INCOME TAX OFFICER Vs. FIRM MADAN MOHAN DAMMA MAL

JUDGEMENT

(1.) THESE connected appeals arise out of writ petitions filed on behalf of several trading units and one trust governed by the members of a certain family in Firozabad against different orders passed by the income-tax department against one or the other of them. Four of these Special Appeals Nos. 89, 90, 91 and 92 of 1967 have been field by the department against the orders of a learned single judge of this court and the other four appeals have been filed by the assessees being Special Appeals Nos. 123, 124, 125 and 127 of 1967. In Firozabad liquid gold is in great demand for decorating glass bangles which are manufactured at Firozabad and which is the main industry there. The learned single judge had given a pedigree in his judgment which brings out the relationship of different members of the family and whose names occur during the proceedings. The main business of the family was carried on in partnership under the name and style of Firm Madan Mohan Damma Mal. Both Sarvasri Madan Mohan and Damma Mal are ancestors of the persons now living. Shri S. G. Chandra is now a leading member of the family and he is said to be carrying on business of all the units either himself or through the other members of the family. In the beginning the firm used to import liquid gold from England against import licences. But subsequently Firozabad Glass and Chemical Industries Ltd. was started in the year 1954 and liquid gold was manufactured by this limited company. The firm used to sell this liquid gold also manufactured by the company. After the manufacture of liquid gold had been started in Firozabad, a trust was created called Madan Mohan Damma Mal Trust Society for promotion of technical education and in order to provide funds for this Trust Society, the Firm Madan Mohan Damma Mal passed a resolution that liquid gold which was to be imported on the import licences till then left in the hands of the firm would be transferred at cost price to the Trust Society and the profits thus received by sale of that liquid gold would be profits of the Trust Society for the purpose of promoting the purpose of the Trust Society. Thus, a third unit in this group, namely, the Trust Society came into existence. The family was also carrying on the trade of preparing oil and this was done by the Madan Mohan Damma Mal Private Co. Limited. There was another unit called the Firm Kumar Pharmaceutical Works which was started in the year 1959, and originally owned by Surendra kumar. But it became a partnership in the year 1961, between Surendra kumar and Hemant kumar. All these units were housed in buildings belonging to the members of the family either at Kotla Road, Firozabad, or at Gher Khokhal. It may also be noted that within the compound of the buildings at Kotla Road, the office and the residence of the Income-tax Officer, Firozabad, were also stationed in the building belonging to a member of the family. In June, 1960, there was some misunderstanding between Shri G. C. Garg, the then Income-tax Officer, Firozabad and Shri S. G. Chandra and some other members of the family. As a result of this misunderstanding, complaints were made and all the case of this family were transferred in 1961, from Firozabad to the Income-tax Officer, (A) Ward, Agra. On the 6th of July, 1964, on account of some secret information sent in writing by the members of this family, the residence and the luggage of Shri G. C. Garg were searched and he was transferred to (c) Ward, Agra. He is still under suspension and enquiries are going on in the matter. The case of the assessees and the petitioners here in court is that this action greatly enraged not only Shri G. C. Garg but all the officers of the income-tax department who combined together and decided to wreak vengeance upon the assessees. As a result of this scheme of teaching a lesson to the assessees, Shri F. D. Helms, who was the Inspecting Assistant Commissioner, Agra, at the investigation of Shri G. C. Garg, took advantage of the amendments made in the Income-tax Act and organised indiscriminate searches and seizures in the premises of the assessees. On the 8th of February, 1965, a large number of Income-tax Officers headed by Shri F. D. Helms and assisted by a posse of police officers raided the premises of : (1) the factory of Firozabad Glass and Chemical Industries Ltd., Kotla Road, Firozabad, (2) the office and the premises of the firm kumar Pharmaceutical Works situate at Kotla Road, Firozabad, (3) the residence of Gopal Chandra and Surendra kumar situate in the same compound at Kotla Road, (4) the premises of Madan Mohan Damma Mal Trust Society also in the same compound, (5) the Gaddi of the firm Madan Mohan Damma Mal at Gher Khokhal, (6) the residence of L. Dau Dayal and Rameshwar Dayal at Gher Khokhal, (7) the office and godown of the firm Kunji Lal Har Dayal situate at Mutwali Gali, Firozabad, (8) the residence of Trilokinath at Gher Halwaiyan, Firozabad, and (9) the residence of Prem Bihari Lal at Gher Halwaiyan. The validity of this search is being challenged on several grounds which will be considered hereafter. It is alleged that unnecessary force was utilised and an indiscriminate search was carried out during which all the safes were broken, floors and walls were dug up at several places and all the account books and papers available were indiscriminately seized and taken away without proper lists being prepared and without following the procedure laid down by law. After this raid, the Income-tax Officer, (A) Ward, served notices on the 4th of March, 1965, under section 22(4) of the Income-tax Act on the Firozabad Glass and Chemical Industries Ltd. and the firm Madan Mohan Damma Mal asking them to produce further documents showing their concealed income from sale of liquid gold as the Income-tax Officer had discovered from account books recovered during raids that a considerable amount of business in manufacture and sale of liquid gold had been carried on by them which was not entered in the regular books of accounts which were submitted before the department. Correspondence thereupon ensured whereby the assessees denied the existence of any such transactions and also the genuineness of any account books that may have given that impression. The Income-tax Officer fixed several dates but no further accounts were produced. On the other hand, the assessees requested for further time for summoning of witnesses, etc., in order to show in their own way that the alleged books recovered at the time of the raid which had created suspicion, were not reliable and no action could be taken on the basis thereof. Adjournment not having been granted, a number of writs were filed for quashing the assessment proceedings. The Firm Madan Mohan Damma Mal filed Writ Petition No. 1265 of 1965 on the 30th March, 1965. The Firozabad Glass and Chemical Industries Ltd. filed Writ Petition No. 1141 of 1965 on the 29th of March, 1965. The Income-tax Officer in the meanwhile passed best judgment assessment orders for the year 1960-61, against the Trust Society and issued a demand notice on the 23rd of March, 1965, along with a penalty notice under section 274 read with section 271 of the Income-tax Act for the same year. Against these orders and notices, Writ Petitions No. 1406 of 1965, was filed on behalf of the Trust Society on the 15th of April, 1965. Other writ Petitions were also filed with which this Bench is not concerned as special appeals do not relate to them. While these writ petitions were pending, the Commissioner of Income-tax U. P. (2) passed orders on the 16th of October, 1965, creating a special circle in Agra for dealing with income-tax assessment cases relating to these units and appointed Shri K. C. Gupta, Income-tax Officer in-Charge of (C) Ward, to take carge of this special circle, which was to take effect from the 1st of November, 1965. He transferred all these cases pending before the Income-tax Officer (A) Ward, to the Income-tax Officer, Special Circle. On the 29th of October, 1965, the Board of Direct Taxs issued a notification including this special circle in the schedule as within the jurisdiction of the Commissioner of Income-tax U. P. (2) with effect from the 1st of November, 1965. On the 12th of November, 1965, notices under section 23(2) of the Income-tax Act were issued fixing dates for appearing against the firm Modan Mohan Damma Mal and the Firozabad Glass and Chemical Industries Ltd. for the assessment year 1961-62 by the Income-tax Officer, Special Circle. The jurisdiction of the Income-tax Officer, Special Circle, to proceed with these cases is challenged. Proceedings were started against these two units for the assessment year 1960-61. Thereupon, the firm Madan Mohan Damma Mall filed Write petition No. 672 of 1966 on the 21st of February, 1966, challenging the jurisdiction of the Income-tax Officer, Special Circle, to proceed with those cases. Shri Surendra Kumar filed Writ petition No. 775 of 1966 for himself and on behalf of the Firm Kumar pharmaceutical Works on the 25th of February. 1966, and the Firozabad Glass and Chemical Industries Ltd. filed Write Petition No. 673 of 1966 on the 21st of February, 1966.

(2.) I will now proceed to deal with the above three questions one by one. The first point is the validity of the creation of the special circle in Agra. As stated above, the orders creating special circle, transferring cases to that circle and appointing an Income-tax Officer to that circle with effect from the 1st of November, 1965, were passed by the Commissioner of Income-tax U. P (2) Section 124 of the Income-tax Act, 1961, provides that all Income-tax Officers shall perform their functions in respect of such areas or of such persons so classes of persons, etc. as the Commissioner may direct. Shri K. C Gupta who was the Income-tax Officer, (C) Ward, Agra, was subject to such directions under section 124 of the Income-tax Act issued by the Commissioner. And as the Commissioner directed him to be in-charge from the 1st of November, 1965, of all those cases which were pending in (A) Ward, the Income-tax Officer validly got the power to deal with those cases. The Commissioner was within his jurisdiction to direct one Income-tax Officer to take charge of particular cases and to start work from a particular date. The contention on behalf of the learned counsel for the assessees was that it is the power of the Board to place a particular area or circle within the jurisdiction of the Commissioner and unless that is done, the special circle could not come within the jurisdiction of the Commissioner of Income-tax, U. P (2), as long as such orders were not passed. The notification of the Board, and therefore, it is contended that all the orders passed by the said Commissioner on the 16th of October and the 22nd of October, 1965, were without jurisdiction. Section 121 of the Act, which has been relied upon, is as follows.

(3.) THE department has also produced one statement of Kalicharan which was recorded in this connection on the 30th of January, 1965. Among other things he had stated that he was serving with M/s. Madan Mohan Damma Mal, that he was realising the amounts for the sale of liquid gold and that he was also keeping accounts thereof. He also stated that these realisations, were not entered in the regular books of account and that he was maintaining another set of accounts. THEre is other information also contained in his statement but it is unnecessary to refer to the same. In my opinion, on these affidavit of responsible officers, coupled with this evidence which has been disclosed, there is no reason to doubt that the Commissioner had information which led him to issue the necessary warrant.