Supreme Court of India
Income Tax Officer, Cuttack And Ors vs Biju Patnaik on 7 December, 1990
Equivalent citations: 1991 AIR 464, 1990 SCR SUPL. (3) 488, AIR 1991 SUPREME COURT 464, 1991 AIR SCW 114, 1990 TAX. L. R. 1131, 1991 KERLJ(TAX) 9, 1991 ALL TAXJ 822, (1990) 4 JT 731 (SC), 1991 (1) SCC(SUPP) 161, (1991) 188 ITR 247, (1991) 5 CORLA 121, (1991) 91 CURTAXREP 95
PETITIONER:
INCOME TAX OFFICER, CUTTACK AND ORS.
Vs.
RESPONDENT:
BIJU PATNAIK
DATE OF JUDGMENT07/12/1990
BENCH:
RAMASWAMY, K.
BENCH:
RAMASWAMY, K.
KULDIP SINGH (J)
CITATION:
1991 AIR 464 1990 SCR Supl. (3) 488
1991 SCC Supl. (1) 161 JT 1990 (4) 731
1990 SCALE (2)1248
ACT:
Income Tax Act, 1961: Sections 147 & 148--Condition
Precedent for exercise of jurisdiction by I.T.O.
HEADNOTE:
The respondent-assessee was assessed to income tax for
the assessment year 1957-58 ending with financial year March
31, 1957. Subsequently, it came to the notice of the Income
Tax Officer that the assessee had not shown in his return a
sum of Rs.15 lakhs which he had earned as capital gains by
the sale of his mining business. According to the assessee,
the transfer of the business had been made on 31.3.1956 and
as such the capital gain was not leviable to taxation since
capital gain was not subjected to taxation in the assessment
year 1956-57. But from the information 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 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 peti-
tion under Article 226 of the Constitution which was dis-
missed by the learned Single Judge. On appeal, the Division
Bench, while upholding the exercise 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
Court that (i) the sum received by him was consideration for
the transfer of the goodwill of the business as an ongoing
concern; (ii) the Income Tax Officer had no reason to be-
lieve that the income had 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 complying with the provisions of section
147(a) read with section 148 of the Act.
489
Allowing the appeal, setting aside the judgment of the
Division Bench and restoring that of the Single Judge, this
Court,
HELD: (1) Section 147 (a) of the Income Tax Act postu-
lates two conditions, namely, that the Income-Tax Officer
must, on the basis of material facts on record, prima facie,
he satisfied that the income of the assessee is exigible to
tax for that relevant assessment year and that he had reason
to believe that it had escaped assessment. Further, he must
have reason to believe that the escapement of income was on
account of the omission or failure of the part of the asses-
see to fully and truly disclose all the material facts
necessary for the assessment. Both the conditions are condi-
tions 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] 41 I.T.R.
191 (SC), referred to.
(2) It is true that the notice does not prima facie
disclose the satisfaction of the two conditions precedent
enjoined under section 147 (a), but in the counter affidavit
fried by the Income-Tax Officer in the High Court, he has
stated all the material facts. It is settled law that in an
administrative actium, though the order does not ex facie
disclose the satisfaction by tile Officer of the necessary
facts, but if the record discloses the same, the notice or
the order does not per se become illegal. [492G-493B]
(3) The Division Bench has committed illegality in
coming to the conclusion that the sum of Rs.15,00,000 was
received towards consideration for sale of goodwill of the
on-going business. It is premature on the facts and circum-
stances in this case to reach such a decision. Whether
assets and goodwill together were transferred or the good-
will alone was transferred as on-going concern of the mining
business is a matter yet to he gone into by the Income-Tax
Officer. [493E-G]
JUDGMENT:
