AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2004 (8) TMI 90
X X X X Extracts X X X X
X X X X Extracts X X X X
....ting assessees under the Income-tax Act, 1961 (hereafter referred to as "the Act"), enjoying income from house property, share of profit from their respective firms as well as from interest. During the year 1983-84, relevant to the assessment year 1984-85, the appellants along with four other persons residing at 4, Achambit Show Road, Calcutta, in the State of West Bengal, jointly purchased a lottery ticket of Rs. 5 bearing No. B-716127 of the First Diamond Lottery conducted by the Directorate of State Lotteries, Government of Nagaland, which won the first prize of Rs. 1 crore in the draw held on October 31, 1983. The purchasers having equal shares in the ticket claimed their respective 1/8th share from the amount of Rs. 90,000 after deduction of 10 per cent, commission. Their claims, according to the appellants were registered separately with the Government of Nagaland, which was accepted and payment of 1/8th share was made to each purchaser separately by account payee bank draft after deducting income-tax at source under the provisions of the Act. Resultantly each purchaser received an amount of Rs. 7,53,750 after deduction of Rs. 3,71,250 by way of income-tax at source from the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....x Appellate Tribunal, Guwahati Bench, Guwahati (hereafter referred to as "the Tribunal"). In the appeals which were registered as I.T.A. No. 618/Gauhati, (30/Gauhati, 621/Gauhati and 622/Gauhati of 1987, the Tribunal by its common judgment and order dated January 18, 1990, set aside the order of the Commissioner of Income-tax (Appeals) with a direction for fresh disposal of the matter after obtaining necessary facts and materials on record and upon hearing the parties. Following the remand, the Commissioner of Income-tax (Appeals) enquired of the assessing authority as to whether any substantive assessment had been made with regard to the lottery prize of Rs. 90,000 to which the assessing authority replied in the negative. The Commissioner of Income-tax (Appeals) thereafter upon hearing both the parties and on a consideration of all materials on record by the common judgment and order dated March 27, 1991 held that the protective assessment made by the Assessing Officer was to be construed as substantive assessment. The appeals were thus allowed. It was on a lapse of seven months thereafter that notices being No. M-658/985-92 dated November 14, 1991, under section 148 of the Act ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g rule, stayed the operation of the notice. By the impugned judgment and order, however, the writ petitions have been dismissed by imposing a cost of Rs. 10,000 on each of the appellants. The Revenue's pleaded case is that eight persons, including the appellants by jointly purchasing the lottery ticket for earning the prize money through a joint venture had formed an association of persons and they having become joint owners of the winning ticket and the prize money, their income from lottery is liable to be assessed as that of such association of persons. It asserted that the joint owners being eight in number, they had to be described as M/s. Mahendra Singh Sehgal and seven others with all names mentioned separately in the impugned notice. The Revenue contended that the purpose of the notice issued under section 148 of the Act was for the assessment of the escaped income of the association of persons formed with the said eight persons. According to it, the Assessing Officer duly recorded the reasons for the initiation of proceedings under section 147(a) or 147(b) of the Act which met the approval of the Commissioner of Income-tax, Deputy Commissioner of Income-tax. Emphatically....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... assessment (assessment being made on March 31, 1987). According to him, therefore, the assessment having become final, no rectification, or reassessment thereof, on the ground of escaped assessment under section 154/147/148, respectively, was permissible in law. Learned senior counsel next turned to the notice and urged that the same was on the face of the records, in contravention of section 147(a) and (b) and on that ground alone is liable to be declared illegal, null and void. According to him, each of the appellants/assessees having filed his/her return of income on May 15, 1984, under section 139 declaring their income from the lottery and they having fully and truly disclosed all material facts necessary for assessment of such income, there was no reason for the Assessing Officer to believe that the income from lottery had escaped assessment by reason of omission or failure on the part of the appellants to make a return under section 139 of the Act. The Assessing Officer at that stage could have assessed the income as a substantive measure either in the hands of the appellants or any other entity, to which according to him the income belonged. The assessment of the income i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....haraj Kumar Kamal Singh v. CIT [1959] 35 ITR 1 (SC); Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996 (SC); Y. Narayana Chetty v. ITO [1959] 35 ITR 388 (SC); CIT v. Kurban Hussain Ibrahimji Mithiborwala [1971] 82 ITR 821 (SC); Tansukhrai Bodulal v. ITO [1962] 46 ITR 325 (Assam) [FB]; CIT v. Indira Balkrishna [1960] 39 ITR 546 (SC); G. Murugesan and Brothers v. CIT [1973] 88 ITR 432 (SC) and CIT v. Murlidhar Jhawar and Puma Ginning and Pressing Factory [1966] 60 ITR 95 (SC). Dr. Saraf, on the other hand, has contended that the appellants along with four others having jointly purchased the lottery ticket had thus made investment for earning an income from a joint business venture and thus formed an association of persons for which the income from the lottery earned by them was liable to be assessed in the hands of the said association. He argued that the appellants/assessees along with others having admittedly purchased the lottery ticket jointly, receipt of individual shares of the prize amount would not by itself imply that the association of persons had ceased to exist and therefore the income therein is liable to be assessed in its hands. According to him, in the p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ITO [1962] 46 ITR 988 (AP); CIT v. Sun Engineering Works Pvt. Ltd. [1992] 198 ITR 297 (SC); S. Narayanappa v. CIT [1967] 63 ITR 219 (SC); Ambalal Jivabhai Patel v. ITO [1964] 54 ITR 308 (Guj); GKN Drivershafts (India) Ltd. v. ITO [20Q3] 259 ITR 19 (SC). Two broad issues fall for adjudication, namely, (1) Whether the appellants and four others by jointly purchasing the winning lottery ticket had formed an association of persons and the lottery prize won is an income liable to be assessed in the hands of such association? (2) Whether the impugned notice is invalid and non est in law for being in contravention of sections 147 and 148 of the Act? Issue No. 1 Before we proceed to answer the questions so posed, it is worthwhile to recall the admitted facts. The appellants and four others had jointly purchased a lottery ticket, which won the first prize of Rs. 1 crore. The purchasers claimed individual shares of the available prize money from the Government, which was paid to them after deducting the income-tax at source. The certificate of such deduction was also issued to the purchasers. The tax was credited to the corresponding income-tax head as well and a certificate to the said e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rsons join in a common purpose or common action and as the words occur in a section which imposes a tax on income, the association must be one, the object of which is to procure income, profits or gains. It, however, held that there was no formula of universal application as to what facts, how many of them and of what nature are necessary to come to a conclusion that there is an association of persons and it would depend on the particular facts and circumstances of each case as to whether such a conclusion can be drawn. In N.V. Shamugham and Co. v. CIT [1971] 81 ITR 310 (SC), three receivers had been appointed by the court to conduct the business of a firm subject to the condition that the profit, if any, would be treated as an asset of the firm to be divided between the partners as set out in the partnership deed. The question that arose was whether the profit could be assessed in the hands of the receivers in the status of an association of persons. The apex court held that as the business was carried on by the receivers on behalf of the partners with their consent and that they acted on their behalf who were the owners of the business, the profits were earned on their behalf an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s no written agreement amongst the purchasers to form an association of persons to purchase the lottery ticket for winning a prize. No tangible evidence is available to establish any such intention. It was a solitary instance where it is not unlikely that the purchasers had casually joined together to purchase a lottery ticket. Their conduct after the results also is significant. Thus, only because the lottery ticket was purchased jointly and the same had won a prize, to a draw decisive conclusion founded thereon that the purchasers had formed an association of persons would be wholly inferential. In our view therefore, it would be too sweeping a conclusion to make that only because some persons have joined together in purchasing one lottery ticket, which eventually had won a prize, they had thereby formed an association of persons. The transaction involved would also matter. In a lottery, income, if any, by winning, is by chance and is not contingent on the skill or enterprise of the winner. Keeping in view the primary and essential ingredients of an association of persons outlined by the apex court in the decisions referred to above, it appears to us that for an income to be ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng preferred by the Revenue, the substantive assessment of the individual income of the appellants had become final and binding on the parties. The Revenue has not controverted the assertion of the appellants that full and true particulars of their income had been disclosed in the assessment proceedings and that the assessment had been completed on the basis thereof. It is not the stand of the Revenue that the assessment of the appellants was a case of escaped assessment. There is no material to conclude that the purchasers even after the receipt of their shares of the prize had continued as an association of persons thereafter or that the move to receive their shares of the prize money was only to camouflage the income to avoid assessment thereof as that of the association of persons. Though Dr. Saraf may be right in contending that it is the solemn duty of the taxing authorities to assess the right person and that assessment of income in the hands of individuals may not be a bar for an assessment of the same income in the hands of a different entity, such an exercise can be permitted only in accordance with the procedure prescribed by the Act. There has to be cogent and convinci....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d upon to underline the principle that assessment of the members of an association of persons individually is no bar for assessment of the association of persons. Though keeping in view, the difference in the scheme of the Act and the Indian Income-tax Act, 1922, on the aspect of option, there can be no dispute on the legal principle enunciated, having held that the appellants and four others had not formed the association of persons, this decision is of no avail to the Revenue. Though on principle, there may not be any bar for assessing the income once assessed in the hands of the individuals, again as of the association of persons, the facts of the present case demonstrate that at all relevant times, full and true materials were available with the Assessing Officer to effect a correct assessment under the Act. The assessment on protective basis of the income of the appellants as individuals was in terms of the judgment and order of the Commissioner of Income-tax (Appeals) and the Tribunal, construed as substantive assessment. In that view of the matter, in the above conspectus of facts and the authorities relied upon by the parties, we are of the opinion that the income of the j....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., or (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in sections 148 to 153 referred to as the relevant assessment year). 148. Issue of notice where income has escaped assessment. - (1) Before making the assessment, reassessment or recomputation under section 147, the Income-tax Officer shall serve on the assessee a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 139; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section. (2) The Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so." Under section 139(2) referred to in section 148, if in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the prescribed form requiring him to furnish a return of his income and other particulars as may be prescribed. This in our view makes it incumbent to ensure that the notice is clear and unequivocal so as to enable the assessee to furnish all relevant particulars with regard to the income sought to be assessed. The apex court in Calcutta Discount Co. Ltd. [1961] 41 ITR 191 had an occasion to interpret the expression "reason to believe" used in section 34(1)(a) of the 1922 Act (pari materia with section 147(a) of the Act). It held thus: "The expression 'reason to believe' postulates belief and the existence of reasons for that belief. The belief must be held in good faith: it cannot be merely a pretence. The expression does not mean a purely subjective satisfaction of the Income-tax Officer; the forum of decision as to the existence of reasons and the belief is not in the mind of the Income-tax Officer. If it be asserted that the Income-tax Officer had reason to believe that income had been under-assessed by reason of failure to disclose fully and truly the facts material for assessment, the existence of the belief and the reasons for the belief, but not the sufficiency of the rea....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... Sun Engineering Works Pvt. ltd. [1992] 198 ITR 297 (SC), that section 147 of the Act being only a machinery provision an interpretation to make it workable has to be adopted. The preponderant judicial opinion as can be gleaned from the authorities cited at the bar is that the Income-tax Officer for the purpose of initiating a proceeding under section 147/148 must have reason to believe that the income sought to be assessed had escaped assessment and the reasons therefor have to be recorded. The reasons have to be cogent, convincing and existing and should not be unreal or imaginary. The belief has to be bona fide and not a pretence. The notice under section 147/148 has to be in compliance with the requirements prescribed thereby to be valid which is an essential pre-condition for the validity of the proceeding. It is on a compliance with the above requirements that an Income-tax Officer assumes jurisdiction to initiate a proceeding under section 147/148. We have examined the records placed before us by learned counsel for the Revenue. It appears therefrom that the Assessing Officer had proceeded on the basis that the appellants and four others had comprised an association of pe....