INCOME TAX OFFICER, CUTTACK AND ORS. versus BIJU PATNAIK

Citation: [1990] SUPP. 3 S.C.R. 488 · Decided: 07-12-1990 · Supreme Court of India · Bench: KULDIP SINGH · Disposal: Appeal(s) allowed

Judgment (excerpt)

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INCOME TAX OFFICER, CUTTACK AND ORS. 
v. 
BIJU PATNAIK 
DECEMBER 7, 1990 
[KULDIP SINGH AND K. RAMASWAMY, JJ.] 
Income Tax Act, 1961: Sections 147 & 148--Condition Prcedent 
for exercise of jurisdiction by I. T. 0. 
The respondent•assessee was assessed to income tax for the assess-
ment year 1957-58 ending with f"mancial year March 31, 1957. Subse-
C quently, it came to the notice of the Income Tax Officer that the assessee 
bad not shown in bis return a sum of Rs.15 Iakbs which be bad earned 
as capital gains by the sale of bis mining business. According to the 
assessee, the transfer of the business bad been made on 31.3.1956 and 
as such the capital gain was not Ieviable to taxation since capital gain 
D was not subjected to taxation in the assessment year 1956-57. But from 
the informaation available with the Income Tax Officer it appeared that 
the transfer of business took place on 3.11.1956. 
On the basis of this information the Income Tax Officer, with the 
approval of the Commissioner of Income Tax, issued notice to reopen 
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the assessment in question under sections 147 (a) and 148 of the Income 
Tax Act, 1961. 
The assessee challenged the notice by way of writ petition under 
Article 226 of the Constitution which was dismissed by the learned 
Single Judge. On appeal, the Division Bench, while upholding the exer-
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cise of the power under section 147 (a) of the Act, held that the income 
derived by the respondent was towards sale of goodwill and, therefore, 
the income was not liable to capital gains tax. 
On behalf of the assessee it was contended before this Conrt that 
(i) the sum received by him was consideration for the transfer of the 
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goodwill of the business as an ongoing concern; (ii) the Income Tax 
Officer bad no reason to believe that the income bad escaped assessment 
for that year; and (iii) the satisfaction arrived at by the Income-Tax 
Officer under section 147(a) did not exist on the facts of the case, and 
the Income-Tax Officer merely communicated the notice without com-
plying with the provisions of section 147(a) read with section 148 of the 
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Act. 
488 
I.T.0. v. BIJU PATNAIK 
489 
Allowing the appeal, setting aside the judgment of the Division 
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Bench and restoring that of the Single Judge, this Court, 
HELD: (1) Section 147 (a) of the Income Tax Act postulates two 
conditions, namely, that the Income-Tax Officer must, on the basis of 
material facts on record, prima facie, be satisfied that the income of the 
assessee is exigible to tax for that relevant assessment year and that he 
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had reason to believe that it bad escaped assessment. Further, be must 
have reason to believe that the escapement of income was on account of 
the omission or failure of the part of the assessee to fully and truly 
disclose all the material facts necessary for the assessment. Both the 
conditions are conditions precedent to the exercise of the jurisdiction 
under section 147 (a) read with section 148. [492B-C] 
Calcutta Discount Co. Ltd. v. I.T.O., (1961] 41I.T.R.191 (SC), 
referred to. 
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(2) It is true that the notice does not prima facie disclose the 
satisfaction of the two conditions precedent enjoined under section 147 D 
(a), but in the counter affidavit f"tled by the Income-Tax Officer in the 
High Court, he has stated all the material facts. It is settled law that in 
an administrative action, though the order does not ex facie disclose the 
satisfaction by the Officer of the necessary facts, but if the record 
discloses the same, the notice or the order does not per se become 
illegal. I 492G-493B l 
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(3) The Division Bench bas committed illegality in coming to the 
conclusion that the sum of Rs.15,00,000 was received towards consi-
deration for sale of goodwill of the on-going business. It is premature on 
the facts and circumstances in this case to reach such a decision. 
Whether assets and goodwill together were transferred or the goodwill F 
alone was transferred as on-going concern of the mining business is a 
matter yet to be gone into by the Income-Tax Officer. I 493E-G] 
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 571 
(NT) of 1976. 
From the Judgment and Order dated 27/28.11.1974 o( the 
CalcuttaHigh Court in Appeal from Original Order No. 271of1973. 
Dr. V. Gaurishanker, B.B. Ahuja, Ms. A. Subhashini and 
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S. Rajjappa for the Appellants. 
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490 
SUPREME COURT REPORTS 
[1990] Supp. 3 S.C.R. 
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Dr. Debi Prasad Pal, Ms. A.K. Verma and S. Sukumaran for 
JBD & C

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