1. The question referred for out decision under section 66(2) of the Indian Income-tax Act is :
'Whether, on the facts and circumstances, the Income-tax Appellate Tribunal was right in holding that the assessee's case falls under section 34(1)(a) ?'
2. The assessee is an individual and we are concerned with the assessment years 1950-51 to 1954-55 both inclusive, the relevant accounting years being the financial years ending 31st March.
3. One Tankwalla had taken on long lease certain open plots of land at Worli in Greater Bombay. These plots were requisitioned under the Defence of India Rule No. 75(1) for the purposes of the military in December, 1942. Later on, the requisitioning was continued under the Bombay Land Requisition Act, 1948, for the purposes of the Home Department of the Government of Bombay. The owner of these plots (Tankwalla) had mortgaged them with the ABC Bank Ltd. but that bank went into liquidation and the plots were acquired by the assessee from the liquidator of the bank. This was on the 6th September, 1949, during the accounting year 1st April, 1949, to 31st March, 1950, the assessment year being 1950-51. In his return for that year, the assessee did not show any income from property and when questioned before the Income-tax Officer, the assessee had stated that the Government was considering the question of payment of compensation in respect of these properties which had been requisitioned and, therefore, the assessee 'could not be sure of the amount that he would receive as rent for the properties'. The assessee did not deny that he was the owner of the property. The Income-tax Officer thereupon estimated the income from the properties requisitioned by the Government at Rs. 1,000 for that year and included it in the assessment for the year 1950-51. Similar estimates were made by the Income-tax Officer for the subsequent years 1951-52 to 1957-58. These assessments of property income were made under section 9 for the assessment years 1950-51 to 1955-56 both inclusive, but for the years 1956-57 and 1957-58 the income was assessed under section 12 as from 'other sources'.
4. In the meantime other events were taking place on the basis of which the proceedings under section 34(1)(a) of the Income-tax Act with which we are concerned were commenced against the assessee. The assessee continued to prosecute the proceedings for assessment of compensation payable to him by Government and an order came to be passed by the Collector on 31st August, 1955. According to the assessee, this order was served on him some time in August, 1957, by the Estate and Land Manager, Bombay Municipal Corporation. Pursuant to that order an agreement was entered into with the Collector of Bombay whereby Government agreed to pay the same amounts which had been fixed as compensation payable to the assessee. The agreement was entered into on 14th February, 1958. As a result of this order fixing the compensation, the present proceedings were commenced under section 34. The amount fixed as compensation for these plots was Rs. 823-6-0 per month from 6th September, 1949, and as a result the assessee showed as his income for the year 1958-59 Rs. 9,880 (i.e., 823-6-0 x 12) per year.
5. On the 15th November, 1958, the Income-tax Officer, Companies Circle I(2), Bombay, wrote to the assessee informing him that the assessee had stated before him that the Collector had fixed the rent in respect to the four plots at Rs. 9,880 per year and he had similarly shown that amount in his income-tax returns. He, therefore, pointed out that the quantum of the lease rent in respect of the plots had become definite only by the agreement dated 14th February, 1958, and the Income-tax Officer proposed to assess the assessee for the entire amount for the period from 6th September, 1949, in that assessment year itself, viz., 1958-59. The assessee protested by his letter dated 20th December, 1958, that '....in any case all the sums cannot accrue on that date as mentioned by you in your letter. Therefore, only a sum of Rs. 9,880 is taxable during the assessment year 1958-59'. It appears that this stand of the assessee was accepted by the department and in consequence notices came to be issued under section 34(1)(a) for the reopening of the assessment for the assessment years 1950-51 to 1954-55 both inclusive.
6. Now the assess on his part says that the notices under section 34(1)(a) could not be issued because the requirements of clause (a) of section 34(1) have not been fulfilled. He, however, does not dispute that the notices could be issued under section 34(1)(b), that is to say, for the assessment years 1955-56 to 1958-59. If notices could not be issued under section 34(1)(a), then obviously the assessments for the earlier years which are the years in dispute before us would be barred by time. Thus the question resolves itself into a question whether the grounds under section 34(1)(a) have been made out in the order to enable the department to assess the assess under section 34(1)(a).
7. Now the main order of the Income-tax Officer was passed in the assessment year 1950-51 and the view which the Income-tax Officer took is clear from paragraph 3 of that order. In response to the notices under section 34(1)(a), the assessee has filed a return showing the same income as was originally assessed by the Income-tax Officer, that is to say, Rs. 1,000 per year and on his behalf it was further argued that section 34(1)(a) could not apply. It was also urged that the income having been assessed under section 9 by the Income-tax Officer in the earlier assessments, the Income-tax Officer could not assess the additional income received later on. In rejecting this contention the Income-tax Officer observed :
'At the time of the original assessment proceedings, the Government was considering fixation of compensation for the requisitioned properties and it was by order dated August 31, 1955, that the Compensation Officer, Bombay, fixed the recurring compensation for the 4 plots comprising the assessee's property at Worli which were requisitioned. Compensation was fixed at a rate per month from September 6, 1949. It was on August 31, 1955, that the rent has been quantified. However, the assessee was entitled to rent from the date of requisition, i.e., September 6, 1949. I have therefore to assess the proper rent fixed by the Government as payable to the assessee for the whole period from September 6, 1949, onwards. It is incorrect for the assessee to argue that section 34(1)(a) does not apply.'
8. It will be seen from this order that so far as the Income-tax Officer is concerned, he did not go into the question whether the requirements of clause (a) of section 34(1) were in the first place fulfilled. In fact, he did not apply his mind to the requirements at all.
9. The assessee then took the matter in appeal to the Appellate Assistant Commissioner and rightly urged before the Appellate Assistant Commissioner that it should first be found whether there was ground for action under section 34(1)(a) and this point was considered by the Appellate Assistant Commissioner. It was argued before him that there was no omission or failure on the part of the appellate to disclose fully and truly all material facts necessary for his assessment for the years under consideration. The Appellate Assistant Commissioner rejected this contention and the material part of his order was as follows :
'I have looked into the records of the case and I am unable to agree with the appellant's contention. The information which had been furnished to the Income-tax Officer when he made the original assessments for these years is to be found in the assessment order for the year 1950-51 dated the 20th December, 1954. The only relevant fact which appears to have been disclosed by the appellant to the Income-tax Officer was that certain military hutments at Worli had been purchased by the appellant at a cost of about Rs. 2,80,000 and that these hutments had been occupied by the police department. It was also stated that the matter of the rent was pending before the Government who were considering the question of payment of a lump sum by way of compensation .... It is clear that the appellant had not furnished all the material facts to the Income-tax Officer. If the question of the rent was pending before the Government at the time the assessment were made, there must have been some correspondence between the appellant and the Government which would have indicated the rent which could have been reasonably expected by the appellant. The nature and dimensions of the hutments, the rent, if any, which has been previously realised from the hutments before the appellant purchased them and similar facts which would have helped the Income-tax Officer to frame a reasonable estimate, had apparently not been furnished. In fact, I find that the Income-tax Officer had not even been furnished the material from which he could properly have come to the conclusion whether the income from the property was assessable under section 9 or under section 12.'
10. We have deliberately quoted this order of the Appellate Assistant Commissioner in extenso, because upon the record it appears that he was the last of the departmental officers to consider the point of substance raised by the assessee. It does not appear to have been considered by the Tribunal at all.
11. When the matter went before the Tribunal, it was again argued before the Tribunal on behalf of the assessee that the facts of the case fell within the ambit of section 34(1)(b) and that the case could not fall under section 34(1)(a) and to that extent the assessments after four years from the end of the assessment year in regard to which action under section 34(1)(a) was being taken could not be made. The Tribunal merely disposed of the point upon the following order :
'Having regard to the proceedings that took place at the time of the original assessment for 1950-51, we are unable to accept the assessee's submission. The existence of the source was then admitted, but no income was disclosed on the plea that the question about the quantum was not then determined. It took years for the determination of the amount to be paid to the assessee for the use of those plots by the Government. The assessee had already conceded the position that income from this source was liable to tax. For this income on estimate basis was already taxed in the respective years. All that the Income-tax Officer is now doing is to substitute the true figure of the income in place of one taken by him on estimate basis and agreed to by the assessee. We would therefore reject the assessee's contention.'
12. Now it seems to us from this order of the Tribunal that the real contention which the assessee had raised had not at all been considered, the contention being that before action could be taken under section 34(1)(a) against the assessee, the grounds or requirements of section 34(1)(a) ought to have been established and that they were not so established having regard to the circumstances of the case. Nowhere has the Tribunal applied its mind to what was required to be established before action could be taken under section 34(1)(a) against the assessee. The penultimate sentence in the passage which we have quoted above from the order of the Tribunal suggests something quite different from the point raised before it. It is difficult to know what the Tribunal meant by suggesting that all that the Income-tax Officer is doing is to substitute the true figure of the income in place of the one taken by him on estimate basis and agreed to by the assessee. It suggests the mere correction of an arithmetical error. It was never the case of the department that the order was being merely rectified or corrected nor was any other provision of the law invoked on their behalf and we find absolutely no warrant for such a remark in the order of the Tribunal. Apart from it, there appears to have been no consideration of what are the requirements of section 34(1)(a), which is precisely the point which the assessee was making in the appeal before them. The only authority, therefore, which considered this question was, as we have said, the Appellate Assistant Commissioner.
13. The ground upon which action under section 34(1)(a) can be taken, is stated by the section in the following words :
'34. (1) If - (a) 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....'
14. It is the contention on behalf of the assessee that the requirement that there should be failure 'to disclose fully and truly all material facts necessary by reason of the omission or failure on the part of an assessee,' has not been established in the present case.
15. The scope and extent of this expression in section 34(1)(a) has been the subject of pronouncement by the Supreme Court in several cases. In Calcutta Discount Co. Ltd. v. Income-tax Officer, Companies Circle I, Calcutta, the majority decision of the Supreme Court pointed out that these words postulated a duty on every assessee to disclose fully and truly all material facts necessary for his assessment. What facts were material and necessary for assessment, however, differed from case to case. The Supreme Court considering the expression 'material facts' pointed out that there was a distinction between primary facts and other facts. Though in every assessment proceeding the assessing authority would, for the purpose of computing or determining the proper tax due from an assessee, require to know all the facts which help him in coming to the correct conclusion, the duty of the assessee to disclose all of them was only so for as the primary facts were concerned. In that case the assessee had field certain account books and documents but had not pointed out the specific entries which were material and it was urged on the basis of the Explanation to section 34 that the assessee was bound to disclose those particular entries or particular portions of the documents. We are not concerned here with any question arising out of account books or documents filed, but bearing in mind the distinction which the Supreme Court has pointed out between primary facts and other facts, we proceed to consider whether in the present case any material facts in the sense of primary facts were not disclosed by the assessee at the time of the initial assessment made on him. On behalf of the department Mr. Joshi has also brought to our notice a decision in Kantamani Venkata Narayana and Sons v. First Additional Income-tax Officer, Rajahmundry where again the Supreme Court accepted the distinction drawn in the Calcutta Discount Co.'s case. In that case also the question of the applicability of the Explanation to section 34(1) had arisen.
16. Now in the present case the original order of the Income-tax Officer for the year 1950-51, shows what was the material before him at that time and all that he had before him was a statement made by a representative of the assessee, Mr. Ganpati Iyer. As appears from paragraph 3 of the Income-tax Officer's order, this representative had stated that as the assessee was not receiving any rent from the hutments which were occupied by the police department, the assessee could not declare the income. Then there is the following remark of the Income-tax Officer which shows what was the enquiry which the Income-tax Officer made :
'In this behalf Mr. Iyer was asked whether any attempts were made by the assessee to recover the rent from the police department and he stated that the entire matter was still pending before the Government who are considering the question of payment of a lump sum by way of compensation'.
17. This passage shows that the assessee had stated before the Income-tax Officer two things : (1) that he was not receiving any rent from the hutments, and (2) that as regards any attempt to recover rent the matter was still pending before the Government who were considering the question of payment of a lump sum by way of compensation. The pending proceedings which are referred to in the above passage were admittedly the proceedings which are referred to in the above passage were admittedly the proceedings which the Collector had taken for the fixation of the compensation payable to the assessee. The statement that the assessee was not receiving any rent from the hutments was a correct statement, for the hutments were under requisition since 1949, and the question of compensation had not been settled. The other question was whether the assessee had made any attempt to recover rent and to that it was stated on behalf of the assessee that the proceedings for determination of the compensation payable to the assessee were pending. We do not see what other material fact had to be stated which was necessary for the assessment of the assessee for that year.
18. It was urged that the assessee could have disclosed other facts which would have enabled the Income-tax Officer to come to a correct computation of the income from the property. The assessee must have made his claim for compensation but that was not disclosed. He had also not disclosed the area of the hutments, the assessments of the Corporation thereon, etc., so as to enable the Income-tax Officer to determined the annual letting value of the hutments. There is nothing to show on the record before us that the assessee had made a claim for compensation or stated therein any specific amount or indicated any basis for the computation of the compensation. The assessee on his part had informed the Income-tax Officer of the primary facts, namely, that the actual amount that would be coming to him was under determination by the Collector but the Income-tax Officer made no further enquiry. We do not think that the facts such as the area of the hutments or the municipal assessments upon the land or the hutments, were primary facts which had to be disclosed as necessary for his assessment. The duty cast upon the assessee to make a full and true disclosure of all material facts does not absolve the Income-tax Officer from performing his duty to apply his mind and make intelligent inquiry, especially when, as here, the primary facts were before him, on the basis of which he might have pursued inquiry and found out other relevant facts.
19. The Appellate Assistant Commissioner was the only Officer of the department who attempted to answer the point of substance in this reference. He made three grounds in the passage which we have already reproduced. First of all, he stated that there must have been some correspondence between the appellant and the Government which would have indicated the rent which could have been reasonably expected by the appellant. This ground is purely imaginary, because upon the record as it stands, except the two letters to which we have already referred, there is no fact brought out that there was other correspondence. The second ground was that the assessee failed to give the nature and dimensions of the hutments, and the third ground was that, 'the rent, if any, which had been previously realised from the hutments', had not been stated. So far as the nature and dimensions of the hutments are concerned, it cannot possibly be said that these were material facts necessary to be stated for the assessment of the assessee in respect of his income, profits or gains chargeable to income-tax. The nature and dimensions of a property are merely one out of the several pieces of evidence upon which an estimate or inference could be made as to what would be the income from the property. They are not material facts necessary for the assessment, though they may be relevant facts. Here comes in the distinction which the Supreme Court drew between primary facts and other facts in the cases to which we have referred. As to the non-mention of the rent the language used by the Appellate Assistant Commissioner itself shows that he was not sure that there was any rent being previously realised from the hutments, and therefore, he used the words 'if any'. There is nothing before us to show that any rent was previously being realised from the hutments, nor in fact that rent had been paid to the assessee. Therefore, here again is a fact, with the non-disclosure of which the assessee was being charged which was purely hypothetical. In our opinion none over circumstances referred to by the Appellate Assistant Commissioner in his order (assuming that the assessee in position to disclose them and did not disclose them), were circumstances which could be said to be material facts or primary facts necessary for the assessment for that year of the assessee to income, profits and gains chargeable to income-tax.
20. In fact it seems to us that as soon as the assessee made the disclosure before the Income-tax Officer at the time of the original assessment that proceeding for the fixation of the compensation were going on, the Income-tax Officer felt that he should proceed to make an estimate an probably though it would be better to rely upon his own estimate than to require the assessee to disclose any further facts. Even subsequently what the Income-tax Officer did was merely to accept the self-same figure of compensation fixed by the collector and not to assessee the rental or the annual letting value. It can hardly be said in these circumstances that the assessee was guilty of non-disclosure or omission to disclose all material facts necessary for his assessment. We may also add that the original assessment was under section 9 of the Income-tax Act assessing the assessee to income from property, whereas the assessment subsequently made is an assessment under section 12 under the head 'other sources' and of necessity, therefore the material facts necessary for his assessment under section 12 would be the same as the facts necessary for his assessment under section 9.
21. The Tribunal on its part has not considered the question at all whether there has been any omission or failure on the part on the assessee to disclose fully and truly all the material facts necessary for his assessment. It failed to decide this question because of the incorrect view it took of the proceeding before it. Obviously and admittedly the proceeding were under section 34(1)(a), yet somehow the Tribunal felt that the Income-tax Officer to doing was to substitute the true figure of the income in place of the figures taken by him in the original assessment on an estimate basis which figures were agreed to by the assessee. For this view, as we have already said, there is absolutely no warrant. As to the real question which arises between the assessee and the department it is clear that the Tribunal did not consider it at all.
22. That the question was raised, there can be no doubt. It was expressly dealt with by the Appellate Assistant Commissioner whose reasoning we have not been able to accept. Before the Tribunal also the question was raised along with the other question whether the proceeding were within limitation. In order to consider the question of limitation the Tribunal of necessity had to decide whether the case fell under section 34(1)(a) or under section 34(1)(b) and in order to decide that question it had to consider whether the requirements of section 34(1)(a) had been fulfilled. The Tribunal themselves have indicated that the question was raised before them in the following passage in their judgment :
'.... but the assessee had chosen to dispute the validity of the initiation of reassessment proceeding only for the assessment years 1950-51 to 1954-55, both inclusive, on the ground that though the Income-tax Officer justified in taking recourse to the provisions of section 34(1)(b), he was not justified in taking recourse to the provisions of section 34(1)(a) for these years.'
23. The passage shows that the question before us was clearly raised by the Tribunal. In these circumstances, in the absence of any finding given by the Tribunal, we have ourselves considered the question upon the finding of the Appellate Assistance Commissioner. In our opinion, the proceedings could not be under section 34(1)(a), the requirements of that section not being fulfilled in the instant case.
24. One other circumstance which Mr. Joshi on behalf of the Commissioner wanted us to take into account was the one referred to in paragraph 2 of the Appellate Assistance Commissioner's order. The Appellate Assistance Commissioner has stated :
'Moreover, the rent for the properties had been fixed by the Government by an order dated the 31st August, 1955, but the appellant in the returns of income for the assessments years 1951-52 to 1955-56 submitted after the date had still not declared the income from the property correctly. This clearly shows that the appellant had not disclosed all the material facts to the Income-tax Officer.
25. The point made by the Appellate Assistance Commissioner is that even after the fixation of the amount of compensation by the collector by the order dated 31st August, 1955, the assessed who had submitted revised returns of income for the assessments years 1951-52 to 1955-56 had not declared the income from the property correctly. In those returns the assessee had showed once again the amount of Rs. 1,000 per year which had been fixed by the Income-tax Officer in the original assessment. Mr. Joshi urged that this again shows wilful omission or failure to disclose the material facts necessary for his assessment.
26. Mr. Mehta on behalf of the assessee has challenged this conclusion of the Appellate Assistance Commissioner on facts. He has said that what the Appellant Assistance Commissioner was referring to as the revised returns of income by the assessee for those years was not in pursuance of the notices issued but in the case of the assessee there were proceeding taken more than once under section 34 and what the Appellate Assistance Commissioner is referring to is another independent proceeding under section 34 taken against the assessee. The paragraph in the order of the Appellate Assistance Commissioner does not show what proceeding he is referring to as the proceeding in which the assessee had not declared the income from the property correctly. After all, if the assessee is to be charged with omission or failure to disclose material facts, we must know what was the nature of those proceeding before a charge can be brought home to the assessee and the paragraph we have quoted from the order of the Appellate Assistance Commissioner does not indicate what proceeding he is referring to. It may be a proceeding for the reassessment of quite a different item which would hardly put the assessee on noticed that his income from property was in question and he could not be blamed for stating in the revised returns the same figure as his income from property as had been previously fixed. This contention cannot, therefore, be accepted.
27. Having regard to all the facts and circumstances, we are unable to hold that the action against the assessee would fall under section 34(1)(a). The question referred for our decision will, therefore, be answered in the negative. The Commissioner shall pay the costs of the assessee.
28. Question answered in the negative.