COMMISSIONER OF INCOME-TAX, GUJARAT vs. A. RAMAN & COMPANY

CIVIL APPEAL No. 768/1966Supreme Court[1968] 1 S.C.R. 1018 July 1967Bench: 3 JudgesAuthor: J.C. SHAH, S.M. SIKRI, V. RAMASWAMI COMMISSIONER OF INCOME7 pages
AI SummaryDismissed

What did the Supreme Court hold?

The Supreme Court held that the High Court has the power to issue a writ prohibiting an Income-tax Officer from proceeding with reassessment when the conditions precedent for jurisdiction do not exist. However, the High Court should not re-appraise evidence in such proceedings. Regarding the second issue, the Court found that the pre-conditions for issuing a notice under Section 147(1)(b) were not met. The ITO's belief that income had escaped assessment was based on the idea that the assessee could have earned more profit and that the HUFs earned profits on resale. The Court stated that the law does not oblige a trader to make maximum profit, and income not earned is not taxable. While a device to divert income before it accrues can be taxed in the hands of the original recipient if it escaped assessment, the ITO's affidavit did not establish that the HUFs were merely benamidars or that the profits were truly earned by the assessee firm. Therefore, the ITO had no reason to believe that income chargeable to tax had escaped assessment. The High Court's order quashing the notices was confirmed.

What were the facts?

The assessee, A. Raman & Company, a firm dealing in "mill stores," sold goods to two Hindu Undivided Families (HUFs) whose managers were the firm's sole partners. For assessment years 1959-60, 1960-61, and 1961-62, the firm and the HUFs were assessed separately. The Income-tax Officer (ITO) formed the belief that the sales to the HUFs were a device to divert the firm's profits and evade taxation. Consequently, the ITO issued notices under Section 147 of the Income-tax Act, 1961, proposing to reopen the assessments. The Gujarat High Court, in a writ petition under Article 226 of the Constitution, quashed these notices. The Revenue appealed this decision to the Supreme Court.

What were the issues?

1. Whether the High Court has the power to issue a writ prohibiting an Income-tax Officer from proceeding with reassessment when the conditions precedent for exercising such power do not exist, as per Section 147 of the Income-tax Act, 1961, and Article 226 of the Constitution? - Assessee's Contention: The ITO lacked jurisdiction to reopen assessments because the firm and HUFs had submitted correct and complete returns with all necessary information. - Revenue's Contention: The High Court should not have re-appraised evidence and should have allowed the reassessment proceedings to continue. 2. Whether the conditions precedent for the exercise of jurisdiction under Section 147(1)(b) of the Income-tax Act, 1961, were met, specifically whether the ITO had reason to believe that income chargeable to tax had escaped assessment in consequence of information in his possession? - Assessee's Contention: The ITO had no reason to believe income had escaped assessment, as all material facts were disclosed. - Revenue's Contention: The ITO's belief that profits were diverted through a "subterfuge or contrivance" justified reopening the assessments.

Which sections of the Income-tax Act were involved?

Section 147,Section 147(1)(b)

AI-generated summary — verify with the full judgment below

10 COMMISSIONER OF INCOME-TAX, GUJARAT A v. A. RAMAN a COMPANY July 18, 1967 [J. C. SHAH, S. M. SIKRI AND V. llAMASWAMI, JJ.)

Indian Income-tax Act, 1961. s. 147-Conditions for the exercise of power to re-open assessnient.

Constitution of India. 1950. Art. 226-Powers of High Court to issue writ when Income-tax Officer's juri iction to issue notice under s. 147 of the Indian Income-tax Act, 1961 is questioned-High Court must not re~ppraise evidence.

The assessee firm consisted of two partners who were managers of their respective Hindu Undivided Families. The firm sold its goods to the aforesaid families· and the families again sold the goods on their own account. In income-tax proceedings for the years 195\1- 60, 1960-61 and 1961-62 the firm and the Hindu Undivided Families were separately assessed in respect of their incomes. Subsequently B c the Income-tax Authorities took view that the sale of goods by the D firm to the families was only a device to divert the profits of the firm and on this view issued notices under s. 147 oi the Income- tax Act. 1961 requiring the assessee to show cause why the assess- ments for the years 1959-60, 1960-61 and 1961-62 sho

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 147

All 49,210 judgments and leading authorities on Section 147 →

Latest GST High Court judgments

Search GST case law →