ELPHINSTONE PICTURE PALACE Vs. UNION OF INDIA

JUDGEMENT

(1.) THE petitioner, a registered firm, whose main business is exhibition of films, has made this application under Articles 226 and 227 of the Constitution of India for a writ of prohibition restraining the respondents from proceeding against the petitioner on the basis of the notice (annexure " 1 ") under Section 148 of the Income-tax Act, 1961 (hereinafter to be referred as "the Act"), and also for quashing the said notice. THE notice was issued to the petitioner by the Income-tax Officer, Ward " A ", Special Circle, Patna, stating that the Income-tax Officer had reason to believe that the petitioner's income chargeable to tax for the assessment year 1961-62 had escaped assessment within the meaning of Section 147 of the Act, and requiring the petitioner, within 30 days from the date of the service of the notice, to file a return in the prescribed form of its income for the said assessment year.

(2.) FACTS relevant for the decision of the case may briefly be stated. The assessment of the petitioner for the assessment year 1960-61 was completed by Shri J. Pathak, the then Income-tax Officer, Special Circle, Patna, accepting the return of the petitioner and the books of account produced. In its return the petitioner had shown that it had taken the following loans :

(3.) IN Calcutta Discount Co. Ltd. v. INcome-tax Officer, Companies District I, Calcutta, [1961] 41 I.T.R. 191 ; [1961] 2 S.C.R. 241 the assessee-company in the course of assessment proceedings for the year 1944-45 had represented that the sales of shares in that year were casual transactions and were in the nature of " mere change in investments ". It was discovered subsequently that the assessee was in fact carrying on business of selling shares contrary to its earlier representations and in the assessment for the years 1945-46 and 1946-47 profits earned by sale of shares were included in the total assessable income of the company and that by its memorandum and articles of association, the company was authorised to carry on business of diverse kinds specially to hold and deal in shares and securities and to carry on business as financiers. According to the INcome-tax Officer, these were the basis for his belief that the company had been under-assessed. Majority of the judges of the Supreme Court held that, in the circumstances of the case, the INcome-tax Officer who issued the notices did not have any material before him for believing that there had been any material non-disclosure by reason of which an under-assessment had taken place. Really they held that it was not a case of non-disclosure of any material facts by the assessee, inasmuch as full details as regards sales of shares had in fact been disclosed, and the company was not required by law to state what was its true intention behind the sale of shares and that was an inferential fact, the inference to be drawn by the assessing authority from the material facts taken in conjunction with the surrounding circumstances.