BIJU PATNAIK Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) The Petitioner in this Rule has prayed that the notice dated July 31, 1965, under Sec. 148 of the Income -tax Act, 1961, issued by the Income -tax Officer, Special Investigation, Calcutta, for the assessment year 1957 -58 and also the notice under Sec. 142(1) of the Act dated September 17, 1965, for the said, assessment year be quashed and/or set aside. The Petitioner has further prayed that the Respondents be commanded to cancel and/or withdraw the said notices and they be prohibited from taking any steps whatsoever in pursuance of the said notices.

(2.) The Petitioner's case is that he as a mine -owner carried on mining business in the district of Keonjhar, Orissa. He made an application to the Collector of Keonjhargarh under the Mineral Concessions Rules, 1949, for a mining lease of iron ore and manganese ore over an area of 3,900 acres within Champa Subdivision of the said district. The Government of Orissa by their order dated October 10, 1952, granted the Petitioner permission to work the mines in respect of manganese ore for a period of one year from the date of delivery of the possession of the said land. The said permission was, however, renewable from year to year until the finalization of the terms and conditions of the lease which the Government of Orissa had agreed to. grant to the Petitioner. The Government of Orissa by another letter dated January 14, 1954, granted to the Petitioner permission to work out the iron ore in respect of 286 -5 acres falling within the said area of 3,900 acres. By another letter dated August 30, 1955, the Government of Orissa granted to the Petitioner the working permission in respect of iron ore over an area of 1,006 acres in Kasia. In March 1956, B. Patnaik Mines Pvt. Ltd. was incorporated as a company under the Indian Companies Act, 1913 One of the objects of the said company was to purchase or otherwise acquire as a going concern the business and good -will of the firm of B. Patnaik Mine Owner as carried on by the Petitioner and all the assets of the said business. The Board of Directors of the said company, by a resolution dated March 23, 1956, resolved that the assets and good -will of the Petitioner would be taken over on or before March 31, 1956, on payment of a consideration of Rs. 15,00,000 payable in suitable instalments in course of ten years. The assets and liabilities of the said mining business owned by the Petitioner were, accordingly, taken over by the company from him and incorporated in its balance -sheet for the period ending March 31, 1956. A sum of Rs. 15,00,000 was credited to the Petitioner's capital account and debited to the said company being the good -will receivable by the said company.

(3.) The Petitioner had submitted a return of his income for the assessment year 1956 -57 and the Income -tax Officer had computed his total income at Rs. 1,30,816. On a revisional application his total income was reduced to Rs. 68,216. For the assessment year 1957 -58, the Petitioner also submitted a return of his income and had produced the books of account including the balance -sheet and other documents relevant for the assessment. The 'Petitioner has claimed that during the course of discussion with the Income -tax Officer, A Ward, Cuttack, the question as to whether he, was liable to be assessed during the relevant assessment year on the capital gains arising, if any, as a result of the transfer of the entire mining business assets to the said company was also considered by the said Income -tax Officer. The .Petitioner has submitted that assets of the business were taken over by the company on March 31, 1956, and on the said date the tax on capital gains was not payable. The Income -tax Officer in his original assessment order did not include any capital gains in the income of the Petitioner and computed his total income for the said assessment year 1957 -58 at Rs. 39,950 and issued demand notice under Sec. 29 of the Indian Income -tax Act, 1922, for the tax which was payable by the Petitioner.