Income Tax Officer, Income
Tax-Cum-Wealth Tax Circle II Vs. Nawab Mir Barkat Ali Khan Bahadur  INSC
209 (16 October 1974)
KHANNA, HANS RAJ
CITATION: 1975 AIR 703 1975 SCR (2) 464 1975
SCC (4) 370
F 1991 SC 331 (6,13)
Income tax Act, 1961, s. 147--Scope of High
Court's power interference under Art. 226.
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 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
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
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
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
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 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 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
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 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 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.
(1) 63 I.T.R. 219.
(2) 63 I.T.R. 638.
(3) 67 I.T.R. 11.
(4) 41 I.T.R. 191.