Decided on August 04,1962



V.S.DESAI, J. - (1.)THIS is a petition under Art. 226 of the Constitution of India challenging the notices issued to the petitioner under S. 34(1)(a) of the Indian INCOME TAX ACT, 1922, for reopening its assessments for the asst. yrs. 1949 -50 and 1950 -51. The petitioner has prayed in the present petition for appropriate writs quashing the said notices and for restraining the respondent from taking any further steps or proceedings in enforcement, furtherance, pursuance or implementation of the said notices. The petitioner company was formed in the year 1933 in the former Phalton State as a private company, to establish a sugar factory in the State for the purpose of manufacture and sale of sugar. In the year 1942 it was converted into a public limited company incorporated in the Phalton State. At the commencement of the company in the year 1933 it had entered into an agreement with the Phalton Darbar. Under this agreement the company had obtained certain concessions in the matter of the levy of the State taxes, cesses and duties. We are concerned with the concessions which it had obtained as regards income -tax from the State. This concession was contained in cl. 16 which provided that the company would be exempt in respect of its first sugar factory at Pimplachi Wadi from payment of income -tax from the commencement of the company until the expiry of the period of ten years computed from the date of the regular manufacturing of sugar in the said factory, and that after the expiry of the said period income -tax at a rate not exceeding one anna in a rupee on the net profits of the said sugar factory might be levied on the company.
(2.)THE company started manufacture of sugar from the month of Feb., 1934. It was exempted by the State from the payment of income -tax under the agreement till February, 1944, and thereafter the State was levying income -tax at the rate of one anna in a rupee. Prior to the merger of the Phalton State, which occurred on the 8th of March, 1948, the petitioner company used to be charged to income -tax by the Indian IT authorities in respect of its income which was chargeable to tax under the Indian IT Act. Up to and inclusive of the asst. year 1947 -48, the income of the company, which was made subject to tax under the Indian IT Act, was interest income on deposits and Government securities on the basis that the said income had accrued or arisen in British India. No part of the income of the petitioner company's sugar factory in the Phalton State was included in the petitioner's assessment in British India during those years. After the merger of the Phalton State, by S. 3 of the Taxation Laws (Extension to Merged Territories and Amendment) Act, 1949, the Indian INCOME TAX ACT, 1922, was brought into force and made applicable to the merged State of Phalton w.e.f. the 1st April, 1949. Since the application of the Indian IT Act to the merged State territories was likely to create several difficulties and anomalies and was also likely to cause hardships, the Taxation Laws (Extension to Merged Territories and Amendment) Act, 1949, introduced S. 60A in the Indian IT Act enabling the Central Government, if it considered it necessary or expedient so to do for avoiding any hardship or anomaly or removing any difficulty that may arise as a result of the extension of the Indian IT Act to the merged territories by general or special order to make an exemption, reduction in rate or other modification in respect of income -tax in favour of any class of income, or in regard to the whole or any part of the income of any person or class of persons. In exercise of the powers conferred by the said S. (60A), the Central Government passed the Merged States (Taxation Concessions) Order, 1949, (hereinafter referred to as the Concessions Order). Clause (15) of the said Order provided :
"Where any industrial undertaking situate in a merged State claims that it has been granted any exemption from or concession in respect of income -tax, super -tax or business profits tax by the ruler of the State before the 1st day of Aug., 1949, it shall submit an application to the CIT giving particulars as specified in the said clause."

The CIT,after receipt of the application and after obtaining such further information as he might require, was to forward the said application to the Central Government and the Central Government was empowered, having regard to all the circumstances of the case, to grant such relief as it may think appropriate to the industrial undertaking. The petitioner made an application under cl. (15) on the 24th of Jan., 1950, and on 8th of July, 1950, the CIT, Bombay South, informed the petitioner that the Government of India had decided, in pursuance of cl. (15) of the Order, that the petitioner would be exempted from payment of income -tax for the asst. yrs. 1949 - 50 to 1953 -54. The petitioner was also informed that although income -tax for these five years would not be charged, super -tax at the rate of one anna in a rupee would be levied and the shareholders of the petitioner -company would be liable to pay tax on the dividends paid by the company without the dividends being grossed up under S. 16(2) of the Act. Now, the petitioner's assessments for the asst. yrs. 1949 -50 and 1950 -51, which were pending, when the concession under cl. (15) of the Concessions Order was granted to the petitioner as aforesaid, were completed thereafter on the 17th of Aug., 1950, and the 1st of Feb., 1951, respectively by the ITO, Satara North. In these assessments only interest on deposits in British India was taxed under the Indian IT Act at the usual rates while on the entire business income of the company only super -tax at one anna in the rupee was levied. A part of the income of the company, which was from agriculture, was exempted altogether. Against the assessment order for the year 1950 -51 the petitioner appealed to the AAC as against the assessment of its interest income at the maximum rate, but the said appeal was dismissed by the AAC. Subsequently, on the 5th of March, 1958, the ITO, Special Circle, Bombay South, Poona, served on the petitioner two notices under S. 34(1)(a) for the purpose of reassessing its income for the asst. yrs. 1949 -50 and 1950 -51 on the ground that he had reason to believe that the income for these years had escaped assessment or had been under -assessed. It is these two notices, which are challenged by the petitioner in the present writ petition.

(3.)THE petitioner alleged that before coming to this Court on the present writ petition, it made representations to the ITO contending that the proceedings under S. 34(1)(a), which are contemplated to be initiated against it under the notices issued to it, were unwarranted and illegal and calling upon him to drop the said proceedings. Ultimately, on the 21st or 23rd of Feb., 1962, the respondent, who is the ITO, Companies Circle II(3), Bombay, informed the petitioner that he intended to proceed and complete the assessments, which he had initiated under S. 34(1)(a) for the asst. yrs. 1949 -50 and 1950 -51. The petitioner alleges that having thus demanded justice from the ITO and having failed to obtain the same, it has filed the present writ Petition in this Court. The main argument of the petitioner in the present petition is that the ITO had no jurisdiction to issue the notices under S. 34(1)(a) as the conditions precedent to the exercise of the said jurisdiction have not been satisfied in the present case. It is the contention of the petitioner that there has been no under -assessment since the assessment as made by the ITO is the proper and correct assessment that could have been made against it in view of the concession granted to it under cl. (15) of the Concessions Order. In the second place it says that even if there be any under -assessment the said under -assessment was not as a result of concealment or failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the said assessment years. There are also no circumstances whatever present from which it could conceivably be said that the ITO had reason to believe that the under -assessment was due to any concealment or omission on the part of the assessee. The petitioner has alleged in its petitions that at the time of making the assessments for the years 1949 -50 and 1950 -51, the ITO was aware that a part of the business income of the assessee included sale proceeds which were received in the territories formerly known as British India. During the course of the assessment proceedings, the petitioner had appeared before the ITO from time to time and had explained to him in full detail the manner in which the sales of sugar were effected and the manner in which and the place at which the sale proceeds were received by the petitioner. According to the petitioner, the assessments as were made by the ITO for the asst. yrs. 1949 -50 and 1950 -51 were on the view that he took of the concession granted to the petitioner by the Central Government and the legal view which he entertained as to the accrual and receipt of the said income. The petitioner's contention is that the present proceedings, which are sought to be initiated under S. 34(1)(a) are merely as a result of a different view entertained by the ITO, who seeks to initiate the proceedings either with regard to the interpretation of the Concessions Order or with regard to the legal position as regards the accrual and receipt of income. Such a change of view entertained by the new ITO does not entitle him to re -open the assessment under S. 34(1)(a) of the Indian IT Act.

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