SHRIYANS PRASAD JAIN Vs. BHALLA R K ITO

JUDGEMENT

(1.) THE question involved in this petition is whether the Income -tax Officer (the respondent) had jurisdiction to initiate proceeding for reopening the assessment of the petitioner for the assessment year 1950 -51, under section 147(a) of the Income -tax Act, 1961 (hereinafter referred as 'the Act'), and whether such initiation of proceedings is justified having regard to the conditions precedent to be fulfilled before the provisions of the said section can be attracted.

(2.) THE petitioner was an employee of the Dalmia Cement and Paper Marketing Co, Ltd. (hereinafter referred to as 'the company'). It was his case before the authority who assessed him for income -tax for the assessment year 1950 -51 that by a letter, dated October 11, 1943, he was appointed to look after the Bombay officer organisation of the company at the remuneration of Rs. 4,000 per month, free of tax and with the other benefits of the and prerequisites as therein provided. It was one of the terms of the agreement as per the document field before the taxing authority that the employment was for a definite period of 25 years of the commencing from April 1, 1943. The agreement also contained a provision as to what was to happen in case of premature termination of his employment. The case of the petitioner was that should the services of the petitioner be terminated before the expiry of 25 year the petitioner would be entitled to compensation calculated at the rate of Rs. 48,000 for each unexpired year of the duration of his employment. According to the petitioner his employment was terminated with effect from November 30, 1949. As a result of a mutual agreement, notwithstanding the fact that the compensation payable to him pursuant to the agreement came to a large figure, the petitioner was to be paid Rs. 7 lakhs as compensation for the cessation of his employment. When the petitioner was being assessed for the assessment year 1950 -51 the question whether the sum of Rs. 7 lakhs received by him. was to be regard as income and subject to tax, was gone into. The Income -tax officer took the view that the payment of the amount Rs. 7 lakhs was not compensation for loss of employment but the said amount was paid to him in view of the past meritorious service rendered by him to the company. In an appeal by the assessee the Appellate Assistant Commissioner reversed the finding of the Income -tax Officer. In his order he, inter alia, observed that the services of the petitioner were terminated seven years after the agreement, in other words, nearly 18 years before the term provided for and instead of paying him. Rs. 8,64,000 calculated at the rate of Rs. 48,000 per year, the company made a lump sum payment of Rs. 7 lakhs. This amount, in the opinion of the Appellate Assistant Commissioner was received by the petitioner as substitution of the sourcer of the income and not as substitution of the income. He took the view that as the amount was received solely a compensation for loss of employment it was not liable to tax as income in the hands of the assessee. In an appeal by the revenue the finding of the Appellate Assistant Commissioner was confirmed by the Tribunal. The Tribunal inter alia, observed that on the evidence on record the amount Rs. 7 lakhs receive by the assessee was not payment made for past services. It was receipt of a capital nature and was not assessable to tax. both the Accountant Member and the Judicial Member of the Tribunal in their separate orders practically came to the same conclusion of the application by the revenue to the Tribunal to refer the case to the High Court was dismissed. Thereupon the revenue preferred a petition for special leave to appeal to the supreme Court both against the order of the Tribunal as well as against the order of the High Court. The Supreme Court granted special as against the order of the High Court. The leave to appeal against the order of the High Court and against the appellate order of the Tribunal subject to the condition that in the appellate against the order of the Tribunal no question of fact shall be allowed to be raised. While disposing of this petition for leave to appeal to the Supreme Court, the court directed the Tribunal to refer the following question to the high Court for determination, namely :

(3.) ON December 23, 1965, the petitioner was served with a letter of the same date by the respondent, inter alia, informing him that information has come to his possession that the basis on the which the decision was taken treating the sum of Rs. 7 lakhs as capital receipt was incorrect and that in the light of the information that has come to his possession thereafter, which has been considered by him, he has come to his possession therefore which has been considered by him, he has come to the conclusion that there has been under -assessment for the assessment year 1950 -51, as a result of which he contemplated action under section 147(a) of the Act after obtaining approval from the Central Board of Direct Taxes. By this letter of the attention of the petitioner was invited to the finding of the Vivian Bose Enquiry Commission that there letter appointing the petitioner on which reliance was placed by him before the taxing authority was fraudulent and antedated. He pointed out in this letter that the validity of the proceedings under section 147(a) of the Act was justified because of the fact that at the time of giving the decision of the Appellate Assistant commissioner accepted the genuineness of the agreement as being beyond doubt. The fresh facts which had come to his notice a thereafter changes the complex of the case completely. He therefore, intended to start proceedings under section 147(a) for the assessment year 1950 -51 mainly with intention to add the sum of Rs. 7 lakhs in the total income of the assessee for that assessment year. By this letter an opportunity was given to the petitioner to show cause why such proceeding should not be initiated. By this letter dated December 30, 1965 the petitioner sent his reply giving reasons why he objected to such initiation of the proceedings.