GANGA SARAN SONS PVT. LTD. CALCUTTAversusINCOME TAX OFFICER & ORS.

A   564

                    GANGA SARAN AND SONS PVT. LTD.
                                       CALCUTTA
                                             v.
B                     INCOME TAX OFFICER & ORS.

                                     April 23, 1981

                [P.N. BHAGWATI, AND E.S. VENKATARAMlAH, JJ.)

c         Income Tax Act 1961, S. 147-lncome Tax-Escaped assessment-Duty of
    assessee to disclose fully and truly all material facts necessary for his assessment
    for that .vear-Meaning of.

          Director in sole charge of management of business of assessee-Paid remune-
    ration for services-Utilisation of the remuneration by director-Assessee whether
    under ob/i!{ation to .disclose to the Income Tax Officer in the course of its assess-
D   ment.

          The assessee was incorporated as a Private Limited Company in March,
    1947 with G as its Managing Director and it took over the business of the trading
    company carried on by 'D' in Delhi. D was the brother-in-law of G and was
    placed in charge of the management of the business of the Delhi Branch of the
    assessee and he was paid a salary of Rs. JOOJ per month, commission at the rate
E   of I per cent on the sales of the Delhi Branch and bonus equivalent to three
    months salary.

         The assessments of the assessee for the years 1949-50 to 1959-60 were finalised
    on the b1Sis of the decisions of the Income-Tax Tribunal and the amounts paid
    to the Managing Director and the other Directors including D by way of salary,
    commission and bonus were allowed in full as permissible deductions and so
F   was the interest paid on the credit balances in their respective accounts.

          On the 28th March, 1968, the Income Tax Officer issued a notice under
    Section 148 of the Income Tax Act, 1961 seeking to reopen the assessment of the
    assessee for the assessment year 1959-60 on the ground that the income of the
    assessee had escaped assessment at the time of the original assessment. The
    Income Tax Officer, however, did not state the reasons which had led to the
G   belief that the income of the assessee had escaped assessment by reason of omis-
    £ion or failure to disclose material facts nor did he give any reasons though
    requested by the assessec.

           The assessee's writ petition challenging the validity of the notice was allow-
     ed by a Single Judge and the notice issued by the Income Tax Officer was qua-
H    iihed. It was held that there was no omission or fa ii ure on the part of the
                                     GANGA SARAN V. I.T.O.                             565

        assessee to disclose material facts relating to his assessment and that there           A
        was no reason to believe that any part of the income of the assessee had escaped
        assessment at the time of the original assessment by reason of wrong allowance
        of the remuneration paid to D as a permissible deduction.
y
             The Division Bench allowed the appeal, holding that the Income Tax Officer
        had reason to believe that the remuneration paid to D had been wrongly allowed
        as a permissible deduction by reason of omission or failure on the part of the          B
        assessee to disclose the material facts and the notice issued by the Income Tax
        Officer was justified.

             Allowing the appeal to this Court,

             HELD : 1. (i) Neither of the two conditions necessary for attracting
        the applicability of Section 147(a), was satisfied. The notice issued by the Income     C
        Tax Officer is therefore without jurisdiction. [574 G]

    ~         (ii) It is not possible to sustain the conclusion that the assessee omitted or
        failed to disclose fully and truly any material facts relating to his assessment.
                                                                                      [574 F]

             2. (i) Before the Income Tax Officer can assume jurisdiction to issue              D
        notice under Section 147(a), two distinct conditions must be satisfied. First,
        he must have reason to believe that the income of the assessee has escaped
        assessment and secondly, he must have reason to believe that such escapement is
        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. If either of these condi-
        tions is not fulfilled, the notice issued by the Income Tax Officer would be with-
        out Jurisdiction. [571 F]                                                               E
              (ii) The important words under Section 147(a) are "has reason to believe"
        and these words are stronger than the words "is satisfied.". The belief enter-
        tained by the Income Tax Officer must not be arbitrary or irrational. It must be
        reasonable or in other words it must be based on reasons which are relevant and
        material. The Court, cannot investigate into the adequacy or sufficiency of the
        reasons which have weighed with the Income Tax Officer, in coming to the belief,        F
        but the Court can examine whether the reasons are rele.vant and have a bear-
        ing on the matters in regard to which he is required to entertain the belief before
         he can issue notice under Section 147(a). If there is no rational and intelligible
        nexus between the reasons and the belief, so that, on such reasons, no one pro-
        perly instructed on facts and law could reasonably entertain the belief, the con-
        clusion would be inescapable that the Income Tax Officer could not have reason
        to believe that any part of the income of the assessee had escaped assessment and
        such escapement was by reason of the omission or failure on the part of the
                                                                                                G
        assessee to disclose fully and truly all material facts and the notice issued by him
        would be liable to be struck down as invalid. [571 G-57.2 CJ

               3. Even a close relative who is in management and charge of a business on
         a full time basis is entitled to be paid rem.uneration and, in fact, it would be
         wholly unreasonable to expect him to work free of charge. [573 Cl
                                                                                                H
    566                    SUPREME COURT REPORTS                    ( 1981] 3 S.C.R.

A        In the instant case D was the brother-in-law of G the Managing Director
    of the assessee but this circumstance cannot lead to an inference that the pay-
    ment of remuneration to D who was solely managing and looking after the
    business of the Delhi Bench of the assessee was sham and bogus. There is
    nothing unusual in D giving a loan to his brother-in-law, the Managing Director
    or making gifts to the son, wife and daughter-in-law of the Managing Director
    who were his close relatives. Any inference that the payment of remuneration
8   to D was sham and bogus cannot be drawn merely from the manner in which
    he expended the amount of remuneration received by him, particularly when the
    persons to whom he gave a loan and made gifts were his close relatives.
                                                                        ( 573 E-574 BJ

          4. The statements of account of D with the assessee for the relevant
    accounting year as also the previous years were with the Income Tax Officer at
c   the time of the original assessment and these statements of account clearly
    showed that out of the amount of remuneration credited to his account, he had
    made gifts to the sons of G on 31st July, 1957 and given a loan to G on the 25th
    August, 1958 and the Income Tax Officer was fully aware that G was the Mana-
    ging Director of the assessee. The assessee could not therefore be said to be
    under an obligation to disclose to the Income Tax Officer in the course of its
    assessment as to how the director who was in sole charge of the management of
D   the business of the assessee, and who was being paid remuneration for the
    services rendered by him to the assessee, had utilised the amount of remuneration

                 ..
    received by him. [574 C-F]

            CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1146 of
    1973.
E        From the judgment and order dated the !st, June 1972 of the
    Calcutta High Court in Appeal No. 150 of 1971 arising out of
    Matter No. 262 of 1968.

            Debi Pal, A.K. Verma and K.J. John for the Appellant.

F         V.S. Desai, Champat Rai and Miss A. Subhash:"ni for the
     Respondents.

            The Judgment of the Court was delivered by

             BHAGWATI, J. This appeal by certificate is directed against an
     order passed by a Division Bench of the High Court of Calcutta
G
     allowing an appeal against a decision of a Single Judge which
     quashed and set aside a notice dated 28th March 1968 issued by
     the Income Tax Officer under section 148 of the Indian Income Tax
     Act, 1961 seeking to reopen the assessment of the assessee for the
     assessment year 1959-60. The facts giving rise to the appeal are a
H
      little important and they may be briefly stated as follows.
                GANGA SARAN v. I.T.O.   (Bhagwati, J.)           567

       Prior to March 1947, one Deo Datt Sharma carried on             A
 business in Delhi in the name of Sharma Trading Company. The
 business was quite a prosperous one and the record shows that
 Deo Datt Sharma was making an average profit of about Rs. 36,000
per year. In March 1947, the assessee was incoroporated as a
private limited company with Ganga Saran Sharma as its managing
director and it took over the business of Sharma Trading Company       B
as a going concern in consideration of allotment of 1703 shares in
the share capital of the assessee to Deo Datt Shrama. The share
capital of the assessee consisted of 8500 shares out of which 1703
shares were allotted to Deo Datt Sharma, ~5 shares were held by
Ganga Saran Sharma and 3500 shares, by a company called
 Narendra Trading Company controlled by Ganga Saran Sharma and         c
his wife. It may be pointed out at this stage that Deo Datt
Sharma was the brother-in-law of Ganga Saran Sharma. When
business of Deo Datt Sharma was taken over by the assessee, Deo
Datt Sharma was appointed Director of the assessee along with
two other persons. Deo Datt Sharma was placed in charge of
management of the business of Delhi Branch of the assessee and he
                                                                 0
                                                                       D
was paid a salary of Rs. 1000 per month, commission at the rate
of I per cent on the sales of the Delhi Branch and bonus equivalent
to three months' salary. Ganga Saran Sharma .and the other two
directors were also paid salary, commission and bonus but it is not
necessary to set out the quantum of the emoluments paid to them,
because in this appeal we are concerned only with the emoluments       E
paid to Deo Datt Sharma and not with the emoluments paid to
other directors.

      The Income Tax Officer while assessing the assessee to tax
for the assessment year 1949-50 disallowed the claim of the assessee
for deduction in respect of payments made to the managing director     F
and other directors on account of commission and bonus. On appeal
by the assessee the Appellate Assistant Comviissioner disagreed
with the view taken by the Income Tax Officer and allowed the
entire amount paid to the managing director and other directors
by way of commission and bonus. So far as Deo Datt Sharma is
concerned, the Appellate Assistant Commissioner observed that          G
having regard to the fact that this very business was carried on by
Deo Datt Sharma prior to its taking over by· the assessee and it
was a prosperous business earning on an average ab:lut Rs. 36,000
per ye!lr and after taking over of the business by the assessee,
Deo Datt Sharma continued to be in sole management of the              H
     568                 SUPREME COURT REPO!lTS            (1981] 3 S.C.R

A    business of the Delhi Branch, the aggregate amount paid to him
     could not at all be regarded as excessive and was allowable as a
     permissible deduction. Thus the entire amount paid by the assessee
     to the managing director and other directors was allowed by the
     Appellate Assistant Commissioner as a deduction in computing
     the taxable income of the assessee. The assessee had thereafter n 0
B    difficulty in claiming deduction of the amount paid to the managing
     director and other directors on account of salary, commission and
     bonus, but again in the assessment year 1956-57, the Income Tax
     Officer disallowed a substantial portion of the remuneration paid to
     the managing director and the assessment made by the Income Tax
     Officer was confirmed in appeal by the Appellate Assistant
c    Commissioner and in further appeal by the Income Tax Tribunal.
     This led to the making of a reference and the High Court answered
     the question referred to it in favour of the assessee and held that
     the disallowance of a portion of the remuneration paid to the
     managing director was not justified. While making the assessment
     for the assessment year 1957-58, the Income Tax Officer once again
n.   disallowed a part of the remuneration paid to the managing director
     as also the amounts of interest paid to the directors on the balances
     lying to the credit of their respective accounts with the assessee on
     account of undrawn remuneration. The Appellate Assistant
      Commissioner in appeal held that the interest paid to the directors
      on the balances lying to the credit o( their respective accounts was
E     an allowable expenditure but he sustained the disal!owance of a
      portion of the remuneration paid to the managing director. The
      assessee thereupon preferred a further appeal to the Tribunal and
      after considering all the facts and circumstances of the case, the
      Tribunal came to the conclusion that the remuneration paid to the
      managing director as also to the other directors was not at all
F     excessive and no portion of it could justifiably be disallowed. The
      result was that not only was the remuneration paid to the managing
      director and the other directors allowed in full as a permissible
      deduction but also the amount of interest paid on the credit balances
      in their respective accounts was allowed to be deducted as a
       permissible expenditure. Obviously, and this could not be disputed
G      on behalf of the Revenue, the accounts of the managing .director
       and other directors including Deo Datt Sharma showing the
       amount of remuneration credited and the withdrawals debited in
       each year were produced before the Income Tax Officer and he
       was aware that only a very small amount was withdrawn by Deo
H      Datt Sharma out of the remuneration credited in his account~ The
                   GA)IGA SARAJ\I v. l.T.O. (Bhagwati, J.)           569

    record also shows that on a querry made by the Income Tax               A
    Officer the assessee furnished inter alia the assessment file number
    of Deo Datt Sharma who was being assessed in Delhi. The assess-
y   ment for the assessment year 1958-59 also followed the same course
    upto the stage of appeal before the Income Tax Tribunal and
    ultimately the amount of interest paid to the directors on the credit
    balances in their respective accounts was allowed as a permissible      B
    deduction to the assessee. The assessment of the assessee for the
    subsequent year 1959-60 was thereafter completed on the basis of
    the decision of the Income Tax Tribunal for the two earlier assess-
    ment years and the amounts paid to the managing director and
     other directors including Deo Datt Sharama by way of salary,
    comission and bonus were allowed in full as permissible deductions
    and so was the interest paid on the credit balances in their respec-    c
    tive accounts. ·

          On 28th March, 1968 the Income Tax Officer issued a notice
    under section 148 of the Income Tax Act, 1961 seeking to reopen
    the assessment of the assessee for the assessment year 1959-60 on
    the ground that the income of the assessee had escaped assessment
                                                                            D
    at the time of the original assessment. Since a period of four years
    had already elapsed from the close of the assessment year 1959-60
    and no notice could be issued under section 147 (b), it was obvious
    that the notice issued by the Income Tax Officer was based on
    section 147 (a), and it could be justified only if it could be shown
    that the Income Tax Officer had reason to believe that, by reason
                                                                            E
     of omission or failure on the part of assessee to disclose any
     material facts, the income of the assessee had escaped assessment.
    The Income Tax Officer however did not indicate in the notice as
    to what were the reasons which had led hi111 to believe that the
    income of the assessee had escaped assessment by reason of              F
    omission or failure to disclose material facts nor did he give
    any reasons though requested by the assessee to do so. The
    assessee thereupon preferred a writ petition in the High Court
    of Calcutta challenging the validity of the notice on the
    ground that there was no omission or failure on the part of the
    assessee to disclose any material facts at the time of the original     G
    assessment and that in 11.ny event, there was no reason to believe
    that any part of the income of the assessee had escaped assessment
    by reason of such omission or failure. The writ petition was
    admitted and rule was issued by a single Judge of the Calcutta High
    Court. The Income Tax Officer, possibly on service of the rule,         H
    addressed a letter dated 19th June 1968 to the assessee stating that
    570                 SUPREME COURT REPORTS                 [1981] 3 S.C.R.

A   the notice was issued by him because he had reason to believe that
    the payment of remuneration to Deo Datt Sharma was bogus and
    false. The Income Tax Officer also stated in the affidavit filed by
    him in reply to the writ petition that after the assessment of the
    assessee was completed for the assessment years upto 1963-64, the
    Income Tax Officer came to learn that Deo Datt Sharma was the
B   brother-in-law of Ganga Saran Sharma, managing director and that
    Deo Datt Sharma had disposed of the income received by him by
    way of remuneration from the assessee, in the following manner :

          I.   On 31st July 1957 he made a gift to
               Shri Narendra Sharma son of Shri
c              Ganga Saran Sharma, Managing
               Director of the Company.                 Rs.     12,550.00

          2.   On 25th August 1958 he made a
               loan to Ganga Saran Sharma.              Rs. 2,25,000.00

D                                               Total         2,37,550.00


    and thereafter, out of the amount lying to his credit in the account
    with the assessee, he had made the following gifts :

E              On 5th December 1960 gift to
               Brahma Devi wife of Ganga Saran
               Sharma                                   Rs. 1,0l,101.00

               On 21st December 1960 gift to lndu
               Sharma daughter-in-law of Ganga
F              Saran Sharma                             Rs.     15,101.00

               On 26th December 1961 gift to
               Hemlata Sharma daughter-in-law of
               Ganga Saran Sharma.                      Rs.     50,101.00

    The Income Tax Officer stated that out of the total amount of
G   remuneration of Rs. 3,51,000 received by Deo Datt Sharma during
    the period upto 31st March 1962, he had paid tax in the sum of
    about Rs. 65,000/- and spent a total sum of Rs. 2,37,550 on account
    of gifts and loan as aforesaid and the withdrawals made by him for
    his own purposes thus did not amount to more than Rs. 4000 per
H   year. These facts, according to lhe Income Tax Officer, showed
                     GANGA SARAN v. l.T.O.    (Bhagwati, J.)            571

    that the remuneration paid to Deo Datt Sharma was not genuine               A
    and was sham and bogus and the amount of such remuneration
    alleged to have been paid to Deo Datt Sharma was wrongly allowed
    as a permissible deduction and hence the assessment of the assessee
    was liable to be reopened by issue of a notice under section 147 (a).

          The learned single Judge of the Calcutta High Court who               B
    heard the writ petition took the view that there was no omission or
    failure on the part of the assessee to disclose any material facts
    relating to 'his assessment and that in any event; there was no
    reason to believe that any part of the income of the assessee had
    escaped assessment at the time of the original assessment by reason
•
    of wrong allowance of the remuneration paid to Deo Datt Sharma              c
    as a permissible deduction. The writ petition was accordingly
    allowed by him and the notice issued by the Income Tax Officer was
    quashed and set aside. The Income Tax Officer thereupon preferred
    an appeal before a Division Bench of the Calcutta High Court and
    the learned Judges constituting the Division Bench allowed the
    appeal, holding that the Income Tax Officer had reason to believe           D
    that the amount of remuneration paid to Deo Datt Sharma had
    been wrongly allowed as a permissible deduction by reason of
     omission or failure on the part of the assessee to disclose the material
    facts set out above and the notice issued by the Income Tax Officer
    was justified. The assessee thereupon preferred the present appeal
    in this Court after obtaining a certificate of fitness from the High        E
    Court of Calcutta.

           It is well settled as a result of several decisions of this Court
    that two distinct conditions must be satisfied before the Income ·
    Tax Officer can assume jurisdiction to issue notice under section
     147 (a). First, he must have reason to believe that the income of          F
    the assessee has escaped assessment and secondly, he must have
    reason to believe that such escapement is 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. If either of these
    conditions is not fulfilled, the notice issued by the Income Tax
    Officer would be without jurisdiction. The important words under
                                                                                G
    section 147 (a) are "has reason to believe" and these words are
    stronger than the words "is satisfied". The belief entertained
    by the Income Tax Officer must not be arbitrary or irrational. It
    must be reasonable or in other words it must be based on reasons
    which are relevant and material. The Court, of course, cannot
    investigate into the adequacy or sufficiency of the reasons which
                                                                                H
    572                SUPREME COURT REPORTS              [1981] 3 s.c.R.

A   have weighed with the Income Tax Officer in coming to the belief,
    but the Court can certainly examine whether the reasons are relevant
    and have a bearing on the matters in regard to which he is required
    to entertain the belief before he can issue notice under section 147
    (a). It there is no rational and intelligible nexus between the
    reasons and the belief, so that, on such reasons, no one properly
B   instructed on facts and law could reasonably entertain the belief,
    the conclusion would be inescapable that the Income Tax Officer
    could not have reason to believe that any part of the income of the
    assessee had escaped assessment and such escapement was by reason
    of the omission or failure on the part of the assessee to disclose
    fully and truly all material facts and the notice issued by him would
c    be .liable to he struck down as invalid.

            Now here on the facts as admitted or found it is clear that
    Deo Datt Sharma was carrying on the same business prior to the
    incorporation of the assessee as a private limited company and this
    business was yielding him an average profit of about Rs. 36000 per
D   year. When the assessee, on incorporation, took over the business
    as a going concern from Deo Datt Sharma it appointed Deo Datt
    Sharma as a director and placed him in sole charge of the manage-
    ment of the Delhi Branch of the business. In fact, it could not be
    disputed on behalf of the Revenue that Deo Datt Sharma was
    looking after the business of the Delhi Branch of the assessee in the
E    same manner in which he was doing when he was sole proprietor
     of the business and for this work done by him, Deo Datt Sharma
     was paid salary at the rate of Rs. 1000 per month, commission at
     the rate of one per cent on the sales of the Delhi Branch and bonus
     equivalent of three months' salary. The amount of remuneration
     paid to Deo Datt Sharma was thus not without consideratfon; in
     fact, it was paid for valuable services rendered by Deo Datt Sharma
      in solely managing the business of the Delhi Branch of the assessee.
      Now once it is conceded that Deo Datt Sharma was in sole charge
      and management of the business of the Delhi Branch of the assessee
      and was rendering full time service to the assessee in that capacity,
      it is difficult to see ho~ any one could reasonably come to the
G     belief that the payment of remuneration made to him was sham and
      bogus. Surely, the Income Tax Officer could not expect Deo Datt
       Sharma to devote his full time and energy to the business of the
       Delhi Branch of the assessee without any remuneration whatsoever.
       The actual remuneration paid to Deo Datt Sharma was in fact found
H     to be genuine and reasonable by the Appellate Assistant Commissioner
                            GANGA SARAN v. I.T.O. (Bhagwati, J.)            573

                                                                                    A
           while disposing of the appeal of the assessee for the assessment year
           1949-50 as also by the Income Tax Tribunal while disposing of the
           appeal for the assessment year 1957-58. It is true that Deo Datt
           Sharma was the brother-in-law of Ganga Saran Sharma, the mana-
           ging director of the assessee, but this circumstance cannot by any
           stretch of imagination lead to an inference that the payment of remu-
                                                                                    B
           neration to Deo Datt Sharma who was solely managing and looking
           after the business of the Delhi Branch of the assessee was sham and
           bogus. Even a close relative who is in management and charge of
           a business on a full time basis is entitled to be paid remuneration
           and, in fact, it would be wholly unreasonable to expect him to work
           free of charge.                                                          c
--------          The Revenue, however, relied strongly on the fact that out of
           the total amount of remuneration of Rs. 3,51,000 received by Deo
           Datt Sharma and credited to his account with the assessee, he had
           not withdrawn more than Rs. 4,000 per year for himself and an
           aggregate sum of Rs. 2,37,550 was expended by him in giving a loan       D
           to Ganga Saran Sharma and making gifts to the son, wife and
           daughters-in-law of Ganga Saran Sharma on diverse dates between
           31st July, 1957 and 26th December 1961. We fail to see how this
           fact can lend itself to the inference that the payment of remuneration
           to Deo Datt Sharma was bogus and not genuine. It is an admitted
           fact that Deo Datt Sharma was the brother-in-law of Ganga Saran          E
           Sharma and there is nothing unusual in Deo Datt Sharma giving a
           loan to Ganga Saran Sharma or making gift to the son, wife and
           daughters-in-law of Ganga Saran Sharma who were his close
           relatives. It is indeed difficult to appreciate how any inference can
           reasonably be drawn that the payment of remuneration to Deo Datt
           Sharma was sham and bogus merely from the manner in which he
           expended the amount of remuneration received by him, particularly
           when the persons to whom he gave a loan and made gifts were his
           close relatives. It is possible that Deo Datt Sharma had other
           financial resources apart from the remuneration derived by him
           from the assessee and he therefore decided to give a loan and make
           gifts to his close _relatives out of the remuneration received by him    G
     y
           for valuable services rendered to the assessee. In fact, if he had
           no other financial resources, it is extremely difficult - one might
           say, almost impossible-to believe that he worked for the assessee
            and managed and looked after the business of the Delhi Branch on
            a full time basis without any remuneration or in any event on a         H
        574                SUPREME COURT REPORTS                [1981] 3 S.C.R.

    A   paltry remuneration of Rs. 4,000 per year when the managing
        director and other directors who were working like him were getting
        much more from the assessee and as the proprietor of the business
        prior to its taking over by the assessee, he was earning an average
        profit of about Rs. 36,000/- per year. We are clearly of the view
        that on these facts the Income Tax Officer could have no reason to
    8
        believe that the payment of remuneration to Deo Datt Sharma was
        sham and bogus and that the amount of remuneration paid to him
        was wrongly allowed as a permissible deduction.

              We may point out that, in fact, the statement of account of
    c   Deo Datt Sharma with the assessee for the relevant accounting year
        as also the previous years were with the Income Tax Officer at the
        time of the original assessment and these statements of account
        clearly showed that out of the amount of remuneration credited to
        his account, he had made a gift of Rs. 12,550 to the son of Ganga
        Saran Sharma on 31st July 1957 and given a loan of Rs.2,25,000 to
    D   Ganga Saran Sharma on 25th August, 1958 and the Income Tax
        Officer was fully aware that Ganga Saran Sharma was the managing
        director of the assessee. It is possible and we may assume it in
        favour of the Revenue, that the subsequent gifts made by Deo Datt
        Sharma to the wife and daughters-in-law of Ganga Saran Sharma
        were not disclosed to the Income Tax Officer at the time of the
    E   original assessment, but these gifts being subsequent to the relevant
        accounting year, the assessee was not bound to disclose the same
        to the Income Tax Officer. Moreover, it is difficult to appreciate
        how tl~e assessee could be said to be under an obligation to disclose
        to the Income Tax Officer in the course of its assessment as to how a
        director who was in sole charge of the management of the business
    F   of the assessee and who was being paid remuneration for the services
         rendered by him to assessee, had utilised the amount of remunera-
'       tion received by bim. We do not think it possible to sustain the
        conclusion that the assessee omitted or failed to disclose fully and
        truly any material facts relating to his assessment.

    G        We must in the circumstances hold that neither of the two             y
        conditions necessary for attracting the applicability of section l 47{a)
        was satisfied in the present case and the notice issued by the Income
        Tax Office.r must be held to be without jurisdiction.

              We accordingly allow the appeal, set aside the judgment of the
    H   Division B~nch and restore that of the learned single Judge quashing
                      GANGA SARAN v.   l.T.O.(Bhagwa(i, J.)             575

      and setting aside the notice dated 28th March 1968 issued by the         A
      Income Tax Officer against the assessee. The Revenue will pay the
      costs of the assessee throughout.
y

                                                                               B
      N.V.K.                                                  Appeal allowed




--y
 I