TMI Blog1953 (12) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... ent year 1947-48. It was then discovered by the Income Tax Officer that in or about January 1946 (which was within the accounting period) the petitioner had exchanged high denomination notes of the value of ₹ 1,21,000/-. It is well known that an Act was passed abolishing high denomination notes of ₹ 1000/- and upwards as legal tender. It was this enactment that compelled the petitioner to have the notes exchanged. The Income Tax Officer considered this amount to represent concealed income and proposed to treat it as income received during the assessment year. Before I proceed further, I might mention that in the declaration in the prescribed form (as submitted by the petitioner on 22-1-1946) for exchange of high denomination notes, entry No. 16 required the declarant to state the source from which the declarant came to possess the Bank notes and the time when he did so. The answer given by the petitioner was: The exact time cannot be ascertained, we have received in exchange. 3. On or about 14-5-1948, the petitioner filed the statement (Annexure 'A' to the petition) showing an amount of ₹ 2,29,274/1/9 pies as accumulation in the Home Chest accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ending business income from year to year extending over a minimum period of 20 years. There is no account to prove as to how and when the income accrued. The family has or had no other business save and except the present family money-lending business. The petitioner then proceeds to give a list of income spreading the sum of ₹ 1,21,000/- over 20 years commencing from 1333 B.S. to 1353 B.S., each year showing an income of precisely ₹ 6000/- save and ' except the last year when the income is shown as ₹ 7000/-. The petitioner then proceeds to state as follows: In the circumstances, the petitioners pray that you will be pleased to assess the disclosed income earned during the minimum period of last 20 years under the disclosure scheme of the Government of India. 5. On 14-3-1952, there appears to have been a hearing before, the I.A.C., Range V, Calcutta, The minutes recorded by the officer, are extremely important and are set out below: Discussed with the assessee's Pleader. The disclosure petition is accepted and ₹ 1,21,000/- is to be spread over as below: 1940-41 … Rs. 15,000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14-3-52, communicated with his Memo No. 9I63/I-H/M-7-a/50-51 dt. 14-3-52. Spread over the amount disclosed as per I.A.C.S instructions and calculate tax accordingly. Issue D.N. and challan for payment. 8. As far as the assessment order for 1947-1948 was concerned, it included ₹ 25000/- as the amount disclosed for that year. On 25-3-1952, the petitioner got his reply to the petition made by him to the Commissioner of Income Tax, West Bengal. This letter is of great importance and must be set out: Dear Sir, Please refer to your petition to the Commissioner of Income Tax, West Bengal, regarding settlement of your disclosure petition. In this connection I have been directed by the Commissioner of Income Tax, West Bengal, to offer you the undermentioned two alternatives for settlement of the matter under dispute: (1) You should agree to the settlement proposed by me in this case and give in writing that you will not appeal and that you will pay the demand promptly. If so, the Commissioner is prepared to allow you the concession of not charging the 3 per cent, compound interest (Rs. 4, 450/-) in view of the fact that there will already be an imposition of penalty Under S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, and although in the argument references were made to the fact that such proceedings were taken without formal assessment orders or demand notices having been served', I am not called upon to decide the validity of the certificate proceedings on any such ground which have not been taken in the petition. Mr. Chakravarty appearing on behalf of the petitioner concedes that such grounds do not form the subject-matter of this application. 13. In this application, the substantial point put forward is that the entire system of disclosure proceedings is invalid in law. Mr. Chskravarty frames his argument thus: Under Article 265 of the Constitution, no tax is to be levied or collected from a citizen of India except by authority of law. It is argued that before a citizen can be assessed to tax he must be proceeded against under the Income Tax Act, the requisite notices are to be served upon him, and after he has been formally assessed, the tax is to be realised in compliance with the procedure indicated in the Income Tax Act. It is further argued that the so-called 'disclosure proceedings' are not based on any law and infringe Article 265 of the Constitution. His next ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he receives a notice under Section 22(2) of the Income-tax Act, gets a form of return from the Income-tax Office and submits his return, it will be futile to contend that the Income-tax Officer is not authorised to assess the party or that the party is not liable to pay any tax because a notice had not been issued to him. The liability to pay the tax is founded on Sections 3 and 4 of the Income-tax Act which are the charging sections. Section 22 etc. are the machinery sections to determine the amount of tax. 'Lord Dunedin in Whitney v. Commrs. of Inland Revenue' (1926) AC 37 (B), stated as follows: 'Now there are three stages in the imposition of a tax : there is the declaration of liability, that is the part of the statute which determines what persons in respect of what property are liable. Next, there is the assessment. Liability does not depend on assessment. That, 'ex hypothesi', has already been fixed. But assessment particularizes the exact sum which a person liable has to pay. Lastly, come the methods of recovery, if the person taxed does not voluntarily pay. In -- 'W. H., Cockerline and Co. v. Commrs. of Inland Revenue' (1930) 16 Tax Cas 1 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me, however, Mr. Chakravarty has based his case on the footing that this was income which had been concealed during a period of 20 years. His client's grievance is as follows: it is said that with regard to the major part of the sum involved there exists clear evidence in the account books or Sumars , as they are called, which are in the possession of the petitioner to show that these sums were received and transferred to the Home Chest account, during the last 20 years. It is said that during the hearing the lawyers who represented the petitioner before the Income Tax Officer misguided the petitioner into thinking that the explanation offered will not be accepted and that it was better to come out with a disclosure statement. It is said that the petitioner being confronted with the possibility of his explanation being rejected, and being faced with the risk of penalties, was induced to file this disclosure petition upon the representation of his lawyers that he would have to pay no more than ₹ 25000/- including all penalties. It is further alleged that the petitioner surrendered to the proposed settlement because of the pressure given by the income-tax authorities. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny assessment, or paper imposing the assessment, served upon him. In my view that argument is unsound. I do not think it is necessary in all cases, in order to enable the Crown to receive money, that there should be an assessment actually served of that sum, which is ultimately paid.......... I should be sorry to think that one was, in any way, taking away any of the liberties of the subject, but it is to be noted that it would be unfortunate if the subject were not able to make an agreement unless and until some assessment had been made. 19. Since the citizen has an existing liability to pay taxes there seems to be no law preventing him from paying the taxes on an agreed basis, and for this purpose the existence of an assessment order is not essential. Mr. Chakravarty, however, seeks to distinguish this case on two grounds. Firstly, he says that in the English case, the amount that was payable was arrived at by the careful scrutiny of two chartered accountants and had therefore a relation to what was actually due. Secondly, he says that the amount had already been paid. 20. In my opinion, these distinctions are not material. It is true that in the case mentioned above the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cular case the citizen was induced by threats to surrender to the illegal demands of the authorities. 22. The position appears to be as follows: During the course of the assessment proceedings for the year 1947-1948, the Income Tax Officer discovered that the petitioner in January 1946 had exchanged high denomination notes for a sum of ₹ 1,21,000/-, and this he proposed to treat as income in that year. The assessee stated, that he had no books of account to support his statement that the sum in question was accumulation during the last 20 years. If the books of account were not forthcoming, the Income Tax Officer would have been justified in treating it as income accruing in the year 1947-1948. The assessee however naturally wished to avoid this. The authorities were unwilling to spread this amount between 20 years but they were willing to do so between the last 8 years. Mr. Meyer appearing on behalf of the respondents argues that this has no reference to Section 34, Income Tax Act. I am, however, doubtful on this point. It is obvious to me that the authorities considered that 8 years would be about the limit to which they could re-open the assessment under Section 34 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etter of the Inspecting Assistant Commissioner dated 25-3-1952, he has induced the respondents to alter their position and it is no longer possible now to get rid of that settlement and put the parties into their original position. Besides, the Court has to consider as to whether it is called upon to grant relief to a person who has admittedly transgressed the law by concealing his income and submitting false returns and then upon his own admission continuously prevaricated with the authorities with the result that even now it is not possible for this Court to find out with absolute certainty as to what is true and what is false. The petitioner has constantly gone back on his own statement and there is nothing to show that his present story is the final one or necessarily the true one. If he was in possession of books and documents at all material times such as would explain to the hilt the nature of the sum involved, it is incomprehensible why he made the declaration that it was not possible to state as to when and from whom the high denomination notes were received or that he did not possess any books of account and why he should not insist that the matter be fully thrashed ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to accept the proposed settlement. It is upon his acceptance thereof that the basis of assessment finally came to be an agreed basis. There is no question of a formal contract having been entered into. There was a dispute as to the assessment, and the matter was settled at a figure between the assessee and the income-tax authorities. 26. Mr. Chakravarty has referred me to the case of -- Commr. of Agricultural Income Tax v. Sultan All Gharami', 1951-20 ITR 432 (Cal) (F). In that case, Chakravartti J. (as he then was) held that the decision of the Federal Court in --'AIR 1947 FC 32 (A)', does not cover an omission of a step which the statute regards as a condition precedent to the commencement of proceedings in exercise of jurisdiction. The point there was that notice was served under Section 24(2) and the assessment was re-opened without serving any notice under Section 34, and as such the proceedings were held to be not valid. I do not think that it throws any light on the facts of this case where there was no formal re-opening of the assessment under Section 34 at all. What was re-opened was done on an agreed basis on the strength of a disclosure petition. 27. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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