Full Judgment Text
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PETITIONER:
INCOME TAX OFFICER, INCOME TAX-CUM-WEALTH TAX CIRCLE II,
Vs.
RESPONDENT:
NAWAB MIR BARKAT ALI KHAN BAHADUR
DATE OF JUDGMENT16/10/1974
BENCH:
GUPTA, A.C.
BENCH:
GUPTA, A.C.
KHANNA, HANS RAJ
CITATION:
1975 AIR 703 1975 SCR (2) 464
1975 SCC (4) 370
CITATOR INFO :
F 1991 SC 331 (6,13)
ACT:
Income tax Act, 1961, s. 147--Scope of High Court’s power
interference under Art. 226.
HEADNOTE:
In 1950, the respondent had executed three trust deeds for
the benefit of three ladies who were described as his wives,
and himself, as the father of their minor children. After
the returns in respect of the assessment year 1955-56, 1956-
57, 1957-58 and 1958-59 were filed by the respondent, the
Income-tax Officer, who had the three trust deeds before him
called upon the respondent for information regarding his
relationship to those three ladies as well as his
relationship to a fourth lady. A statement was filed, on
behalf of the respondent, before the Income-tax Officer,
wherein it was stated that only the fourth lady was his
legally wedded wife, that the other three were merely
referred to as the wives, and that their children were not
the legitimate children of the respondent. The Income-tax
Officer, in assessing the total income of the respondent did
not include, under s. 16(3) of the 1922-Act, the income of
those three ladies and their minor children arising out of
the trust properties. In fact, he assessed them separately
with respect to their income from the trust properties. In
1964 the Income-tax Officer issued notices under s. 148 of
the 1961-Act seeking to reopen the assessments under s. 147
on the ground that there were two other trust deeds of 1957,
which were not produced before the I. T. 0. in which also
two of the ladies were acknowledged as the wives of the
respondent and their children as his children and that their
marriage should be presumed because of the acknowledgement.
The respondent there-upon challenged the validity of the
proceedings and the High Court allowed his petition.
Dismissing the appeal to this Court,
HELD : (1) Section 147(a) provides that if the Income-tax
Officer has reason to believe that by reason of the omission
or failure on the part of the assessee to disclose fully and
truly all material facts necessary for his assessment for
any year, income chargeable to tax has escaped assessment
for that year, he may assess or reassess such income for the
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assessment year concerned. The fact that the ladies and
their children had been described in the 1957-documents as
wives and children of the respondent would have been
material if the description were any thing new that the
Income-tax Officer happened to discover for the first time.
But the 1950,deeds also contained the same description. The
non-production of the 1957-documents at the time of the
original assessment cannot therefore be regarded as non-
disclosure of any material fact necessary for the assessment
of the respondent for the relevant assessment years. Having
second thoughts on the same material does not warrant the
initiation of a proceeding under s. 147. [467G-H; 468B; D-E]
(2) The law has not changed or since the original
assessments were made and it was open to the Income-tax
Officer to have made the presumption that the ladies were
the wives at the time when he made the assessment. He
cannot avail of s. 147 to correct his mistake. [468F-G]
(3) The expression ’reason to believe’ occurring in s. 147
of the 1961-Act or the corresponding s. 34 of the 1922-Act,
does not mean a purely subjective satisfaction on the part
of the Income-tax Officer. The reasons for the belief must
have a rational connection or relevant bearing to the
formation of the belief. Therefore, the High Court, under
Art. 226, has power to set aside a notice under s. 147 of
the 1961 Act or s. 34 of the 1922-Act, if the condition
precedent to the exercise of the .jurisdiction under those
sections did not exist. [469C-D]
465
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 1179-1782
of 1970.
From the Judgment & Order dated the 7th March, 1969 of the
Andhra Pradesh High Court in Writ Petition Nos. 1042-1045 of
1964.
S. C. Manchanda, B. B. Ahuja and R. N. Sachthey, for the
Appellant (In all the Appeals).
S. V. Gupte, Anwarulla Pasha, J. B. Dadachanji, A. Subba
Rao and Anjali K. Varma, for the Respondents (In all the
Appeals).
M. N. Phadke, A. V. Rangam, Gopal Nair and A. Subhashini,
for the Interveners (In all the Appeals).
The Judgment of the Court was delivered by
GUPTA, J. These are four appeals by certificate from a
common Judgment of the High Court of Andhra Pradesh at
Hyderabad by which the High Court directed the appellant,
Income Tax Officer, Income Tax-cum-Wealth Tax Circle 11,
Hyderabad to refrain from proceeding against the respondent
under sec. 147 (a) of the Income Tax Act, 1961. The
appellant had served on the respondent, Nawab Sahib Mir
Osman Alikhan Bahadur, H. E. H., the Nizam of Hyderabad,
notices under sec. 148 of the income Tax Act, 1961 stating
that he had reasons to believe that income of the respondent
chargeable to tax for the assessment years 1955-56, 1956-57,
1957-58 and 1958-59 had escaped assessment within the
meaning of sec. 147 of the Act and proposing to reassess the
income for the said assessment years. The respondent
challenged the validity of the proceedings under sec. 147
sought to be initiated by filing four writ petitions in the
High Court of Andhra Pradesh at Hyderabad. The High Court
by the impugned Judgment allowed all the four petitions and
prevented the Income Tax Officer from proceeding further
under sec. 147 of the Income Tax Act, 1961. In these
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appeals the appellant questions the correctness of the High
Court’s decision.
The material facts are briefly these. Assessments for the
aforesaid four years were completed respectively on March
18, 1958, March 19, 1958, July 20, 1958 and March 28, 1961
under the income Tax Act of 1922. After the returns in
respect of the said years were filed, the Income Tax Officer
called upon the respondent to state his relationship with
four ladies by putting three queries to him. The queries
were as follows:
"(a) The rites and ceremonies attendant on
legal marriages, according to Muslim law and
how they were observed in the case of each of
the four ladies viz., Dulhan Pasha Begum
Saheba, Mazharunnisa Begumsaheba, Laila Begum
Saheba and jani Begum Saheba.
(b) What legal status is accorded to the
children of Mazharunnisa Begum Saheb, Laila
Begum Saheba and Jani Begum Saheba, vis-a-vis,
the children of the late Dulhan Pasha Be-gum
Saheba?
466
(c) Any other factors from the point of view
of the religion which distinguished the status
of late Dulhan Pasha Begum Saheba from the
other three ladies."
It appears that on May 1, 1950, August 6, 1950 and December
29, 1950 the respondent had executed three trust deeds,
described respectively as Family Trust, Miscellaneous Trust
and Family Pocket Money Trust, for the benefit of
Mazharunnissa Begum, Laila Begum, Jani Begum and the minor
children of the last two. in the aforesaid trust deeds the
three ladies were described as wives of the respondent who
was also referred to as the father of their minor children.
In one of these documents, viz., the family Pocket Money
Trust Deed, the description of Laila Begum and Jani Begum as
wives was preceded by the expression "ladies of position".
Under sec. 16 (3) of the income Tax Act of 1922, in
computing the total income of any individual for the
purposes of assessment, the income of the wife or minor
child of the assessee arising from assets transferred by the
husband to the wife or the minor child otherwise than for
adequate consideration was to be included. There is no
dispute that these trust deeds were before the Income Tax
Officer before he completed the assessments for the said
four years.
On September 9, 1957 Shri C. B. Taraporewala, Financial
Adviser and General Power of Attorney Agent of the
respondent, filed a statement before the Income Tax Officer
in reply to these queries. In this reply it was stated that
the late Dulhan Pasha Begum Saheba was the only legally
wedded wife of the respondent, that with the other three
ladies the respondent had not gone through the essential
formalities of a valid marriage under Mohanunedan Law, that
these three ladies who occupied high social position and who
were received in his palace were "ladies of position" and in
view of the special favours bestowed upon them they were
referred to as wives in the said three trust deeds though in
the strict legal sense the description was incorrect and the
children of these ladies were not tile legitimate children
of the respondent and had no legal status as such. This
explanation apparently satisfied the income Tax officer
because in assessing the total income of the respondent for
the said four years he did not include the income of these
three ladies and their minor children arising out of the
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trust properties. It is also admitted that the
beneficiaries of the trusts were separately assessed on the
income derived from the trusts along with their individual
income.
On March 13, 1964 the notices under sec. 148 of the Income
Tax Act, 1961 were issued seeking to reopen the assessments
under sec. 147 of the Act. After some correspondence with
the income Tax Officer, the authorized representatives of
the respondent, M/s. S. G. Dastgir and Company, Chartered
Accountants, filed supplemental returns for the aforesaid
four years "without prejudice" to the respondent’s right to
question the valid it of the notices. The supplemental
returns merely affirmed the original returns filed by the
respondent.
By his letter dated April 15, 1964 addressed to M/s.
Dastgir and Company, the Income Tax officer stated the
reasons for reopening the
467
assessments under sec. 147(a). Referring to two subsequent
trusts named Fern Hill and Race View created by the
respondent on March 21,1957 and December 5, 1957
respectively, it was stated that the material facts relating
to these two documents were not brought to the notice of the
Department in the course of the original assessment pro-
ceedings. Fern Hill Trust was created for the benfit of the
children of Laila Begum and Race View Trust for the benefit
of Jani Begum and her son Imdad Jah Bahadur. ’in the Fern
Hill Trust Deed Laila Begum was described as wife of the
respondent and her children as the children of the
respondent by her. Similarly in the Race View Trust Deed
Jani Begum was described as wife of the respondent and lmdad
Jah Bahadur as his son by her. According to the Income Tax
Officer the facts that Laila Begum and Jani Begum were
described as wives and their children as the children of the
respondent in the Trust Deeds executed in 1957 indicated
that "certain material facts relevant for the assessment
years were not disclosed to the Department, that the
statement given by the Financial Adviser is. untrue and that
thereby income chargeable to tax has been under assessed".
In his letter the Income Tax Officer also referred to sec.
268 of Mulla’s Principles of Mohammedan Law which enumerates
the circumstances from which marriage will be presumed in
the absence of direct proof and stated that the respondent
having acknowledged the three ladies as his wives and their
children as his children in the Trust Deeds executed in 1950
and 1957 all the circumstances mentioned in see. 268 were
present. The letter concluded by saying that it was
established that the ladies and their children were the
legal wives and legitimate children of the respondent.
The common counter-affidavit affirmed by the Income Tax
officer in answer to the writ petitions was on similar lines
to the aforesaid latter. Admittedly Fern Hill and Race View
Trust Deeds executed in 1957 were not produced before the
Income Tax officer when he made the original assessments for
the four years in question. in the counter affidavit it was
alleged that these two Trust Deeds were "material and
primary facts necessary for completing the assessments of
the petitioner-assessee for the relevant assessment years"
and it was submitted that if the said two documents had been
disclosed at the time of the original assessments, the
income Tax Officer "would have certainly arrived. at the
conclusion" that he came to in his letter dated April 15,
1964.
Clause (a) of Sec. 147 of the Income Tax Act, 1961 under
which the assessments were sought to be reopened, so far as
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it is relevant for the present purpose, provides that if the
Income Tax Officer has reason to believe that, by reason of
the omission or failure on the part of an assessee to
disclose fully and truly all material facts necessary for
his; assessment for any year, income chargeable to tax has
escaped assessment for that year, he may assess or reassess
such income for the assessment year concerned. The High
court held. that the reasons assigned for reopening the
assessments did not fall within the scope of omission or
failure on the part of the assessee to disclose fully and
truly all material facts, that all the material facts were
before the Department
15-255 Sup.Cl/75
468
when it made the assessments in question and the trusts
created in 1957 did not "throw a different light on the
matters already disclosed".
The question is whether the existence of the two trust deeds
executed by the respondent in 1957 was a material fact
necessary for his assessment for the relevant assessment
years. The fact that the three ladies and their children
have been described in these two documents as wives and
children of the respondent would have been material if the
description were anything new that the Income Tax Officer
happened to discover for the first time. The three trust
deeds of 1950 also contained the same description of these
ladies and their children and the Income Tax Officer
accepted the statement made by respondent’s Financial
Adviser Shri G. B. Taraporewala seeking to explain why the
ladies had been described as wives therein. It is true that
the trust deeds of 1957 were not produced at the time of the
original assessment but we do not see what difference
production of these two additional documents could have made
which contain the same description of the ladies. Neither
the letter addressed to the respondent’s authorised
representatives, M/s. S. G. Dastgir and Company, by the
Income Tax Officer on April 15, 1964 nor the counter-
affidavit filed in the High Court explains this point. The
documents of 1957 conform to those of 1950 in material
particulars; the trust deeds of 1957 only repeat what the
deeds of 1950 had disclosed. Non-production of the
documents executed in 1957 at the time of the original
assessments cannot therefore be regarded as non-disclosure
of any material fact necessary for the assessment of the
respondent for the relevant assessment years. The High
Court was right in holding that the Income Tax officer had
no valid reasons to believe that the respondent had omitted
or failed to disclose fully and truly all material facts and
consequently had no jurisdiction to reopen the assessments
for the four years in question. Having second thoughts on
the same material does not warrant the initiation of a
proceeding under sec. 147 of the Income Tax Act, 1961.
Mr. Manchanda, learned counsel for the appellant, took us
through several sections of Mulla’s Principles of Mohammedan
Law including sec. 268 and submitted that in the
circumstances of the case it must be presumed that the three
ladies were the legally wedded wives of the respondent. The
law has not changed since the original assessments were made
and it was open to the Income Tax Officer to make that
presumption at the time. If he should have but did not do
so then, he cannot avail of sec. 147 to correct that
mistake. In any event, we are not called upon in this
proceeding to record a finding on the question whether in
fact the ladies were respondent’s legally wedded wives. We
are concerned only with the question whether the condition
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precedent to the exercise of jurisdiction under sec. 147
exists in this case; we have found that it does not.
Mr. Manchanda also contended that the High Court exercising
jurisdiction under Art. 226 of the Constitution had no power
to investigate whether on the material before him the
Income-Tax Officer was justified in proceeding under sec.
147 of the Income Tax Act, 1961. He relied, among others,
on the following decisions in support
469
of his contention: S. Narayanappa and others vs.
Commissioner of Income Tax, Bangalore, (1) Kantamani Venkata
Narayana and Sons vs. First Additional Income Tax Officer,
Rajahmundry, (2) Commissioner of Income Tax, Gujarat vs. A.
Raman & Co. (3) and of course, Calcutta Discount Co. Ltd.
vs. Income tax Officer, Companies District I Calcutta, (4)
We do not think that these decisions help him. In this
case, the decision of the High Court is not that the
material before the Income Tax Officer was insufficient or
that he had failed to draw the correct conclusion from the
material before him but that no fresh material had come to
light justifying reopening of the assessments. The
authorities to which Mr. Manchanda referred point out that
the expression "reason to believe" occurring in sec. 147 of
the Income Tax Act, 1961 or the corresponding sec. 34 of the
Act of 1922 does not mean a purely subjective satisfaction
on the part of the Income Tax Officer, the reasons for the
belief must have a rational connection or a relevant bearing
to the formation of the belief, and that the High Court
under Art. 226 of the Constitution has power to set aside a
notice under sec. 147 of the Act of 1961 or sec. 34 of the
Act of 1922 if the condition precedent to the exercise of
jurisdiction under these sections does not exist.
In the result, these appeals fail and are dismissed with
costs. One hearing fee.
An application for intervention in these appeals made by
three persons claiming to be sons of the respondent was not
ultimately pressed; no order is therefore called for on this
application.
Appeals dismissed.
(1) 63 I.T.R. 219.
(2) 63 I.T.R. 638.
(3) 67 I.T.R. 11.
(4) 41 I.T.R. 191.
470