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PETITIONER: INCOME TAX OFFICER, CUTTACK AND ORS.

       Vs.

RESPONDENT: BIJU PATNAIK

DATE OF JUDGMENT07/12/1990

BENCH: RAMASWAMY, K. BENCH: RAMASWAMY, K. KULDIP SINGH (J)

CITATION:  1991 AIR  464            1990 SCR  Supl. (3) 488  1991 SCC  Supl.  (1) 161 JT 1990 (4)   731  1990 SCALE  (2)1248

ACT:     Income  Tax  Act, 1961: Sections  147  &  148--Condition Precedent for exercise of jurisdiction by I.T.O.

HEADNOTE:     The  respondent-assessee was assessed to income tax  for the assessment year 1957-58 ending with financial year March 31, 1957. Subsequently, it came to the notice of the  Income Tax Officer that the assessee had not shown in his return  a sum  of Rs.15 lakhs which he had earned as capital gains  by the sale of his mining business. According to the  assessee, the transfer of the business had been made on 31.3.1956  and as such the capital gain was not leviable to taxation  since capital gain was not subjected to taxation in the assessment year  1956-57. But from the information available  with  the Income Tax Officer it appeared that the transfer of business took place on 3.11.1956.     On the basis of this information the Income Tax Officer, with the approval of the Commissioner of Income Tax,  issued notice  to reopen the assessment in question under  sections 147 (a) and 148 of the Income Tax Act, 1961.     The assessee challenged the notice by way of writ  peti- tion  under Article 226 of the Constitution which  was  dis- missed by the learned Single Judge. On appeal, the  Division Bench,  while  upholding  the exercise of  the  power  under section 147 (a) of the Act, held that the income derived  by the respondent was towards sale of goodwill and,  therefore, the income was not liable to capital gains tax.      On behalf of the assessee it was contended before  this Court that (i) the sum received by him was consideration for the  transfer of the goodwill of the business as an  ongoing concern;  (ii) the Income Tax Officer had no reason  to  be- lieve that the income had escaped assessment for that  year; and  (iii)  the satisfaction arrived at  by  the  Income-Tax Officer  under section 147(a) did not exist on the facts  of the case, and the Income-Tax Officer merely communicated the notice  without  complying with the  provisions  of  section 147(a) read with section 148 of the Act. 489     Allowing  the appeal, setting aside the judgment of  the Division Bench and restoring that of the Single Judge,  this

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Court,     HELD:  (1) Section 147 (a) of the Income Tax Act  postu- lates  two conditions, namely, that the  Income-Tax  Officer must, on the basis of material facts on record, prima facie, he satisfied that the income of the assessee is exigible  to tax for that relevant assessment year and that he had reason to believe that it had escaped assessment. Further, he  must have reason to believe that the escapement of income was  on account of the omission or failure of the part of the asses- see  to  fully  and truly disclose all  the  material  facts necessary for the assessment. Both the conditions are condi- tions  precedent to the exercise of the  jurisdiction  under section 147 (a) read with section 148. [492B-C]     Calcutta  Discount Co. Ltd. v. I.T.O., [1961] 41  I.T.R. 191 (SC), referred to.     (2)  It  is true that the notice does  not  prima  facie disclose  the satisfaction of the two  conditions  precedent enjoined under section 147 (a), but in the counter affidavit fried  by the Income-Tax Officer in the High Court,  he  has stated all the material facts. It is settled law that in  an administrative  actium, though the order does not  ex  facie disclose  the satisfaction by tile Officer of the  necessary facts,  but if the record discloses the same, the notice  or the order does not per se become illegal. [492G-493B]     (3)  The  Division  Bench has  committed  illegality  in coming  to the conclusion that the sum of  Rs.15,00,000  was received  towards consideration for sale of goodwill of  the on-going business. It is premature on the facts and  circum- stances  in  this  case to reach such  a  decision.  Whether assets  and goodwill together were transferred or the  good- will alone was transferred as on-going concern of the mining business  is a matter yet to he gone into by the  Income-Tax Officer. [493E-G]

JUDGMENT: