http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 6  

PETITIONER: INCOME  TAX  OFFICER, INCOME TAX-CUM-WEALTH TAX  CIRCLE  II,

       Vs.

RESPONDENT: NAWAB MIR BARKAT ALI KHAN BAHADUR

DATE OF JUDGMENT16/10/1974

BENCH: GUPTA, A.C. BENCH: GUPTA, A.C. KHANNA, HANS RAJ

CITATION:  1975 AIR  703            1975 SCR  (2) 464  1975 SCC  (4) 370  CITATOR INFO :  F          1991 SC 331  (6,13)

ACT: Income  tax Act, 1961, s. 147--Scope of High  Court’s  power interference under Art. 226.

HEADNOTE: In  1950, the respondent had executed three trust deeds  for the benefit of three ladies who were described as his wives, and  himself, as the father of their minor children.   After the returns in respect of the assessment year 1955-56, 1956- 57,  1957-58 and 1958-59 were filed by the  respondent,  the Income-tax Officer, who had the three trust deeds before him called  upon  the respondent for information  regarding  his relationship   to  those  three  ladies  as  well   as   his relationship  to a fourth lady.  A statement was  filed,  on behalf  of  the respondent, before the  Income-tax  Officer, wherein  it  was stated that only the fourth  lady  was  his legally  wedded  wife,  that the  other  three  were  merely referred  to as the wives, and that their children were  not the  legitimate children of the respondent.  The  Income-tax Officer, in assessing the total income of the respondent did not  include, under s. 16(3) of the 1922-Act, the income  of those  three ladies and their minor children arising out  of the trust properties.  In fact, he assessed them  separately with respect to their income from the trust properties.   In 1964  the Income-tax Officer issued notices under s. 148  of the 1961-Act seeking to reopen the assessments under s.  147 on the ground that there were two other trust deeds of 1957, which  were not produced before the I. T. 0. in  which  also two  of  the ladies were acknowledged as the  wives  of  the respondent and their children as his children and that their marriage should be presumed because of the  acknowledgement. The  respondent  there-upon challenged the validity  of  the proceedings and the High Court allowed his petition. Dismissing the appeal to this Court, HELD  : (1) Section 147(a) provides that if  the  Income-tax Officer has reason to believe that by reason of the omission or failure on the part of the assessee to disclose fully and truly  all material facts necessary for his  assessment  for any  year, income chargeable to tax has  escaped  assessment for that year, he may assess or reassess such income for the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 6  

assessment  year  concerned.  The fact that the  ladies  and their  children had been described in the 1957-documents  as wives  and  children  of  the  respondent  would  have  been material  if  the description were any thing  new  that  the Income-tax Officer happened to discover for the first  time. But the 1950,deeds also contained the same description.  The non-production  of  the 1957-documents at the  time  of  the original  assessment  cannot therefore be regarded  as  non- disclosure of any material fact necessary for the assessment of the respondent for the relevant assessment years.  Having second  thoughts on the same material does not  warrant  the initiation of a proceeding under s. 147. [467G-H; 468B; D-E] (2)  The   law  has  not  changed  or  since  the   original assessments  were  made and it was open  to  the  Income-tax Officer  to have made the presumption that the  ladies  were the  wives  at  the time when he made  the  assessment.   He cannot avail of s. 147 to correct his mistake. [468F-G] (3)  The expression ’reason to believe’ occurring in s.  147 of the 1961-Act or the corresponding s. 34 of the  1922-Act, does  not mean a purely subjective satisfaction on the  part of the Income-tax Officer.  The reasons for the belief  must have  a  rational  connection or  relevant  bearing  to  the formation  of the belief.  Therefore, the High Court,  under Art.  226, has power to set aside a notice under s.  147  of the  1961  Act or s. 34 of the 1922-Act,  if  the  condition precedent  to the exercise of the .jurisdiction under  those sections did not exist. [469C-D] 465

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 1179-1782 of 1970. From  the Judgment & Order dated the 7th March, 1969 of  the Andhra Pradesh High Court in Writ Petition Nos. 1042-1045 of 1964. S.   C.  Manchanda, B. B. Ahuja and R. N. Sachthey, for  the Appellant (In all the Appeals). S.   V.  Gupte, Anwarulla Pasha, J. B. Dadachanji, A.  Subba Rao and Anjali K.  Varma,  for the Respondents (In  all  the Appeals). M.   N. Phadke, A. V. Rangam, Gopal Nair and A.  Subhashini, for the Interveners (In all the Appeals). The Judgment of the Court was delivered by GUPTA,  J.  These  are four appeals by  certificate  from  a common  Judgment  of  the High Court of  Andhra  Pradesh  at Hyderabad  by which the High Court directed  the  appellant, Income  Tax  Officer, Income Tax-cum-Wealth Tax  Circle  11, Hyderabad to refrain from proceeding against the  respondent under  sec.  147  (a)  of the Income  Tax  Act,  1961.   The appellant  had  served on the respondent,  Nawab  Sahib  Mir Osman  Alikhan  Bahadur, H. E. H., the Nizam  of  Hyderabad, notices  under sec. 148 of the income Tax Act, 1961  stating that he had reasons to believe that income of the respondent chargeable to tax for the assessment years 1955-56, 1956-57, 1957-58  and  1958-59  had  escaped  assessment  within  the meaning of sec. 147 of the Act and proposing to reassess the income  for  the  said  assessment  years.   The  respondent challenged  the validity of the proceedings under  sec.  147 sought to be initiated by filing four writ petitions in  the High  Court of Andhra Pradesh at Hyderabad.  The High  Court by the impugned Judgment allowed all the four petitions  and prevented  the  Income Tax Officer from  proceeding  further under  sec.  147  of the Income Tax  Act,  1961.   In  these

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 6  

appeals the appellant questions the correctness of the  High Court’s decision. The  material facts are briefly these.  Assessments for  the aforesaid  four years were completed respectively  on  March 18,  1958, March 19, 1958, July 20, 1958 and March 28,  1961 under  the  income Tax Act of 1922.  After  the  returns  in respect of the said years were filed, the Income Tax Officer called  upon the respondent to state his  relationship  with four  ladies by putting three queries to him.   The  queries were as follows:               "(a)  The  rites and ceremonies  attendant  on               legal  marriages, according to Muslim law  and               how they were observed in the case of each  of               the  four  ladies  viz.,  Dulhan  Pasha  Begum               Saheba, Mazharunnisa Begumsaheba, Laila  Begum               Saheba and jani Begum Saheba.               (b)   What  legal  status is accorded  to  the               children  of Mazharunnisa Begum  Saheb,  Laila               Begum Saheba and Jani Begum Saheba, vis-a-vis,               the  children of the late Dulhan Pasha  Be-gum               Saheba?               466               (c)   Any other factors from the point of view               of the religion which distinguished the status               of  late  Dulhan Pasha Begum Saheba  from  the               other three ladies." It appears that on May 1, 1950, August 6, 1950 and  December 29,  1950  the respondent had executed  three  trust  deeds, described respectively as Family Trust, Miscellaneous  Trust and   Family  Pocket  Money  Trust,  for  the   benefit   of Mazharunnissa  Begum, Laila Begum, Jani Begum and the  minor children  of the last two. in the aforesaid trust deeds  the three  ladies were described as wives of the respondent  who was also referred to as the father of their minor  children. In  one  of these documents, viz., the family  Pocket  Money Trust Deed, the description of Laila Begum and Jani Begum as wives  was preceded by the expression "ladies of  position". Under  sec.  16  (3)  of the income  Tax  Act  of  1922,  in computing  the  total  income  of  any  individual  for  the purposes  of  assessment, the income of the  wife  or  minor child of the assessee arising from assets transferred by the husband  to the wife or the minor child otherwise  than  for adequate  consideration  was to be included.   There  is  no dispute  that these trust deeds were before the  Income  Tax Officer  before  he completed the assessments for  the  said four years. On  September  9, 1957 Shri C.  B.  Taraporewala,  Financial Adviser   and  General  Power  of  Attorney  Agent  of   the respondent, filed a statement before the Income Tax  Officer in reply to these queries.  In this reply it was stated that the  late  Dulhan Pasha Begum Saheba was  the  only  legally wedded  wife  of the respondent, that with the  other  three ladies  the  respondent had not gone through  the  essential formalities of a valid marriage under Mohanunedan Law,  that these three ladies who occupied high social position and who were received in his palace were "ladies of position" and in view  of  the special favours bestowed upon them  they  were referred to as wives in the said three trust deeds though in the strict legal sense the description was incorrect and the children  of these ladies were not tile legitimate  children of  the  respondent and had no legal status as  such.   This explanation  apparently  satisfied the  income  Tax  officer because in assessing the total income of the respondent  for the  said four years he did not include the income of  these three  ladies  and their minor children arising out  of  the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 6  

trust   properties.    It   is  also   admitted   that   the beneficiaries of the trusts were separately assessed on  the income  derived from the trusts along with their  individual income. On  March 13, 1964 the notices under sec. 148 of the  Income Tax Act, 1961 were issued seeking to reopen the  assessments under  sec. 147 of the Act.  After some correspondence  with the  income Tax Officer, the authorized  representatives  of the  respondent, M/s.  S. G. Dastgir and Company,  Chartered Accountants,  filed supplemental returns for  the  aforesaid four years "without prejudice" to the respondent’s right  to question  the  valid it of the  notices.   The  supplemental returns  merely affirmed the original returns filed  by  the respondent. By  his  letter  dated  April 15,  1964  addressed  to  M/s. Dastgir  and  Company,  the Income Tax  officer  stated  the reasons for reopening the 467 assessments under sec. 147(a).  Referring to two  subsequent trusts  named  Fern  Hill  and  Race  View  created  by  the respondent   on   March  21,1957  and   December   5,   1957 respectively, it was stated that the material facts relating to these two documents were not brought to the notice of the Department  in  the course of the original  assessment  pro- ceedings.  Fern Hill Trust was created for the benfit of the children of Laila Begum and Race View Trust for the  benefit of  Jani Begum and her son Imdad Jah Bahadur.  ’in the  Fern Hill  Trust  Deed Laila Begum was described as wife  of  the respondent   and  her  children  as  the  children  of   the respondent  by her.  Similarly in the Race View  Trust  Deed Jani Begum was described as wife of the respondent and lmdad Jah Bahadur as his son by her.  According to the Income  Tax Officer  the  facts  that Laila Begum and  Jani  Begum  were described as wives and their children as the children of the respondent  in  the Trust Deeds executed in  1957  indicated that  "certain  material facts relevant for  the  assessment years  were  not  disclosed  to  the  Department,  that  the statement given by the Financial Adviser is. untrue and that thereby  income chargeable to tax has been under  assessed". In  his letter the Income Tax Officer also referred to  sec. 268 of Mulla’s Principles of Mohammedan Law which enumerates the  circumstances from which marriage will be  presumed  in the  absence of direct proof and stated that the  respondent having acknowledged the three ladies as his wives and  their children as his children in the Trust Deeds executed in 1950 and  1957 all the circumstances mentioned in see.  268  were present.   The  letter  concluded  by  saying  that  it  was established  that  the ladies and their  children  were  the legal wives and legitimate children of the respondent. The  common  counter-affidavit affirmed by  the  Income  Tax officer in answer to the writ petitions was on similar lines to the aforesaid latter.  Admittedly Fern Hill and Race View Trust  Deeds executed in 1957 were not produced  before  the Income Tax officer when he made the original assessments for the four years in question. in the counter affidavit it  was alleged  that  these  two Trust  Deeds  were  "material  and primary  facts necessary for completing the  assessments  of the  petitioner-assessee for the relevant assessment  years" and it was submitted that if the said two documents had been disclosed  at  the  time of the  original  assessments,  the income  Tax  Officer "would have certainly arrived.  at  the conclusion"  that he came to in his letter dated  April  15, 1964. Clause  (a)  of Sec. 147 of the Income Tax Act,  1961  under which the assessments were sought to be reopened, so far  as

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 6  

it is relevant for the present purpose, provides that if the Income Tax Officer has reason to believe that, by reason  of the  omission  or  failure on the part  of  an  assessee  to disclose  fully and truly all material facts  necessary  for his;  assessment for any year, income chargeable to tax  has escaped assessment for that year, he may assess or  reassess such  income  for the assessment year concerned.   The  High court  held.  that the reasons assigned  for  reopening  the assessments  did  not fall within the scope of  omission  or failure  on the part of the assessee to disclose  fully  and truly  all material facts, that all the material facts  were before the Department 15-255 Sup.Cl/75 468 when  it  made the assessments in question  and  the  trusts created  in  1957 did not "throw a different  light  on  the matters already disclosed". The question is whether the existence of the two trust deeds executed  by  the  respondent in 1957 was  a  material  fact necessary  for  his assessment for the  relevant  assessment years.   The fact that the three ladies and  their  children have  been  described in these two documents  as  wives  and children  of the respondent would have been material if  the description  were anything new that the Income  Tax  Officer happened  to discover for the first time.  The  three  trust deeds  of 1950 also contained the same description of  these ladies  and  their  children  and  the  Income  Tax  Officer accepted  the  statement  made  by  respondent’s   Financial Adviser  Shri G. B. Taraporewala seeking to explain why  the ladies had been described as wives therein.  It is true that the trust deeds of 1957 were not produced at the time of the original  assessment  but  we do  not  see  what  difference production of these two additional documents could have made which  contain the same description of the ladies.   Neither the   letter  addressed  to  the   respondent’s   authorised representatives,  M/s.   S. G. Dastgir and Company,  by  the Income  Tax  Officer  on April 15,  1964  nor  the  counter- affidavit filed in the High Court explains this point.   The documents  of  1957  conform to those of  1950  in  material particulars;  the trust deeds of 1957 only repeat  what  the deeds   of  1950  had  disclosed.   Non-production  of   the documents  executed  in  1957 at the time  of  the  original assessments  cannot therefore be regarded as  non-disclosure of  any  material fact necessary for the assessment  of  the respondent  for  the relevant assessment  years.   The  High Court  was right in holding that the Income Tax officer  had no valid reasons to believe that the respondent had  omitted or failed to disclose fully and truly all material facts and consequently  had no jurisdiction to reopen the  assessments for  the four years in question.  Having second thoughts  on the  same  material  does not warrant the  initiation  of  a proceeding under sec. 147 of the Income Tax Act, 1961.  Mr.  Manchanda, learned counsel for the appellant, took  us through several sections of Mulla’s Principles of Mohammedan Law   including   sec.  268  and  submitted  that   in   the circumstances of the case it must be presumed that the three ladies were the legally wedded wives of the respondent.  The law has not changed since the original assessments were made and  it  was  open to the Income Tax Officer  to  make  that presumption  at the time.  If he should have but did not  do so  then,  he  cannot  avail of sec.  147  to  correct  that mistake.   In  any  event, we are not called  upon  in  this proceeding  to record a finding on the question  whether  in fact the ladies were respondent’s legally wedded wives.   We are  concerned only with the question whether the  condition

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 6  

precedent  to  the exercise of jurisdiction under  sec.  147 exists in this case; we have found that it does not. Mr. Manchanda also contended that the High Court  exercising jurisdiction under Art. 226 of the Constitution had no power to  investigate  whether  on the  material  before  him  the Income-Tax  Officer was justified in proceeding  under  sec. 147  of the Income Tax Act, 1961.  He relied, among  others, on the following decisions in support 469 of   his   contention:  S.  Narayanappa   and   others   vs. Commissioner of Income Tax, Bangalore, (1) Kantamani Venkata Narayana and Sons vs.  First Additional Income Tax  Officer, Rajahmundry, (2) Commissioner of Income Tax, Gujarat vs.  A. Raman  & Co. (3) and of course, Calcutta Discount  Co.  Ltd. vs.  Income tax Officer, Companies District I Calcutta, (4)   We  do not think that these decisions help him.   In  this case,  the  decision  of  the High Court  is  not  that  the material  before the Income Tax Officer was insufficient  or that  he had failed to draw the correct conclusion from  the material  before him but that no fresh material had come  to light   justifying  reopening  of  the   assessments.    The authorities  to which Mr. Manchanda referred point out  that the expression "reason to believe" occurring in sec. 147  of the Income Tax Act, 1961 or the corresponding sec. 34 of the Act  of 1922 does not mean a purely subjective  satisfaction on  the part of the Income Tax Officer, the reasons for  the belief must have a rational connection or a relevant bearing to  the  formation of the belief, and that  the  High  Court under Art. 226 of the Constitution has power to set aside  a notice  under sec. 147 of the Act of 1961 or sec. 34 of  the Act  of 1922 if the condition precedent to the  exercise  of jurisdiction under these sections does not exist. In  the  result, these appeals fail and are  dismissed  with costs.  One hearing fee. An  application  for intervention in these appeals  made  by three persons claiming to be sons of the respondent was  not ultimately pressed; no order is therefore called for on this application. Appeals dismissed. (1)  63 I.T.R. 219. (2)  63 I.T.R. 638. (3)  67 I.T.R. 11. (4)  41 I.T.R. 191. 470