TaxTMI 
TaxTMI 
1972 (12) TMI 9
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....news and to ventilate opinion upon all matters of public interest through the said newspaper, (c) to maintain the said newspaper and its press in an efficient condition, devoting the surplus income of the said newspaper and its press, after defraying all expenses, in improving and enlarging the said newspaper and its services and placing the same on a footing of permanency. 2. 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". 3. 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....
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....us dates as set out below: Date of original Assessment Year 17-3-1965 1960-61 31-3-1965 1959-60 22-3-1966 1955-56 22-3-1966 1956-57 22-3-1966 1957-58 22-3-1966 1958-59 22-3-1966 1961-62 5. When the Income-tax Act of 1922 was replaced by the Income-tax Act of 1961, 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 an....
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....ing the production of the said books of accounts relevant for the assessment years 1965-66 to 1967-68 on February 22, 1969. In compliance with the said notice the petitioner produced on February 28, 1969, the account books relevant for the assessment years 1965-66 to 1967-68 as enjoined by the notice under section 142(1) of the Act. The Income-tax Officer immediately impounded the said account books. On the same date the Income-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. 9. 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 ....
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....gned in the writ petition will not be enforced. In the light of the above representation made it is unnecessary for us to go into the merits of the contentions raised by the petitioner in the above writ petition. The said writ petition is, therefore, dismissed as having become unnecessary. 12. As regards the other nine writ petitions, the petitioner contends that the various notices issued under section 148 of the Act, seeking to reopen the petitioner'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 ....
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....er, and states that the notices came to be issued only after considerable materials had come into his possession on which a reasonable belief was entertained by him that the petitioner's income chargeable to tax had escaped assessment. It is in the face of these rival contentions we have to consider the validity of each of the notices issued by the respondent under section 148 of the Act. 14. Sri C. K. Daphtary, learned counsel for the petitioner in all the writ petitions, contends that there 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 fre....
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....ginal assessments for the assessment years 1942-43, 1943-44 and 1944-45, profits realised by a company by sale of shares were not assessed to tax on the ground that they were in the nature of mere change in investments. The Income-tax Officer later proposed to initiate reassessment proceedings against the company by issuing notices under section 34, and in his reports to the Commissioner for the purpose of obtaining sanction he had stated that at the time of the original assessments the representations made 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 In....
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....ficer had when he assumed jurisdiction some prima facie grounds for thinking that there had been some non-disclosure of material facts. Clearly it is the duty of the assessee who wants the court to hold that jurisdiction was lacking, to establish that the Income-tax Officer had no material at all before him for believing that there had been such non-disclosure." 17. The above decision is clearly an authority for two propositions, (1) that the court must be satisfied as to the existence of the two conditions, namely, (i) reason to believe that 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. 18. 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 rea....
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....34(1)(a) of the Indian Income-tax. Act, 1922, seeking to include the sum of Rs. 1, 10,000 in the hands of the family on the ground that the notes encashed by the five members belonged to the Hindu undivided family. The Tribunal upheld the said reassessment. The validity of that notice was challenged and ultimately the matter came to the High Court on a reference. The High Court held that the notice dated February 2, 1955, was not valid, since it was found that when the first reassessment was made the primary facts necessary for reassessment of the family were in the possession 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 po....
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.... notice under sub-section (1), and it is on the basis of those reasons recorded by him the Commissioner's or the Board's sanction must be obtained in cases where action is taken after the lapse of four years or eight years, as the case may be, as contemplated in section 151. Such reasons recorded by the Income-tax Officer need not be communicated or disclosed to the assessee before reassessment proceedings under section 147 actually commence, but they have to be disclosed to the court when his jurisdiction to issue the notice is challenged on the ground that there is no reason to believe 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. 22. 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 ....
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.... has been made by the Income-tax Officer at the stage of the original assessments, still section 147 could be invoked if fresh material which subsequently came to the possession of the department shows that the disclosure made by the petitioner at the stage of the original assessments was neither full nor true, and in this case the assessing officer had sufficient material before him to entertain a belief that the income of the petitioner had escaped proper assessment. The nature of the enquiry held at the stage of the assessments is said to be not quite relevant for the purpose of finding out whether 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 acce....
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....losed by the assessee and completed the assessment on the basis of such materials disclosed, if, subsequently, on receipt of information, he has reason to believe that some of the facts and materials were not true or complete, he would have reason to believe that income has escaped assessment due to the assessee's failure to disclose truly and fully all materials necessary for the assessment. 24. Though the impugned notices do not indicate whether the reopening is proposed under clause (a) or clause (b), the learned counsel for the revenue states the Income-tax Officer proposes to reopen the assessments only 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). 25. We, therefore, proceed to consider whether the impugned notices could be sustained as having been validly issued for initiating proceedings under section 147 ....
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....t files show the nature of the enquiry conducted at the original stage as also the materials available before the Income-tax Officer at that time, the files relating to the issue of the impugned notices contain certain information which the Income-tax Officer is said to have received subsequent to the completion of the assessments for the nine years in question, as also his reasons for issuing the notice under section 148(1). Those reasons are contained in the reports submitted by him to the Commissioner of Income-tax and also the Central Board for getting the requisite sanction under section 151 for initiating action under section 147(a). From those reasons set out for the various years it is seen that 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. 29. 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 ....
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....d out that if a particular material is shown to be before the Income-tax Officer, the assessee if he becomes aware of that material may satisfy the court that the same material was before the Income-tax Officer even at the stage of the assessments, and that the Income-tax Officer merely in the guise of acting on a new material purports to change his earlier opinion. The petitioner's learned counsel also states that once the matter comes before the court on a challenge being made by the assessee on the question of jurisdiction of the Income-tax Officer to issue a notice under section 148, the attempt to satisfy only the court about the existence of the material is not sufficient, that it is not a private matter between 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 th....
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....uracy of the return, to an enquiry under section 23(2) and (3), and in that enquiry the assessee has a statutory right to appear and produce evidence. Therefore, a construction of section 34, which requires a quasi-judicial enquiry to be held, before the powers under the section can be operated would result in mere duplication of procedure and in two enquiries of the same kind, into the same matter, conducted by the same official, and without any advantage to the parties. A construction so unreasonable and unpractical ought not to be preferred when another construction is open." 32. In Haji Ali Mohammad v. Commissioner of Income-tax, the Nagpur High Court declined to accept the contention that section 34 could not be used until there 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 o....
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....sh to, the court and seek a disclosure of the materials which formed the basis of the notices. It is true that a matter which comes before the court has to be decided judicially, and the parties before it should have an opportunity of knowing and meeting the case of the other. But, for the reasons set out above, we are not disposed to compel the disclosure of the materials to the petitioner in these cases and to hear it on those materials. If the disclosure is not permitted under the law as seen above, we are not able to see how the petitioner becomes entitled to the disclosure of the materials merely because he has challenged the jurisdiction of the Income-tax Officer. It is for the court to decide whether such a challenge is well founded or not. If, 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. 34. 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 petitio....
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....i" showing, according to the revenue, that the paper is an yellow journal specialising in pandering to the base instincts of the public engaging in cheap sensational journalism by giving prominence to obscene and vulgar jokes, cartoons, film stars' photographs and their personal life. The respondent has stated that on the principles laid down in the decision of this court in S. B. Adityan v. First Income-tax Officer, the paper cannot be said to be organ of educated public opinion. Here again we find that the question whether the newspaper is an yellow journal was considered at the stage of the original assessments in the light of the said decision of this court. It is significant to note that the question of exemption came to be considered only in pursuance of and in accordance with 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. 37. The third reason is based on a judgment of this court dated April 4, 1968, in C....
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....ed cheque." 39. Dealing with another item of Rs. 55,349 said to be the total advances as per certain list, it is stated: "The list of persons to whom this amount is said to have been advanced was produced only at a later stage of the trial and even then it was only a bare copy without any signature. It is exhibit D-5. These circumstances lend support to the defence suggestion that this entry was made to cover up a shortage in the cash, because otherwise it is strange that on the closing day of the accounts advances of an odd amount of Rs. 55,349 were made to several persons and no voucher from those persons has been produced. Apart from the belated entry in the ledger under the heading 'advances' the particular persons have not been debited with the amounts pertaining to them according to exhibit D-5." Lastly, the learned judge 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 ....
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.... genuine and that, in any event, the funds of the trust had been misapplied. 40. From the extracts of the judgment given above, it is clear that the court has made the said adverse remarks with reference to the conduct of the founder in dealing with two sums of Rs. 88,000 and Rs. 55,349. The learned judge has not expressed the view that the trust cannot be genuine on that account. Even if it is taken that the two sums belonging to the trust, alleged to have been drawn by the founder on February 19, 1962, and June 29, 1962, respectively, had been misapplied by him it will not affect the genuineness of the trust which came into existence in the year 1954. It is well established, that the subsequent acts and conduct of the founder of the trust cannot affect the trust if there has been already a complete dedication. (Vide Krishmaswamy Pillai v. Kothandarama Naicken, Sunder Singh 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 a....
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....section 11 of the new Act. It is also stated that 75% of the income from the trust had not in fact been spent for charitable purposes as alleged. It is also alleged that there is discrepancy in the amounts received by the educational institution from the trust and those given by the trust to the institution as per its accounts. It is also seen that in two years some amounts are alleged to have been drawn by the founder of the trust for his election expenses. For the last two years the petitioner had filed a revised return and the acceptance of the said return is said to be without proper investigation. In respect of some years, it is stated that there are large suppressions of sales of papers. It is also stated that from certain communications received from certain sources, " t appears that those persons (alleged creditors) are mere name-lenders and the transactions are bogus". The question 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. 43. It prima facie appears to us that some of the reasons set out above ....
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....he escapement of income being less than Rs. 50,000 no notice could be issued tinder section 148 by virtue of the prohibition contained in section 149(a)(ii). Therefore, in respect of this year the proceedings under section 147(a) cannot properly be invoked by the respondent. 46. In respect of the year 1957-58 one of the many reasons given is the suppression of sales of newspaper to the extent of Rs. 4 lakhs which is said to have been found out from the figures given by the Audit Bureau of Circulation. Here, if the facts alleged are established, that will clearly attract section 147(a). 47. For the year 1958-59 the reasons given are: (1) additional investment of Rs. 1,62,014 in shares at great risk to the trust; (2) deduction of interest of Rs. 60,722 on borrowing wrongly allowed; and (3) an amount of Rs. 1,44,000 of the trust fund has been utilised by the founder for his election purposes after making fictitious entries in the accounts 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 sta....
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....ioner. The Income-tax Officer has not shown that the deduction came to be made because of any non-disclosure by the petitioner of any basic facts. The assessing officer could have gone into the question whether the borrowing was for the purpose of the business of the petitioner with reference to the account books at the stage of the assessment, and it is not alleged that the account books did not reflect the truth about the utilisation of the amount borrowed. Therefore, any escapement of income during the said year cannot be attributed to the non-disclosure by the assessee, but to the failure of the Income-tax Officer to draw proper inference from the basic facts placed before him. 51. We are, therefore, of the view that in respect of this year section 147(a) cannot properly be invoked and, therefore, the relevant notice under section 148 should be held to be invalid. 52. In relation to the year 1965-66 apart from the general allegations that the funds of the trust 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 outs....