1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION (L) NO.163 OF 2010 Anil Radhakrishna Wani, Age 50, Occupation : Advocate & Solicitor, Residing at B5/7, Neelam, Sitladevi Temple Road, Mahim, Mumbai 400 016 ..Petitioner. Versus 1. Income-tax Officer, Ward No.11(2)(1), having his Office at Aayakar Bhavan, Mumbai – 400 020 2. Commissioner of Income-tax, Ward No.11(1) having his Office at Aayakar Bhavan, Mumbai 400 020 3. Union of India, through the Secretary, Ministry of Finance, Government of India,’ North Block, New Delhi 110 101 ..Respondents. Mr.Sanjiv M. Shah with Ms.Supriya S. Devergudi i/by Mr.Mehul J. Shah for the petitioner. Mr.Vimal Gupta for the respondents. CORAM : Dr.D.Y. Chandrachud & J.P. Devadhar, JJ. DATE : 4th March, 2010. 2 ORAL JUDGMENT (Per Dr.D.Y. Chandrachud, J.) : Rule, by consent made returnable forthwith. Counsel for respondents waives service. With the consent of counsel, petition is taken up for final hearing. 1. The petitioner has challenged in these proceedings under Article 226 of the Constitution the re-opening of an assessment for assessment year 2003-2004. Inasmuch as the notice under Section 148 was issued on 31st March 2009, it is beyond a period of four years from the end of the relevant assessment year. 2. The petitioner who is a solicitor and advocate, was a partner of Little & Company. He retired on 30th September 2002. Upon his retirement, the petitioner has continued to practice as a lawyer as a partner of a firm by the name ANS Law Associates. On his retirement, the petitioner was entitled to the payment of an amount of Rs.1,36,12,500/- in eight installments in pursuance of clause 38 of the Deed of Partnership. In the relevant assessment year 2003-2004, the petitioner received from the firm an instalment of Rs.17,01,562/-. On 18th December 2003, the petitioner filed his return of income for assessment year 2003-2004. The return was processed under Section 143(1). Subsequently, the case of the petitioner was selected for scrutiny. An order of assessment was passed on 19th August 2005 under Section 143(3). A notice was issued to the petitioner on 31st March 2009 proposing to reopen the assessment for assessment year 2003-2004. The reasons which have been recorded in support of the exercise of the jurisdiction under Section 147 read with Section 148, stated that on his retirement, the petitioner received a certain amount from Little & Company. The reasons 3 specifically contain a statement that the bank summary of Central Bank of India submitted by the petitioner reflects that an amount of Rs.17,01,562/- was shown to be received from Little & Company during the assessment year 2003-2004. The reasons also contain a statement to the effect that the capital account of the petitioner furnished with the return of income shows a receivable of Rs. 1,36,12,500/- from Little & Company, on retirement. The case which is sought to be made out for re-opening the assessment is that under clause 35 of the Deed of Partnership, a partner who has retired voluntarily shall not, as long as the continuing or surviving partners shall carry on the business, solicit the clients of the firm for a period of three years from the date of his retirement. According to the Assessing Officer, the amount payable to the petitioner was on account of a renunciation of his right to freely practice his profession for a period of three years and that the amount was consequently liable to “capital gains tax under Section 28(va)”. The reasons finally stated that the assessment was being re-opened under Section 149(1)(b) within a period of six years. 3. Two submissions have been urged on behalf of the petitioner. Firstly, it has been submitted that the assessment in the present case was beyond a period of four years and the condition precedent to the exercise of the jurisdiction to reopen an assessment has not been fulfilled. The petitioner, it is urged, had fully and truly disclosed all material facts during the course of assessment and this included the amount which was received and receivable from Little & Company on account of his retirement. The attention of the Court was drawn to the fact that during the course of assessment, to the specific query raised by the Assessing 4 Officer, the petitioner furnished a detailed reply explaining the nature of the amounts received from Little & Company on his retirement as a partner of the firm. In these circumstances, it was submitted that there was no failure on the part of the petitioner to disclose fully and truly all the material facts necessary for assessment for that assessment year. Secondly, it was sought to be submitted that clause 35 of the Deed of Partnership merely provides that a retiring partner shall not solicit the clients of the firm for a period of three years and the inference which is sought to be drawn by the Assessing Officer to the effect that the amount was paid to the petitioner on his retirement in consideration of a renunciation of his right to freely practice his profession is ex-facie perverse. Counsel submitted that as a matter of fact the petitioner continued to practise as a lawyer upon retirement from Little & Company, as a partner in another firm, to which the attention of the Assessing Officer was drawn. Clause 35 of the Deed of Partnership did not contain any covenant for renouncing the right to practise the profession of a lawyer. 4. An affidavit in reply has been filed in these proceedings by the Assessing Officer. The affidavit in reply states that the original assessment was completed on 19th August 2005. Though the petitioner had received an amount of Rs.17,01,562/- from Little & Co., this amount was not offered for taxation in the return of income that was filed on 18th December 2003. No inquiry was, according to the Assessing Officer, made regarding the taxability of the amount received by the petitioner from Little & Company during assessment year 2003-2004. Consequently, the assessment has been sought to be reopened by the issuance of a notice under Section 148 on 31st December 2009 and the re-assessment has been 5 completed on 31st December 2009. It has been submitted that since the petitioner has availed of the remedy of an appeal before the Commissioner of Income Tax (Appeals), a petition under Article 226 ought not to be entertained. 5. The circumstance that a re-assessment has been completed cannot be a ground to exclude the petitioner from seeking a recourse to the writ jurisdiction under Article 226 of the Constitution. The basic question before the Court is as to whether the statutory requirement which is a condition precedent to the exercise of the jurisdiction to reopen an assessment has been fulfilled. If the Court comes to the conclusion that this requirement has been fulfilled, the petitioner would have to be relegated to the appellate remedy against the order of re-assessment. On the other hand, if the statutory condition precedent for the exercise of the jurisdiction to re-open the assessment has not been fulfilled, the re-opening of the assessment would have to be quashed with a consequential setting aside of all the subsequent proceedings. We may also note that by an interim order dated 25th January 2010 passed by this Court, the Petitioner was permitted to file an appeal before the Commissioner of Income Tax (Appeals) without prejudice to his rights and contentions in the petition. Hence, the filing of an appeal cannot oust the remedy of a petition under Article 226. An appeal had to be filed to obviate the bar of limitation. 6. The proviso to Section 147 of the Income Tax Act, 1961 stipulates inter alia that, where an assessment under sub-section (3) of Section 143 has been made, for the relevant assessment year, no action shall be taken under Section 147 after the expiry of four years from the end of the relevant assessment year, unless 6 any income chargeable to tax has escaped assessment, for such assessment year by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, for that assessment year. The Revenue has relied upon Section 149(1)(b) under which no notice under Section 148 can be issued for the relevant assessment year after four years, but not more than six years have elapsed from the relevant assessment year, unless the income chargeable to tax which has escaped assessment amounts or is likely to amount to one lakh of rupees or more. The power to reopen an assessment beyond a period of four years but upto six years under Section 149(1)(b) is subject to the requirement spelt out in the proviso to Section 147. Section 149(1)b does not lift the embargo under the proviso to Section 147 on re-opening an assessment beyond a period of four years unless the conditions precedent are fulfilled. Section 149(1)b provides that a notice cannot be issued after four years, but not more than after six years have elapsed after the relevant assessment year, unless the income chargeable to tax which has escaped assessment is or is likely to amount to Rupees one lakh or more. This provision has nothing to do with the condition precedent for re-opening beyond four years, which has to be fulfilled in any event. Therefore, the basic question that needs to be addressed on facts is, as to whether there was any failure on the part of the petitioner, as the assessee, to disclose fully and truly all material facts necessary for the assessment. 7. The record before the Court shows that in the return of income which was filed on 18th December 2003, the petitioner had by a note appended to the computation of income specifically disclosed that “during the year the assessee has retired with effect from 30th September 2002 as a partner from Little & Company, 7 Advocates & Solicitors and with effect from 1st October 2002 has joined as a partner in ANS Law Associates, Advocates and Solicitors”. The capital account which was annexed to the return reflects receivables from Little & Company, on retirement, of Rs.1,36,12,500/-. The balance sheet as on 31st March 2003 shows receivables from Little & Company of Rs.1,19,10,937/-. The difference, being in the amount of Rs. 17,01,562.50 ps. was the amount which was received by the petitioner during the course of the previous year relevant to assessment year 2003-2004. During the course of assessment proceedings, the Assessing Officer had by a noting on the order sheet dated 18th July 2005 specifically called for a disclosure of details in respect of the amount received from Little & Company. By a letter dated 30th July 2005 addressed to the Assessing Officer, the petitioner made the following disclosure : “5. Amount receivable from Little & Co. represents the amount receivable on retirement from the Firm. The same is receivable in instalments and there is no provision for payment of any interest thereon under the understanding. 8. On retirement, i.e. on 1st October 2002 Rs.13612500 was receivable from the firm Little & Co towards the share in the firm as partner. Such amount was to be paid by the firm in 8 instalments. In view of the same the balance as on 31st March represents the balance after accounting for the instalment received.” The bank summary was attached to the letter. The fact that the bank summary and the capital account were disclosed by the petitioner is also admitted in the reasons which have been recorded by the Assessing Officer while re-opening the assessment. 8. From the aforesaid narration of facts, it is evident that the petitioner 8 made a full disclosure of all the material facts necessary for the assessment for assessment year 2003-2004. The petitioner duly explained (i) His retirement from Little & Company; (ii) The fact that an amount of Rs.1,36,12,500/- was receivable from Little & Company on retirement; (iii) That during the course of the assessment year one instalment had been received and the balance as on 31st March represented the balance after accounting for the instalment received. There was no failure on the part of the petitioner to disclose fully and truly all the material facts necessary for the assessment for that assessment year. In these circumstances, the jurisdiction to reopen the assessment was not validly exercised since the condition precedent laid down by the statute for reopening of an assessment beyond a period of four years of the expiry of the relevant assessment year has not been fulfilled. The petitioner is, therefore, entitled to the relief that has been claimed in these proceedings. In the view which we have taken, it is not necessary to consider the second submission on merits. 9. The petition is made absolute in terms of prayer clause (a) by setting aside the notice dated 31st March 2009 and consequently the order of assessment dated 31st December 2009. There shall be no order as to costs. (J.P. Devadhar, J.) (Dr.D.Y. Chandrachud, J.)