1970 (8) TMI 8 - SC - Income Tax

Sale of the assessee-company - reassessment proceedings had been initiated on the belief that the provisions of section 34(1)(a) were properly applicable - High Court should not have and we in our turn will not answer the questions referred under section 66(1) of the Act because in our opinion those questions cannot be answered without first deciding whether the part of the sale price received by the assessee amounts to profits under section 10(2)(vii) - assessee s appeal is allowed

Issues Involved:
1. Whether the assessee-company failed to disclose fully and truly all material facts necessary for its assessment for the assessment year 1952-53.
2. Whether the reassessment proceedings initiated under section 34(1)(a) were valid.
3. Whether the reassessment could be justified under section 34(1)(b).

Detailed Analysis:

Issue 1: Disclosure of Material Facts
The primary issue was whether the assessee-company failed to disclose fully and truly all material facts necessary for its assessment for the year 1952-53. The assessee, a private limited company, had sold its assets to the Amalgamated Electricity Co. (Belgaum) Ltd. and realized a sale price exceeding the written down value of the assets. The Income-tax Officer (ITO) initially assessed the total income as "Nil" after setting off unabsorbed depreciation. However, the assessee did not include the profits under section 10(2)(vii) of the Indian Income-tax Act, 1922, nor did it show the excess sale price over the written down value in its return. The ITO later found that these profits had not been assessed and initiated proceedings under section 34(1)(a). The Tribunal initially held that the assessee had placed all primary facts before the ITO, and there was no failure to disclose material facts. However, the Supreme Court held that the Tribunal erred in not deciding whether any portion of the sale price came within the scope of section 10(2)(vii). The Court emphasized that the assessee's failure to disclose the excess sale price or the written down value of the assets amounted to a failure to disclose fully and truly all material facts necessary for assessment.

Issue 2: Validity of Reassessment Proceedings under Section 34(1)(a)
The reassessment proceedings were initiated under section 34(1)(a) on the grounds that the assessee had not disclosed the profits under section 10(2)(vii). The assessee contended that it had disclosed all primary facts, and therefore, the notice under section 34(1)(a) was invalid. The Supreme Court held that merely producing account books or other evidence from which material facts could be discovered by the ITO with due diligence does not amount to disclosure. The Court stated that the law casts a duty on the assessee to disclose fully and truly all material facts necessary for assessment. Since the assessee did not disclose the excess sale price or the written down value, it failed in this duty, justifying the reassessment proceedings under section 34(1)(a).

Issue 3: Justification of Reassessment under Section 34(1)(b)
The Tribunal had rejected the revenue's contention that the reassessment could be justified under section 34(1)(b), as the ITO did not proceed under this provision. The Supreme Court did not directly address this issue, as it focused on the necessity of first determining whether any part of the sale price constituted profits under section 10(2)(vii). The Court implied that if profits were found under section 10(2)(vii), the reassessment under section 34(1)(a) would be justified.

Conclusion:
The Supreme Court allowed the appeal, emphasizing that the Tribunal must first decide whether any part of the sale price amounted to profits under section 10(2)(vii). Only after this determination can the other legal questions be addressed. The Court declined to answer the questions referred under section 66(1) of the Act without this preliminary decision. The appeal was allowed with no order as to costs.

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