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High Court Of Delhi
GENL.MRIGENDRA SHUM SHER JUNG BAHADURRANA - Appellant
Versus
INCOME TAX OFFICER - Respondent
Civil 936 of 1970
Decided On : 09/12/1979
INCOME TAX - Reassessment - Jurisdiction of Income-tax Officer to issue notice under Section 148 - Conditions precedent - Belief that income chargeable to tax has escaped assessment - Such belief to be based on information/material and not on mere suspicion or a vague feeling - Material cannot be any or every material however vague and indefinite or distant remote and far-fetched - Belief must extend not only to the escapement of income from assessment but also to the escapement being occasioned by omission or failure on the part of the assessee to disclose fully and truly all relevant material - Non-disclosure must relate to primary facts, i. e. , facts necessary for a proper assessment - Once the Income-tax Officer has some information/material to cause the relevant belief, the sufficiency of material for causing such relief is not justiciable - Belief relevant to the provision is a belief held in good faith and not a mere pretence - Belief is not a purely subjective satisfaction of the Income-tax Officer and such belief being the source of his jurisdiction the forum of decision as to the existence of reasons and the belief is not the mind of the Income-tax Officer but an appropriate authority under the Income-tax Act and/or the High Courts in exercise of their jurisdiction under Article 226 of the Constitution of India.
Fact of the Case:
The assessee, Late His Excellency General Sir Babar S. S. J. B, Rana, was a citizen of Nepal. He had investments in India in shares in limited companies. At the time of assessments for the assessment year 1946-47 and 1947-48, he claimed all the shares and deposits in his name did not belong to him in his individual capacity, but he was only a trustee in respect of those several shares on behalf of several beneficiaries. The Income-tax Officer, Nonresident Circle, Bombay, took up the case for scrutiny and eventually completed the assessment under section 23 (1) for the year 1946-47 and for the other years under section 23 (2) of the Indian Income-tax Act, 1922, accepting the claim of the assessee and excluding the income from those shares and deposits to be assessed in the hands of the beneficiaries. After the scrutiny of the claim, the Income- tax Officer made the following observations in the assessment order for the year 1947-48.
Finding of the Court:
The Income-tax Officer gets jurisdiction to issue a notice under Section 148 in respect of cases falling under Section 147 (a) only if he has reason to believe that (A) income chargeable to tax has escaped assessment, and (B) such escapement has been occasioned by omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year. The Income-tax Officer must have some reasonable grounds to support the aforesaid belief. What is required is not belief in the existence of reasons inducing the belief but belief induced by the existence of reasons. The belief of the Income-tax Officer must be based on information/material and not on mere suspicion or a vague feeling. Rational connection between the reasons which exist and the formation of belief postulates that there must be a. direct nexus or live link between the material coming to the knowledge of the Income-tax Officer and the formation of belief. Material cannot be any or every material however vague and indefinite or distant remote and far-fetched. The belief must extend not only to the escapement of income from assessment but also to the escapement being occasioned by omission or failure on the part of the assessee to disclose fully and truly all relevant material. The non-disclosure must relate to primary facts, i. e. , facts necessary for a proper assessment. There is no obligation on the assesses to disclose facts other than primary facts. Once the Income-tax Officer has some information/material to cause the relevant belief, the sufficiency of material for causing such relief is not justiciable. The belief relevant to the provision is a belief held in good faith and not a mere pretence. The belief is not a purely subjective satisfaction of the Income-tax Officer and such belief being the source of his jurisdiction the forum of decision as to the existence of reasons and the belief is not the mind of the Income-tax Officer but an appropriate authority under the Income-tax Act and/or the High Courts in exercise of their jurisdiction under Article 226 of the Constitution of India. It is a statutory requirement that before issuing a notice under Section 148 the Income-tax Officer must record reasons. There is however no requirement to communicate the reasons in or with the notice. No remedy is provided under the Income-tax Act to challenge the jurisdiction of the Income-tax Officer in issuing a notice under Section 148 and an assessee is entitled to move an appropriate High Court by a petition under Article 226 of the Constitution of India for the quashing of such a notice on the ground that no reasons exist to enable the Income-tax Officer to issue such a notice or that the reasons are not relevant for causing the appropriate belief either in respect of escapement of income or in respect of the same having been occasioned on account of the omission or failure on the part of the assessee to fully and truly disclose all necessary primary facts. It is only appropriate that the assessee must file a return in response to the notice and ask for the reasons, if not known, before invoking the extra-ordinary prerogative powers of a High Court under Article 226 of the Constitution of India.
Issues: Whether the Tribunal on the facts and in the circumstances of the case is justified in law in holding that the re-assessment made by the Income-tax Officer under section 147 of the Act of 1961 were validly made and that the Appellate Assistant Commissioner was not justified in cancelling them for want of jurisdiction ?
Ratio Decidendi: The Income-tax Officer gets jurisdiction to issue a notice under Section 148 in respect of cases falling under Section 147 (a) only if he has reason to believe that (A) income chargeable to tax has escaped assessment, and (B) such escapement has been occasioned by omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year. The Income-tax Officer must have some reasonable grounds to support the aforesaid belief. What is required is not belief in the existence of reasons inducing the belief but belief induced by the existence of reasons. The belief of the Income-tax Officer must be based on information/material and not on mere suspicion or a vague feeling. Rational connection between the reasons which exist and the formation of belief postulates that there must be a. direct nexus or live link between the material coming to the knowledge of the Income-tax Officer and the formation of belief. Material cannot be any or every material however vague and indefinite or distant remote and far-fetched. The belief must extend not only to the escapement of income from assessment but also to the escapement being occasioned by omission or failure on the part of the assessee to disclose fully and truly all relevant material. The non-disclosure must relate to primary facts, i. e. , facts necessary for a proper assessment. There is no obligation on the assesses to disclose facts other than primary facts. Once the Income-tax Officer has some information/material to cause the relevant belief, the sufficiency of material for causing such relief is not justiciable. The belief relevant to the provision is a belief held in good faith and not a mere pretence. The belief is not a purely subjective satisfaction of the Income-tax Officer and such belief being the source of his jurisdiction the forum of decision as to the existence of reasons and the belief is not the mind of the Income-tax Officer but an appropriate authority under the Income-tax Act and/or the High Courts in exercise of their jurisdiction under Article 226 of the Constitution of India.
Final Decision: The writ petitions are allowed with costs and the notices issued under Section 148 and the reassessment orders that followed are quashed.
( 1 ) THESE are eleven writ petitions under Article 226 of the Constitution of India and a reference under Section 256 (1) of the Income Tax Act, 1961 in respect of the assessment year 1946-47 and 10 years thereafter.
( 2 ). The writ petitions were filed to challenge the notices to the assessee issued by the Income Tax Officer under Section 148 as without jurisdiction and to have the reassessments made thereupon quashed. The reference was made by the Income Tax Appellate Tribunal (Delhi Bench b ) for answering the following question :
"whether the Tribunal on the facts and in the circumstances of the case is justified in law in holding that the re-assessment made by the Income-tax Officer under section 147 of the Act of 1961 were validly made and that the Appellate Assistant Commissioner was not justified in cancelling them for want of jurisdiction ?"
( 3 ). Shri B. N. Kirpal, learned counsel for the respondents, has raised a threshhold objection to the maintainability of the writ petition in view of the availability of alternative remedy and has therefore contended that all that we need to do is to answer the reference on the material contained in the Statement of the Case and on the basis of refusing to go behind the findings of fact set out in the Statement of Case.
( 4 ). We do not agree that the writ petitions are liable to be dismissed on the suggested short ground because in the first instance no alternative remedy is provided by the Income-tax Act against the very issue of such a notice and secondly because the jurisdiction of the Income-tax Officer to issue notice under Section 148 is conferred only if the pre-prequisite conditions of Section 147 (a) are available and the court is not precluded from examining whether these jurisdictional facts which confer such jurisdiction exist or not. We are undoubtedly and emphatically of the opinion that we should not exercise our high prerogative powers under Article 226 of the Constitution of India in respect of matters where the scheme of an enactment provides for the procedure for redressal of grievances and/or for judicial, or quasi-judicial review unless these remedies have been exhausted and even otherwise, not to invoke the jurisdiction in any or every matter. We do not regard this jurisdiction as an unlimitable fund or pool to confer bounties from by entertaining writ petitions but we do consider it our duty to resort to it when the impugned action shocks the conscience of the court. If a statutory authority is shown to act by clutching jurisdiction which is not conferred, thereby causing irreparable injury to the citizen, subject to other restraints which are either imposed by law or the courts have imposed upon themselves in the exercise of discretionary jurisdictions, it would be a fit case to entertain and decide under Article 226 of the Constitution of India.
( 5 ). In any case, the question for decision in the writ petitions is itself a part of the question referred to us for answer, i. e. , ". . . . . . . . and that the Appellate Assistant Commissioner was not justified in canceiling them for want of jurisdiction ?" and therefore the threshhold objection of the learned counsel is of little significance.
( 6 ). The facts of the case are succintly set out in the Statement of the Case sent to us by the Income-tax Appellate Tribunal and are reproduced below from the same.
2. The assessee, Late His Excellency General Sir Babar S. S. J. B, Rana, was a citizen of Nepal. He had investments in India in shares in limited companies. At the time of assessments for the assessment year 1946-47 and 1947-48, he claimed all the shares and deposits in his name did not belong to him in his individual capacity, but he was only a trustee in respect of those several shares on behalf of several beneficiaries. It was stated that he executed a trust for the benefit of those beneficiaries in Gorkha langauge and consequently the income arising out of those shares and deposi
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