TMI Blog1976 (8) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... n answer to questions Nos. 2 to 4 and, therefore, we decline to answer those questions and return the reference unanswered in respect of those questions. This leaves for consideration only question No. 1 and we shall state the facts relevant thereto. One Sabulal Sahib who died on October 8, 1964, and who will hereafter be referred to as the assessee, was carrying on the business of running motor transport buses in Salem. On 27th December, 1958, he entered into an agreement with one Kalaran to sell three of his buses with their route permits and accessories to him. The agreement itself is not an annexure to the statement of the case; but in the order of the Tribunal dated 19th November, 1968, calling for a report from the AAC, there is an extract which is apparently a translation of the relevant terms of the agreement between the assessee and the said Kalaran. Kalaran is referred to as party No. 1 in the said extract and the assessee as party No. 2. The relevant passage runs as follows : " Both the parties herein determined the value of the 3 buses to be Rs. 60,000 No.1 (Kalaran) having agreed to pay to No. 2 (the assessee) Rs. 60,000, No.1 has this day paid Rs. 15,000 as advanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed statement) 3 of the buses (MDS 5091, MDC 5415 and MDC 3613) from the assessee, advanced to the assessee on pronotes sums to the extent of Rs. 1,75,000 to clear off earlier debts and also payment of income-tax arrears. On the passing of the order of transfer of these bases by the R.T.A. the said Kalaran waived the amount of Rs. 1,75,000. The assessee feels that this is a casual receipt and windfall." The assessment proceedings were taken up in 1962. On 12th October, 1962, the ITO wrote to the assessee asking for information on certain points relating to the transaction of the transfer of the buses. Sri Soundararajan, the chartered accountant replied to the ITO's queries by his letter dated 20th November, 1962. The ITO was of the view that the reply was not satisfactory and he, therefore, wrote a further letter on 23rd November, 1962, to the assessee. On this occasion, the assessee replied to the queries of the ITO as follows : " Three of my buses MDS 3613, MDC 5091 and MDC 5415 were sold to Sri Kalaran of Namakkal for Rs. 60,000 as per the agreement executed on December 27, 1958, a copy of which has already been filed with you. Daring the period of negotiation he helped me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oth these parties do not admit that there was any route value attached to the buses. This position has been intimated to the Second Income-tax Officer, assessing Sri V. Kalaran for suitable action in his hands... If after scrutiny by the Second Income-tax Officer, any material comes to notice that the excess amount received by the assessee constituted only consideration of route valued then suitable action will be taken to reopen this assessment and include appropriate capital gains. For the present, the admitted capital gain of Rs. 3,032 does not come up for capital gains tax ......" The sum of Rs. 3,032 described as capital gain represents the difference between Rs. 60,000 taken as the sale price of the buses and Rs. 56,968 the original cost of the buses to the assessee. The buses were shown in the books at their written down value and the depreciation that had been allowed on the buses come to Rs. 18,740. This sum was brought to tax under section 10(2)(vii) of the Indian I.T. Act, 1922, which governs the relevant assessment. It is extraordinary and even unimaginable that any ITO discharging his functions bona fide in the administration of the Act should have passed an orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad told him that the sum of Rs. 2,35,000 was the price of the 3 buses. In his own evidence Kalaran accepted that there was package deal for transferring the buses together with the route permits and accessories for a sum of Rs. 2,35,000. The ITO looked into the records of Kalaran also in January, 1965 and thereafter initiated action under s. 147(a) of the I.T. Act of 1961. In the office note left by him, he stated that the plaint filed by the assessee and also the judgment of the court clearly showed that the assessee received the said sum of Rs. 1,75,000 as consideration for the transfer of the route permit, etc. He was of the view that the sum of Rs. 1,75,000 would have to be treated as capital gains. He pointed out also that the assessee had not shown to the department the agreement dated 9th February, 1959, entered into with Kalaran on the basis of which the suit had been filed. He accordingly issued notice under s. 148 read with s. 147(a) of the Act of 1961. As by that time the assesses had died, his widow filed the return admitting the income as originally assessed. The assessment was made on her as the legal representative of the assessee. The ITO held that the buses togethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er at the stage of the original assessment. (2) Shri Abdul Karim made it clear that it was not the stand that because Kalaran had disclosed his version to the Income-tax Officer before the original assessment was made, the action under section 147(a) ceased to be without jurisdiction. Sri Abdul Karim's clear stand is that he accepts that what is to be seen is whether the assessee himself had disclosed all the facts which he was bound to disclose and his case is that the assessee had done so as he had placed before the Income-tax Officer all the primary facts." The Tribunal's finding was that the assessee was aware that the buses were sold for Rs. 2,35,000 but that he did not disclose this to the ITO. In the light of these contentions and the findings, the first question has to be considered. The learned counsel for the assessee sought to argue that the provisions of s. 147(a) were not applicable to the present case, because all the relevant facts were before the ITO and that if the ITO failed to draw proper inferences from the facts in his possession, he could not take action under s. 147(a). Section 147(a) in so far as it is material runs as follows : "147. Income escapi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see took up the stand that he received the sum of Rs. 1,75,000 but that it was only a windfall and not liable to tax. Therefore, it was not the case of the assessee before the Tribunal that there was an escapement of income from tax, and that that escapement was not the result of his omission or failure to disclose fully and truly all the material facts, but was the result of the negligence or oversight or mistake on the part of the ITO to draw the necessary inference from the primary facts placed by the assessee before him. Thus, in view of the concession referred to above, the only point is to see whether the escape is due to the assessee's failure to disclose fully and truly all material facts. The Supreme Court had occasion to consider the question as to whether any question of law arose in a case where by reason of any omission or failure on the part of the assessee to disclose fully and truly all material facts, income had escaped assessment, in CIT v. Lakhiram Ramdas [1962] 44 ITR 726 (SC). In that case, at the time of the original assessment for the assessment year 1945-46, the assessee had produced his account books and balance-sheets of all his branch offices. The ITO h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial facts necessary for his assessment. The Tribunal referred to the account books produced by the assessee and particularly to the report of the examiner of accounts who submitted a report to the ITO with regard to the bank account of the assessee in the Exchange Bank of India and Africa Ltd. In our opinion, in the circumstances of this case, the question whether the assessee had or had not failed to disclose fully and truly all material facts necessary for his assessment was a question of fact and we are unable to accept the argument of the learned advocate for the appellant to the contray. In the result, we hold that no question of law arose in this case and the High Court of Bombay rightly rejected the petition under s. 66(2) of the I.T. Act. " In a later decision reported in CIT v. Kamal Singh Rampuria [1970] 75 ITR 157 (SC), the Supreme Court had again to consider a similar question. The assessee in that case was a minor at the relevant time. His mother who had passed away had bequeathed to him a sum of Rs. 3 lakhs and her 1/6th share in a firm. This sum of Rs. 3 lakhs received from the mother under the will was invested in a firm. The father was submitting returns of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal's finding and acting as a court of appeal. In our opinion, there is justification for the argument put forward on behalf of the appellant. " The Supreme Court further pointed out at page 161 as follows: " It is well established that the High Court is not a court of appeal in a reference under section 66 of the Act and it is not open to the High Court in such a reference to embark upon a reappraisal of the evidence and to arrive at findings of fact contrary to those of the Appellate Tribunal. It is the duty of the High Court to confine itself to the facts as found by the Appellate Tribunal and answer the question of law in the setting and context of those facts. It is true that the finding of fact will be defective in law if there is no evidence to support it or if the finding is unreasonable or perverse. But in the hearing of a reference under section 66 of the Act it is not open to the assessee to challenge such a finding of fact unless he has applied for a reference of the Specific question under section 66(1). In India Cements Ltd. v. CIT [1966] 60 ITR 52 (SC), it was pointed out by this court that in a reference the High Court must accept the findings of facts reach ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the total income of the assessee and that as the assessee did not disclose the source of those amounts which were not recorded in the account books, all the conditions for invoking the jurisdiction under s. 147(a) were present. On appeal to the Supreme Court, it was held, reversing the decision of the High Court, that after discovery of the primary facts relating to the transactions evidenced by the bank drafts it was for the officer to make the necessary enquiries and draw proper inference as to whether the amounts represented by the drafts could be treated as part of the total income of the assessee. As this had not been done by the ITO, it was plainly a case of oversight and it could not be said, it was hold, that income chargeable to tax had escaped assessment by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts. To a similar effect was another decision decided earlier by the Supreme Court in CIT v. Hemchandra Kar [1970] 77 ITR 1 (SC). In that case, a HUF consisting of six members had encashed high denominational notes of the value of Rs. 1,29,000. Out of it a sum of Rs. 19,000 was brought to tax in the hands of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uses and the route permit to Kalaran for Rs. 2,35,000. The suit itself had been filed on the basis of the agreement of February 9, 1959. When these facts came into the possession of the ITO, he came to the conclusion that the income had escaped assessment by reason of the omission or failure on the part of the assessee to disclose fully and truly all the material facts. It is this conclusion of the ITO that has been confirmed by the Tribunal. This would be a question of fact. Even assuming that the materials already in possession of the ITO were enough for him to draw the conclusion that the sum of Rs. 1,75,000 was part of the sale prices of the buses, still the only point taken before the Tribunal was that the assessee had placed before the ITO all material facts. This contention was rejected by the Tribunal. In the absence of a proper question contesting the validity of the finding of fact by the Tribunal the finding will not be open to challenge at this stage. This legal position is clearly brought out in the decision of CIT v. Kamal Singh Rampuria [1970] 75 ITR 157 (SC) noticed already. It was strongly urged on behalf of the assessee that it was not open to the ITO to ignore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount in making the assessment for the assessment year 1946-47, as the relevant proviso came into force only on May 4, 1946. The learned counsel for the Commissioner raised a preliminary objection to this question being raised for the first time before the High Court on the ground that it did not arise out of the order of the Tribunal, having been neither raised before it nor dealt with by it. Overruling this objection the learned judges of the Bombay High Court held that the form in which the question was framed was sufficiently wide to take in the new contention, that even if the particular aspect of the question had not been argued before the Tribunal, it was implicit in the question as framed, and that, therefore, the assessee could raise it. On the merits they held that the proviso was not retrospective in its operation and that the amount in question could not be assessed by recourse to the proviso to s. 10(2)(vii) in the assessment for 1946-47. The Commissioner thereafter appealed to the Supreme Court and in the majority judgment the Supreme Court elaborately considered this scope of s. 66(1) and observed as follows (p. 611) : " The result of the above discussion may thus b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Similarly, in the next year, there was a further credit balance. The ITO included the credit balance as income in the assessment of the assessee. The AAC confirmed the assessment. Before the Tribunal it was conceded on behalf of the department that the amount of sales tax received by the assessee did not become its income as and when the sale was made, but only when the assessee did not make payment thereof to the Government and retained the amount as its own. The Tribunal held that if the amount of sales tax collected by the assessee was not initially its income, it could not become income of the assessee thereafter and, therefore, came to the conclusion that the sales tax collected by the assessee did not constitute a trading receipt. The Commissioner thereafter obtained a reference of the question whether the sales tax collection represented the taxable income of the assessee. The Allahabad High Court held as follows (p. 382): " In the present case, as already pointed out, it was conceded on behalf of the department before the Tribunal that the amount of sales tax when collected by a dealer did not become his income immediately on the receipt thereof. The department took its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the reassessing authority to draw proper inferences from the materials in his possession is so wholly different from the question as to whether there was failure on the part of the assessee to place all material facts in his possession that it cannot be treated as an aspect of the same question. It was sought to be contended as if the omission to draw the inference on the part of the ITO affected his jurisdiction so that it could be argued in the reference. Even a point of jurisdiction would require consideration in a reference only if it could be said to arise out of the Tribunal's order. In Lakshminarayanan v. CIT [1971] 79 ITR 525 (Mad) there was a levy of penalty on the assessee. The penalty order was confirmed by the Tribunal. Though before the Tribunal no question relating to the jurisdiction of the IAC to entertain the proceedings and to levy penalty was mooted, the assessee sought a reference on the question of jurisdiction of the IAC to levy penalty. The application was rejected by the Tribunal and the assessee approached this court under s. 256(2) of the I.T. Act, 1961. This court held that the question relating to jurisdiction, though going to the root of the matter, ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
