COMMISSIONER OF INCOME-TAX, GUJARAT versus A. RAMAN & COMPANY

Citation: [1968] 1 S.C.R. 10 · Decided: 18-07-1967 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Dismissed
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Judgment (excerpt)

10 
COMMISSIONER OF INCOME-TAX, GUJARAT 
A 
v. 
A. RAMAN a COMPANY 
July 18, 1967 
[J. C. SHAH, S. M. SIKRI AND V. llAMASWAMI, JJ.) 
Indian Income-tax Act, 1961. s. 147-Conditions for the exercise of 
power to re-open assessnient. 
Constitution of India. 1950. Art. 226-Powers of High Court to 
issue writ when Income-tax Officer's jurisdiction to issue notice under 
s. 147 of the Indian Income-tax Act, 1961 is questioned-High Court 
must not re~ppraise evidence. 
The assessee firm consisted of two partners who were managers 
of their respective Hindu Undivided Families. The firm sold its 
goods to the aforesaid families· and the families again sold the goods 
on their own account. In income-tax proceedings for the years 195\1-
60, 1960-61 and 1961-62 the firm and the Hindu Undivided Families 
were separately assessed in respect of their incomes. Subsequently 
B 
c 
the Income-tax Authorities took view that the sale of goods by the D 
firm to the families was only a device to divert the profits of 
the firm and on this view issued notices under s. 147 oi the Income-
tax Act. 1961 requiring the assessee to show cause why the assess-
ments for the years 1959-60, 1960-61 and 1961-62 should not be re-
opened. The High Court of Gujarat in a petition for a writ under 
Art. 226 of the' Constitution quashed those notices. and restrained 
the Income-tax Officer from taking proceedings in pursuance thereof. 
With special leave granted by this Court. the Revenue appealed. 
Held: (i) The High Court may issue a high prerogative writ 
prohibiting the Income-tax Officer from proceeding with reassess-
ment when it appears that the Income-tax Officer had no jurisdiction 
to commence proceedings because the conditions precedent do not 
exist. [12G-H; 13B-C] 
Calcutta Discount Co. Ltd. v. Income-tax Officer. Companies 
E 
District I, Calcutta, & Anr. 41 I.T.R. 191, followed. 
F 
It is however not open to the High Court exercising powers 
under Art. 226 to set a~ide or vacate the notice for reassessment by 
itself re-appraising the evidence. [15B] 
(ii) The condition which invests the Income-tax Officer with 
jurisdiction has two branches: (i) that the Income-tax Officer has 
reason to believe that income chargeable to tax has escaped assess-
ment; and (ii) that it is in consequence of information which he has G 
in his possession and that he has reason so to believe. The expression, 
'information' in the context of which it or.curs must mean instruc-
tion or knowledge derived from an external source concerning facts 
or particulars, or as to law relating to a matter bearin~ on the assess-
ment. If he has such information the Income-tax Officer mav com-
mence proceedings under s. 147(1)(b). But to commence such· a pro-
ceeding it is not necessary that on the materials which came to the 
notice of the Incom.,.tax Officer, the previous order of assessment H 
was vitiated by some error of fact or law. [13C-G] 
(iii) In the present case however the pre-conditions for the 
issue of a notice of re-assessment did not exist. The law does not 
oblige a trader to make the maximum profit that he can out of his 
c.I.T. v. RAll.AN & co. (Shall, J.) 
11 
A tra<ling transactions: Income which accrues to a trader is taxable 
in his hands: income which he could have. but has not earned IS 
not made taxable as income accrued to him. Avoidance of tax liabi-
lity by so arranging commercial affairs that charge of tax is distri-
buted is not.. prohibited. [15D-G] 
B 
c 
Civn. APPELLATE JuRJsDICTION: Civil Appeal No. 768 of 
1966. 
Appeal by special leave from the judgment and order dated 
December 18, 1964 of the Gujarat High Court in Special Civil 
Application No. 332 of 1964. 
B. Sen, S. K. Aiyar, R. N. Sachthey and S. P. Nayar, for the 
appellant. 
S. T. Desai and 0. C. Mathur, for the respondent. 
Tlie Judgment of the Court was delivered by 
Sllall, J.-The assessces-Mls A. Raman & Company-are 
dealers in "mill stores" in the course of their business they sell 
"mill stores" to other dealers including two concerns trading in the 
D names of Mis A. M. Shah & Co. and Mis R. Ambalal & Co., 
which are owned by the Hindu undivided families, managers of 
which are the only partners of the assessees. For the assessment 
years 1959-60, 1960-61 and 1961-62 the assessees were originally 
assessed by the Income-tax Officer, Circle-I, Ward-A, Ahmedabad, 
while the partners of the assessees and the Hindu undivided fami-
lies which traded in the names of MI s A. M. Shah
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