SHRIYANS PRASAD JAIN (DEAD) BY LRS. versus INCOME TAX OFFICER AND ORS.

Citation: [1993] SUPP. 2 S.C.R. 279 · Decided: 14-09-1993 · Supreme Court of India · Bench: B.P. JEEVAN REDDY

Judgment (excerpt)

SHRIYANS PRASAD JAIN (DEAD) BY LRS. 
A 
v. 
INCOME TAX OFFICER AND ORS. 
SEPTEMBER 14, 1993 
[B.P. JEEVAN REDDY AND S.P. BHARUCHA, JJ.) 
B 
Income Tax Act, 1961-Section 245(c}-Settlement by Settlement Com-
mission-Whether question of genuineness of a document can be re-opened 
before the Commission-Whether findings recorded by Inquiry Commission 
appointed by Central Government, after exhaustive inquiry, have no eviden-
C 
tiary value and do not constitute relevant material for settlement by Settlement 
Commission-Whether this Court can inteifere with Commission's order on 
findings off acts. 
The Appellant was appointed Officer-in-Charge, of Bombay Office of D 
Dalmia Cement and Paper Marketing Company Ltd.(DCPM), by order 
dated October 11, 1943. His salary was fixed Rs. 4,0000 per month, with 
effect from April 1, 1943. It was also stipulated that the term of employ-. 
ment shall be 25 years and that in case his services are terminated before 
the expiry of the said period, he shall be paid compensation at the rate of 
Rs. 40,000 per annum. Through letter dated February 14, 1950, services of E 
the appellant were terminated with effect from November 30, 1949 and he 
was paid Rs.7 lacs. In assessment proceedings relating to A.Y. 1950-51, the 
appellant claimed that the said sum of Rs. 7 lacs was not taxable, under 
section 7 of the Income Tax Act, 1922, as it had been paid by way of 
compensation for loss of employment. The Income Tax Officer did not p 
agree with that plea and included the amount in the income of the Appel-
lant. On appeal, the Assistant Appellate Commissioner upheld the 
Appellant's plea. The appeal filed by the revenue against order of the 
Assistant Appellate Commissioner was dismissed by the Tribunal. Ap-
plication filed by the Revenue under section 66(1) of the Income Tax Act, 
1922 was dismissed by the Tribunal. Application under section 66(2) was G 
also dismissed by Bombay High Court. On approach to this Court by 
Revenue, the Court directed the Tribunal to refer to the High Court for 
opinion, the question "whether on facts and circumstances of the case, the 
sum of Rs. 7 lacs is liable to tax under section 7 of the Income Tax Act, 
1922." The High Court answered the question in favour of the ApJ.>ellant. 
H 
279 
280 
SUPREME COURT REPORTS (1993) SUPP. 2 S.C.R. 
A 
Commissioner of Income Tax, Bombay City I v. S.P. lain, 56 l.T.R. 
B 
724. 
The Revenue filed special leave petition against the order of the High 
Court, but withdrew it later. 
The Government of India appointed a Commission of Inquiry•to look 
into the affairs of certain companies controlled by Dalmia - Jain group, 
including Dalmia Cement and Paper Marketing Company Ltd. The In-
quiry Commission dealt with the aforesaid payment of Rs. 7 lacs to the 
appellant also. The main question considered was the truth and genuine-
C ness of the letter dated Order 11, 1943 and the propriety of the transaction. 
The Inquiry commission concluded that the impugned letter was an after 
thought and a device adopted to 'evade and avoid payment of income tax. 
A notice u/s 148 was issued to the appellant on the basis of the said Report. 
The appellant filed a writ petition in the High Court at Bombay, challeng-
D ing the validity of the notice. The writ petition was dismissed. The High 
Court opined that action under section 147 is justified where the Income 
Tax Officer takes a prima f acie view and entertains reasonable belief that 
the assessee omitted or failed to disclose truely and fully all material and 
primary facts. The Board was also satisfied with the reasons recorded by 
E 
F 
the Income Tax officer observed the High Court. Special leave Petition filed 
by the appellant against the order of the High Court was rejected by this 
Court. The appellant approached the Settlement Commission by applica-
tion under section 245 (c) of the Income Tax Act. The Commission after 
inquiry and hearing the appellant, concluded that the sum of Rs. 7 lacs, 
received by the Appellant was of composite character. It apportioned the 
said sum into Rs. 2 lacs representing compensation for loss of employment 
(not subject to tax) and Rs. 5 lacs taxable under section 7 of the 1922 Act, 
and directed the appellant to pay the tax computed accordingly. The 
Commission did not grant immunity from penalty and prosecution, taking 
the view that the issue involved is one of law. The present appeal was 
preferred against the judgment and order of the Settlement C

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