Commissioner Of Income-Tax vs Maharashtra Sugar Mills Ltd.
2002 Latest Caselaw 1231 Bom

JUDGMENT

J.P. Devadhar, J.

1. In this income-tax reference, relating to the assessee's assessment year 1966-67, the following seven questions have been referred by the Tribunal at the instance of the Revenue, for the opinion of this court under Section 256(1) of the Income-tax Act, 1961 :

"1. Whether, on the facts and in the circumstances of the case, the asses-see-company not having filed the particulars of the transfer of assets to the Maharashtra State Farming Corporation in the original return and having shown the book value of the assets under 'loans and advances' in the balance-sheet without making adjustment in the accounts for the amount receivable could be said to have disclosed the primary facts during the original assessment for 1966-67 ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that it was not possible for the assessee to disclose the amount receivable as compensation in the original assessment proceedings ?

3. Whether, on the facts and in the circumstances of the case, the asses-see not having disclosed the relevant particulars regarding transfer of assets such as motor cars, etc., in its return, could be said to have disclosed all the primary facts at the time of the original assessment ?

4. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the proceedings under Section 147(a) were not validly initiated ?

5. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that capital gains could not arise from the transfer of buildings, roads, etc., transferred by the assessee ?

6. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the compensation of Rs. 50,20,280 receivable on transfer of assets to the Maharashtra State Farming Corporation should not be considered for the computation of capital gains but only the fair market value of the assets handed over to the assessee as compensation as on the date of transfer ?

7. Whether, on the facts and in the circumstances of the case, and in the absence of evidence of the market value as on January 1, 1954, of the assets transferred, the Tribunal was right in law in directing that for the computation of chargeable capital gains, such market value should be taken as claimed ?"

2. At the hearing of the reference, Mr. R. V. Desai, learned senior counsel appearing for the Revenue, fairly stated that the principal issue involved in this reference, is the validity of the reopening of the assessment proceedings under Section 147(a) read with Section 148 of the Income-tax Act and if question No. 4 is answered against the Revenue, then the other questions become academic, and need not be answered. Therefore, first, we take up the principal issue covered under question No. 4 for our consideration.

3. The facts relevant for the purpose herein are as follows :

The assessee carrying on business of manufacture and sale of sugar was owning large agricultural lands with buildings appurtenant thereto at Tilak Nagar, Mumbai. The surplus lands held by the assessee were acquired by the State Government vide notification dated March 20, 1983, issued under the provisions of the Maharashtra Agricultural Land (Ceiling on Holdings) Act, 1961. The assessee challenged the said acquisition right up to the Supreme Court and ultimately on April 29, 1965, an agreement was reached and recorded by and between the assessee and the State Government. As per the said agreement, the agricultural assets including the lands were handed over to the Maharashtra State Farming Corporation on May 10, 1965, and the assessee received certain compensation under different awards made by the State Government in that behalf.

4. For the assessment year 1966-67, the assessment order was passed without levying any capital gains tax on the aforesaid transfer of the assets by the assessee to the State Government. The original assessment order was sought to be reopened under Section 148 read with Section 147(a) of the Income-tax Act on the ground that there was failure on the part of the assessee to disclose material facts. According to the Revenue, apart from the surplus agricultural lands, the State Government had acquired structures and non-agricultural assets belonging to the assessee which were not disclosed by the assessee in its return for the assessment year 1966-67. According to the Revenue, the compensation received by the assessee from the State Government on transfer of the said agricultural assets (other than agricultural lands) were liable for capital gain's tax and on account of the failure on the part of the assessee to disclose the above facts, there was escapement of income. Action under Section 147(a) of the Income-tax Act, was therefore, initiated to bring to tax the escaped income under the head "Capital gains" on transfer of the agricultural assets.

5. Challenging the said notice issued under Section 148 of the Income-tax Act, the assessee filed a writ petition in this court, which was disposed of by directing the assessee to raise the issue about the validity of the reopening proceedings before the income-tax authorities.

6. During the reassessment proceedings, the assessee contended that the notice issued under Section 148 read with Section 147(a) of the Income-tax Act was invalid as the assessee had disclosed fully and truly all the material facts for the purpose of assessment for the assessment year 1966-67 and there was no escapement of income due to the failure on the part of the assessee to disclose all material facts. The Assessing Officer, however, rejected the contention of the assessee and held that in the director's report, the assessee had only disclosed that the agricultural lands were taken over by the Government but failed to disclose that apart from agricultural lands, non-agricultural assets were also acquired by the State Government. The Assessing Officer, held that failure on the part of the assessee to disclose the above facts has led to escapement of capital gains tax payable on transfer of the non-agricultural assets. Accordingly, the Assessing Officer upheld the reopening of the assessment and sought to tax the capital gains arising out of transfer of non-agricultural assets in the assessment year 1966-67.

7. Challenging the decision of the Assessing Officer, the assessee filed an appeal before the Commissioner of Income-tax (Appeals). By his order dated February 28, 1980, the Commissioner of Income-tax (Appeals) held that there was no failure or omission on the part of the assessee to disclose fully and truly all material facts for the purpose of the assessment and accordingly held that the reopening of the assessment was without jurisdiction. On further appeal filed by the Revenue, the Income-tax Appellate Tribunal by its order dated July 22, 1981, confirmed the order of the Commissioner of Income-tax (Appeals). Hence, this reference at the instance of the Revenue.

8. Mr. Desai, learned senior counsel appearing on behalf of the Revenue drew our attention to Explanation 2 to Section 147 of the Income-tax Act, 1961, and contended that mere production of books of account did not necessarily amount to disclosure of all material facts. He contended that the assessee had failed to disclose, that, apart from the agricultural land, other non-agricultural assets were also acquired by the State Government. According to the Revenue, capital gains tax was leviable on the compensation received by the assessee on the transfer of the said non-agricultural assets. Thus, in view of the failure on the part of the assessee to disclose these facts, there was escapement of income and therefore, the reopening of the assessment was justified. Mr. Desai referred to the decisions of the apex court in the case of Associated Stone Industries (Kotah) Ltd. v. CIT [1997] 224 ITR 560 ; Zohar Siraj Lokhandwala v. M. G. Kamat [1994] 210 ITR 956 (Bom); Phool Chand Bajrang Lal v. ITO and the decision of this court in the case of CIT v. Miss Esther P. Carvalho [1999] 237 ITR 549 in support of his contention.

9. There can be no dispute that in all the aforesaid cases, it has been clearly laid down that on mere production of books of account, the assessee cannot be said to have disclosed all material facts and it is not open to the assessee to contend that the Assessing Officer could have found out the facts from the records produced by the assessee. It is held in the aforesaid cases that the assessee is under an obligation to make full and true disclosure of material facts and the assessee must disclose particular portions of documents which are material. It is held in the aforesaid cases that failure on the part of the assessee to disclose material facts would empower the Assessing Officer to reopen the assessment under Section 148 read with Section 147(a) of the Income-tax Act.

10. In the light of the aforesaid decisions, the issue that arises for our consideration is, in the facts and circumstances of the present case, whether, there was failure on the part of the assessee to disclose material facts ?

11. The finding of fact recorded by the Tribunal in para. 5 of its judgment is that the balance-sheet of the assessee contained in an annual report relevant for the assessment year 1966-67 disclosed the book value of fixed assets. In the "note" appended to the printed accounts, it was disclosed by the assessee that no adjustments were made in the accounts for the amounts receivable in respect of the transfer of certain fixed assets. All these materials were before the Assessing Officer at the time of the original assessment. Moreover, the agreement dated April 29, 1965, arrived at by and between the assessee and the State Government, which gave details of the assets agreed to be transferred by the assessee was also before the Income-tax Officer at the time of the original assessment.

12. Apart from the above, the further finding of fact recorded by the Tribunal is that, during the original assessment, the assessee, at the instance of the Income-tax Officer, wrote two letters dated December 20, 1966, and January 10, 1967, disclosing further particulars about the assets taken over by the State Government. From the facts narrated hereinabove, it is evident that all the material facts were disclosed by the assessee and the Income-tax Officer at the time of the original assessment had verified the assets that were transferred by the assessee to the State Government by calling for further particulars and the assessee had furnished the particulars called for, by its letters dated December 20, 1966, and January 10, 1967. Therefore, it cannot be said that during the original assessment proceedings, the assessee had not disclosed the transfer of the non-agricultural assets by the assessee to the State Government. Under the circumstances, in the facts of the present case, we are of the opinion that the Tribunal was justified in holding that all the primary facts were disclosed by the assessee and that there was no failure on the part of the assessee to disclose fully and truly all the material facts. We, accordingly, hold that the reopening of the assessment could not be initiated under Section 148 read with Section 147(a) of the Income-tax Act on the ground that the assessee has failed to disclose material facts. Accordingly, we answer question No. 4 referred, in the affirmative and in favour of the assessee.

13. In the light of our answer to question No. 4 in the affirmative and against the Revenue, the remaining six questions raised by the Revenue become academic and, accordingly, the same are returned unanswered.

14. The reference is disposed of in the aforesaid terms with no order as to costs.