P R EASWARAN Vs. INCOME TAX OFFICER SIXTH

JUDGEMENT

(1.) THE petitioner is seeking a rule under Article 226 of the Constitution against the Sixth Income-tax Officer, Circle II, Coimbatore, the respondent herein, in the nature of a writ of prohibition or such other appropriate writ restraining him from making any assessment pursuant to the notice dated September 11, 1964, issued by him under Section 148 of the Income-tax Act, 1961. THE relevant facts may be noted. In or about August 27, 1946, the petitioner's father and three others conjointly purchased lands of an extent of 8 acres 56 cents for a sum and consideration of Rs. 1,00,000. THE purchase money was contributed in unequal proportion ; but the petitioner's father, however, paid one-fifth of the same. THEreafter, one of the members assigned his undivided interest in the lands to two others, thus enabling five persons, including the petitioner's father, to be the joint owners of the same. THE petitioner's father died on November 11, 1956, and the petitioner became entitled to the share in the above lands as was held by his father. All the five members, who were apparently interested in a joint venture, earlier leased out and later entered into an arrangement with one Joseph for plotting out and sale of the lands as house sites and the scheme was fully implemented in the year 1959. Indeed, the lay-out for the property was also approved by the Municipality. In the meantime, the petitioner conveyed his one-fifth share in the property to the above-said Joseph for Rs. 30,450. According to the petitioner, the excess gains made by him by the sale amounted to Rs. 10,800. For the year of assessment 1960-61, such gains were brought to tax by the Third Additional Income-tax Officer, Coimbatore. As the deeds evidencing the original purchase and the subsequent sale were not produced, the purchase price was estimated at Rs. 12,000 and the sale price, as spoken to by the petitioner, was accepted and the profits on re-sale by way of plots was reckoned by the revenue at Rs. 18,450 rejecting the contention of the assessee that no tax in the instant bargain was attracted because lands were agricultural lands. THE assessment order proceeded to say that the lands were purchased with the intention of re-selling them for a profit after conversion into house sites and that the resultant gains will be treated as profits in an adventure in the nature of trade. It may be noted that, even at that stage, the profits or gains were the result of joint adventure by several persons including the petitioner was indeed conspicuous. In fact, another joint owner was also assessed under similar circumstances by the Second Additional Income-tax Officer, Calicut. Further appeals by the petitioner to the Appellate Assistant Commissioner and later to the Tribunal resulted in the reduction of the quantum of capital gains. THEreafter, the Sixth Income-tax Officer, II Circle, Coimbatore, the respondent herein, issued a notice on September 11, 1964, purporting to be under Section 148 of the Income-tax Act, 1961, calling upon the petitioner, amongst others, as members of an association styled Messrs. P. R. Easwara Iyer and others, Coimbatore, and stating that he has reason to believe that the income in respect of which the petitioner and others were assessable to tax for the assessment year 1960-61 has escaped assessment within the meaning of Section 147 of the Income-tax Act, 1961, and, therefore, he proposed to assess the income for the said assessment year and called upon the petitioner, amongst others to deliver to him within 30 days from the date of service of that notice a return in the prescribed form of his income. In a covering letter to the said notice, the respondent made it clear that the notice sent to the petitioner would enable him to furnish the return in respect of the profit made on sale of certain lands by the association of persons consisting of the petitioner and some others. THE petitioner, through his counsel, filed objections to the said notice. Inter alia, he stated that the material on which the respondent came to the conclusion that there has been an escapement of tax was not furnished to him and he, therefore, requested for the same. He also stated that for the assessment year in question he has already been assessed and the capital gains have already been brought to tax in the hands of the individual members of the association, even if there was one, and a regular consideration and proper assessment of such gains having been made once, the revenue has no jurisdiction to assess once over the said income as if the association of persons was being tackled for a second time. He would also state that once the income of the association was charged in the hands of the members individually and the assessments of the members remained as valid assessments, there could be no fresh assessment of the income in the hands of the association. Though at one time the petitioner asked for some time to file the return, he did not do so, but raised the above legal contention in answer to the notice issued by the respondent as above. He would state that the department can only seek to assess, the income either in the hands of the members of the association or the association as such and, having once assessed the individual members of such an association, it is no more open to the department to go behind it and claim to assess the association. In the records filed before us, it is seen that certain particulars were also furnished by the petitioner through his counsel relating to the facts and circumstances under which the original assessments were made against him and others who were involved in the joint and concerted adventure. By a further letter dated November 10, 1964, the respondent called upon the petitioner to furnish certain particulars regarding the purchase and sale of the lands as spoken to and referred to in the original assessment and substantiated by his counsel, when objections against the issuance of the notice under Section 148 were made. THE respondent also threatened that if there is no proper response on the date of hearing fixed for the purpose, he would be constrained to make an ex parte assessment and initiate penal proceedings. Feeling apprehensive of the situation, the petitioner moved this court, under Article 226 of the Constitution of India, for the issue of a writ of prohibition.

(2.) IN the counter-affidavit, the department, in effect, concedes that, even at the time whoa the original assessment was made by the revenue against the petitioner in respect of the capital gains in question, certain materials were before it. But, according to the department, such materials were not sufficient for them to come to a conclusion that there was an association of persons who were interested in a joint venture and information regarding such a concerted action by the petitioner and others not having been made available by the petitioner at the appropriate time, the re-opening of assessment for the year 1960-61, under Section 148 of the INcome-tax Act, 1961, which is similar to Section 34 of the earlier Act, was justified. The revenue farther contends that the action of the respondent is within his jurisdiction and perfectly legal because the business of the association came to an end and the association of persons itself became extinct, and at the time when the INcome-tax Officer initiated action to back-assess the association of persons, the association itself had served its purpose and was no more. The respondent contends that the petitioner has filed a return and moved the INcome-tax Officer for an adjournment to furnish the necessary particulars called for by him and, therefore, his present action in invoking the extraordinary jurisdiction of this court for the issuance of a writ is absolutely ill-founded.

(3.) WHILST expatiating, therefore, the above norms as contained in the relevant provisions as are necessarily to be considered in this petition, the counsel very rightly conceded even in the beginning that he was not seriously pressing his contention that there was no association of persons at all. He strenuously based his arguments on his alternative contention that even if there was an association of persons, such facts and material were before the Income-tax Officer when he made the original assessment in 1961 and, therefore, he had no jurisdiction to re-open such a closed assessment under the garb of escapement. The relevant facts as has been shown above are a pointer to the fact that, even at the time when the original assessment was made, the Income-tax Officer had knowledge that the petitioner had one-fifth share in the lands sold by the association of persons. No doubt the purchase deed and the sale deeds which followed were not placed before the Income-tax Officer. The fact, however, remains that the officer was aware that there was a concerted action by more than one person and such joint adventure related to the sale of lands which were sub-divided into housing sites and such an adventure in the nature of trade was with an intention to gain profits. In the instant case one other factual detail, which touches on the enquiry, is that while making the original assessment the Income-tax Officer made no reservation whatsoever that the assessment was being provisionally made on the assessee so as to give him an exemption under Section 14 of the Indian Income-tax Act. On the Other hand, whilst knowing the joint adventure of persons including the petitioner, the Income-tax Officer provisionally accepted the figures furnished by the petitioner as regards the purchase and sale of the lands and assessed him accordingly. It cannot be denied, as is rightly contended by the learned counsel for the petitioner, that the Income-tax Officer knew of the joint venture, and the right to tax the income of the firm in the hands of the firm was not reserved by the department. In such circumstances, the Bombay High Court in Commissioner of Income-tax v. Murlidhar Jhawar and Purna Ginning and Pressing Factory, 1963 48 ITR 73 observed that if the department makes a note that " joint venture income...taken provisionally subject to a rectification after the assessment of the joint venture ", such a note does not mean that the right to tax the income of the firm in the hands of the firm was reserved by the department. The learned judges were of the view that the effect of the above note in the assessment order was that the department had only reserved to themselves the right to ascertain the extent and true income of the firm and make the necessary rectification in the assessment order of the partners. The instant case is an a fortiori one. No such reservation or no such note has been made.