Case: Shriyans Prasad Jain Vs. Income Tax Officer and Others

2. The appellant, Shriyans Prasad Jain (since deceased) was appointed as theof Bombay Officer of the Dalmia Cement and Paper Marketing Company Limited (DCPM) by an order dated October 11, 1943. His salary was fixed at Rs. 4000 per monthfree of Income Tax. According to the appellant, the order of appointment further stipulated that the period of employment shall be 25 years and that in case his service are terminated before the expiry of the said period, he shall be paid compensation at the rate of Rs. 40, 000 per annum for the unexpired period. The Revenue, of course, disputes the aforesaid stipulations relating to period of service and the provision for compensation in case of prematureThrough a letter dated February 14, 1950, the service of the appellant were terminated with effect from November 30, 1949. An amount of Rs. 7 lakhs was paid to the appellant on thatIn the assessment proceedings relating to, the appellant claimed that the said sum of Rs. 7 lakhs received by him was not taxable inasmuch as it represented compensation for loss of employment. He submitted that according to the law as it then stood, the amount paid by way of compensation towards loss of employment was not taxable. The Income Tax Officer did not agree with the submission and included the said amount in his income. On appeal, the Assistant Appellate Commissioner upheld the appellants plea and allowed the appeal, whereupon the Revenue went in appeal to the Tribunal. This appeal was dismissed on August 13, 1956. An application filed by the Revenue under Section 66(1) of the Indian Income Tax Act, 1922 was dismissed by the Tribunal. An application under Section 66(2) was also dismissed by the High Court, whereupon the Revenue approached this Court under Article 136 of the Constitution. This Court directed the Tribunal to refer the following question for the opinion of the High Court under Section 66(2) of the 1922 Act :"whether on the facts and circumstances of the case, the sum of Rs. 7 lakhs is liable to tax under Section 7 of the Income Tax Act,On February 8, 1965, the High Court at Bombay answered the reference in favour of the appellant and against the Revenue. It held that the sum of Rs. 7 lakhs represented compensation for loss of office and was therefore not taxable. The decision is reported in CIT v. S. P. Jain. Against the order of the Bombay High Court, the Revenue filed a special leave petition in this Court but withdrew itOn December 11, 1956, the Government of India appointed Justice Vivian Bose, a retired Judge of this Court, as Commission of Inquiry to look into the affairs of certain companies controlled bygroup. The Commission submitted its report in June 1962. The Commission found several irregularities and fraudulent transactions by and between the companies controlled bygroup including the Dalmia Cement & Paper Marketing Company Limited. The Commission also dealt with the aforesaid payment of Rs. 7 lakhs to the appellant. The main question considered in this regard was the truth and genuineness of the letter dated October 11, 1943. In other words, the question was whether there was any such letter of appointment prescribing the period of employment as 25 years and also providing for the amount of compensation payable in case of premature termination. The findings of the Commission relevant for the purpose of this appeal are to the followingthere was no decision about this (about the genuineness of the letter dated October 11, 1943) on the merits because of a slip at the original stage, the question of its genuineness was shut out at the later stages. But so far as we are concerned, it would not have mattered whether the matter was considered and finally decided on the merits or not. Even if there was a final decision on the merits, it would be final only for the purposes of those Tribunals and would not bind other Tribunals or this Commission investigating the matter afresh for any other purposesThe question before the Income Tax authorities was whether the receipt of Rs. 7 lakhs was taxable or not in the hands of Shriyans Prasad Jain. We are not however, looking into this question viz. taxability or otherwise of the payment of Rs. 7 lakhs. What we are concerned with is the propriety of the transaction itself.The Commission had furtherdo not deny that Shri Shriyans Prasad worked for DCPM from 1943 and that the drew remuneration specified in the Liquidators letter of May 1, 1953 to M/s. D. P. Khosla and Co., nor did we question that the Income Tax was paid as stated during that period. We have questioned in another place the reasonableness of the terms but not the fact of appointment on those terms. What we are questioning here are the terms about period of employment and the provision about the payment of compensation for the breach that finds place in the impugned letter. In our opinion, that was anWe are of the view that those terms do not appear in the original contract. The scheme to defraud the exchequer by these ingenious devices was devised later and the impugned letter was forged andin furtherance of that schemeIn the circumstances indicated above specially regarding the destruction of the letter immediately after the Inspector had drawn up his report and in face of the fact, that the Inspector had questioned the genuineness of this document and initialled it and affixed the rubber stamp of his office to it; and also in view of the failure of Shriyans Prasad to produce before the Commission the original letter, which was with him, and the very important fact that during this period there were some payments of compensation for the supposed purchase of managing agencies and selling agencies in a number of other cases, we are entitled to draw the conclusion that this is one more instance of device adopted to evade and avoid payment of substantial incomeook supplied by the appellant).8. On December 23, 1965, a notice was issued by the Revenue calling upon the appellant to explain why his assessment relating to the1 be not reopened on the basis of the information which had come into possession of the department. The findings of Justice Vivian Bose Commission were sought to be made the basis for such action. The appellant submitted a reply to the said notice after considering which a notice under Section 148 of the Income Tax Act, 1961 was issued on March 26, 1966. Soon after receiving the said notice, the appellant approached the Bombay High Court by way of writ petition under Article 226 of the Constitution challenging the validity of the notice under Section 148 of the Income Tax Act, 1961. On July 4, 1973, the writ petition was dismissed by the High Court. The High Courtupon consideration of material before him the Income Tax Officer takes a prima facie view and entertains a reasonable belief that the assessee omitted or failed to disclose truly and fully all material and primary facts, then action under Section 147(a) is always justified. It is conceivable that such reasonable belief as to omission or failure to disclose may arise as a result of information which may come to his knowledge but even in such cases if the assessee has omitted or failed to disclose truly and fully all material and primary facts, it will always be open to take action under Section 147(a). Under Section 151(1) no notice shall be issued under Section 148 after the expiry of eight years from the end of the relevant assessment year, unless the Board is satisfied on the reasons recorded by the Income Tax Officer that it is a fit case for the issue of such notice. The notice under Section 148 in the present case has been issued after the expiry of eight years from the end of the assessment yearbut the Central Board of Direct Taxes upon a report submitted by the Income Tax Officer has accorded its sanction for initiation of proceedings against the assessee for the assessment yearunder Section 147(a) of the Act. In that view of the matter it is not possible to take the view that the initiation of proceedings can be regarded as time barred. Accordingly, the notice for initiation of reassessment proceedings will have to be upheld insofar as it relates to the item of Rs. 7 lakhs paid by the company to the petitioner." *

Reasoning:
17. With respect to the objection regarding the relevance and binding nature of the findings recorded by Justice Vivian Bose Commission, we must say that the findings recorded by the said Commission may not certainly be binding upon the appellant in proceedings under the Act but it is wrong to say that they do not constitute relevant material. They undoubtedly constitute relevant material. Further, before they were relied and acted upon, the appellant was given an opportunity to meet the same. It is idle to contend that findings recorded by a Commission manned by an eminent judge is of no evidentiary value. The said findings were recorded after an exhaustive inquiry and examination of the relevant records, account books and other proceedings of the companies controlled bygroup.18. We are equally unable to agree with Mr. Sen that the order of the Settlement Commission is vitiated by the erroneous placing of burden of proof upon the appellant. The Commission has given as many as eight specific reasons (mentioned as a to j) in support of its finding that a major portion of the said amount is taxable under Section 7 of the Act. Even if it is assumed for the sake of argument that one of the said reasons is unsustainable in law that does not vitiate the order of the Commission. The other reasons given by it are perfectly adequate to support the finding of the Commission. By saying so, we should not be understood as upholding Mr. Sens argument with respect to burden of proof. We express no opinionMr. Poti, learned counsel for the Revenue, is right in submitting that in this appeal this Court would not go into questions of the fact or review the findings of fact recorded by the Commission. As pointed out by this Court in Jyotendrasinhji v. S. I. Tripathi this Court can interfere with the Commissions order only if it is found to be "contrary to any of the provisions of the Act". To the same effect is the earlier decision of this Court in R. B. Shreeram Durga Prasad and Fatehchand Nursing Das v. SettlementNo serious objection has been taken with respect to the apportionment of the said amount of Rs. 7 lakhs effected by the Commission. Indeed, no such objection could have been taken. Once, the letter aforesaid is disbelieved, the Commissions finding in this behalf is perfectlyWe are, therefore, of the opinion that the Commission was right in holding that a substantial portion of the said amount should be treated as taxable under and by virtue of Explanation 2 to Section 7 of the Indian Income Tax Act,. Mr. Sen submitted lastly that the matter is more than 40 years old, that the original assessee is dead and that it would be just in these circumstances to direct that the penalty proceedings initiated against the assesseewhich are said to be kept pendingbe dropped. We are afraid, we cannot make any such direction in this appeal at this stage.