Calcutta High Court
Central India Industries Ltd. vs Income-Tax Officer And Ors. on 28 March, 1990
Equivalent citations: [1990]184ITR242(CAL)
JUDGMENT Susanta Chatterjee, J.
1. The present rule was issued on June 4, 1979, at the instance of the writ petitioner challenging the notice dated March 29, 1979, under Section 148 of the Income-tax Act for the assessment year 1962-63 and the proceedings relating thereto on the ground that respondent No. 2, the Income-tax Officer, Central Circle XVII, Calcutta, has no reason whatsoever to believe that any income of the said firm chargeable to tax for the assessment year in question had escaped assessment within the meaning of Section 147 of the Income-tax Act. There is no material or information whatsoever on the basis whereof, respondent No. 2 could entertain any belief as alleged in the said notice. The alleged belief is mere pretence and does not exist and was not held in good faith. It is asserted that the petitioner-firm had fully and truly disclosed all the material and relevant facts necessary for the assessment of its income at the time of the original assessment and that there was no omission or failure on the part of the petitioner to disclose fully and truly all the material and relevant facts and there is no cause of action for the issuance of the impugned notice.
2. The writ petition is contested by the respondents by production of all records and the attention of the court has been drawn to the recorded reasons for the issuance of the impugned notice.
3. It is argued on behalf of the writ petitioner that the recorded reasons indicate that the proceedings have been initiated for the purpose of taxing alleged capital gains by invoking the provisions of Section 52 of the Act. 49,077 partly paid-up shares of Orient Paper Mills. Limited were sold by the assessee to Smt. Nirmala Debi Birla (29,077) and Sri Chandrakant Birla (20,000). The recorded reasons further indicate that the said 2 (two) buyers of the shares, namely, Nirmala Devi Birla and Chandrakant Birla, were members of the family of Sri B. M. Birla who was controlling the affairs of the assessee-company. The recorded reasons disclosed that the partly paid-up shares ranked pari passu with the fully paid-up ordinary shares of the company. Thus the fair market value of the partly paid-up shares was Rs. 21.40 per share but the same were sold at Rs. 9.50 per share to the said persons. The relationship of the said two buyers with the persons controlling the affairs of the petitioner-company and the fact that the said partly paid-up shares of Orient Paper ranked pari passu with fully paid-up shares was not disclosed at the time of the original assessment and this was the omission on the part of the petitioner. Learned counsel appearing for the petitioner has submitted that the petitioner in fact has filed a supplementary affidavit and the allegations made in the recorded reasons have been controverted. It has been disclosed that the letter of right shares issued by the Orient Paper Mills Limited was produced before the Income-tax Officer at the time of the original assessment which will show that the partly paid-up shares were ranked pari passu with the fully paid-up shares. The relationship of the parties was also within the knowledge of the Income-tax Officer as would appear from the copy of the assessment order in the case of the assessee-company for the assessment year 1981-62.
4. Learned counsel appearing for the writ petitioner has developed his argument by drawing the attention of the court to the case of K. P. Varghese v. ITO . It is submitted that the Supreme Court laid down that Section 52 of the Act was not the charging section. It was merely a machinery provision and the provisions of the said section could not be invoked unless it was established by the Department that the assessee had actually received something more than the consideration stated or disclosed. The onus of establishing that something more than what is stated has been received by the assessee lies on the Department. In the said case of K. P. Varghese transfer was made by the assessee at the purchase price to close relations and it was conceded that Section 52(1) could not be invoked unless there was evidence of actual receipt of an amount over and above stated. It was, however, contended that, in terms of Section 52(2) of the Act, the Department could tax the assessee since it is shown that there was a difference of more than 15% between the fair market value and the consideration stated. The Supreme Court rejected such submission holding that Section 52(2) has no application and it was necessary to establish that the assessee had actually received something over and above the stated consideration- The attention of the court has also been drawn to the case of CIT v. Shivakami Co. (P.) Ltd. . It is submitted that the Supreme Court followed its decision in K. P. Varghese , while dealing with the proviso to Section 12B(2) of the Indian Income-tax Act, 1922, which was similar to Section 52(1) of the Act. In this case, in order to save the shares from attachment and sale by the Income-tax Officer for tax arrears, they were transferred at a very low figure. It was held that although the transaction was to defeat the claim of the Revenue, still the consideration had not been understated and as such the proviso to Section 12B(2) of old Act corresponding to Section 52(1) of the Act could not be invoked. It was held by the Supreme Court that (at p. 76 of 159 ITR) "understatement of value is a misstatement of value. Selling goods at an undervalue to defeat the Revenue is different from understating the value in the document of sale".
5. It is argued with much emphasis that, in view of the law as laid down by the Supreme Court in the above two decisions, the provisions of Section 52 of the Act for assessing the capital gains can be invoked only in a case where there is any understatement of the consideration received. The Department has to establish the fact of such understatement. In the instant case, the recorded reasons are vague and the issuance of the impugned notice is thoroughly misconceived. Much emphasis has been laid on the fact that the belief formed or the materials or the reasons recorded must have a live link or nexus to the formation of the belief that income has escaped assessment. It is further well-settled that before proceedings for assessment under Section 148 can be initiated, two conditions must be fulfilled, namely, (1) an omission or failure on the part of the assessee to disclose material facts and (2) escapement of income on account of nondisclosure of such material fact. Learned counsel for the petitioner has referred to the case of L. B. Kharawala v. ITO [1984] 147 ITR 67, wherein the Gujarat High Court had occasion to consider a situation where proceedings under Section 147(b) of the Act were initiated for taxing capital gains with reference to Section 52 of the Act. The Gujarat High Court, following the decision of the Supreme Court in the case of K. P. Varghese [1981] 131 ITR 597, held that since there was no material to establish understatement of consideration, the proceedings under Section 147 of the Act were without jurisdiction and the same were quashed. It is asserted that the ratio of the said judgment is very much applicable to the facts and circumstances of the present case and the relief sought by the petitioner may be granted accordingly.
6. Mr. R. C. Prasad, learned counsel appearing for the . Revenue, has drawn the attention of the court to the fact that Messrs. Central India Industries Limited is an investment company. The income of the company arises from dividend and interest. For the assessment year 1962-63, the company had shown net capital gains of Rs. 2,46,433 on sale of shares. Capital gains as shown by the assessee was assessed to tax by the Income-tax Officer. Capital gains on sale of 49,077 partly paid ordinary shares of the Orient Paper Mills Limited relating to short-term capital asset was sold by the company on December 6, 1961, at Rs. 9.50 per share. The above ordinary shares were allotted to the assessee-company by Messrs. Orient Paper Mills Limited as rights shares in June, 1961. The face value of these rights shares was Rs. 10 each. These shares were issued at a premium of Rs. 12. It has been recorded that the transfer of shares was effected at a price which is much lower than the market price. The vendees in this case are directly connected with the persons who were controlling the affairs of the assessee-cornpany at the relevant time. The transfer was effected at such a low price with the object of reducing the liability of the assessee under Section 45 of the Act. Section 52 of the Act applies as short-term capital gains on the sale of 49,077 partly paid shares which will work out to Rs. 7,80,324 as against Rs. 1,96,308 shown by the company. It was found by the Income-tax Officer that, in order to decide whether the provisions of Section 52 are applicable in this case or not, the facts that the partly ordinary shares of the Orient Paper Mills Limited rank pari passu with the fully paid ordinary shares and that the vendees are close relations of the persons who were in control of the affairs of the company are very much relevant to issue the impugned notice. Since the primary and relevant information was not furnished before the assessing authority at the time of the original assessment, it was not possible to compute the short-term capital gains on the sale of these shares at Rs. 7,80,324 by applying the provisions of Section 52 and instead he included in the total income only the capital gains of Rs. 1,96,308 as shown by the assessee-company. Mr. Prasad has also drawn the attention of the court to the case reported in 67 ITR 117 (sic).
7. Having heard learned counsel appearing for the respective parties and going through the materials on record, this court is of the view that the writ court will not sit in appeal over each order of the statutory authority unless the impugned orders are perverse in nature causing manifest injustice. The writ court will interfere where the acts done and/or caused to have been done are without jurisdiction or in excess of jurisdiction. In a recent judgment in State of U. P. v. Maharaja Dharmander Prasad Singh, , it has been found that the writ court will not sit in appeal upon the decision but it will examine the decision-making process. This court has not to see the merit of the recorded reasons in depth by scrutinizing the facts of the case. The recorded reasons insisting on issue of notice under Section 148 of the Act are not conclusive in nature. It is based upon a bona fide belief and upon fulfilling the conditions of escaping proper assessment by not truly and fully disclosing all the relevant facts which formed the basis of a proper assessment, This court has considered the facts of the case and the points of law as discussed above. The principle as laid down in the aforesaid reported decision is not in doubt and the applicability of the decision is always to be considered in the facts and circumstances of each case. Regard being had to the materials as disclosed and looking to the recorded reasons, this court does not impart with the issuance of the impugned notice as an outcome of any perverse order or there is any exercise of the right beyond jurisdiction or that the impugned notice suffers from any inherent defect for which the interference of the writ court is necessary. Pursuant to the impugned notice, the petitioner may very well place on record all the relevant facts for making a proper assessment in accordance with law. The recorded reasons are found all the more bona fide to proceed according to law and considering this aspect of the matter, this court is not inclined to interfere with the matter any further.
8. Thus finding no merit in the writ petition, the rule is discharged. All interim orders are vacated. There will be no order as to costs.