1957. Hence action under Section 147 (a) is required to assess the said sum of R. s. 15 lakhs which escaped assessment. "

( 2 ) THE respondent was called upon by notice dated 31/07/1965 to deliver within 30 days from the date of the service of the notice a return in the prescribed form of the income assessable for the assessment year 1957-58 and on failure thereof the notice dated 17/09/1965 under S. 142 (1) was followed to produce or caused to be produced the relevant records before the officer. Calling in question and to quash the notices the respondent filed writ petition under S. 226 of the Constitution. The learned single Judge by judgment dated 7/02/1973, dismissed the writ petition upholding the validity of the notice under S. 147 of the Act. On appeal the Division Bench by judgment dated November 27-28, 1974, while upholding the exercise of the power under S. 147 (a) of the Act held that the income derived by the respondent was towards sale of goodwill and that, therefore, the income was not liable to capital gains tax and the impugned notices were quashed. The High Court granted leave under Art. 133 (1) (a) and (b) of the Constitution. Thus this appeal.

( 3 ) THE contention of Dr. Pal, the learned counsel for the respondent is that the Incometax Officer merely communicated the notice without complying with the provisions of S. 147 (a) read with S. 148 of the Act. The Income-tax Officer must have reason to believe that the income for the relevant assessment Year had escaped assessment and that the escapement of the income was on account of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for that assessment year. The sum of Rs. 15,00,000. 00 received by the respondent was consideration for the transfer of the goodwill of the business as an on-going concern. The Income-tax Officer has no reason to believe that the income had escaped assessment for that year. The findings of the Courts below that the respondent failed to disclose the material facts that the transfer of the goodwill took place on 3/11/1956 and a sum of Rs. 15,00,000. 00 escaped assessment was not correct. Even otherwise, as per findings of the Division Bench, it was not liable to tax. Therefore, the condition precedent, namely, that the Income-tax Officer is satisfied that the escapement was due to omission or failure to disclose the material facts was not made out. Since the receipt of a sum of Rs. 15,00,0001- was consideration for the transfer of the goodwill, it was not liable to capital gains tax.-The satisfaction arrived at by the Income-tax Officer under S. 147 (a) did not exist on the facts of the instant case. The impugned notices under S. 147 (a) read with S. 148 and S. 142 (1) of the