Reassessment based on undisclosed legal inference fails where all primary facts were disclosed and no taxable compensation right accrued.

Reassessment under sections 147 and 148 was held invalid where the assessee had disclosed the agreement and all primary facts, and the tax authority could not rely on an alleged failure to draw a legal inference. On the statutory construction of the Companies Act, the sole selling agency stood terminated by force of law, and no enforceable right to retain compensation arose; any such sum, if received, had to be held in trust and refunded. Since no income chargeable to tax could be said to have accrued, the condition that income escaped assessment by reason of nondisclosure of material facts was not satisfied. The impugned reassessment notices were quashed.

---

---

Issues: (i) Whether the reassessment notices under sections 147 and 148 of the Income-tax Act, 1961 were valid when the assessee had disclosed the relevant agreement and surrounding facts, and whether any income by way of compensation had accrued under the agreement after statutory termination of the sole selling agency.

Analysis: The agreement had been placed before the Income-tax Officer, and the assessee had disclosed the sales commission received up to the date on which the agency stood statutorily terminated. On the construction of the Companies Act, 1956, the sole selling agency stood terminated by force of section 361, and section 363 prohibited receipt of any compensation in respect of that termination and required any such sum, if received, to be held in trust and refunded to the company. Since no enforceable right to retain compensation existed, no income chargeable to tax could be said to have accrued. Even assuming a claim to compensation under the agreement, the assessee was not bound to teach the taxing authority the law or to disclose legal inferences when all primary facts were already on record. The statutory condition that income had escaped assessment by reason of omission or failure to disclose fully and truly all material facts was therefore not satisfied.

Conclusion: The reassessment notices were invalid and liable to be quashed, in favour of the assessee.

Final Conclusion: The appeal succeeded and the writ petition was allowed, with the impugned reassessment notices set aside.

Ratio Decidendi: Where all primary facts are disclosed, reassessment cannot be founded on the assessee's alleged failure to disclose a legal inference, and income cannot be treated as having escaped assessment if, by operation of statute, no enforceable right to receive or retain it ever arose.

---