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Supreme Court Of India
MADHYA PRADESH INDUSTRIES LIMITED
Versus
INCOME TAX OFFICER,nagpur
Decided On : April 16, 1970
Indian Income-tax Act, 1922 – Sections 34, 38, 22 – Constitution of India, 1950 – Article 226 and 227 – Proceedings – Competency – In these appeals by special leave, the only question of law that arises for decision is whether the respondent was competent to initiate proceedings under S. 34 of the Indian Income-tax Act, 1922 – Held, It is of course open for the assessee to contend that the Income-tax Officer did not hold the belief that there had been such non-disclosure. In other words, the existence of the belief can be challenged by the assessee but not the sufficiency of the reasons for the belief. – Therein it was observed that the expression reason to believe in S. 34 does not mean purely subjective satisfaction on the part of the Income-tax Officer. – Belief must be held in good faith: it cannot be merely a pretence. – It is open to the Court to examine whether the reasons for the belief have a rational connection or a relevant bearing to the formation of that belief are not extraneous or irrelevant to the purpose of the section. – To this limited extent, the action of the Income-tax Officer in starting proceedings under S. 34 of the Act is open to challenge in a Court of law. – Proceedings recorded by him before issuing the notices have not been produced nor his report to the Commissioner or even the Commissioners sanction has not been produced. – Hence it is not possible to hold that the Income-tax Officer had any reason to form the belief in question or the reasons before him were relevant for the purpose. – Court have no basis before us to hold that the Income-tax Officer had jurisdiction to issue the impugned notices. – Hence the proceedings taken by him have to be quashed. – Appeals Allowed
Judgment
K. S. HEGDE
( 1 ) IN these appeals by special leave, the only question of law that arises for decision is whether the respondent was competent to initiate proceedings under S. 34 of the Indian Income-tax Act, 1922 (which will hereinafter be referred to as the Act ).
( 2 ) THE respondent initiated proceedings under S. 34 of the Act against the appellant by issuing notices under that section on 26/12/1960 in respect of the assessment years 1953-54, 1954-55 and 1955-56. The appellant challenged the validity of those proceedings by means of writ petitions under Article 226 and 227 of the Constitution in the High Court of Judicature at Bombay (Nagpur Bench ). Those petitions were summarily dismissed. The appellant thereafter appealed to this Court after obtaining special leave from this Court. This Court allowed those appeals on 8/04/1965 holding that the High Court was not justified in summarily dismissing the writ petitions as the allegations made therein merited examination. Thereafter the High Court issued rule nisi in those petitions. The respondent opposed those petitions. After hearing the parties, the High Court again dismissed those writ petitions. Hence these appeals.
( 3 ) THE facts of the case material for deciding these appeals have been set out in detail in this Courts order dated 8/04/1965. We shall briefly refer to them.
( 4 ) THE above appeals relate to proceedings under S. 34 of the Act in respect of three assessment periods. It would be sufficient if we set out the facts relating to the assessment year 1953-54. There is no dispute that if the proceedings relating to that year are held to be invalid, similar would be the position regarding the proceedings relating to the other two assessment periods. On the other hand, if they are held to be valid, the same would be true in respect of the other assessment periods.
( 5 ) THE appellant, Madhya Pradesh Industries Ltd. (hereinafter referred to as the company), is engaged in the business of mining manganese ore. On 18/03/1952, the Company appointed M/s. J. K. Alloys Ltd. , (hereinafter called alloys) as its settling agents. In the account year relating to the assessment year 1953-54, the company paid as commission, Rupees 1,13,052/8/9 to the selling agents and claimed that amount as a revenue outgoing in the computation of its profits for that year. The Income-tax Officer made the order of assessment without expressly referring to the said deduction but proceeding on the basis that it is a permissible deduction. On 26/12/1960, the Income-tax Officer issued a notice to the Company in exercise of his powers under S. 34 of the Act reciting therein that he having reasons to believe that the income of the company assessable to income-tax for the assessment year 1953-54 had (a) escaped assessment and (b) under-assessed, he proposes to reassess the income that had escaped assessment or had been under-assessed. He called upon the company to deliver a return of the total income of the company assessable for the said assessment year 1953-54. In response to a letter sent by the company, the Income-tax Officer informed the company that the notice issued by him was under S. 34 (1) (a ). Thereafter there was some correspondence between the Income-tax Officer and the company. The Income-tax Officer required the company to give him the information called for in the questionnaire issued by him. The company did not send any reply to the said questionnaire. On 21/12/1961, the Income-tax Officer informed the company that since the questions asked were not replied to, he presumed that no correspondence with Alloys existed and the payment of commission had been made without any justification, Alloys having rendered no service as selling agents.
( 6 ) ON 2/04/1962, the company moved the High Court of Judicature of Bombay (Nagpur Bench) praying for the issue of a writ of certiorari under Article 226 of the Constitution or an appropriate direction or order under Article 227 of the Const
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