Sabyasachi Mukharji, J. - (1.) In this appeal the question involved is the validity of the notice dated the 7th December, 1965, issued under Section 148 of the Income-tax Act, 1961, for the assessment year 1958-59. It appears that Eastern Coal Company sold its colliery to Bhowrah Kankanee Colleries Ltd., by an indenture dated the 28th of September, 1957. This sale was made effective on and from the 1st of January, 1955. The consideration for the sale was Rs. 62 lakhs with an abatement of Rs. 5 lakhs on the ground of retrenchment compensation. On the 26th of June, 1958, Eastern Coal Company went into voluntary liquidation. On the 29th of December, 1960, the assessment of the Eastern Coal Company for the assessment year 1956-57, accounting year being 1st of October, 1954, to 30th of September, 1955, was completed. The assessee offered for taxation the said sum of Rs. 62 lakhs for the said assessment year and was accordingly taxed under Section 10(2)(vii) of the Indian Income-tax Act, 1922, for a sum of Rs. 2,21,057. The difference between the written down value and the actual sale consideration was the figure which was subjected to tax on this account. It is stated that the assessment was made on the basis of the documents and evidence furnished by the assessee. Thereafter, on the 28th of February, 1961, the assessment for the assessment year 1958-59 was completed on the basis of the return filed by the assessee. The assessee claimed that its business and its collieries had been sold with effect from the 1st January, 1955. The assessee also produced certain evidence in support of the said claim and was taxed only on interest on security and dividend income. The assessee's claim for expenses under the head "Loss on working" was disallowed on the ground that in the relevant year the assessee was not carrying on any business. On the 21st of July, 1965, the assessee was allowed to take a supplementary ground before the Income-tax Appellate Tribunal in its appeal for the assessment year 1956-57, contending that the profit which was the subject-matter of taxation under Section 10(2)(vii) of the Indian Income-tax Act, 1922, for the assessment year 1956-57 was not liable to by taxed in the said assessment year. The Tribunal came to the conclusion following the decision of the Supreme Court in the case of Commissioner of Income-tax v. Bhurangya Coal Co., that the sale was concluded on the 28th of September, 1957, when the deed of conveyance was registered. The Tribunal accordingly held that the profits under Section 10(2)(vii) were, therefore, liable to be included in the assessment of the assessee for the assessment year 1958-59 and not in the assessment year 1956-57 under appeal. It appears that thereafter on being moved under Section 35 of the Indian Income-tax Act, 1922, the Tribunal rectified the order by deleting the words "liable to be included in the total income of the appellant in the assessment year 1958-59" in view of the decision of the Supreme Court in the case of Income-tax Officer, "A" Ward, Sitapur v. Murlidhar Bhagwan Das, . On the 7th of December, 1965, the Income-tax Officer issued a notice under Section 148 of the Income-tax Act, 1961, in respect of the assessment year 1958-59 and on the 4th February, 1966, this rule was obtained under Article 226 of the Constitution challenging the validity of the notice. The rule ultimately came up for hearing before K. L. Roy J. and by a judgment delivered and an order passed on the 6th of October, 1969 the rule nisi was made absolute and the notice under Section 148 was quashed. This appeal has been preferred from the said judgment.
(2.) The first ground of challenge to the said notice is that all primary facts had been disclosed. We directed the income-tax department to produce before us the recorded reasons for the reopening of the said assessment. The said reasons were produced; the reasons were shown to counsel for the assessee. The reasons are as follows : "In this case the Tribunal have deleted the profits under Section 10(2)(vii) amounting to Rs. 2,21,057 in respect of immovable properties from the assessment year 1956-57, on the ground that under the second proviso to Section 10(2)(vii) such profits are includible in the total income of the previous year in which the sale took place. In the instant case the sale of immovable properties was concluded on 28-9-1957 when the conveyance was executed and registered. Therefore, the profits under Section 10(2)(vii) in respect of the immovable properties are liable to be included in the total income of the assessee in the assessment year 1958-59 and not in the assessment year 1956-57. At the time of the assessment year 1958-59, the assessee had failed to disclose fully and truly all material facts necessary for his assessment for that year. As each assessment is a separate and distinct entity, disclosure of the fact of sale in connection with the assessment year 1956-57 is not disclosure for the assessment year 1958-59. The assessee did not, in fact, offer the income arising from sale of property in respect of the assessment year 1958-59 nor did he even specifically disclose the fact of sale. In such circumstances, therefore, this income of Rs. 2,21,057 which has escaped assessment requires to be assessed. Hence, the action under Section 148(a) is proposed."
(3.) As a matter of fact the substance of these reasons has been stated in the affidavit-in-opposition filed in answer to the rule nisi. It appears that the Income-tax Officer has proceeded on the basis of failure and omission on the part of the assessee to disclose fully and truly all primary facts and as a result of which, according to the Income-tax Officer, the income of the assessee for the assessment year 1958-59 has escaped assessment. Therefore, it appears that the Income-tax Officer was proposing action under Clause (a) of Section 147 of the Income-tax Act, 1961. The learned trial judge has come to the conclusion that Clause (a) of Section 147 of the Income-tax Act, 1961, cannot be applied in this case, because, according to the learned judge, all primary facts had been disclosed and were in possession of the department at the time of the original assessment for the assessment year 1958-59. We are in agreement with the learned judge on this aspect of the matter. It appears to us that the primary facts in connection with this transaction are the sale, the consideration, the date of conveyance and the date of registration. All these facts were disclosed to the department and/or were otherwise in the possession or knowledge of the department because of the disclosure or otherwise at the time of the original assessment for the assessment year 1958-59. It has to be borne in mind that assessment for the year 1956-57 had been completed already at the time of the original assessment for the year 1958-59. There is no obligation on the assessee to disclose the correct legal inference in respect of a particular transaction. The principles upon which Clause (a) of Section 147 of the Income-tax Act, 1961, or Section 34(1)(a) of the Income-tax Act, 1922, can be invoked are well-settled by the provisions of these sections as well as by the decisions of the courts. In view of the principles which are well-established we are of the opinion that in this case there was no failure on the part of the assessee to disclose fully or truly all primary facts, and in any event the income which has escaped assessment was not due to failure or omission on the part of the assessee to disclose fully and truly all the material facts because all relevant and material facts were in the possession of the department at the time of the original assessment of 1958-59, So, escapement, if any, has happened not as a result of the failure of the assessee but because both the assessee as well as the department drew wrong inference from the facts disclosed. In such a case Clause (a) of Section 147 of the Income-tax Act, 1961, cannot be invoked. Reliance may be placed on the decisions of the Supreme Court in the case of Calcutta Discount Co. Ltd. v. Income-tax Officer, and Kantamani Venkata Narayana & Sons v. First Additional Income-tax Officer, and the decision of this court in the case of Commissioner of Income-tax v. Kallu Babu Lalchand, .;