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HIGH COURT OF CALCUTTA
SANKAR PRASAD MITRA, SABYASACHI MUKHERJI
INCOME TAX OFFICER, "A" WARD - Appellant
Versus
EASTERN COAL CO. LTD. - Respondent
Appeal 72 Of 1971
Decided On : DECEMBER 4, 1973
INCOME TAX - Reassessment - Validity of notice - Section 148 of the Income-tax Act, 1961 - Whether notice issued under Section 148 was valid - Whether assessee had failed to disclose fully and truly all primary facts - Whether action could be taken under Clause (b) of Section 147 of the Income-tax Act, 1961 - Whether Section 297 (2) (d) (ii) of the Income-tax Act, 1961, was ultra vires - Whether Section 150 of the Income-tax Act, 1961, applied - Whether notice had become barred - Whether Explanation 2 to Sub-section (3) of Section 153 could be invoked.
Fact of the Case:
Eastern Coal Company sold its colliery to Bhowrah Kankanee Colleries Ltd. , by an indenture dated the 28th of September, 1957. The assessee claimed that its business and its collieries had been sold with effect from the 1st January, 1955. The assessee also produced certain evidence in support of the said claim and was taxed only on interest on security and dividend income. On the 7th of December, 1965, the Income-tax Officer issued a notice under Section 148 of the Income-tax Act, 1961, in respect of the assessment year 1958-59.
Finding of the Court:
The court held that the notice issued under Section 148 of the Income-tax Act, 1961, was valid. The court held that the assessee had not failed to disclose fully and truly all primary facts and that the income did not escape as a result of such alleged failure on the part of the assessee, but there was escapement and that information came subsequent to the original assessment and there was information to that effect. The court also held that Section 297 (2) (d) (ii) of the Income-tax Act, 1961, was not ultra vires and that Section 150 of the Income-tax Act, 1961, applied. The court further held that the notice had not become barred and that Explanation 2 to Sub-section (3) of Section 153 could be invoked.
Issues: 1. Whether the notice issued under Section 148 of the Income-tax Act, 1961, was valid? 2. Whether the assessee had failed to disclose fully and truly all primary facts? 3. Whether action could be taken under Clause (b) of Section 147 of the Income-tax Act, 1961? 4. Whether Section 297 (2) (d) (ii) of the Income-tax Act, 1961, was ultra vires? 5. Whether Section 150 of the Income-tax Act, 1961, applied? 6. Whether the notice had become barred? 7. Whether Explanation 2 to Sub-section (3) of Section 153 could be invoked?
Ratio Decidendi: 1. The court held that the notice issued under Section 148 of the Income-tax Act, 1961, was valid because the assessee had not failed to disclose fully and truly all primary facts and that the income did not escape as a result of such alleged failure on the part of the assessee, but there was escapement and that information came subsequent to the original assessment and there was information to that effect. 2. The court held that Section 297 (2) (d) (ii) of the Income-tax Act, 1961, was not ultra vires because it did not discriminate between the persons who had been served with notices under Section 34 of the Income-tax Act, 1961, and those who had not been served with such notices. 3. The court held that Section 150 of the Income-tax Act, 1961, applied because the notice was issued to give effect to a finding or direction contained in an order passed by an authority in a proceeding under the Income-tax Act, 1961. 4. The court held that the notice had not become barred because on the date of the appellate order the time for taking action for assessment for that year had not become barred by the other provisions of the Act. 5. The court held that Explanation 2 to Sub-section (3) of Section 153 could be invoked because it 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.
Final Decision: The appeal was allowed and the judgment and order of the learned trial judge were set aside and the rule nisi was discharged.
( 1 ) IN this appeal the question involved is the validity of the notice dated the 7th December, 1965, issued under Section 148 of the Income-tax Act, 1961, for the assessment year 1958-59. It appears that Eastern Coal Company sold its colliery to Bhowrah Kankanee Colleries Ltd. , by an indenture dated the 28th of September, 1957. This sale was made effective on and from the 1st of January, 1955. The consideration for the sale was Rs. 62 lakhs with an abatement of Rs. 5 lakhs on the ground of retrenchment compensation. On the 26th of June, 1958, Eastern Coal Company went into voluntary liquidation. On the 29th of December, 1960, the assessment of the Eastern Coal Company for the assessment year 1956-57, accounting year being 1st of October, 1954, to 30th of September, 1955, was completed. The assessee offered for taxation the said sum of Rs. 62 lakhs for the said assessment year and was accordingly taxed under Section 10 (2) (vii) of the Indian Income-tax Act, 1922, for a sum of Rs. 2,21,057. The difference between the written down value and the actual sale consideration was the figure which was subjected to tax on this account. It is stated that the assessment was made on the basis of the documents and evidence furnished by the assessee. Thereafter, on the 28th of February, 1961, the assessment for the assessment year 1958-59 was completed on the basis of the return filed by the assessee. The assessee claimed that its business and its collieries had been sold with effect from the 1st January, 1955. The assessee also produced certain evidence in support of the said claim and was taxed only on interest on security and dividend income. The assessee's claim for expenses under the head "loss on working" was disallowed on the ground that in the relevant year the assessee was not carrying on any business. On the 21st of July, 1965, the assessee was allowed to take a supplementary ground before the Income-tax Appellate Tribunal in its appeal for the assessment year 1956-57, contending that the profit which was the subject-matter of taxation under Section 10 (2) (vii) of the Indian Income-tax Act, 1922, for the assessment year 1956-57 was not liable to by taxed in the said assessment year. The Tribunal came to the conclusion following the decision of the Supreme Court in the case of Commissioner of Income-tax v. Bhurangya Coal Co. , that the sale was concluded on the 28th of September, 1957, when the deed of conveyance was registered. The Tribunal accordingly held that the profits under Section 10 (2) (vii) were, therefore, liable to be included in the assessment of the assessee for the assessment year 1958-59 and not in the assessment year 1956-57 under appeal. It appears that thereafter on being moved under Section 35 of the Indian Income-tax Act, 1922, the Tribunal rectified the order by deleting the words "liable to be included in the total income of the appellant in the assessment year 1958-59" in view of the decision of the Supreme Court in the case of Income-tax Officer, "a" Ward, Sitapur v. Murlidhar Bhagwan Das,. On the 7th of December, 1965, the Income-tax Officer issued a notice under Section 148 of the Income-tax Act, 1961, in respect of the assessment year 1958-59 and on the 4th February, 1966, this rule was obtained under Article 226 of the Constitution challenging the validity of the notice. The rule ultimately came up for hearing before K. L. Roy J. and by a judgment delivered and an order passed on the 6th of October, 1969 the rule nisi was made absolute and the notice under Section 148 was quashed. This appeal has been preferred from the said judgment.
( 2 ) THE first ground of challenge to the said notice is that all primary facts had been disclosed. We directed the income-tax department to produce before us the recorded reasons for the reopening of the said assessment. The said reasons were produced; the reasons were shown to counsel for the assessee. The reasons are as follows :"in this c
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