TMI Blog2004 (8) TMI 90X X X X Extracts X X X X X X X X Extracts X X X X ..... e have heard Mr. G.K. Joshi, senior advocate, assisted by Mr. R.K. Joshi and Mrs. U. Chakravarty, advocate, for the appellants/writ petitioners and Dr. A.K. Saraf, senior advocate, assisted by Ms. N. Agarwal, advocate, for the respondent/Revenue. Briefly stated, the facts necessary to be taken note of for comprehending the competing arguments of the parties are that the appellants/writ petitioners are residents of Thangal Bazar, Imphal, in the State of Manipur and are existing assessees under the Income-tax Act, 1961 (hereafter referred to as "the Act"), enjoying income from house property, share of profit from their respective firms as well as from interest. During the year 1983-84, relevant to the assessment year 1984-85, the appellants along with four other persons residing at 4, Achambit Show Road, Calcutta, in the State of West Bengal, jointly purchased a lottery ticket of Rs. 5 bearing No. B-716127 of the First Diamond Lottery conducted by the Directorate of State Lotteries, Government of Nagaland, which won the first prize of Rs. 1 crore in the draw held on October 31, 1983. The purchasers having equal shares in the ticket claimed their respective 1/8th share from the amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erein it was contended, inter alia, that such income was liable to be assessed by way of substantive measure in their hands. The appeals were registered as Appeal No. 245/Guwahati of 1987-88, 228/Guwahati of 1987-88, 232/Guwahati of 1987-88, 230/Guwahati of 1987-88. Their contention was negatived and the appeals were dismissed by the Commissioner of Income-tax (Appeals) by judgment and order dated September 15, 1987. The appellants took the issue in appeal before the Income-tax Appellate Tribunal, Guwahati Bench, Guwahati (hereafter referred to as "the Tribunal"). In the appeals which were registered as I.T.A. No. 618/Gauhati, (30/Gauhati, 621/Gauhati and 622/Gauhati of 1987, the Tribunal by its common judgment and order dated January 18, 1990, set aside the order of the Commissioner of Income-tax (Appeals) with a direction for fresh disposal of the matter after obtaining necessary facts and materials on record and upon hearing the parties. Following the remand, the Commissioner of Income-tax (Appeals) enquired of the assessing authority as to whether any substantive assessment had been made with regard to the lottery prize of Rs. 90,000 to which the assessing authority replied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng aside the order of the Assessing Officer assessing the income from the lottery on protective basis. The appellants being aggrieved by the notice dated November 14, 1991, and the insistence on the part of the Revenue to pursue the proceeding on that basis, in spite of the above factual background, therefore, approached this court with the aforementioned civil rules assailing the said notice. This court by its order dated December 23,1993, passed in the writ petitions, while issuing rule, stayed the operation of the notice. By the impugned judgment and order, however, the writ petitions have been dismissed by imposing a cost of Rs. 10,000 on each of the appellants. The Revenue's pleaded case is that eight persons, including the appellants by jointly purchasing the lottery ticket for earning the prize money through a joint venture had formed an association of persons and they having become joint owners of the winning ticket and the prize money, their income from lottery is liable to be assessed as that of such association of persons. It asserted that the joint owners being eight in number, they had to be described as M/s. Mahendra Singh Sehgal and seven others with all names me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der dated March 27, 1997, passed by the Commissioner of Income-tax (Appeals) and the judgment and order dated March 3, 2000, passed by the Tribunal in Appeal No. 511 (Gauhati) of 1991, the same had become final in the hands of the appellants/assessee and thus c could not be reassessed in the hands of a new entity as the same would then be hit by the bar of double taxation. He also pleaded the bar of limitation under section 154(7) of the Act prescribed for rectification of mistakes in the assessment (assessment being made on March 31, 1987). According to him, therefore, the assessment having become final, no rectification, or reassessment thereof, on the ground of escaped assessment under section 154/147/148, respectively, was permissible in law. Learned senior counsel next turned to the notice and urged that the same was on the face of the records, in contravention of section 147(a) and (b) and on that ground alone is liable to be declared illegal, null and void. According to him, each of the appellants/assessees having filed his/her return of income on May 15, 1984, under section 139 declaring their income from the lottery and they having fully and truly disclosed all material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the notice by resorting to section 292B of the Act. He asserted that as substantial questions of law had been raised in the writ proceedings, the learned single judge ought not to have saddled the appellants with costs on the ground that the writ petitions had been filed on frivolous pleas. In support of his contention, Mr. Joshi has placed reliance on a host of decisions in Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC); ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC); Maharaj Kumar Kamal Singh v. CIT [1959] 35 ITR 1 (SC); Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996 (SC); Y. Narayana Chetty v. ITO [1959] 35 ITR 388 (SC); CIT v. Kurban Hussain Ibrahimji Mithiborwala [1971] 82 ITR 821 (SC); Tansukhrai Bodulal v. ITO [1962] 46 ITR 325 (Assam) [FB]; CIT v. Indira Balkrishna [1960] 39 ITR 546 (SC); G. Murugesan and Brothers v. CIT [1973] 88 ITR 432 (SC) and CIT v. Murlidhar Jhawar and Puma Ginning and Pressing Factory [1966] 60 ITR 95 (SC). Dr. Saraf, on the other hand, has contended that the appellants along with four others having jointly purchased the lottery ticket had thus made investment for earning an income from a joint business venture a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was prescribed either in section 148 or in section 139(2) thereof. He also questioned the maintainability of the writ petition contending the same to be pre-mature as no returns in response to the impugned notice had been submitted. Dr. Saraf, placed reliance on ITO v. Bachu Lal Kapoor [1966] 60 ITR 74 (SC); N. V. Shanmugham and Co. v. CIT [1971] 81 ITR 310 (SC); CIT v. A.U. Chandrasekharan [1998] 229 ITR 406 (Mad); CIT v. George [2000] 241 ITR 536 (Mad); Hyderabad Allwyn Metal Works Ltd. v. ITO [1962] 46 ITR 988 (AP); CIT v. Sun Engineering Works Pvt. Ltd. [1992] 198 ITR 297 (SC); S. Narayanappa v. CIT [1967] 63 ITR 219 (SC); Ambalal Jivabhai Patel v. ITO [1964] 54 ITR 308 (Guj); GKN Drivershafts (India) Ltd. v. ITO [20Q3] 259 ITR 19 (SC). Two broad issues fall for adjudication, namely, (1) Whether the appellants and four others by jointly purchasing the winning lottery ticket had formed an association of persons and the lottery prize won is an income liable to be assessed in the hands of such association? (2) Whether the impugned notice is invalid and non est in law for being in contravention of sections 147 and 148 of the Act? Issue No. 1 Before we proceed to answer the q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating that they were no more in union as an association of persons. As the appellants claimed that they had been realising their dividends from the shares involved as individuals, a stand, which had remained unrebutted, the apex court upheld their contention. The expression "association of persons" came to be dealt with by the apex court in CIT v. Indira Balkrishna [1960] 39 ITR 546 as well. It held, referring to earlier decisions that an association of persons must be one in which two or more persons join in a common purpose or common action and as the words occur in a section which imposes a tax on income, the association must be one, the object of which is to procure income, profits or gains. It, however, held that there was no formula of universal application as to what facts, how many of them and of what nature are necessary to come to a conclusion that there is an association of persons and it would depend on the particular facts and circumstances of each case as to whether such a conclusion can be drawn. In N.V. Shamugham and Co. v. CIT [1971] 81 ITR 310 (SC), three receivers had been appointed by the court to conduct the business of a firm subject to the condition that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... producing income, profits and gains is indispensable. The apex court in CIT v. Indira Balkrishna [1960] 39 ITR 546, while recounting the above essentials of an association of persons had added a rider observing that there is no formula of universal application as to what facts and of what nature are necessary to conclude in favour of the existence of an association of persons. According to it, it would depend on the particular facts and circumstance of each case. In the case in hand, admittedly, there is no written agreement amongst the purchasers to form an association of persons to purchase the lottery ticket for winning a prize. No tangible evidence is available to establish any such intention. It was a solitary instance where it is not unlikely that the purchasers had casually joined together to purchase a lottery ticket. Their conduct after the results also is significant. Thus, only because the lottery ticket was purchased jointly and the same had won a prize, to a draw decisive conclusion founded thereon that the purchasers had formed an association of persons would be wholly inferential. In our view therefore, it would be too sweeping a conclusion to make that only because ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on March 31, 1987. The appellants as individual assessees had also claimed credit on account of the deduction of the income-tax at source. The assessment of their individual income from the lottery though initially was on protective basis was eventually construed as substantive assessment in view of the judgment and order dated March 27, 1991, passed by the Commissioner of Income-tax (Appeals) and the order dated March 3, 2000, passed by the Tribunal in I.T.A. No. 511/Gauhati of 1991. No further appeal being preferred by the Revenue, the substantive assessment of the individual income of the appellants had become final and binding on the parties. The Revenue has not controverted the assertion of the appellants that full and true particulars of their income had been disclosed in the assessment proceedings and that the assessment had been completed on the basis thereof. It is not the stand of the Revenue that the assessment of the appellants was a case of escaped assessment. There is no material to conclude that the purchasers even after the receipt of their shares of the prize had continued as an association of persons thereafter or that the move to receive their shares of the pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o reopening of the earlier orders of assessment but would signify determination of the correct figure of tax payable by the Hindu undivided family. The basic premises in which the decision proceeds is distinguishable from the present facts, inasmuch as, it is not the case of the Revenue that the existence of the association of persons comprised of the appellants and four others was withheld from it resulting in a case of escaped assessment. The decision in ITO v. Ch. Atchaiah [1996] 218 ITR 239 (SC), was relied upon to underline the principle that assessment of the members of an association of persons individually is no bar for assessment of the association of persons. Though keeping in view, the difference in the scheme of the Act and the Indian Income-tax Act, 1922, on the aspect of option, there can be no dispute on the legal principle enunciated, having held that the appellants and four others had not formed the association of persons, this decision is of no avail to the Revenue. Though on principle, there may not be any bar for assessing the income once assessed in the hands of the individuals, again as of the association of persons, the facts of the present case demonstra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on the scope of section 147/148, it would be essential to set out the said provisions of the Act for ready reference. "147. Income escaping assessment. - If (a) the Income-tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in sections 148 to 153 referred to as the relevant assessment year). 148. Issue of notice where income has escaped assessment. - (1) Before making the assessment, reassessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unless the Income-tax Officer has reason to believe that because of the eventualities enumerated in clause (a) and/or (b) income chargeable to tax has escaped assessment and the reasons in support of such belief have to be recorded by him before issuing notice under section 148. The above requirements are mandatory in nature and any departure therefrom would be at the pain of invalidation of the proceeding. The edict of section 139(2) also makes it incumbent on the Income-tax Officer to issue a notice to the assessee in the prescribed form requiring him to furnish a return of his income and other particulars as may be prescribed. This in our view makes it incumbent to ensure that the notice is clear and unequivocal so as to enable the assessee to furnish all relevant particulars with regard to the income sought to be assessed. The apex court in Calcutta Discount Co. Ltd. [1961] 41 ITR 191 had an occasion to interpret the expression "reason to believe" used in section 34(1)(a) of the 1922 Act (pari materia with section 147(a) of the Act). It held thus: "The expression 'reason to believe' postulates belief and the existence of reasons for that belief. The belief must be held i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 971] 82 ITR 821. Disclosure in the notice under section 34 of the 1922 Act of particulars of escaped assessment was held to be not necessary by the Andhra Pradesh High Court in Hyderabad Allwyn Metal Works [1962] 46 ITR 988, relied upon by learned senior counsel for the Revenue. While reiterating its view in Calcutta Discount Co. [1961] 41 ITR 191 (SC), the apex court in S. Narayanappa [1967] 63 ITR 219, however, held that reasons for initiation of the proceedings under section 34 need not be communicated. It was held in CIT v. Sun Engineering Works Pvt. ltd. [1992] 198 ITR 297 (SC), that section 147 of the Act being only a machinery provision an interpretation to make it workable has to be adopted. The preponderant judicial opinion as can be gleaned from the authorities cited at the bar is that the Income-tax Officer for the purpose of initiating a proceeding under section 147/148 must have reason to believe that the income sought to be assessed had escaped assessment and the reasons therefor have to be recorded. The reasons have to be cogent, convincing and existing and should not be unreal or imaginary. The belief has to be bona fide and not a pretence. The notice under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. According to us, the impugned decision is vitiated by non-application of mind. It being the categorical stand of the Revenue that the proceeding under section 147/148 had to be initiated as the income of the association of persons from the lottery has escaped assessment, the submission of Dr. Saraf that the requirements of the said provisions of the Act are not attracted in the instant case cannot be accepted. The impugned notice as a consequence is also vitiated by non-compliance of the prescriptions of section 147/148 of the Act and does not only suffer from a mere irregularity which can be cured by resorting to section 292B of the Act. The decision of the apex court in GKN Driveshafts (India) Ltd. [2003] 259 ITR 19, does not lay down a general principle of law that an assessee, aggrieved by a notice under section 148 of the Act can under no circumstance before submitting a return as required question the same in a writ proceeding. Having regard to the attending facts and circumstances, the plea of the Revenue that the writ petitions are pre-mature does not commend for acceptance. The upshot of the above discussion, therefore, is that the purchasers of the lottery ticket d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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