Commissioner of Income Tax vs Pyarchand Keshrimal Porwal (H.U.F.)

S.P. Bharucha, J.—This reference at the instance of the Revenue raises the following questions :

"(1) Whether there was enough material on record to hold that the assessee had disclosed fully and truly all material facts necessary for its assessment ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessment was not reopened in a valid and legal manner and that the corresponding notice issued u/s 148 was not valid and legal ?

(3) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the sanction accorded by the Board was not valid and proper ?

(4) Whether, on the facts and in the circumstances of the case, the assessee was under an obligation to disclose the investments made in gold and gold ornaments in its return of income ?

(5) Whether, on the facts and in the circumstances of the case, the appellate Tribunal was correct in holding that the reassessment proceeding made for the year 1952-53 was a ''protective assessment'' ?

(6) whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the Appellate Assistant Commissioner had erred in setting aside the assessment ?

(7) Whether the Appellate Tribunal was correct in directing the Appellate Assistant Commissioner to decide the issue on merits when the reassessment itself had been cancelled as invalid ?"

The reference relates to the assessment year 1952-53. The assessee is a Hindu undivided family. Its income was derived from business in bidis. Its accounts were kept according to the Samvat year. The karta of the assessee was Keshrimal Porwal. The original assessment for the assessment year 1952-53 was made on March 14, 1953. Consequent upon a voluntary disclosure, the assessment was reopened and finalised at a higher figure. On July 9, 1968, the central excise authorities conducted a search of the premises occupies by Keshrimal, who had died in the meantime, his wife Ratnabai, and their son, Nemkumar. The search culminated in seizure of primary gold weighing 42.424 Kgs.

On July 13 and 16, 1968, the Income Tax authorities searched the same premises and seized other gold ornaments and jewellery. With relation to this seizure, this reference is not concerned.

In relation to the 42.424 Kgs. of gold (now referred to as "the said gold") seized by the excise authorities, the Income Tax Officer required the assessee to explain the source of acquisition. Nemkumar took the stand that Keshrimal had acquired the gold prior to February 18, 1952, and, in support of his stand, he relied upon a will dated February 18, 1952. We have been furnished a copy of the said will, which has in the meantime been probated, and may note that the will recites that the gold mentioned therein by Keshrimal was "amassed out of may personal exertion"....and "which I have purchased gradually from my own income......". The Income Tax Officer entertained doubts about the genuineness of the will and proposed, on February 15, 1969, to the Central Board of Direct Taxes that the assessee''s assessment for the assessment year 1952-53 be reopened by invoking the provisions of section 147 of the Income Tax Act so as to bring to tax the value of the said gold. The assessment was reopened upon the sanction of the Central Board of Direct Taxes. On March 22, 1973, the Income Tax Officer passed an order of reassessment and brought to tax the value of the said gold placed by him at Rs. 3,77,823. The assessment order stated that it was made on a protective basis as an alternative to the assessment of the assessee for the assessment year 1969-70 which was substantive.

It appears that the Income Tax Officer assessing Keshrimal in his individual capacity also had, at the same time, initiated reassessment proceedings and these proceeding are still pending.

Against the order of reassessment, the assessee appealed to the Appellate Assistant Commissioner of Income Tax. The Appellate Assistant Commissioner set aside the assessment and issued a direction to the Income Tax Officer to make an order afresh after investigating the case in detail.

Appeals against the order of the Appellate Assistant Commissioner were carried to the Income Tax Appellate Tribunal both by the assessee and by the Revenue. The Tribunal held that the reassessment u/s 147(a) was not valid and that the corresponding notice u/s 148 was also not valid.

As indicated earlier, the questions which are referred arise out of this judgment of the Tribunal and are referred at the instance of the Revenue. There is a fundamental difficulty in upholding the case of the Revenue. The Revenue must establish, for the purpose of a valid reopening of the assessment, that the assessee had failed to fully and truly disclose all material facts relevant to the assessment. In the instant case, therefore, the Revenue must show that the assessee had failed to disclose its ownership of the said gold and source of its acquisition. This necessarily postulates that the assessee was the owner of the said gold. Now, it was the contention of Nemkumar that Keshrimal had bequeathed the said gold under a will dated February 18, 1952, and he relied upon the will. That will, as we have noted above, makes it clear that the said gold belonged to Keshrimal in his individual capacity and not to the assessee. The Tribunal records, in paragraph 24 of its judgment, that the taxing authorities had also based their case upon that will. This would suggest that the taxing authorities had also accepted the position that the said gold belonged not to the assessee, but to the karta in his personal capacity. It does not appear, therefore, that the Tribunal arrived at any finding of fact as to whether it was assessee which owned the said gold or the karta in his personal capacity. We may mention that in paragraph 30 of its judgment, the Tribunal has stated thus :

"....Therefore, we have no hesitation in holding that in not disclosing at the stage of the original assessment(s) the fact that there was a will and the fact that the assessee was the owner of the gold in question, it cannot be said that the assessee had omitted or failed to disclose any relevant primary fact and further that it was because of such omission or failure that the alleged income escaped assessment."

It is difficult to see how, in the circumstances aforementioned, the Tribunal could have referred to "the fact that the assessee was the owner of the gold in question".

At any rate, there is no finding of fact arrived at by the Tribunal that the said gold was of the ownership of the assessee. If it is not established that the said gold was of the ownership of the assessee, it cannot be held that the assessee had failed to disclose true and full particulars of all facts relevant to the assessment. The assessee cannot, therefore, be charged with not disclosing facts relating to the said gold. The reopening of the assessee''s assessment for the assessment year 1952-53 and the reassessment order passed as a consequence must be held to be bad in law.

It is upon this point alone that we decide this reference. We find it unnecessary in the circumstances to go into any other question.

As we have stated, the Income Tax Officer who handled the individual assessment of Keshrimal reopened the assessment consequent upon the seizure of the said gold. The proceedings in that behalf are pending. It appears that in those proceedings, both the assessee therein and the taxing authorities have proceeded upon the basis that the said gold was of the ownership of Keshrimal. We have ascertained from Mr. Thakar, learned counsel for the assessee, in this reference and in the reassessment proceedings for the representatives of Keshrimal, that this is the position and we have been assured that it will not be contended in those proceedings that the true owner of the said gold was any one other than Keshrimal.

In these circumstances, we find it necessary only to answer questions Nos. (1) and (4). Question No. (1) is answered in the affirmative and in favour of the assessee. Question No. (4) is answered in the negative and in favour of the assessee.

No order as to costs.