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Judgment
R.P. Sethi, J.—Aggrieved by the notices issued u/s 148 of the Income Tax Act, 1961 (hereinafter called ""the Act""), the petitioner has filed
this writ petition with a prayer to issue a command to the respondent Income Tax Officer to act according to law and perform his duties by
cancelling, withdrawing or rescinding the aforesaid notices. It is further prayed that the respondents be directed to send the whole record to this
court for its perusal and be restrained from giving effect to or taking any steps in pursuance of the notices issued. The petitioner-company is alleged
to have gone into voluntary liquidation by a resolution dated December 6, 1976, appointing Shri H.L. Bhagotra as its liquidator. A notice in terms
of Section 178 of the Act was given to the respondent within 30 days of the resolution. It is submitted that, under Sub-section (2) of Section 178
of the Act, it was mandatory for the respondent to notify to the liquidator within three months from the date on which he received the notice of
appointment of the liquidator if, after making such enquiries, he was of the opinion that provision was to be made for any tax which was due or was
likely thereafter to become payable by the company. No notification in terms of the aforesaid provision was issued by the respondent. The
assessment of the petitioner-company for the assessment years 1974-75, 1975-76 and 1976-77 were completed. The petitioner-company had
disclosed full details based upon true material. The notices issued are alleged to be based upon no evidence and allegedly issued mechanically
without there being ""reasonable belief"". The notices are sought to be quashed on the ground that the same have not been issued in the name of
proper persons and that as the liquidator was not notified within the statutory time specified, the same are to be deemed non-existent, which cannot
be made a basis for reassessment. The notices are alleged to be void. The notices are also alleged to be issued only with the intention of harassing
the petitioner.
In the reply affidavit filed, it is submitted that the present writ petition was not maintainable as the petitioner had not exhausted other equally
efficacious remedies available under the Act which provides a complete machinery for the decision of all controversies relating to Income Tax
matters. It is submitted that the record of the respondent does not bear a copy of the resolution allegedly passed by the shareholders of the
company on December 6, 1976. Notice in terms of Section 178 of the Act is admitted to have been received which is claimed to have not been
received within the statutory period of 30 days from the date of the resolution. It is submitted that the notice was filed with the respondent on
January 7, 1977. It is alleged that, subsequent to the completion of the assessment of the petitioner-company, it was found that certain income
chargeable to tax for the assessment years 1974-75, 1975-76 and 1976-77 had escaped assessment for the failure on the part of the assessee to
disclose fully and truly all material facts necessary for its assessment for those years which necessitated the issuance of the notice u/s 148 of the
Act. The notices are alleged to have been properly and validly issued which do not violate any of the petitioners' fundamental, statutory or legal
rights. The averment of the petitioners that they had fully and truly disclosed all material facts in their returns has been denied. The respondent
further submits that it transpired that some income which was otherwise liable to tax had escaped assessment because of the failure on the part of
the assessee to disclose the correct and true income which necessitated the issuance of the notices now sought to be quashed.
I have heard learned counsel for the parties and perused the record. Mr. Thakur has also shown me the record of the Income Tax Department.
Section 178 of the Act provides that the liquidator of any company in the process of being wound up, whether under the orders of the court or
otherwise or a person appointed as a receiver of any assets of a company shall, within 30 days after he has become such liquidator, give notice of
his appointment as such to the Income Tax Officer who is entitled to assess the income of the company. The Income Tax Officer shall, after
making such enquiries or calling for such information as he may deem fit, notify to the liquidator, within three months from the date on which he
receives the notice of the appointment of the liquidator the amount which, in the opinion of the Income Tax Officer, would be sufficient to provide
for any tax which is then or is likely thereafter, to become payable by the company. It is further provided that the liquidator shall not, without the
leave of the Commissioner of Income Tax, part with any of the assets of the company or the properties in his hands until he has been notified by
the Income Tax Officer and on being so notified and, until he so sets aside such amount, shall not part with any of the assets of the company . or
the properties in his hands. If the liquidator fails to give the notice or parts with any of the assets of the company or the properties in his hands in
contravention of the provisions of that Sub-section, he shall be personally liable for the payment of the tax which the company would be liable to
pay. u/s 179 of the Act, it is provided that where any tax due from a private company or from any other company cannot be recovered, then any
person who was the director of the private company at any time during the relevant previous year shall be jointly and severally liable for the
payment of such tax' unless he proves that non-recovery cannot be attributed to negligence, misfeasance or breach of duty on his part in relation to
the affairs of the company. The respondents have submitted that the benefit of Section 178 of the Act cannot be given to the petitioner because the
liquidator did not furnish the copy of the resolution along with his letter and failed to serve the notice within the statutory period of 30 days from the
date of the resolution. A perusal of Section 178 of the Act clearly shows that no copy of the resolution is required to be served unless demanded.
It is also not correct that the notice must be given within 30 days from the date of the resolution. Notice has to be given to the authorities under the
Act within 30 days after a person becomes a liquidator. The relevant time to compute the period of limitation would be the date of assumption of
duties by the person as liquidator and not from the date of the resolution of the company. The notice contemplated by Section 178 of the Act is a
notice by the liquidator and not by the company. Without assuming charge, it is inconceivable to expect a notice from the liquidator. The object of
this section is to make provision for the payment of Income Tax from the assets of the company before disposing of the property or satisfying the
other liabilities. A corresponding obligation is cast upon the Income Tax authorities to intimate the liquidator about the Income Tax liability so that
the properties of the company are not utilised for any other purpose. If a person appointed as a liquidator violates the provisions of Section 178 of
the Act, he is personally liable to satisfy the tax liability u/s 179 of the Act. Section 178 of the Act does not confer any absolute immunity either
upon the assessee or upon the Income Tax authorities. Failure to serve a notice within the time specified under Sub-section (1) of Section 178 of
the Act makes the official liquidator personally responsible for the tax liability and inaction on the part of the respondent as required under Sub-
section (2) of Section 178 of the Act absolves the liquidator of his personal liability. The liability under such circumstances may shift to the directors
of the company in liquidation u/s 179 of the Act.
In the instant case, the liquidator, Shri H.L. Bhagotra, appears to have notified the respondents, vide his letter dated January 4, 1977, which is
alleged to have been received by the authorities on January 7, 1977; It was never pointed out that the notice u/s 178 of the Act had not been
received within the time stipulated under Sub-section (1) of Section 178 of the Act. It appears that the said notice was deemed to be in time and
an endorsement made to the effect, ""Shri Mohinder Singh convey the demand to the liquidator, if any"". The concerned Income Tax Officer appears
to have not taken any further action in intimating the liquidator about the demand or the tax liability of the company within the time stipulated under
Sub-section (2) of Section 178 of the Act. Shri H.L. Bhagotra is, therefore, not personally liable for the tax liability of the company.
It has been contended on behalf of the petitioner that there was no material before the respondent to issue the notice on his assumption of
reason to believe. Reference has been made to various judgments of the Supreme Court, Mr. Thakur has frankly conceded that, if the record
shows that the respondent did not have reason to believe for the issuance of the notice, the proceedings be quashed to which Mr. Bhagotra has
also agreed. It is a well-settled proposition of law that the powers u/s 147 of the Act are wide but not plenary. The notice has to be issued on the
ground of ""reason to believe"" and not on the ground of ""reason to suspect"". The belief contemplated under the Act is the belief of a prudent man. In
other words, the belief must be bona fide and not mala fide. The mere fact that the information collected by the Income Tax authorites was not
sufficient to issue the notice cannot be made a basis for quashing the proceedings. It is equally true that a general belief and doubt based upon
general information not related to a particular assessment case, cannot empower initiation of proceedings under Sections 147 and 148 of the Act.
This court cannot determine the adequacy of the material upon the basis of which the notice was issued but if there is no material justifying the
issuance of the notice, the proceedings have to be dropped. Powers under these sections cannot be initiated or exercised merely on rumours,
suspicions or dislikes. The belief contemplated under the section must be that of an honest and reasonable person based upon reasonable ground.
Mere change of opinion regarding chargeability of Income Tax on the part of reassessing officer, different from his own previous information or that
of his predecessor, who actually made the assessment, does not justify the initiation of action under these sections. The existence of reason based
upon some material prima facie showing the escaped assessment is a condition precedent for the exercise of jurisdiction u/s 147 of the Act. The
assessees who are contributors to the State revenues cannot be allowed to be subjected to harassment and dragged on to uncalled for litigation
merely on the whims and caprices of the authorities under the Act. The authorities under the Act are supposed to be vigilant in the exercise of their
duties and to take prompt action on the basis of information regarding escape of liability or for the purposes of reassessment. Even though the
court cannot investigate the adequacy or sufficiency of the reasons which weighed with the authorities under the Act in coming to the belief, yet the
court can examine whether the reasons were relevant and had a bearing on the matter in regard to which the belief is alleged to have been
entertained by the authorities. It is expected that some information regarding the basis of the belief, if not against the public interest or the security
of the State or protected under any statute, should be conveyed to the assessee in the notice served u/s 148 of the Act.
In the instant ease, the notices issued bearing annexures F.G. and H do not disclose any basis for the belief of the Income Tax Officer justifying
the issuance of the notices. The notices appear to have been issued mechanically. The record of the Income Tax authorities shown to me by their
counsel only shows a note of the Income Tax Officer that the petitioner herein had allegedly escaped liability, without there being any basis or
supporting evidence for such a belief. It is true that this court cannot see the adequacy of the record on the basis of which the opinion is formed by
the Income Tax Officer, but there must be some record to formulate the opinion. In the absence of any record worth the name, the action appears
to have been taken either merely upon suspicion or change of opinion of the Income Tax Officer not warranted under law. Even in the column of
reason for belief in the pro forma attached, the Income Tax Officer has only mentioned the conclusions of his belief without disclosing the reasons
even in his own file. The issuance of the notices in the instant case u/s 148 of the Act was, therefore, unjustified and without any material.
Under the circumstances, the writ petition is allowed and the orders impugned issued by the respondent are quashed. The petitioner is also held
entitled to the payment of costs assessed at Rs. 200. The order of stay issued by the court on August 14, 1978, shall stand vacated and the
C.M.P. No. 150 of 1978 disposed of.