Translate
Text Highlighter

Bookmark

PDF

Share

Report a problem
AMICUS AI
Citation Codes
Equivalent Citations
citation codes
Case Number
Advocates
  • B.K Jhingan, Advocate,
  • Ashok Bhan, Senior Advocate with Ajai Mittal, Advocate
Judges
  • I.S Tiwana, J.
Acts
Are you a practicing lawyer?
Enhance your digital presence and reach by creating a Casemine profile.
Upload pleading to use the new AI search
Click here to upload
Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Advocates
  • B.K Jhingan, Advocate,
  • Ashok Bhan, Senior Advocate with Ajai Mittal, Advocate
Judges
  • I.S Tiwana, J.
Acts
See more information ...
Smart Summary

Judgment Summary — I.S. Tiwana, J.

Factual and Procedural Background

Two writ petitions (Civil Writ Petitions Nos. 1845 and 1642 of 1985) by the same petitioner were heard together. The petitions challenged notices issued under section 147/148 of the Income-tax Act, 1961 by the Income-tax Officer, Faridkot. The first petition related to assessment year 1975–76 and the second to assessment years 1976–77 to 1979–80.

The petitioner owned lands in village Quilla Nau, Tehsil Faridkot, which were acquired by the Government for extension of the Faridkot Cantonment. He received compensation in 1974, sought a reference under section 18 of the Land Acquisition Act, and ultimately obtained an enhancement of compensation from this Court by judgment dated November 19, 1981.

Interest (total Rs. 2,22,173) relating to the compensation was actually paid to the petitioner on June 15, 1982. The relevant income-tax assessment orders had been passed prior to that payment date. The impugned notices under section 147/148 were issued after the Commissioner sanctioned them under section 151(2), the stated grounds being (a) failure to file returns for the years in question resulting in escapement of tax and (b) that the interest payment should be spread over different assessment years.

Legal Issues Presented

  1. Whether the notices issued under sections 147/148 of the Income-tax Act were valid or void for want of jurisdiction or failure to apply mind.
  2. Whether the failure to disclose the pendency of legal proceedings under the Land Acquisition Act (and consequent claim for enhanced compensation) in tax returns can justify reopening assessments under section 147(a).
  3. Whether assessments or notices filed in the capacity of a Hindu Undivided Family (HUF) preclude the Department from treating the interest as the petitioner's individual income for purposes of reopening.
  4. Whether, alternatively, notices invalid under section 147(a) could nevertheless be sustained under section 147(b) read with section 153(3)(ii) (i.e., whether section 153(3)(ii) can lift the limitation for reopening assessments), as argued with reliance on certain precedents.

Arguments of the Parties

Petitioner's Arguments (Mr. Jhingan)

  • The notices were without jurisdiction because the petitioner had filed returns in time for the relevant years except 1975–76 and had been assessed prior to receipt of the interest payment.
  • No income had accrued to the petitioner prior to the Court's final order of November 19, 1981 or prior to actual payment on June 15, 1982; thus there was nothing to disclose that could justify reopening under section 147(a).
  • Reliance on T.M. Kousali v. Sixth ITO [1985] 155 ITR 739 (Kar) and the court's own recent decision in Mukhtiar Singh Sandhu v. WTO (Civil Writ Petition No. 1183 of 1985) to the effect that the Act does not require an assessee to disclose pending civil proceedings for enhanced compensation when filing returns, and failure to disclose such pendency does not amount to failure to disclose material facts justifying action under section 147(a).
  • Challenged the respondents' alternative reliance on section 153(3)(ii) and related precedent as not having been pleaded and as incorrect in principle; he contended that sections 149–151 and 153 provide separate limitation regimes for initiation and completion of reassessment actions.

Respondent Authorities' Arguments (Mr. Ashok Bhan)

  • The petitioner had not filed returns in his individual capacity; returns and prior assessments were filed in the capacity of a Hindu undivided family (HUF), so the prior assessments could not be relied upon to defeat reopening as regards the petitioner individually.
  • The Commissioner had sanctioned reopening under section 151(2) on two grounds: nondisclosure/escapement of income and the need to spread the interest over relevant assessment years.
  • Asked the Court to decline to exercise jurisdiction under article 226 of the Constitution and to remit the petitioner to his remedies under the Income-tax Act.
  • Contended that even if notices were bad under section 147(a), they could be sustained under section 147(b) read with section 153(3)(ii), relying on decisions including T.M. Kousali and Addl. CIT v. New Jehangir Vakil Mills Co. Ltd. ([1979] 117 ITR 849 (Guj)).

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
T.M. Kousali v. Sixth ITO, [1985] 155 ITR 739 (Kar) Observation that the Act does not require an assessee to disclose pending legal proceedings for enhanced compensation when filing returns; failure to disclose such pendency would not amount to failure to disclose material facts necessary for assessment and would not justify action under section 147(a). Also interpreted by some as permitting section 153(3) to lift limitation for reopening. The judgment was invoked by the petitioner for the non-disclosure point and by the respondent to support a contrary contention on limitation (section 153(3)). The Court discussed the competing uses of the decision but did not adopt its interpretation on section 153(3) (observed the parties disputed that interpretation); the Court did not decide the correctness of T.M. Kousali's interpretation of section 153(3) because it found other dispositive grounds to resolve the petitions.
Mukhtiar Singh Sandhu v. WTO (Civil Writ Petition No. 1183 of 1985) Held in somewhat similar circumstances by the same Court that an assessee is not obliged to disclose the pendency of a claim for enhanced compensation under the Land Acquisition Act when filing returns for tax purposes. The judge noted that he had reached this conclusion earlier the same day and treated it as support for the petitioner's contention that failure to disclose pending enhancement proceedings does not justify reopening under section 147(a).
Rajinder Nath v. CIT, [1979] 120 ITR 14 (SC) Cited by the petitioner (Mr. Jhingan) as authority contrary to the interpretation given in T.M. Kousali on the point of limitation and reopening assessments. The decision was relied upon by petitioner's counsel to criticize T.M. Kousali's reasoning; the Court did not conduct a full adjudication of the conflict because it found it unnecessary to decide the section 153(3) issue for disposal of these petitions.
Addl. CIT v. New Jehangir Vakil Mills Co. Ltd., [1979] 117 ITR 849 (Guj) Invoked by the respondents to support the proposition that an assessment/reopening may be sustained under alternative provisions (section 147(b) read with section 153(3)(ii)). The respondents cited this case as supportive authority for sustaining the notices on a different legal footing; the Court recorded the reliance but did not decide the broader proposition because of other dispositive facts and the parties' concessions.

Court's Reasoning and Analysis

The Court proceeded by applying the admitted factual chronology and the parties' concessions to the legal contentions.

  1. The Court observed that the enhanced compensation was finally determined by its judgment dated November 19, 1981, and the entire amount of interest (Rs. 2,22,173) was actually paid on June 15, 1982. The relevant assessment orders had been passed prior to the payment date.
  2. The Commissioner had sanctioned issuance of notices under section 151(2) on the grounds of escapement and that interest needed to be spread over assessment years. The petitioner contended that he had no obligation to disclose pending enhancement proceedings in his returns and therefore could not be said to have concealed material facts prior to the Court's judgment or payment.
  3. The respondents argued that assessments had been filed in the capacity of a HUF and therefore could not be relied upon as assessments of the petitioner individually. The Court examined the record and noted that the Income-tax Officer had, after issuance of the impugned notices, assessed the interest as income of the HUF for assessment year 1982–83 in an order dated March 22, 1985 (annexure P-4). That order was later set aside by the Appellate Assistant Commissioner by order dated September 27, 1985, which directed that interest be spread over the relevant years (from 1975–76 onwards) rather than assessed in 1982–83 alone.
  4. The Court noted that throughout departmental proceedings the Department had treated the interest as the income of the HUF and that no clear plea had been taken by the Department that the interest was the petitioner's personal income nor that returns had been filed by the petitioner in his individual capacity. The Court therefore found the respondents' late contention (that prior assessments were not in the petitioner's individual capacity) to be an afterthought and the result of "his own ingenuity."
  5. On the central point of nondisclosure prior to the final determination/payment, the Court concluded that until the interest amount became due by virtue of the judgment or was actually paid, the petitioner could not reasonably be held guilty of failing to disclose material facts necessary for assessment in the earlier years.
  6. The respondents' alternative contention — that even if the notices were bad under section 147(a) they could be sustained under section 147(b) read with section 153(3)(ii) — was canvassed in submissions. The petitioner challenged that line of argument on pleading and legal grounds, and also disputed the correctness of authorities relied upon for that proposition.
  7. The Court declined to decide the complex statutory-interpretative issue regarding section 153(3)(ii) (and the conflicting precedents) because the parties agreed and the record showed that the assessing officer's order assessing the whole sum to AY 1982–83 had been set aside by the Appellate Assistant Commissioner with directions to spread the interest across relevant years. Given that position, the Court found it unnecessary to express a final view on the disputed interpretation of section 153(3)(ii).
  8. The Court accepted the petitioner's concession that, if the Department wished to comply with the appellate direction to spread the interest over relevant years, it was entitled to do so by following the proper statutory procedure (e.g., by issuing fresh notices under section 148 read with section 150), but not by maintaining the impugned notices under challenge in these petitions.

Holding and Implications

Holding: The Court allowed the writ petitions and quashed the impugned notices issued under sections 147/148 of the Income-tax Act. The Court made no order as to costs.

Implications:

  • The direct effect is that the specific impugned notices impugned in these two petitions are set aside; the petitioner is relieved from those notices as issued on the recorded grounds.
  • The Court left open the Department's ability to comply with the Appellate Assistant Commissioner’s direction that interest be spread over the relevant years by taking appropriate steps under the Act (for example, by issuing fresh notices under section 148 read with section 150). The Court explicitly indicated that compliance must follow the correct statutory procedure rather than reliance on the impugned notices now quashed.
  • The Court did not decide the broader, contested question concerning the interplay of sections 147, 150 and 153(3)(ii) or the correctness of conflicting precedents (notably T.M. Kousali), because it found those issues unnecessary to resolve for disposal of these petitions given the factual and procedural posture.
  • There is no expression that this decision creates a new legal precedent on the disputed points of law; the Court resolved this matter on the specific facts and procedural record and noted the possibility of reassessment only following proper statutory steps.

Order: Petitions allowed; impugned notices quashed; no order as to costs.

Show full summary ...

    Mukhtiar Singh Sandhu v. Wealth Tax Officer And Another

    I.S Tiwana, J.:— In these two Civil Writ Petitions Nos. 1845 and 1642 of 1985 by the same petitioner, different notices pertaining to different assessment years issued to him under section 147/148 of the Income-tax Act, 1961 (for short “the Act”), by the Income-tax Officer, Faridkot, are impugned on similar grounds; and these are being disposed of through this common order. The first petition relates to the assessment year 1975–76 and the latter one, to the years 1976–77 to 1979–80.

    2. Briefly the background of the case is that certain lands of the petitioner situated in village Quilla Nau, Tehsil Faridkot, were acquired by the Government for the extension of Faridkot Cantonment and as a result thereof, he was paid certain amount of compensation in the year 1974. Later, he sought a reference under section 18 of the Land Acquisition Act and still not feeling satisfied with the enhancement ordered by the district judge, he preferred an appeal to this court.

    3. This court again enhanced the amount of compensation, vide its judgment dated November 19, 1981. It is the undisputed position that on this amount of compensation, the total interest actually paid to the petitioner as per the requirements of the Act was Rs. 2,22,173 and it was so paid on June 15, 1982. It is again not in dispute that the respective assessment orders were passed prior to June 15, 1982.

    4. Now, the impugned notices have been issued concededly after obtaining the sanction of the Commissioner under section 151(2) of the Act, on the grounds that, firstly, the petitioner had not filed any return for the years in question resulting in escapement of tax and, secondly, that the amount of interest referred to above, which was paid to the petitioner for the period October 5, 1974, to May 6, 1982, had in any case to be spread over different assessment years. Since the Commissioner felt satisfied that the income of the petitioner had escaped assessment on account of the above-noted two reasons, he granted the requisite sanction for the issuance of the impugned notices.

    5. Mr. Jhingan, learned counsel for the petitioner forcefully contends that these notices are totally without jurisdiction. Firstly, as a matter of fact, the petitioner had filed the retuns in time except for the year 1975–76 and he had even been assessed to different amounts of tax, vide different orders prior to the receipt of the amount of interest by him on June 15, 1982; secondly, for the reason that no income had accrued to him prior to June 15, 1982, or in any case, prior to November 19, 1981, the day this court pronounced the final order determining the amount of compensation along with interest payable to him. Thus the departmental authorities cannot maintain that any income had escaped assessment as a result of the failure of the petitioner to disclose fully and truly the material facts pertaining to his income. Mr. Jhingan supports this submission of his from certain observations made in T.M Kousali v. Sixth ITO, [1985] 155 ITR 739 (Kar), wherein it has been said that “the Act nowhere provides that the assessee should disclose the fact that legal proceedings had been initiated and were pending before the civil court or High Court when he files his returns or assessment is completed. Hence, the failure to disclose that the assessee's claim for higher compensation under the Land Acquisition Act in the civil court was pending when returns were filed, would not amount to failure to disclose material facts necessary for assessment and would not justify action under section 147(a).” Besides this, I have also held in Civil Writ Petition No. 1183 of 1985—Mukhtiar Singh Sandhu v. WTO (supra p. 521) decided today in somewhat similar circumstances that an assessee is not obliged to disclose about the pendency of his claim for enhanced compensation under the Land Acquisition Act while filing the returns for purposes of tax. In order to refute this stand of the petitioner, what is highlighted by Mr. Ashok Bhan, senior advocate for the respondent authorities, is that the returns the petitioner claims to have filed and on which the assessment orders had been passed prior to the receipt of the amount in question on June 15, 1982, were filed by him in the capacity of a Hindu undivided family and not in his individual capacity. According to the learned counsel, the said assessment orders cannot, therefore, be now taken notice of. Besides this, he also says that this court should decline to exercise its jurisdiction under article 226 of the Constitution and should relegate the petitioner to his alternative remedies under the Act. Having heard the learned counsel for the parties at some length, I find no merit in the stand taken by respondents' counsel.

    6. So far as the question of relegating the petitioner to his remedies under the Act is concerned, even the learned counsel for the respondent, authorities concedes that in case this court comes to the conclusion that the impugned notices have been issued without jurisdiction or without application of mind, the same in normal course should be quashed by this court and the petitioner cannot be made to avail of the long-drawn and tardy remedies under the Act by way of appeal and revision. So it is the admitted position that the fate of the second argument of the learned counsel for the respondent authorities is dependent on the conclusion of this court on the first argument.

    7. So far as the first contention of the learned counsel referred to above is concerned, it is no doubt true that the earlier returns were filed by the petitioner except for the year 1975–76 for which no return, as already pointed out, had been filed on behalf of the Hindu undivided family but even after the issuance of the impugned notices, the Income-tax Officer, Faridkot, has assessed the above-noted income of interest amounting to Rs. 2,22,173 as the income of the Hindu undivided family during the assessment year 1982–83, vide his order dated March 22, 1985 (annexure P-4). Though this order has admittedly been set aside by the Commissioner (Appeals), vide his order dated September 27, 1985, whereby he has directed that income by way of interest has to be spread over different assessment years, i.e, assessment year 1975–76 and onwards and not for the year 1982–83 alone, yet the fact remains that the Department has all through taken this income by way of interest to be the income of the Hindu undivided family. As a matter of fact, no plea has been taken in so many words either in the written statement or in the reasons stated for obtaining the sanction of the Commissioner that this income by way of interest was the personal income of the petitioner and he had failed to file his returns in that capacity. I am, therefore, satisfied that the abovenoted contention now raised by the learned counsel for the respondents is the result of his own ingenuity. So it is patent that till the amount of interest referred to above had become due to the petitioner as per the judgment of this court dated November 19, 1981, or was actually paid to him on June 15, 1982, he could not possibly be held guilty of not disclosing truly and correctly the material facts for the assessment years referred to above.

    8. It is next contended by Mr. Ashok Bhan that even if these notices are held to be bad for having been issued under section 147(a) of the Act, yet these may be sustained in the light of section 147(b) read with section 153(3)(ii) of the Act. For this stand of his, he seeks support from T.M Kousali's case, [1985] 155 ITR 739 (Ker) and Addl. CIT v. New Jehangir Vakil Mills Co. Ltd., [1979] 117 ITR 849 (Guj). Mr. Jhingan joins issue even on this aspect of the matter. His submissions briefly are:

    (i) What is sought to be urged by Mr. Ashok Bhan now is neither pleaded in the written statement nor was it the case of the Department while moving the Commissioner under section 151(2) of the Act;

    (ii) Section 153(1) and (2) only deals with the limitation for passing of an assessment or reassessment order. Sub-section (3) creates an exception to these sub-sections alone. It is made clear by a reading of sections 149, 150, 151 and 153 that separate periods of limitation have been provided for (i) initiation of action under section 147, and (ii) completion of assessments;

    (iii) In view of (ii) above, the judgment in T.M Kousali's case, [1985] 155 ITR 739 (Kar) suffers from a patent mistake wherein it has been so observed that “section 153(3) in clear terms lifts the bar of limitation for reopening of assessments to which certain periods of limitation are prescribed under section 153(1) and (2) of the Act.”

    (Emphasis* added).

    (iv) If the interpretation placed on section 153(3)(ii) as was done in T.M Kousali's case, [1985] 155 ITR 739 (Kar), is to be accepted as correct, then section 150 of the Act becomes redundant;

    (v) In any case, the ratio in T.M Kousali's case, [1985] 155 ITR 739 (Kar), so far as this aspect of the matter is concerned, is contrary to the judgment of their Lordships of the Supreme Court in Rajinder Nath v. CIT, [1979] 120 ITR 14.

    9. I, however, feel that I need not go into this aspect of the matter at this stage as it is conceded before me by the learned counsel for the parties that the Income-tax Officer's order assessing the entire amount of Rs. 2,22,173 as income of the petitioner for the assessment year 1982–83 has already been set aside by the Appellate Assistant Commissioner, vide his order dated September 27, 1985, wherein he has directed as follows:

    “It is further held that only that much amount of interest which is relatable to a particular account year is assessable as income of the relevant assessment year.”

    10. According to Mr. Jhingan, the authorities are well entitled to comply with this direction under section 148 read with section 150 of the Act. He, however, maintains that this can be done by issuing fresh notices to him but not under the impugned notices. In the light of this position conceded by Mr. Jhingan, I hardly feel called upon to express my opinion on the latter-mentioned aspect of the matter.

    11. In the light of the above discussion, I allow these petitions and quash the impugned notices but with no order as to costs.

    Use AI to get other relevant cases.
    Try AI Pro free for 7 days Upgrade to AI Pro

    Comments

    Mukhtiar Singh Sandhu v. Wealth Tax Officer And Another
    (Jan 31, 1986)