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HIGH COURT OF CALCUTTA
D. N. Sinha
DAULATRAM RAWATMAL - Appellant
Versus
INCOME-TAX OFFICER - Respondent
Matter 139 Of 1958
Decided On : MAY 21, 1959
INCOME TAX - Reassessment - Notice - Validity - Income-tax Officer has reason to believe that income has escaped assessment - Meaning - Court can examine the reasons recorded by the Income-tax Officer - But the reasons need not be disclosed to the assessee at that stage - Disclosure of reasons to the Court - When can be made.
Fact of the Case:
The petitioner firm was served with notices under Section 34 (1a) of the Indian Income-tax Act, 1922, for the assessment years 1940-41 to 1945-46, on the ground that the Income-tax Officer had reasons to believe that the income, profits or gains assessable to income tax for several years mentioned in the said notices have partly or wholly escaped assessment and the income, profits, or gains, of the previous years which fall wholly or partly within the period beginning from 1st September, 1939 and ending on 31st March, 1946 and which have escaped assessment, amount to or are likely to amount to Rs. 1,00,000/-or more. The petitioner filed an application under Article 226 of the Constitution, inter alia, for quashing the proceedings initiated by the said notices on the ground that Section 5 (7a) and Section 34 (1a) of the Indian Income-tax Act were ultra vires of the Constitution, particularly Articles 14 and 19 thereof. The petitioner also sought production or inspection of the following documents: (1) The order of satisfaction of the Central Board of Revenue, as referred to in the said notices under Section 34 (1a) (2) The materials on which the Income-tax Officer had reasons to believe that income during the said period has escaped assessment. (3) The basis on which the Income-tax Officer came to be of the opinion that the amount of the escaped income was likely to amount Rs. 1,00,000/-or more.
Finding of the Court:
The Court held that the expression 'reason to believe' is a well-known expression in law and it means that the assessee can come to court and require the Income-tax Officer to satisfy the court upon sufficient evidence that in fact, there did exist reasons which would induce a reasonable man to believe that the conditions precedent for the issue of a notice under Section 34 (1a) had been satisfied. The Court further held that the Income-tax Officer must have certain information before him and cannot act on mere suspicion, that if upon the facts before him, he bona fide believed that it was necessary to issue a notice, then the Court will not interfere, and would not take upon itself the task to decide as to whether upon such facts the Income-tax Officer should have come to that belief. The Court also held that the matter being justiciable, and the Income-tax authorities having been called upon to satisfy the Court that facts existed which would make the order or the belief upon which it is based reasonable, they should disclose to Court the reasons, but these reasons should in the first instance be looked I at by the Judge and not by the assessee.
Issues: 1. Whether the Income-tax Officer has reason to believe that income has escaped assessment - Meaning? 2. Whether the Court can examine the reasons recorded by the Income-tax Officer? 3. Whether the reasons need to be disclosed to the assessee at that stage? 4. When can disclosure of reasons to the Court be made?
Ratio Decidendi: 1. The expression 'reason to believe' means that the assessee can come to court and require the Income-tax Officer to satisfy the court upon sufficient evidence that in fact, there did exist reasons which would induce a reasonable man to believe that the conditions precedent for the issue of a notice under Section 34 (1a) had been satisfied. 2. Yes, the Court can examine the reasons recorded by the Income-tax Officer. 3. No, the reasons need not be disclosed to the assessee at that stage. 4. Disclosure of reasons to the Court can be made if the Income-tax Officer has come to a conclusion bona fide and the Court is not deciding the matter for itself.
Final Decision: The application was dismissed and the Rule was discharged.
( 1 ) THE facts in this case are shortly as follows : For many years the petitioner's firm 'daulatram Rawatmal (hereinafter referred to as the 'firm') has been carrying on business at No. 178, Harrison Road. Calcutta. For the assessment years 1940-41 to 1945-46 the firm has been assessed in normal course and has paid the amount found due. On or about 30th November, 1954 the case of the petitioner firm was transferred under Section 5 (7a) of the Indian Income-tax Act to the Income-tax Officer, Central Circle VI, Calcutta, being respondent No. 1 in this application. On or about 21st March, 1956 the respondent No. 1 issued notice under Section 34 (1a) of the Indian Income-tax Act for the assessment years 1940-41 to 1945-46 upon the partners of the said firm, on the ground that the said Income-tax Officer had reasons to believe that the income, profits or gains assessable to income tax for several years mentioned in the said notices have partly or wholly escaped assessment and the income, profits, or gains, of the previous years which fall wholly or partly within the period beginning from 1st September, 1939 and ending on 31st March, 1946 and which have escaped assessment, amount to or are likely to amount to Rs. 1,00,000/-or more. Copies of the said notices are annexed to the petition and marked with the letter 'a'. By the aforesaid notices, the partners of the said firm were requested to deliver to the said Income-tax Officer a return of the total income and the total world income assessable for the respective years mentioned in the said notices. On or about 2nd July, 1956 the petitioner firm made an application to this court under Article 226 of the Constitution, inter alia, for quashing the proceedings initiated by the said notices under Section 34 (1a), on the ground that Section 5 (7a) and Section 34 (1a) of the Indian Income-tax Act were ultra vires of the Constitution, particularly Articles 14 and 19 thereof. Thereupon this court issued a rule and granted an interim stay of proceedings. The application came up for hearing before me and on the 9th January, 1958 the application was dismissed and the rule was discharged. In fact, what had happened was that in the meanwhile the Supreme Court held the said sections intra vires. I myself have decided similarly. Thereafter, on the 25th February, 1958 the petitioner wrote to the Income-tax Officer, Central Circle VI, asking for production or inspection of the following documents :" (1) The order of satisfaction of the Central Board of Revenue, as referred to in the said notices under Section 34 (1a) (2) The materials on which the Income-tax Officer had reasons to believe that income during the said period has escaped assessment. (3) The basis on which the Income-tax Officer came to be of the opinion that the amount of the escaped income was likely to amount Rs. 1,00,000/-or more. "
( 2 ) ON the 28th February, 1958 the respondent No. 1 informed the petitioner that the reasons recorded for starting the proceedings under Section 34 (1a), could not be given to the petitioner, and the income-tax Officer could not also grant inspection of the records as requested. Thereafter, there was correspondence between the petitioner and the respondent No. 1, but the said respondent persisted in expressing his inability to grant copies of the reasons or inspection of the records as requested. This rule was issued on the 8th July, 1958 upon the respondent to show cause why an order should not be made quashing and/or cancelling the said notices and/or directing the respondent No. 1 to withdraw or recall the said notices and to forbear from giving any further effect thereto. The point that has been taken in this case by the learned Standing Counsel on behalf of the petitioner is a very short one. In order to appreciate it, it would be necessary to set out the relevant part of Section 34 (1a) of the Indian Income-tax Act (hereinafter referred to as the 'act' ). " (1a) if, in the case
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