1962 (7) TMI 57 - HC - Income Tax

Court validates notice under Income-tax Act, deems Rs. 2,50,000 as taxable revenue receipt.

The court upheld the validity of the notice issued under section 34 of the Income-tax Act, finding that the Income-tax Officer was unaware of a ... - Issues Involved:1. Legality and validity of the notice dated January 27, 1949, issued under section 34 of the Income-tax Act.2. Taxability of the receipt of Rs. 2,50,000 as a revenue receipt under the Income-tax Act.Issue-wise Detailed Analysis:1. Legality and Validity of the Notice under Section 34:The first issue discussed was whether the notice issued by the Income-tax Officer on January 27, 1949, under section 34 was legal and valid. The Tribunal found that the assessee did not include the Rs. 2,50,000 receipt in its original assessment. The assessee contended that the Income-tax Officer had seen its account books and was aware of the receipt, alleging that a covering letter was sent along with the original return. However, the Tribunal held that there was no evidence of such a letter being sent. The Tribunal noted that the Income-tax Officer's signature on the profit and loss account did not indicate knowledge of the Rs. 2,50,000 receipt. The Tribunal concluded that the Income-tax Officer did not know about the receipt, and thus, the successor's action under section 34(1)(b) was justified. The court agreed with the Tribunal, stating that the case was not one of a change of opinion but of omission or negligence by the predecessor. Therefore, the action under section 34 was validly taken, and the first question was answered in the affirmative and against the assessee.2. Taxability of the Receipt of Rs. 2,50,000:The second issue was whether the receipt of Rs. 2,50,000 was a revenue receipt liable to tax. The Tribunal found that the termination of the managing agency was not genuine and the payment of Rs. 2,50,000 was collusive. The Singhania brothers and their family held a dominant interest in the assessee firm, the second managing agents, and the managed company, continuing to exploit the managing agency business. The Tribunal held that there was no genuine termination of the managing agency and the payment was not bona fide compensation. The Tribunal also rejected the contention that the receipt was of a casual and non-recurring nature, stating that it was foreseen, well-planned, and arose out of the business of the assessee. Consequently, the receipt was considered a revenue receipt liable to tax and not exempt under section 4(3)(vii). The court concurred with the Tribunal's findings and answered the second question in the affirmative.Conclusion:The court concluded that both questions referred to it should be answered in the affirmative. The notice under section 34 was valid, and the receipt of Rs. 2,50,000 was a revenue receipt liable to tax. The reference was returned to the Income-tax Appellate Tribunal with the answers, and the department was entitled to costs assessed at Rs. 200. The application under section 66(4) was dismissed as all points raised were argued during the reference.Questions answered in the affirmative.