TaxTMI 
TaxTMI 
TaxTMI 
1972 (12) TMI 9
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....defraying all expenses, in improving and enlarging the said newspaper and its services and placing the same on a footing of permanency. Under that deed lie nominated himself, his brother, S. T. Adityan, and his son, B. R. Adityan, as the first trustees. The schedule to the trust deed referred to the newspaper known as "Dina Thanthi" as a going concern with all its assets and liabilities, including the printing machineries, printing types, furniture and accessories as the properties of the said "Thanthi Trust". After the said trust was created, it claimed exemption under section 4(3)(i) of the Indian Income-tax Act, 1922, from the assessment year 1955-56 onwards in respect of its income, and sought an order of exemption from the Income-tax Officer even before the regular assessments could be made. On November 6, 1961, the Income-tax Officer gave a tentative decision negativing the petitioner's claim for exemption based on the opinion tendered by the Central Board of Revenue that the trust will not be entitled to the benefit of exemption under section 4(3)(i) of the Act, as the real object of the trust is different from its declared object and the income derived from the paper is n....
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...., section 11 of the latter Act which gave exemption for income from property held for charitable or religious purposes was slightly in a different form than the earlier provisions in section 4(3)(i). Presumably taking note of the said change in the statutory provisions, the founder of the trust had executed a supplemental deed on June 28, 1961. Under that document the founder had directed that the surplus income of the "Thanti Trust", after defraying all expenses, shall be devoted by the trustees for the following purposes, namely: (1) Establishing and running a school or college for the teaching of journalism; (2) Establishing and/or running or helping to run schools, colleges or other educational institutions for teaching arts and science; (3) Establishing of scholarships for students of journalism, arts and science; (4) Establishing and/or running or helping to run hostels for students; (5) Establishing and/or running or helping to run orphanages; and (6) Other educational purposes, After the coming into force of the new Act of 1961, the petitioner-trust claimed exemption under section 11 of that Act on the basis of the original trust deed dated March 1, 1954, as well as ....
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....come-tax Officer issued summons under section 131 of the Act for the production of the books of accounts relevant for the assessment years 1962-63 to 1964-65 on or before March 3, 1969. The petitioner immediately filed Writ Petition No. 611 of 1969 questioning the validity of the said summons issued under section 131, contending that the Income-tax Officer had acted without jurisdiction and without authority of law in issuing the said summons and that the impugned summons was violative of the fundamental rights under article 19(1)(g) of the Constitution, and obtained stay. Pending the above writ petition, the same Income-tax Officer issued three notices dated May 23, 1969, under section 148 of the Act, to the petitioner for reopening the assessment for the three earlier assessment years 1965-66 to 1967-68 stating that he had "reason to believe" that there has been an escapement of income chargeable to tax in the above assessment years and directing the petitioner to file its returns of income in relation to the said assessment years. The notices also stated that the necessary sanction of the Commissioner of Income-tax and the Central Board of Revenue for issuing the notices had be....
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....titioner's assessments for the assessment years 1956-57 to 1961-62 and 1965-66 to 1967-68 are ex facie illegal, arbitrary and without jurisdiction for the following reasons: (1) the impugned notices seeking to invoke the provisions of section 147 on the ground that there has been an escapement of income chargeable to tax is totally devoid of jurisdiction, as there is absolutely no material to show that the petitioner-trust is not entitled to the exemption or that its income has escaped assessment during the respective years; (2) there has been no failure on the part of the petitioner to make a full and true disclosure of the material facts necessary for the completion of the assessments in question so as to enable the respondent to invoke section 147(a); (3) the impugned notices under section 148 had been issued with the sole object of making a roving enquiry into the working of the petitioner-trust and the alleged "reason to believe" is a mere cloak or pretence on the part of the respondent to clutch at jurisdiction and to reopen assessments which have become final; and (4) the notices issued by the respondent do not satisfy the conditions laid down either in section 147(a) o....
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....ere is absolutely no ground for reopening the assessments for the various years, that there can absolutely be no "reason to believe" that the income chargeable to tax has escaped assessment in those years, that the fresh information and materials said to have been received by the respondent were all there even at the stage of the original assessments and that there was a full and thorough investigation of all the materials by the authorities at all levels before the exemption was granted. He also contends that the notices in all these cases do not indicate as to whether the reassessments are proposed on the basis of non-disclosure by the assessee as contemplated in section 147(a) or the fresh information contemplated in section 147(b), that section 147 is intended to prevent unnecessary harassment of the assessee by the Income-tax Officers, that the power of reassessment under that section can be invoked only when the conditions set out therein are fully satisfied, and that the notices do not indicate as to what are the new and fresh materials available with the Income-tax Officer warranting a belief that the income chargeable to tax has escaped assessment and the initiation of pro....
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....on behalf of the company that the sales of shares were casual transactions in the nature of mere change of investments were accepted, but that the company's accounts showed that it had been really and systematically carrying on a trade in the sale of investments, that the purchase and sale of shares were not casual transactions and that there has been a non-disclosure of the true intention behind the sale of shares. The Supreme Court, after dealing with the scope of section 34 of the Act exhaustively, if we may say so with respect, held that the question whether the sale of shares were by way of change of investments or by way of trading in shares had to be decided by the Income-tax Officer on a consideration of different circumstances, including the frequency of the sales, the nature of the shares sold, the price received as compared with the cost price, and several other relevant facts, that though it was the duty of the company to disclose all the primary facts which had a bearing on that question, the law did not require the company to state the conclusion that could reasonably be drawn from the primary facts, and that the Income-tax Officer who issued the notices did not have ....
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....at there has been under-assessment, (ii) such under-assessment has resulted from the non-disclosure of primary and material facts; and (2) that if all the primary and material facts had been placed by the assessee before the Income-tax Officer at the stage of the original assessment, the assessee cannot be said to be guilty of non-disclosure as the Income-tax Officer failed to draw a proper factual or legal inference from those basic and primary facts. In S. Narayanappa v. Commissioner of Income-tax the Supreme Court again reiterated the same principle thus: "But the legal position is that if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of under-assessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under section 34. Whether these grounds are adequate or not is not a matter for the court to investigate. In other words, the sufficiency of the grounds which induced the Income-tax Officer to act is not a justiciable issue. It is of course open for the assessee to contend that the Income-tax....
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....of the Income-tax Officer, that at the time of the first reopening of the assessment of the Hindu undivided family and of the individual members the question of assessment of the entire amount represented by the high denomination notes was under direct consideration, that it was open to the Income-tax Officer to assess the whole amount of Rs. 19,000 and Rs. 1,10,000 in the hands of the Hindu undivided family at that stage, and that the escapement, if any, therefore, took place by reason of the failure of the Income-tax Officer to assess the family with respect to the sum of Rs. 1,10,000 when he was in full possession of all the material facts. On appeal, the Supreme Court affirmed the decision of the High Court holding that because the primary facts were within the knowledge of the Income-tax Officer when he completed the first reassessment, the escapement of income took place by reason of the failure of the Income-tax Officer to include the sum of Rs. 1,10,000 in the assessment of the Hindu undivided family when he was in full possession of all the necessary and material facts and that in such a situation the requirements of section 34(1)(a) were not satisfied. The above decisio....
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....lieve that certain income has escaped assessment by omission or failure of the assessee to disclose fully and truly all material facts necessary for his assessment, and the Income-tax Officer has to justify his assumption of jurisdiction only on those recorded reasons. The learned counsel for the petitioner submits that the Income-tax Officer, at the stage of the original assessment proceedings, had thoroughly examined all the facts which are now referred to in the counter-affidavit and was satisfied with the explanations given by the petitioner, and, therefore, the Income-tax Officer had no reason to believe that by reason of the omission or failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment for the various years the income, profits and gains, chargeable to income-tax for those years, have escaped assessment. According to the learned counsel, once the petitioner disputes that the Income-tax Officer had any reason before him to entertain the requisite belief and states that it had not omitted or failed to disclose fully and truly all material facts necessary at the stage of the assessment, it is the duty of the Income-....
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....the impugned notices have been properly issued. In support of his contention that even in cases where there has been full and elaborate enquiries at the stage of original assessment, section 147 (a) could still be invoked, he refers to the decisions in Income-tax Officer v. Bachu Lal Kapoor, Kantamani Venkata Narayana & Sons v. First Additional Income-tax Officer, Commissioner of Income-tax v. T.S.P.L.P. Chidambaram Chettiar and K. P. Arthanariswamy Chettiar v. First Income-tax Officer. In Income-tax Officer v. Bachu Lal Kapoor the Supreme Court laid down the proposition that the acceptance of a return or the completion of the assessment does not take away the jurisdiction of the Income-tax Officer to issue a notice to reassess on the ground that the information supplied by the return was not correct. In Kantamani Venkata Narayana & Sons v. First Additional Income-tax officer the Supreme Court held that the assessee does not discharge his duty to disclose by merely producing the books of account or other evidence. He has to further bring to the notice of the Income-tax Officer particular items in the accounts or the documents which are relevant. Even in cases where the Income-tax O....
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....nly under clause (a) and not under clause (b), and this, the learned counsel says, is clear from the notices themselves. He points out that reference to the sanction obtained from the Commissioner of Income-tax or the Central Board of Revenue in the notices indicates that action is being taken only under clause (a) of section 147, as no such sanction is necessary or contemplated in cases coming under clause (b). We, therefore, proceed to consider whether the impugned notices could be sustained as having been validly issued for initiating proceedings under section 147 (a). Clause (a) of section 147 may be usefully set out at this stage: "147. Income escaping assessment.— If- (a) the Income-tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Income-tax Officer, or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or ...... he may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowan....
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.... some new materials which were not available before the Income-tax Officer at the time of the original assessment have come to his possession from various sources. The learned counsel for the petitioner, however, states that there is no allegation of non-disclosure of primary facts in the counter-affidavits, that if the averments made therein are taken to indicate the substance of the materials available, they would not constitute any new material, for all those materials had been considered in elaborate detail by the Income-tax Officer at the stage of the original assessment, that a mere change of opinion on the part of the Income-tax Officer on the same materials will not enable him to initiate proceedings under section 147(a), and that the counter-affidavits cannot be supplemented at the time of arguments by the production of some records for the perusal of the court alone. We are not, however, inclined to hold that the counter-affidavit alone should be looked into for deciding the question of jurisdiction. It is true that some of the matters referred to in the counter-affidavits had been considered by the Income-tax Officer at the stage of the original assessments as seen from....
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....ween the Income-tax Officer and the court and that all materials which are disclosed to the court should also be disclosed to the assessee so that he will assist the court in deciding the question of jurisdiction. What the learned counsel in effect says is that the court will not be justified in deciding the question of jurisdiction on the files and records being shown to the court without the petitioner having the benefit of the information available therefrom, and that the court will have to decide the question of jurisdiction only after the disclosure of that information to the petitioner. The learned counsel, however, concedes that in exceptional cases where confidential and privileged documents are placed before the court, the adversary cannot have a right to peruse the same. But in cases where no privilege is claimed or where the documents produced are not confidential, the assessee, it is said, cannot be made to grope in the dark as it were for sustaining his plea that the Income-tax Officer has issued the notice without jurisdiction. The above submission of the learned counsel for the petitioner no doubt appears to be attractive at the first blush as courts are not normall....
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....had been a preliminary enquiry concluded which had resulted in the Income-tax Officer concluding that a particular item of income had been omitted on the ground that such a construction of section 34 might result in very serious evasions. In Rungta Engineering Construction Co. Ltd. v. Income-tax Officer the Calcutta High Court had also pointed out that it is not desirable that the assessee should be informed of the materials which formed the basis of the notice under section 34 at the time of issue of the notice and the reasons set out by the court are these: "If the assessee is dishonest, the disclosure of the materials at this stage will be likely to lead to the manipulation of the books of accounts and other records. An honest trader who has not concealed his income has nothing to fear by submitting a fresh return and producing his account books pursuant to the notice issued by the Income-tax Officer. If the assessee is an honest trader, there is no likelihood of its incurring fresh penalties by filing a fresh return and by producing its account books. With respect, we also share the same view as has been expressed in the above decisions. The assessee cannot, in our view, comp....
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.... on going through the materials produced by the revenue before us, we are satisfied that there is reason to believe that income has escaped assessment by reason of the petitioner's non-disclosure of primary facts, we have to allow the proceedings to go on. We, therefore, proceed to consider as to what are the fresh materials for entertaining it reasonable belief that the income has escaped assessment by reason of the petitioner's omission or failure to disclose fully or truly all materials for its reassessment for the years in question. In these cases, among the various reasons given by the respondent, three are common to all the years. They relate to the question of genuineness of the trust. Of these three reasons one is based on a biography of Sri S. B. Adityan, the founder of the trust, written by one Sri Kurumbur Kuppuswami printed in the petitioner's press and published on April 1, 1969. In that book it has been stated that "Dina Thanthi" has been propagating the ideals of the "We Tamil" Party from its very inception, that it has been a spearhead for fighting for a separate Tamil State and that the credit for victory for Dravida Munnetra Kazhagam during the general elections....
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....th the directions contained in the said decision. If the Income-tax Officer has not chosen to draw the proper inference that the paper is an yellow journal and not an organ of educated public opinion, it cannot be said that the escapement of income was due to the non-disclosure by the petitioner of the primary facts. The third reason is based on a judgment of this court dated April 4, 1968, in Criminal Appeal No, 810 of 1965 arising out of certain prosecutions launched against three persons of whom one was a trustee of the petitioner-trust for misappropriation, breach of trust and making false entries in the accounts of the trust in pursuance of a criminal conspiracy between them. The accused in that case had raised a defence that amounts said to have been misappropriated had really been given to P.W. 7, the founder of the trust, for meeting his election expenses, that P.W. 7 was in the habit of taking funds from the trust for his personal purposes under false vouchers, and that the prosecution has been motivated for the reason that the accused had made some disclosures before the Income-tax Officer which was detrimental to the interest of P.W. 7. This defence, the trial court rej....
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....winds up by saying: "To sum up, though there is support for the defence suggestion that P.W. 7 drew large sums of money for election purposes from the 'Daily Thanthi' on vouchers which did not reflect the truth, so far as three amounts are concerned, the circumstances oblige the court to adopt the evidence of P.W. 7 that these amounts were not paid to him and he did not instruct the accused 1 to 3 to make false entries." This judgment has been received from an informant by the Director of Inspection on October 25, 1968, and that was communicated to the department at Madras on October 30, 1968, long after the original assessments granting the exemption had been made to the petitioner-trust up to the assessment year 1967-68. According to the respondent the said observations made in the above judgment, prima facie, showed that the representations made by the petitioner at the stage of the original assessments about the borrowals from and repayments to various parties cannot be true and that the funds of the trust had been utilised for the personal benefit of the founder. The learned counsel for the petitioner, however, points out that the department was all along aware of the initia....
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....gh Mallah Singh Sanatan Dharam High School Trust, Indaura v. Managing Committee, Sunder Singh Mallah Singh Rajput High School, Indaura and Gokuldoss Jumnadoss and Co. v. Lakshminarasimhalu Chetti). If a valid and complete dedication had taken place, there would be no power left in the founder to revoke and no assertion on his part or the subsequent conduct of himself or his descendants contrary to such dedication would have the effect of nullifying it. If the trust had been really and validly created, any deviation by the founder of the trust or the trustees from the declared purposes would amount only to a breach of trust and would not detract from the declaration of trust. Therefore, the subsequent conduct of the founder in dealing with the funds of the trust long after the creation of the trust may not put an end to the trust itself. There can, therefore, be no reason for doubting the genuineness of the trust. If at all, the two instances referred to in the judgment in the criminal appeal would indicate that some of the funds of the trust had been diverted not for the declared purposes. In such an event, only the amounts involved may be brought to charge on the ground that the a....
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....ion is whether these materials relating to each of the years can form a proper basis for entertaining a reasonable belief that the income has escaped assessment in that year by reason of the non-disclosure by the petitioner. It prima facie appears to us that some of the reasons set out above almost amount to a change of opinion in respect of certain items and there can be no question of the non-disclosure by the assessee leading to the escapement of income in relation to those items. However, it is not necessary for us to see whether all the reasons set out for each year by the Income-tax Officer in his reports are tenable. If at least one of the grounds in respect of each of the years is such as to lead to a prima facie and reasonable belief that income has escaped assessment in that year by reason of the non-disclosure of the primary facts by the assessee, the jurisdiction of the Income-tax Officer to initiate reassessment proceedings under section 147(a) cannot be successfully questioned. Therefore, we have to consider whether there exists at least one reason which would form the basis for the belief entertained by the Income-tax Officer with reference to each of the years. Fo....
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....s of the trust. The materials in respect of all these items were before the Income-tax Officer at the stage of assessment. It is not alleged in these grounds that any material relevant to these items has been kept back by the assessee at that stage. Hence, there is no question of non-disclosure of primary facts by the assessee in this year so as to attract section 147(a) of the Act. For the year 1959-60 out of the many reasons given, one relates to the suppression of sales of newspaper to an extent of Rs. 53,552 as per the figures furnished by the Audit Bureau of Circulation and another relates to the lending of a sum of Rs. 10,000 to one Sankaralinga Iyer outside the books of the accounts of the trust. These grounds, if established, would come within the purview of section 147(a). For the year 1960-61 the three grounds set out are: (1) investment in allied concerns of the founder; (2) deduction of interest of Rs. 51,931 on overdrafts wrongly allowed; and (3) suppression of sales of newspaper to an extent of Rs. 11,479 said to have been found out on information furnished by the Audit Bureau of Circulation. All the materials in respect of the first two grounds were before the Inco....
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....t have been lent to allied concerns and that the entire 75 per cent. of the total income has not been utilised for charitable objects, two of the specific grounds are that there has been a lending of trust funds outside the accounts in a sum of Rs. 1,16,500 to one Srinagar Buildings Society and that there is a discrepancy of Rs. 68,174 between the petitioner's accounts and the accounts of Adityanar Educational Institution on the amounts actually spent for purpose of education. If these grounds are established they would certainly attract section 147(4). For the year 1966-67, of the many grounds given, one relates to the discrepancy of Rs. 9,74,624 between the accounts of the petitioner-trust and those of Adityanar Educational Institution on the amounts spent for education and the other to a sum of Rs. 56,000 said to have been deposited by various depositors whose names are not given leading to the inference that the said sum should represent suppressed income. Here again, these grounds, if established, would be sufficient for invoking section 147(a). For the year 1967-68, among the various grounds set out, one ground is that there is a discrepancy of Rs. 4,46,327 in the amount sp....