1971 (4) TMI 32 - HC - Income Tax

Court rules notices under Income-tax Act invalid, grants writ of mandamus to recall them.

The court ruled in favor of the petitioner, finding that the conditions for issuing notices under section 148 of the Income-tax Act, 1961 were not ... Notices under section 148 - said notices were issued on the ground that the petitioner-company had enjoyed benefits under section 15C of the Indian Income-tax Act, 1922, which the petitioner was not entitled to in the relevant assessment years - writ in the nature of mandamus issued directing the respondents to recall, cancel and withdraw the notices under section 148 of the Income-tax Act mentioned in the petition - If the respondents have passed orders of assessment, the same also are not to be given effect to and they are quashed accordingly and let a writ of certiorari issue accordingly Issues Involved:1. Validity of notices under section 148 of the Income-tax Act, 1961.2. Entitlement to tax relief under section 15C of the Indian Income-tax Act, 1922.3. Full and true disclosure of material facts by the petitioner.Issue-wise Detailed Analysis:1. Validity of Notices Under Section 148 of the Income-tax Act, 1961:The petitioner challenged the notices issued under section 148 for the assessment years 1958-59, 1959-60, and 1962-63. The notices were issued on the grounds that the petitioner had wrongly enjoyed benefits under section 15C of the Indian Income-tax Act, 1922. The court noted that for the assessment year 1962-63, no relief under section 15C had been claimed or granted, and the revenue accepted this fact, deciding not to proceed with the notice for that year. The court emphasized that the conditions for issuing notices under section 148 include the belief by the Income-tax Officer that income had escaped assessment due to the assessee's failure to disclose fully or truly all material facts, and there must be materials or reasons for forming such a belief. The court found that the affidavit by the Income-tax Officer, Mr. P. R. Rao, did not sufficiently demonstrate that the belief was held or that there were materials to support it. The court concluded that the conditions precedent for issuing the notices had not been fulfilled.2. Entitlement to Tax Relief Under Section 15C of the Indian Income-tax Act, 1922:The petitioner claimed tax relief under section 15C for profits earned by its division, Metco, which produced zinc strips used in electric dry batteries manufactured by another division, Natco. The relief was granted for the assessment years 1958-59 to 1961-62. However, the revenue later issued notices under section 148, arguing that the relief was wrongly granted for inter-departmental transactions. The court examined the statutory requirements and prior judicial decisions, noting that the relief under section 15C is intended for industrial undertakings whose activities result in direct incomes to the assessee. The court found that the petitioner's balance-sheets and profit and loss accounts, which were part of the returns, clearly disclosed the inter-departmental transactions. Therefore, the court concluded that the petitioner had disclosed all material facts necessary for the assessment.3. Full and True Disclosure of Material Facts by the Petitioner:The court analyzed whether the petitioner had fully and truly disclosed all material facts necessary for the assessment. The petitioner's balance-sheets and profit and loss accounts, filed along with the returns, included detailed statements of sales, including inter-departmental transactions. The court noted that these documents were statutorily required and should be considered part of the full disclosure. The court referred to previous judicial decisions that supported the view that disclosure in balance-sheets filed with returns constitutes full disclosure. The court found that the petitioner had indeed disclosed all material facts and that the revenue's argument for re-examining the case based on altered notions of law did not justify the issuance of the notices under section 148.Conclusion:The court ruled in favor of the petitioner, making the rule absolute and issuing a writ of mandamus directing the respondents to recall, cancel, and withdraw the notices under section 148. Additionally, a writ of prohibition was issued to prevent the respondents from giving effect to the said notices. The court also quashed any assessment orders passed pursuant to these notices. There was no order as to costs, and a stay of operation of the order was granted for eight weeks.