Karnataka High Court
Mohini Bai M. Sarda vs First Income-Tax Officer on 3 January, 1991
Equivalent citations: [1991]190ITR541(KAR), [1991]190ITR541(KARN)
JUDGMENT S.R. Rajasekhara Murthy, J.
1. The petitioner is an income-tax assessee. For the assessment years 1981-82 and 1982-83, the petitioner filed her income-tax returns for the years ending March 30, 1982, and November 9, 1982, declaring total incomes of Rs. 15,360 and Rs. 13,760 respectively. The assessments were completed on November 29, 1982, and November 25, 1982, under section 143(3) of the Income-tax Act accepting the incomes declared.
2. The petitioner had created a trust called "Madanlal Sarda Family Trust" by a trust deed dated June 23, 1980, and had settled a sum of Rs. 10,000 under the trust and appointed three trustees to hold the said sum of Rs. 10,000 in trust for the benefit of benefit of eight minor grandchildren of the petitioner.
3. The trustees carried on independent business utilising the corpus of Rs. 10,000 settled under the trust and filed returns of income for the assessment years 1981-82 and 1982-83 on February 24, 1982, and April 17, 1982, declaring total incomes of Rs. 63,000 and Rs. 55,040, respectively. The income declared by the trust was assessed to tax by assessment orders dated March 23, 1982, and April 26, 1982. Thereafter, a notice under section 148 of the Income-tax Act dated August 8, 1985, was served on the petitioner on August 23, 1985, proposing to reopen her assessments for the assessment years 1981-82 and 1982-83 and she was called upon to file revised returns for the two years. These notice, annexures-F and G, are challenged in these writ petitions.
4. The petitioner's main contention challenging the notices to reopen the assessments in her case is that there was no omission or failure on her part while filing the returns in her individual capacity assessments for the two years 1981-82 and 1982-83. It is also the case of the petitioner that she had disclosed in Part III of the returns for the two years, claiming exemption of the said income in her hands on the ground that the income of the eight minor beneficiaries under the trust had been subjected to assessment in the name of the trust.
5. In Part III of the returns, it was stated thus :
"In come arising to eight minor beneficiaries in the Madanlal Sarda Family Trust not liable to be included here".
6. Learned counsel for the petitioner, therefore, argued on the basis of these facts that there was no failure on her part in disclosing the necessary particulars relating to the income accruing to the eight minor beneficiaries under the trust. The notices impugned in the writ petition are, therefore, challenged on the ground that they do not satisfy the requirements of section 147 of the Income-tax Act and are, therefore, liable to be quashed.
7. In the statement of objections filed on behalf of the respondent-Income-tax Officer, it is contended that, in the returns filed by the petitioner, she had failed to include the income arising from assets transferred to be eight minor grandchildren under section 64(1)(vi) of the Income-tax Act. The notices impugned in the writ petition are, therefore, justified on the ground that the Assessing Officer rightly invoked the provisions of section 147(a) since there was escapement of assessment of the income accruing to the minor grandchildren which should have been treated as the petitioner's income. It was so argued by Sri Chanderkumar, for the Department, that since the income accruing to the minor children had not been declared by the petitioner, escapement of the assessment of that income had resulted on account of the failure on the part of the petitioner.
8. The question that, therefore, arises on these arguments is :
Whether the Income-tax Officer (respondent) was justified in reopening the assessments for the years 1981-82 and 1982-83 in the petitioner's case invoking section 147(a) of the Income-tax Act, 1961 ?
9. It was argued by Sri Ganesh Rao, learned counsel for the petitioner, that the grandmother of the eight minor beneficiaries, the petitioner herein, had mentioned the fact that she had created a trust in favour of her eight minor grandchildren and their income arising to the minor children in the Madanlal Sarda Family Trust was not includible in her returns. It was contended that the petitioner had furnished all particulars necessary for her assessment for the two years. It was further contended that the Income-tax Officer having accepted the returns and competed the assessments, it is not open to him to invoke section 147(a) to reopen the assessments. If at all, it was submitted, it was a failure on the part of the Income-tax Officer in not considering the facts disclosed in the returns about the creation of the trust in favour of her eight minor grandchildren and the notices issued under section 148 which are impugned in the writ petitions are liable to be quashed as without jurisdiction.
10. It is also the case of the petitioner that the assessment of the trust had been completed by the very same Income-tax Officer for both the years levying tax on the income of the trust and he cannot plead ignorance of the knowledge of the income accruing to the minors.
11. It was argued on behalf of the Department by Sri Chanderkumar, learned senior standing counsel for the Income-tax Department, that from the facts of the case and the returns filed by the petitioner, it cannot be disputed that the petitioner had failed to disclose the income arising out of the assets transferred to her eight minor grandchildren who were the beneficiaries. It was argued that merely claiming exemption in Part III of the return will not absolve the petitioner of the statutory obligation to disclose the income that was includible in her assessment under section 64(1)(vi) of the Income-tax Act. It was also contended that the question of sufficiency of the reason cannot be a subject of judicial review and on the facts, as alleged in the statement of objections, there was failure on the part of the petitioner to disclose fully and truly the material particulars of her income from all sources. A contention is also taken in the statement of objections that the reopening, though proposed to be done by invoking section 147(a), it was also a case for reopening the assessment under section 147(b).
12. Before adverting to the case law cited on behalf of both sides, it is necessary first to examine the facts of the case.
13. In the return filed by the petitioner for the year 1981-82 and 1982-83, this is what the petitioner had stated in Part III of the return.
"Income arising to eight minor beneficiaries in Madanlal Sarda Family Trust not liable to be included here".
14. Therefore, the question that arises for consideration on these facts is, whether the Income-tax Officer was put on notice that there was a trust created by the petitioner settling certain properties in favour of eight minor beneficiaries and that exemption was claimed in respect of the said income in her assessment ? If this is the undisputed fact, can it be said that here was any failure on the part of the assessee-petitioner to furnish full and correct particulars, and if so whether there was reason to believe that any income had escaped assessment ?
15. Learned counsel for the petitioner has relied upon the following decisions in support of his contentions :
Calcutta Discount Co., Ltd. v. ITO .
16. As laid down by the Supreme Court in Calcutta Discount Co., Ltd.'s case (1961) 41 ITR 191, if certain primary facts are disclosed by the assessees in the return, then the limited jurisdiction of the High Court would be to find out whether this information was sufficient for the Income-tax Officer to probe into the matter further and apply his mind to the aspect of clubbing the income that arose to the minor beneficiaries under section 64 of the Income-tax Act.
17. CIT v. Bhanji Lavji (1971) 79 ITR 582, wherein the Supreme Court held that it is for the Income-tax Officer to establish that the assessee has failed to disclose certain facts and material necessary for the assessment of income which had escaped assessment.
18. Learned counsel had relied upon the following decisions :
Indian and Eastern Newspaper Society v. CIT ;
Y. V. Anjaneyulu v. ITO .
19. These two decisions were rendered under section 147(b) and, therefore, have no relevance.
20. The other decisions relied upon by the petitioner are :
Thanthi Trust v. ITO (1989) 177 307 (Mad);
Murlidhar Bhagwandas and Co. v. CIT (1990) 181 ITR 319 (Bom); New Excelsior Theatre P., Ltd. v. M. B. Naik, ITO (1990) 185 ITR 158 (Bom); Technocraft Industries v. G. S. Tung, 2nd ITO (1990) 185 ITR 465 (Bom).
21. In all these cases, the reassessment proceedings taken under section 147(a) were challenged. On the facts of each case, the High Court held that there was no basis for the plea that income had escaped assessment and further that there was no failure on the part of the assessee to disclose true and correct facts.
22. In Technocraft Industries' case (1990) 185 ITR 465 (Bom), the appraisal report of the Assistant Director of Inspection that a number of creditors where mere name-lenders, was relied upon. It was observed by the Bombay High Court that the loans and confirmation letters from creditors were disclosed by the assessee along with the returns, and, therefore, there was no reason to hold the assessee guilty of suppression and the section 147(a) notice was quashed. It was also held that the information furnished by the Assistant Director of Inspection was very vague.
23. In Thanti Trust's case (1989) 177 ITR 307, the Madras High Court held that the assessee had disclosed the primary facts relevant for the assessment and he was under no obligation to instruct the Income-tax Officer about about the inference. The notice under section 147(a) was, therefore, struck down.
24. In Murlidhar Bhagwandas and Co's case (1990) 181 ITR 319, the Bombay High Court found that there was disclosure of havala transactions by the assessee in the returns and for the fault of the Department in not investigating the matter further as to the genuineness of the hundis, it was not open to the Income-tax Officer to reopen the assessment under section 147(a).
25. As against this, learned counsel for the Department has relied upon the following decisions :
Maharaj Kumar Kamal Singh v. CIT .
26. That was a case arising under section 34(1)(b) of the 1922 Act. It was held that even in a case where a return had been submitted disclosing certain facts, if the Income-tax Officer erroneously fails to tax a part of the assessable income, it would be a case of bringing to tax the said part of the income which had escaped assessment. The Supreme Court was explaining the scope and the meaning of the word "information", and held that it includes information as to the true and correct state of the law and so would cover the information as to relevant judicial decision. This observation was made by the Supreme Court in the context of what is "information" for purposes of section 34(1)(b) of the Act. On the facts of the said case, certain income had escaped assessment owing to inadvertence or oversight of the Income-tax Officer and it was held that, in such a case, the assessment could be reopened by invoking section 34(1)(b).
27. The said decision is distinguishable on the facts of the present case and can have no application and does not help the Department's case.
28. It was a case arising under section 147(a) of the Income-tax Act. The Supreme Court enumerated the conditions required to confer jurisdiction on the Income-tax Officer to issue the notice under section 34 beyond the period of four years. On the facts of the said case, it was held that the conditions precedent were satisfied before the Income-tax Officer initiated action to reopen the assessment. The Supreme Court also observed that it would not be a matter for the court to examine whether the reasons on which the Income-tax Officer issued notices were sufficient to form a belief about the escapement and ruled that it is not a justiciable issue. The court further observed that the existence of the belief can be challenged by the assessee but not the sufficiency of the reasons for the belief. In the same case, the Supreme Court, however, held that it is open to the court to examine whether the reasons for the belief have a rational connection or a relevant bearing to the formation of the belief and are not extraneous or irrelevant to the purpose of the section.
29. This is no doubt the law laid down by the Supreme Court explaining the jurisdiction of the High Court. But the said ratio has to be applied having regard to the facts of each case. I am of the opinion that on the facts, the Supreme Court held that there was sufficient reason for the Income-tax Officer to form an opinion about the escapement in that case, and the notice issued under section 34(1)(a) was upheld.
Anandji Haridas and Co., P., Ltd. v. S. P. Kushare .
30. That was an appeal arising under the C.P. and Berar Sales Tax Act from Bombay. The Supreme Court explained the meaning of the word "information" occurring in section 34(1)(b) of the Income-tax Act and observed that it need not be necessarily from an outside agency and such information can be gathered from the assessment record itself leading to the belief that the income has escaped assessment or under-assessed.
31. The High Court laid down that where reassessment has been made under section 147(a), it is open to the Appellate Assistant Commissioner, to treat it as one properly made under section 147(b) provided that on the material on record all the necessary conditions prescribed under section 147(a) are satisfied. This has no application to the facts of the present case.
32. This was a case where proceedings taken under section 147(a) were sustained under section 147(b). That was a case of the assessee being awarded higher compensation by the civil court and the assessee had failed to disclose the pendency of the claim for higher compensation before the civil court. That decision turned on the peculiar facts of the case, and has no analogy with the present case.
Miheer Hemant Mafatlal v. N. Rama Iyer, ITO (1986) 159 ITR 515 (Bom).
33. In this case, each of the petitioners had submitted that their share in the income of the estate was not liable to assessment in their hands pending administration of the estate. It was held that there was no ground to reopen the assessment and the information furnished was sufficient. This case helps the petitioner in this case, rather than the Department.
34. It was held by the High Court that whether the income chargeable to tax has escaped assessment has to be decided under the provisions of the Act itself, including the jurisdiction of the Income-tax Officer, and not by way of a writ petition.
35. This view of the High Court is contrary to the rulings of the Supreme Court on the question of jurisdiction.
36. On these facts, the question that arises for consideration is whether the petitioner had disclosed all the facts necessary for the completion of the assessment in her case for the two years in question. As already stated, the petitioner had stated in Part III of the returns that the income arising to eight minor beneficiaries in Madan Lal Sarda Family Trust was not liable to be included in her returns. The very same Income-tax Officer who completed the assessment in the case of the trust was also the Income-tax Officer who had jurisdiction to assess the petitioner in her individual capacity.
37. What is required under section 147(a) of the Income-tax Act is that the assessee is required to furnish such particulars of income and all other material facts necessary for his/her assessment. This is not a case where the Income-tax Officer could find fault with the petitioner having regard to the fact that the petitioner had mentioned about the trust as well as the income arising to the minor beneficiaries in her returns and had also claimed exemption of that income in her hands in Part III of the returns. This information was sufficient to alert the Income-tax Officer to make further enquiries as to why the income arising to the minor beneficiaries should not be taxed in her hands under section 64(1)(vi) of the Income-tax Act. The Income-tax Officer having overlooked to take steps to assess the income of the minors in the hands of the petitioner, if it was permissible in law, it is not open to the Income-tax Officer to reopen the assessments in the petitioner's case invoking the provisions of section 147(a) of the Income-tax Act.
38. The decisions relied upon by the petitioner support her contentions. It cannot be disputed that the petitioner had disclosed the primary fact in her returns, viz., that the petitioner had executed a trust in favour of the eight minors. There was, therefore, no reason for the Income-tax Officer to say that the income had escaped assessment on account of the failure of the petitioner-assessee to disclose the income that has accrued to the petitioner which should have been taxed in her hands.
39. So far as the decisions relied upon by learned counsel for the Department are concerned, I have stated, while referring to them in their order, that they are all distinguishable and have no application to the facts of the present case.
40. On the other hand, the law that is well settled is that the burden is on the Department to show that the escapement has occurred on account of the failure on the part of the assessee to disclose the full particulars of the income. The other aspect of the case is, whether the Income-tax Officer had reason to believe that the escapement had occurred on account of the omission or failure on the part of the assessee. The formation of belief must have a nexus to the failure of the assessee to disclose true and full particulars as held by the Supreme Court in Bhanji Lavji's case (1972) 79 ITR 582. It is sufficient if the assessee has disclosed all the primary facts and any further enquiry or investigation that is called for should be done by the Income-tax Officer. On the facts of the present case, it is clear that the information furnished by the petitioner in Part III of the returns was sufficient for the Income-tax Officer to enquire further into the matter and to take steps to include the income accruing to the minors in the assessment of the petitioner. This was a clear case of failure on the part of the Income-tax Officer rather than the assessee.
41. I am, therefore, of the opinion that, on the facts of the case, the Income-tax Officer was not justified in reopening the assessment invoking section 147(a) of the Income-tax Act. The writ petition is, therefore, liable to be allowed. The writ petition is accordingly allowed and the notices as per annexures-F and G dated August 8, 1985 issued by the First Income-tax Officer, Gulbarga, under section 148 of the Income-tax Act, 1961, are quashed.
42. The petitioner to pay deficit court fee of Rs. 100 within two weeks.