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HIGH COURT OF CALCUTTA
D. N. SINHA, A. K. MUKHERJI, S. K. MUKHERJEE
SHEO NATH SINGH - Appellant
Versus
APPELLATE ASSISTANT COMMISSIONER OF INCOME-TAX (CENTRAL RANGE) - Respondent
Matter 236 Of 1961
Decided On : OCTOBER 6, 1966
INCOME TAX - Assessment - Reopening of assessment - Section 34 (1a) of the Income Tax Act, 1922 - Validity - Whether discriminatory and violative of Article 14 of the Constitution - Whether pre-condition of "reason to believe" fulfilled - Whether Appellate Assistant Commissioner could partly decide the matter and partly remand it for hearing before the Income-Tax Officer - Whether Income Tax Officer could utilize the disclosures made by the petitioner before the Income-Tax Investigation Commission.
Fact of the Case:
The petitioner, a shareholder and director of various companies, was assessed to income tax for the years 1941-42 to 1946-47. In 1945-46, he sold his shareholding in the Associated Hotels of India Ltd. to Rai Bahadur Oberoi for a sum of Rs. 20,65,705-13-0 pies. The case of Rai Bahadur Oberoi was referred to the Income-Tax Investigation Commission, set up under the provisions of the Taxation on Income (Investigation Commission) Act, 1947. The Commission issued notices under Section 5 (4) of the Investigation Commission Act to the petitioner in respect of the assessment years 1940-41 to 1946-47. The petitioner made various statements of his net wealth on various dates and produced various books and records of all the companies in which he was a director or managing director. Later on, as a result of the decision in Shri Meenakshi Mills Ltd. v. Visvanatha Sastri, the Investigation Commission ceased to function. On the 5th of November, 1954, the Income-tax Officer, District II, Calcutta served on the petitioner several notices under Section 34 (1a) of the said Act for assessment years 1940-41 to 1946-47. The petitioner filed an application under Article 226 of the Constitution for the purpose of quashing and/or preventing the continuance of the said case. On the 6th of March, 1956 the Income-tax Officer, Central Circle XII Shri R. S. Gahlot issued a fresh set of notices under Section 34 (1a) in respect of the assessment years 1940-41 to 1946-47 and proceedings under the previous notices were discontinued. The Income-tax Officer, Central Circle XII Shri G. P. Gupta, assessed the petitioner for the years 1942-43, 1943-44, 1944-45 and 1945-46. The petitioner appealed to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner passed an order dated 3rd of June, 1961 referring the matter to the Income-tax Officer, for inquiry and report on certain points, as contemplated by Section 31 (2) of the said Act.
Finding of the Court:
1. Section 34 (1a) of the Income Tax Act, 1922 is not discriminatory and violative of Article 14 of the Constitution. 2. The pre-condition of "reason to believe" under Section 34 (1a) of the Income Tax Act, 1922 was fulfilled in the present case. 3. The Appellate Assistant Commissioner could partly decide the matter and partly remand it for hearing before the Income-Tax Officer under Section 31 (2) of the Income Tax Act, 1922. 4. The Income Tax Officer could utilize the disclosures made by the petitioner before the Income-Tax Investigation Commission.
Issues: 1. Whether Section 34 (1a) of the Income Tax Act, 1922 is discriminatory and violative of Article 14 of the Constitution? 2. Whether the pre-condition of "reason to believe" under Section 34 (1a) of the Income Tax Act, 1922 was fulfilled in the present case? 3. Whether the Appellate Assistant Commissioner could partly decide the matter and partly remand it for hearing before the Income-Tax Officer under Section 31 (2) of the Income Tax Act, 1922? 4. Whether the Income Tax Officer could utilize the disclosures made by the petitioner before the Income-Tax Investigation Commission?
Ratio Decidendi: 1. Section 34 (1a) of the Income Tax Act, 1922 is not discriminatory and violative of Article 14 of the Constitution because it is a reasonable classification based on the object of the provision, which is to prevent the escape of assessment of income. 2. The pre-condition of "reason to believe" under Section 34 (1a) of the Income Tax Act, 1922 was fulfilled in the present case because the Income-tax Officer had ample reason to believe that income had escaped assessment, based on the materials and information that subsequently came into his possession. 3. The Appellate Assistant Commissioner could partly decide the matter and partly remand it for hearing before the Income-Tax Officer under Section 31 (2) of the Income Tax Act, 1922 because he acted with great fairness and found it difficult to come to a conclusion without further materials on the question as to what fresh evidence was before the Income-tax Officer to convince him that this sum of about Rs. 20 lakhs, which was previously treated as capital, should be treated as income. 4. The Income Tax Officer could utilize the disclosures made by the petitioner before the Income-Tax Investigation Commission because the petitioner had filed a return for the year 1946-47, in which the receipt of the said sum was not disclosed nor brought to the notice of the Income-tax Officer, nor was it held to be a capital receipt, nor was the interest received on the said moneys included in the assessment of the petitioner.
Final Decision: The application is dismissed. The Rule is discharged--no order as to costs. All interim orders are vacated.
( 1 ) IN this case we are concerned with the Income-tax assessment of the petitioner Sheo Nath Singh for the years 1941-42 to 1946-47. The petitioner, according to his own petition, has at all material times been a shareholder of a number of companies engaged in the business of managing hotels and as a result of such shareholding, he became director and managing director of various companies. At one time he became the owner of a large block of shares of Spence's Hotel Ltd. and was formerly an ex-managing director, and is now incharge of the management thereof. According to the petitioner, in the year 1945-46 Rai Bahadur Oberoi purchased from him his share-holding in the Associated Hotels of India Ltd. (hereinafter referred to as the "associated Hotels") for a sum of Rs. 20,65,705-13-0 pies. Similarly, in 1949 another block of shares was purchased by the said Rai Bahadur Oberoi in the said company. It appears that the case of Rai Bahadur Oberoi was referred to the Income-Tax Investigation Commission, set up under the provisions of the Taxation on Income (Investigation Commission) Act, 1947. The said Commission, on or about 18th August, 1951 issued notices under Section 5 (4) of the Investigation Commission Act to the petitioner in respect of the assessment years 1940-41 to 1946-47. Before the Investigation Commission, the petitioner made various statements of his net wealth on various dates and produced various books and records of all the companies in which he was a director or managing director, and in respect of which he furnished various information. In Suraj Mall Mohta and Co. v. Visva Natha Sastri, and in Muthiah v. Commr. of Income Tax, Madras, the Supreme Court held that Section 5 (4) and Section 5 (1) respectively, of the Taxation on Income (Investigation Commission) Act, 1947 became void on the commencement of the Constitution as offending against Article 14 of the Constitution. The first-mentioned decision led to the insertion of Sub-sections (1a) to (1d) in Section 34 of the Income Tax Act, 1922 (hereinafter referred to as the "said Act" ). Section 34 (1a) of the said Act runs as follows :" (1a) If, in the case of any assessee, the Income-tax Officer has reason to believe- (i) That income, profits or gains chargeable to income-tax have escaped assessment for any year in respect of which the relevant previous year falls wholly or partly within the period beginning on the 1st day of September, 1939, and ending on the 31st day of March, 1946; and (ii) that the income, profits or gains which have so escaped assessment for any such year or years amount, or are likely to amount, to one lakh of rupees or more; he may, notwithstanding that the period of eight years or, as the case may be, four years specified in Sub-section (1) has expired in respect thereof, serve on the assessee, or, if the assessee is a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under subsection (2) of Section 22, and may proceed to assess or re-assess the income, profits or gains of the assessee for all or any of the years referred to in Clause (i), and thereupon the provisions of this Act (excepting those contained in Clauses (i) and (iii) of the proviso to Sub-section (1) and in Sub-sections (2) and (3) of this section) shall, so far as may be, apply accordingly:provided that the Income-tax Officer shall not issue a notice under this sub-section unless to has recorded his reasons for doing so, and the Central Board of Revenue is satisfied on such reasons recorded that it is a fit case for the issue of such notice: provided further that no such notice shall be issued after the 31st day of March, 1956. " Later on, as a result of the decision in Shri Meenakshi Mills Ltd. v. Visvanatha Sastri, the Investigation Commission ceased to function. On the 5th of November, 1954, the Income-tax Officer, District II, Calcutta Mr. Sarkar served on the petitioner severa
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