LexGANGA SARAN SONS PVT. LTD. CALCUTTA versus INCOME TAX OFFICER & ORS.
Open in Lexace · Ask the AI about this caseJudgment (excerpt)
A
B
c
D
E
F
G
H
564
GANGA SARAN AND SONS PVT. LTD.
CALCUTTA
v.
INCOME TAX OFFICER & ORS.
April 23, 1981
[P.N. BHAGWATI, AND E.S. VENKATARAMlAH, JJ.)
Income Tax Act 1961, S. 147-lncome Tax-Escaped assessment-Duty of
assessee to disclose fully and truly all material facts necessary for his assessment
for that .vear-Meaning of.
Director in sole charge of management of business of assessee-Paid remune-
ration for services-Utilisation of the remuneration by director-Assessee whether
under ob/i!{ation to .disclose to the Income Tax Officer in the course of its assess-
ment.
The assessee was incorporated as a Private Limited Company in March,
1947 with G as its Managing Director and it took over the business of the trading
company carried on by 'D' in Delhi. D was the brother-in-law of G and was
placed in charge of the management of the business of the Delhi Branch of the
assessee and he was paid a salary of Rs. JOOJ per month, commission at the rate
of I per cent on the sales of the Delhi Branch and bonus equivalent to three
months salary.
The assessments of the assessee for the years 1949-50 to 1959-60 were finalised
on the b1Sis of the decisions of the Income-Tax Tribunal and the amounts paid
to the Managing Director and the other Directors including D by way of salary,
commission and bonus were allowed in full as permissible deductions and so
was the interest paid on the credit balances in their respective accounts.
On the 28th March, 1968, the Income Tax Officer issued a notice under
Section 148 of the Income Tax Act, 1961 seeking to reopen the assessment of the
assessee for the assessment year 1959-60 on the ground that the income of the
assessee had escaped assessment at the time of the original assessment. The
Income Tax Officer, however, did not state the reasons which had led to the
belief that the income of the assessee had escaped assessment by reason of omis-
£ion or failure to disclose material facts nor did he give any reasons though
requested by the assessec.
The assessee's writ petition challenging the validity of the notice was allow-
ed by a Single Judge and the notice issued by the Income Tax Officer was qua-
iihed. It was held that there was no omission or fa ii ure on the part of the
y
GANGA SARAN V. I.T.O.
565
assessee to disclose material facts relating to his assessment and that there
A
was no reason to believe that any part of the income of the assessee had escaped
assessment at the time of the original assessment by reason of wrong allowance
of the remuneration paid to D as a permissible deduction.
The Division Bench allowed the appeal, holding that the Income Tax Officer
had reason to believe that the remuneration paid to D had been wrongly allowed
as a permissible deduction by reason of omission or failure on the part of the
assessee to disclose the material facts and the notice issued by the Income Tax
Officer was justified.
Allowing the appeal to this Court,
B
HELD : 1. (i) Neither of the
two conditions necessary for attracting
the applicability of Section 147(a), was satisfied. The notice issued by the Income
C
Tax Officer is therefore without jurisdiction. [574 G]
~
(ii) It is not possible to sustain the conclusion that the assessee omitted or
failed to disclose fully and truly any material facts relating to his assessment.
[574 F]
2. (i) Before the Income Tax Officer can assume jurisdiction to issue
D
notice under Section 147(a), two distinct conditions must be satisfied. First,
he must have reason to believe that the income of the assessee has escaped
assessment and secondly, he must have reason to believe that such escapement is
by reason of the omission or failure on the part of the assessee to disclose fully
and truly all material facts necessary for his assessment. If either of these condi-
tions is not fulfilled, the notice issued by the Income Tax Officer would be with-
out Jurisdiction. [571 F]
E
(ii) The important words under Section 147(a) are "has reason to believe"
and these words are stronger than the words "is satisfied.". The belief enter-
tained by the Income Tax Officer must not be arbitrary or irrational. It must be
reasonable or in other words it must be based on reasons which are relevant and
material. The Court, cannot investigate into the adequacy or sufficiency of the
reasons which have weighed with the Income Tax Officer, in coming to the belief,
but the Court can examine whether the reasonsExcerpt shown. Read the full judgment & AI analysis in Lexace.