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Shankarlal Dhondiram Vs. Commissioner of Income-tax, Bombay South - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 4 of 1961
Judge
Reported in[1965]56ITR435(Bom)
ActsIncome Tax Act, 1922 - Sections 26A, 34 and 34(1)
AppellantShankarlal Dhondiram
RespondentCommissioner of Income-tax, Bombay South
Appellant AdvocateN.A. Palkhivala, Adv.
Respondent AdvocateG.N. Joshi, Adv.
Excerpt:
direct taxation - reassessment - sections 26a, 34 and 34 (i) of income tax act, 1922 - whether action under section 34 (i) (a) has been validly taken by income-tax authorities - income tax officer (ito) empowered to exercise powers under section 34 (i) (a) on fulfillment of conditions mentioned therein - firm's assessment was completed after completion of assessment of hindu undivided family (huf) - on credit of assessee-family large amounts were borrowed by firm - said fact indicated that it was really hindu undivided family which was partner in firm with two of its members representing it - said fact not been disclosed by assessee-huf in its assessment - under-assessment was by reason of assessee's failure to disclose fully and truly all material facts necessary for assessee's.....y.s. tambe, j.1. this is a reference under sub-section (i) of section 66 of the indian income-tax act. the assessee before us is a hindu undivided family known as 'shri shankarlal dhondiram'. we are here concerned with the assessment year 1952-53, the previous year being samvat year 2007. facts giving rise to this reference, in brief, are as under. 2. it is not in dispute that the aforesaid hindu undivided family is the owner of an oil mill, namely, shankarlal ratanlal oil mills. the said oil mill was, prior to the year of assessment, given on lease to a partnership firm of which the partners were shankarlal dhondiram, ratanlal dhondiram and one bansilal chunilal. shankarlal and ratanlal are brothers and are also members of the aforesaid hindu undivided family. the terms on which the.....
Judgment:

Y.S. Tambe, J.

1. This is a reference under sub-section (I) of section 66 of the Indian Income-tax Act. The assessee before us is a Hindu undivided family known as 'Shri Shankarlal Dhondiram'. We are here concerned with the assessment year 1952-53, the previous year being Samvat year 2007. Facts giving rise to this reference, in brief, are as under.

2. It is not in dispute that the aforesaid Hindu undivided family is the owner of an oil mill, namely, Shankarlal Ratanlal Oil Mills. The said oil mill was, prior to the year of assessment, given on lease to a partnership firm of which the partners were Shankarlal Dhondiram, Ratanlal Dhondiram and one Bansilal Chunilal. Shankarlal and Ratanlal are brothers and are also members of the aforesaid Hindu undivided family. The terms on which the aforesaid three partners were carrying on the partnership business are incorporated in a deed of partnership dated the 17th of January, 1961, which is annexure 'D' to the statement of case. The said deed discloses that Shankarlal and Ratanlal have 6-1/2 annas share each and the share of Bansilal Chunilal is 3 annas. As already stated, the aforesaid Hindu undivided family (hereinafter referred to as 'the assessee') has leased out its oil mill to the aforesaid partnership firm (hereinafter referred to as 'the firm').

3. The assessee filed its return on January 13, 1954. In its return the assessee stated that it was the owner of Messrs. Shankarlal Ratanlal Oil Mills, Malegaon, that it had leased the oil mill to the firm and that two of its members, namely, Shankarlal Dhondiram and Ratanlal Dhondiram, were partners in the firm in their individual capacity. It further stated that it had no interest in the business of the firm. The assessee's assessment was completed by the Income-tax Officer on the 28th of February, 1956, and the assessee's income was determined at a certain figure which later on in appeal was reduced. For the purpose of this case it need only be stated that the share of income, profits and gains of the aforesaid two partners, namely, Shankarlal and Ratanlal, was not included in the total income of the assessee.

4. Turning to the assessment of the firm, it filed an application on the 23rd of February, 1953, under section 26A of the Indian Income-tax Act, 1922 (XI of 1922) (hereinafter referred to as 'the Act'), for its registration. It filed its return on October 19, 1953, and later on filed a revised return on May 25, 1954. The aforesaid application under section 26A as well as the assessment of the firm were dealt with together and the assessment was completed on the 28th of March, 1957. The firm was assessee to tax as an unregistered firm. The Income-tax Officer refused registration of the firm. He further held that the assessee family and the two partners in the firm, namely, Shankarlal and Ratanlal, have no separate existence. For all practical purposes, the share of the two partners, namely, Shankarlal Dhondiram and Ratanlal Dhondiram, be treated as income of the Hindu undivided family of Shankarlal Dhondiram of which the above two partners are only coparceners. Thereafter, the Income-tax Officer, after obtaining the necessary permission from the Commissioner, issued a notice under section 34(I)(a) calling upon the assessee-family to show cause why the assessment should not be reopened under the said provisions.

5. Now, in the meantime, the firm had appealed, against the order of the Income-tax Officer refusing registration, to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner by his order dated the 5th of December, 1957, affirmed the order of the Income-tax Officer holding that the firm was not entitled to registration under the Act and also affirmed the finding of the Income-tax Officer, and the Appellate Assistant Commissioner further held that the business of the firm was, in fact, proprietary concern of the Hindu undivided family of which Shankarlal and Ratanlal were members. Bansilal Chunilal was never a genuine partner with rights and liabilities of a genuine partner in the business of the firm. The reasons given by the Appellate Assistant Commissioner for his conclusions in paragraphs 5 to 10 of his order have been incorporated in the supplemental statement of the case. Against the aforesaid order of the Appellate Assistant Commissioner the firm preferred an appeal to the Tribunal. The Tribunal by its order dated August 1, 1958, held that the business done in the name of Shankarlal Ratanlal Oil Mills belonged to the firm which consisted of three partners, namely, Shankarlal, Ratanlal and Bansilal, and that the registration of the firm for the assessment year ought to have been granted. The Tribunal therefore set aside the order of the Income-tax Officer and the Appellate Assistant Commissioner and directed that the firm be registered under the Act and assessee on that basis. It is, however, necessary to note that the Tribunal expressly kept open the question whether thirteen annas share belonged to Shankarlal and Ratanlal in their individual capacity as partners, or the share belonged to the assessee-Hindu undivided family, Shankarlal and Ratanlal only representing the family in the partnership.

6. Turning to the notice that has been issued to the assessee under section 34(I)(a), the assessee in response to the notice filed a return under protest. The assessee raised two-fold objections. In the first instance, the assessee contended that the notice under section 34(I)(a) was illegal and the second contention raised by the assessee was that, even assuming that the issue of notice was legal, in fact the share income of Shankarlal and Ratanlal in the partnership firm belonged to them in their individual capacity and it was not the income of the assessee-family. The Income-tax Officer rejected both these contentions. Further in view of the aforesaid decision of the Appellate Assistant Commissioner holding that the firm was the concern of the Hindu undivided family, Bansilal being only a nominal partner, the Income-tax Officer included the entire income of the firm in the total income of the assessee-family. A reassessment order on the aforesaid basis was made on the 13th of December, 1957. Against the said reassessment order of the Income-tax Officer, the assessee preferred an appeal. Both these contentions were again reiterated before the Appellate Assistant Commissioner by the assessee. Now by the time the appeal came for hearing before the Appellate Assistant Commissioner, the Tribunal by its appellate order had already decided that the firm was entitled to registration. The Appellate Assistant Commissioner affirmed the finding of the Income-tax Officer that the issue of notice under section 34(I)(a) was legal but, in view of the aforesaid order of the Tribunal, he modified the order of the Income-tax Officer by directing that thirteen annas share of Shankarlal and Ratanlal be included in the total income of the assessee's family instead of the entire income of the firm. The Appellate Assistant Commissioner held that Shankarlal and Ratanlal were not partners of the firm in their individual capacity but were partners only in their representative capacity representing the Hindu undivided family of which they were members. The assessee took a further appeal to the Tribunal against the order of the Appellate Assistant Commissioner. Before the Tribunal again both these contentions were reiterated. In rejecting the assessee's contention as to the legality of the notice the Tribunal observed in paragraph 1 of its order dated 23rd October, 1959, thus :

'The appellant raises two contentions in this appeal. The first contention is as regards the sustainability of the action under section 34(I)(a). Action under section 34(I)(a) was taken consequent upon the Income-tax officer noticing that a portion of the income, profits and gains of the appellant-Hindu undivided family has escaped assessment as a result of the income from the firm of Shankarlal Ratanlal not having been included in the income of the appellant. When the Income-tax Officer made the assessment on the Hindu undivided family the assessment on the firm had not been made. The original assessment was made on February 28, 1956. The firm's assessment was made on March 28, 1957. We consider that in the circumstances of this case the action under section 34(I)(a) was properly taken.'

7. In rejecting the contention of the assessee that Shankarlal and Ratanlal were partners of the firm, the Tribunal in paragraph 4 of its order observed thus :

'The Hindu undivided family is admittedly the owner of this oil mill, the same having been acquired only a year before it was leased out to the said firm. The partners, Shankarlal and Ratanlal, have reserved to themselves the right of leasing the machinery. It is also stated that in the books of the firm there is a credit of nearly Rs. 48,000 to the Hindu undivided family as against the debt of Rs. 21,000 and odd, the closing balance being Rs. 20,159. It is also stated that the large amount invested in the business of this firm has been borrowed on the credit of the Hindu undivided family and that no interest has been charged on the capital advanced by the Hindu undivided family. Taking these several aspects into consideration, it is clear that Shankarlal and Ratanlal were partners in the firm only as representing the Hindu undivided family. In this view of the matter we hold that the department was correct in having included the thirteen annas share income from the partnership being the share income of Shankarlal and Ratanlal in the income of the Hindu undivided family.'

8. In this view of the matter, the Tribunal dismissed the assessee's appeal. On an application being made by the assessee the Tribunal has stated the case and has referred the following question of law to this court :

'Whether, on the facts and in the circumstances of the case, action under section 34(I)(a) has been validly taken by the income-tax authorities ?'

9. On an order made by this court on 9th August, 1962, the Tribunal has submitted a further supplemental statement of the case under section 66(4).

10. The question that arises before this court in short relates to the legality or validity of the action taken by the Income-tax Officer under section 34(I)(a) of the Act. It cannot be disputed that to enable an Income-tax Officer to exercise powers under section 34(I)(a) the conditions mentioned in that section have to be fulfilled. The first condition is that there must be an escapement of income from assessment or there must be a case of an under-assessment. That also is not by itself sufficient. It has further to be shown that escapement of income from assessment or under-assessment was by reason of : (I) failure on the part of the assessee to make a return, or (2) failure on the part of the assessee to disclose fully and truly all material facts necessary for his (assessee's) assessment for that year. It is not difficult to assume that this would be a case for under-assessment in view of the finding of the Tribunal that Shankarlal and Ratanlal were not partners in the firm in their individual capacity but were partners in their representative capacity representing the Hindu undivided family. The aforesaid finding has not been challenged before us. It is clear that in the original assessment of the assessee the thirteen annas share income of these two partners was not included in the total income of the assessee-firm. But as already stated that by itself is not sufficient. It must also be further shown that the under-assessment was by reason of either of the two factors already stated above. It is not in dispute that the assessee had filed a return on the basis of which the first assessment was completed. The case would, therefore, have to be considered from the angle whether the under-assessment was by reason of the assessee's failure to disclose fully and truly all material facts necessary for the assessee's assessment for the assessment year 1952-53.

11. Mr. Palkhivala, the learned counsel for the assessee, contends that the record does not disclose that there was any failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. It is the contention of Mr. Palkhivala that the duty under section 34(I)(a) of the Act on the assessee is only to disclose fully and truly all primary facts which are necessary for the purposes of the assessment. There is no duty cast on the assessee to disclose or state correctly the inference that has to be drawn from the facts. The assessee has disclosed fully and truly all primary facts. No doubt, the assessee has claimed that the two members, Shankarlal and Ratanlal, were partners in their individual capacity and the assessee-family had nothing to do with the partnership. But that according to Mr. Palkhivala was only an inference of the assessee-family itself and that cannot be said to be a failure to disclose fully and truly all material facts. He placed reliance on a Supreme Court decision reported as Calcutta Discount Co. Ltd. v. Income-tax Officer, Companies District I, Calcutta. Drawing our attention to the observations of the aforesaid order of the Tribunal, Mr. Palkhivala argues that the primary facts on the basis of which an inference has been drawn by the Tribunal that Shankarlal and Ratanlal were partners in the firm not in their individual capacity but in their representative capacity representing the Hindu undivided family were disclosed by the assessee to the Income-tax Officer much earlier than February 28, 1956, which is the date of the original assessment of the assessee. This is not, therefore, a case where there has been any failure on the part of the assessee to disclose fully and truly all necessary facts for the purpose of his assessment.

12. Mr. Joshi, the learned counsel for the revenue, on the other hand, does not dispute the proposition of law that the duty of the assessee is only to disclose fully and truly all primary facts necessary for the purpose of his assessment and that there is no duty on the assessee to state the correct inference to be drawn from these facts. Mr. Joshi also does not dispute that the primary facts which were necessary to be disclosed by the assessee for the purposes of his assessment are those mentioned in paragraph 4 of the Tribunal's order. It is however his contention that the assessee had not fully and truly disclosed all these facts prior to the completion of the original assessment. To appreciate the further argument of the parties it would be convenient at this stage to narrate the primary facts referred by the Tribunal in paragraph 4 of its appellate order and they are as follows :

(1) The Hindu undivided family was the owner of the oil mills.

(2) It had leased the oil mills to the firm (lease money being Rs. 5,000 per year).

(3) Two of its members, Shankarlal and Ratanlal, were partners of the firm.

(4) These two partners had reserved to themselves the right of leasing the machinery.

(5) The assessee-Hindu undivided family had advanced finances to the firm to a large extent.

(6) No interest was charged by the assessee-family on these advances.

(7) On the credit of the assessee-family large amounts were borrowed by the firm and were invested by the firm in its business.

13. According to Mr. Palkhivala all these primary facts were fully and truly disclosed by the assessee to the Income-tax Officer before the completion of its assessment. While, according to Mr. Joshi, only the first three facts, namely, that the assessee-family was the owner of the oil mills, that it had leased oil mills to the firm and that two of its members were partners of the firm, were disclosed by the assessee prior to its assessment and the rest of the facts were not fully and truly disclosed by the assessee in its assessment but were subsequently discovered by the Income-tax Officer when he dealt with the application of the firm under section 26A for its registration and the assessment of the firm. These being the rival contentions raised by counsel for the parties, it would be convenient to consider the arguments advanced before us in respect of each of the remaining primary facts in seriatim.

14. Turning to the primary fact that the two partners, Shankarlal and Ratanlal, had reserved to themselves the right of leasing the machinery, the finding of the income-tax authorities and the Tribunal is based on clause 16 of the deed of partnership of date January 17, 1951. The primary fact that the assessee-family had advanced large sums of money and that it had not charged any interest thereon has been found by the income-tax authorities and the Tribunal on the basis of the books of accounts of the firm. Now the statement of the case shows that extracts of the books of account of the assessee-family were filed in the assessment case of the assessee, Shankarlal appearing before the Income-tax Officer on behalf of the assessee-family. Shankarlal also appeared before the Income-tax Officer in the case of the assessment of the firm. In the assessment of the firm, the deed of the partnership as well as the extracts of the books of accounts of the firm were filed, including the extracts of the account of the Hindu undivided family 'Shankarlal, Dhondiram' in the books of the firm. That extract is annexure 'I' to the supplemental statement of the case. It is the argument of Mr. Palkhivala that there is no allegation by the income-tax authorities or a finding that the primary facts were known only at the time of the assessment of the firm and not at the time of the assessment of the assessee-family or that any primary fact was concealed by the assessee in the case of the assessment of the assessee. Now we find it difficult to accept the submission of Mr. Palkhivala. In paragraph 10 of the statement of the case, the Tribunal after giving the details of the various stages of the proceedings in the assessment of the family as well as of the firm has remarked as under :

'It is in circumstances detailed in earlier paragraphs that the Tribunal came to the conclusion that there was failure on the part of the assessee, at the time the original assessment was made, to disclose the full particulars which were necessary for the completion of the assessment of the family...... It is only when the firm's assessment was being completed and its application for registration rejected that the Income-tax Officer was confronted with the position that the members of the family were partners in the firm as representatives of the Hindu undivided family. This aspect of the matter was not brought out fully and clearly by the assessee before the Income-tax Officer and an attempt was made to present the contrary position before him.'

15. It is clear that it was only when the assessment of the firm was completed that the Income-tax Officer knew that Shankarlal and Ratanlal, the two partners of the firm, were partners in their representative capacity. It is not in dispute that the aforesaid facts, namely, that the partners reserved to themselves the right to lease the machinery as well as the fact that the assessee-family had advanced considerable amounts of money to the firm and had charged no interest are relevant in deciding the capacity in which these two persons were partners of the firm. We have already pointed out that the deed of partnership was filed in the assessment of the firm only. Mr. Palkhivala argues that the assessee-family had advanced large sums of money and no interest was charged on that amount was known to the Income-tax Officer, because the books of accounts of the assessee-family were filed in its assessment and they showed that no interest was charged. It is also his argument that it may be that the deed of partnership was not filed in the assessment of the family, but it was filed as early as in the year 1953 in the proceedings relating to the registration of the firm. These two assessments cannot be taken as two separate assessments in two water-tight compartments. Mr. Palkhivala placed reliance on a decision of this court in D. R. Dhanwate v. Commissioner of Income-tax. It is indeed true that the books of accounts of the family disclosed that large amounts of money were advanced by the assessee-family to the firm without charging any interest. But that by itself does not have a full impact on the issue as to whether the two partners represented the family or were partners in their individual capacity. That fact when read in the context of clause (8) of the deed of partnership makes it clear that in advancing moneys to the firm at no interest, the family was in fact discharging the obligations undertaken by Shankarlal and Ratanlal in clause (8) of the deed of partnership. Clause (8) provides as under :

'All the capital that will be required for the purpose of the partnership business will be brought in by partner No. 1, Shankarlal Dhondiram, and No. 2, Ratanlal Dhondiram. If further capital is required for the partnership business then Shankarlal Dhondiram and Ratanlal Dhondiram alone shall have the right to borrow from others. Partner, Bansilal Chunilal, shall have no right to borrow moneys. No interest payable on the capital brought in by the partners. The partnership shall pay reasonable interest on the amount borrowed from outsiders.'

16. These being the obligations undertaken by Shankarlal and Ratanlal, the full significance of the fact that the assessee-family in fact had advanced the moneys at no interest comes out when the deed of partnership is scrutinised. It is not in dispute that the deed of partnership was not filed on the record of the assessment case of the assessee-family, but that it was filed in the assessment of the firm prior to the date of completion of the assessment of the assessee-family. Now turning to the contention of Mr. Palkhivala that these two assessments cannot be treated as two separate assessments, we find it difficult to accept the contention of Mr. Palkhivala that that would be the position in law. The assessment of the family and the assessment of a firm in which some members of the family claim to be partners in their individual capacity cannot be termed as inter-connected assessments by reason of any of the provisions of the Act. The case of an assessment of a firm and the assessment of individual partners of that firm on its being registered stand altogether on a different footing. Sub-section (5) of section 23 of the Act deals with assessments of firms and clause (a) thereof deals with the case of the assessment of a registered firm. It would be noticed that, according to the procedure prescribed, the total income of the firm was assessee, but there was no tax payable by the firm as such. The share of the partners in the firm's income, profits and gains was on the other hand carried to their individual assessment and was included in the computation of the total income of the partners in their individual assessment. It is indeed true that there is no provision in the Act which requires the Income-tax Officer to first deal with the computation of the income of the firm and then proceed to deal with the assessment of the individual partners. The Income-tax Officer could, without assessing the firm, proceed to deal with the assessment of the individual partners. But then in such cases where the Income-tax Officer first completes the assessment of the partners and then proceeds to deal with the assessment of the firm, sub-section (5) of section 35 of the Act enables him to rectify the assessments of the individual partners in the light of his conclusions reached in the case of the assessment of the firm. These relevant provisions of law clearly indicate that the assessments of partners and the assessment of the partnership firm on being registered are interconnected. There is no similar provision interconnecting the assessment of a Hindu undivided family and the assessment of a firm in which some of the members of the firm of the Hindu undivided family claim to be partners in their individual capacity. The decision on which Mr. Palkhivala relied also, in our opinion, is not of much assistance to the assessee. That D. R. Dhanwate v. Commissioner of Income-tax was a case arising out of the assessment of one individual partner, Mr. D. R. Dhanwate, of a registered partnership firm. The assessment of the firm was completed first and thereafter the assessments of the individual partners were completed, including that of Mr. D. R. Dhanwate. The same Income-tax Officer dealt with the cases of the firm as well as the partners. Subsequently, notice under section 34(I)(a) was issued against D. R. Dhanwate seeking to reopen the assessment of D. R. Dhanwate on the ground that there was a failure on the part of D. R. Dhanwate to disclose fully and truly all facts necessary for his assessment. The facts which according to the department were not disclosed by D. R. Dhanwate were fully and truly disclosed in the assessment of the partnership firm which had preceded the assessment of D. R. Dhanwate. It is in the context of these facts that it was held that these assessments could not be treated in two separate water-tight compartments and it could not be said that there was any failure on the part of the assessee, D. R. Dhanwate, to disclose fully and truly all facts necessary for the purpose of his assessment. Such however is not the case in the present reference.

17. Reliance was also placed by Mr. Palkhivala on the dates on which notices were issued under section 23(2) to the assessee-family as well as to the firm and it was contended by Mr. Palkhivala that these dates indicate that both these cases, namely, the assessment of the case of the assessee-family and the case of the firm, were dealt with together. It is indeed true that the dates of some of the notices issued both to the assessee-family as well as the firm are the same. But then it must also be noticed that there are other notices issued both to the assessee-family as well as the firm on different dates and that indicates that these two assessments were not dealt with together. We have stated that the assessment of the family was completed on 28th of February, 1956. It appears that notices issued up to September 29, 1955, were issued both to the firm as well as the assessee-family, but thereafter a notice under section 23(2) was issued to the family on the 25th of January, 1956. No notice of that date has been issued to the firm. Further, after the assessment of the assessee-family had been completed, notices were also issued to the firm on September 5, 1956, and November 15, 1956. It clearly indicates that the case of the assessment of the firm was subsequently dealt with after the completion of the assessment case of the assessee-family.

18. Lastly, it is the argument of Mr. Palkhivala that at any rate it would be reasonable to assume and hold that the Income-tax Officer must have scrutinized the terms of the deed of partnership as well as the books of accounts of the partnership firm before completing the assessment of the assessee-family inasmuch as two of its members were claiming 13 annas share in the profits of the firm. In support of his contention Mr. Palkhivala placed reliance on certain observations of their Lordships in Calcutta Discount Co. Ltd. v. Income-tax Officer and certain observations of this court in Dr. M. R. Dalal v. Commissioner of Income-tax. Mr. Palkhivala further contends that the above assumption would be a reasonable assumption inasmuch as there is no finding, not even an allegation by the Income-tax Officer, that he had not scrutinised the deed of partnership or the books of accounts of the partnership firm before completing the assessment of the family. In our opinion, the arguments advanced by Mr. Palkhivala overlooked the observation made the Appellate Assistant Commissioner in his order dated December 5, 1957, which was the order made by him in an appeal by the firm against the order of the Income-tax Officer refusing registration of the firm and paragraph 5 of the order clearly shows that, even at the time of completing the assessment of the firm itself, the Income-tax Officer has not properly scrutinized the terms and conditions of the partnership deed. The Appellate Assistant Commissioner then dealt with the material terms of the deed of partnership and other material on record in paragraph 5 to 10 of his judgment. These paragraphs have been reproduced in the supplemental statement of the case. It is thus clear from the supplemental statement of case before us that, in fact the Income-tax Officer had not scrutinised the deed of partnership even prior to the completion of the assessment of the firm, much less before the completion of the assessment of the family. We have already stated that there is no provision in the Act which would indicate that the two assessments were interconnected. We have already stated that deed of partnership and the books of accounts of the partnership firm were not filed in the assessment of the family. We have also shown that, in fact, the Income-tax Officer had not scrutinised and noticed the relevant provisions of the deed of partnership prior to the completion of the assessment of the assessee-family. In these circumstances, it is difficult to assume, as Mr. Palkhivala wants us to assume, that the Income-tax Officer must have scrutinised the books of accounts and the deed of partnership before completing the assessment of the assessee-family. It is indeed possible that some officers in dealing with such cases might first scrutinise the deed of partnership and then proceed to deal with the assessment of the family. But failure on the part of some other officer to do so cannot amount to true and full disclosure on the part of the assessee of all material facts necessary for assessment. Therefore, the argument advanced by Mr. Palkhivala should fail. The observations in the two decisions referred to by Mr. Palkhivala also, in our opinion, would have no application to the facts of the present case. In the case before their Lordships, the Calcutta Discount Company Ltd. had in the relevant assessment years sold certain shares and as a result profit had resulted to the assessee-company. The fact that shares were sold resulting in profits was disclosed in its assessment by the assessee-company. The claim of the company was that it being an investment company the gain was of capital nature. The assessment was completed without bringing the profits to tax. A notice under section 34(I)(a) was issued on the ground that there was no full and complete disclosure of facts necessary for the purposes of assessment. The fact, according to the income-tax authorities, which was not disclosed, was the intention of the assessee in effecting the sales. In these circumstances their Lordships held that the assessee-company had disclosed all primary facts, namely, that it was an investment company, that the shares were sold and the sale of shares has resulted in profits. The audited accounts of the company were furnished to the Income-tax Officer as well as the report was also brought to the notice of the Income-tax Officer in which the fact of the sale of shares was mentioned. The case of the assessee that the gain was a capital gain was only an inference by the assessee-company. There was, therefore, no failure to disclose all facts fully and truly to the Income-tax Officer, and the Income-tax Officer was acting without jurisdiction in re-opening the assessment. In order to ascertain whether the Income-tax Officer could have had in mind any non-disclosure as a ground for thinking that by reason of such non-disclosure an under-assessment had occurred, questions were put by their Lordships to the counsel appearing for the revenue and the counsel made two suggestions : one was that the sales of shares had not been disclosed; and the other was that the memorandum and articles of association of the company had not been shown. The memorandum and the articles of association indicated that the company was authorised to deal in shares. These two suggestions made by the counsel were repelled by their Lordships and in doing so their Lordships observed :

'The assessment orders it is true do not mention the details of the sales. They state, however, that the audited accounts of the company were furnished. The sales of shares were expressly mentioned in the report. In these circumstances, it is reasonable to believe that as regards sales of shares full details were in fact disclosed.

Nor can we believe that the two Income-tax Officers, L. D. Rozario and K. D. Banerjee, concluded the proceedings without referring to the memorandum and articles of association of the company. These officers knew well that the company was claiming to be an investment company only. They had to consider the question whether the sales were of the nature of trade or of the nature of change of investment....'

19. It would be seen that the inference drawn by their Lordships is in the context of the facts of that case. We have already mentioned the facts on the record of this case and have already stated that it is not possible for us to draw an inference as suggested by Mr. Palkhivala. In the other case also, the document was on record of the case of the assessees and it had material bearing on the issue which the Income-tax Officer had to decide. There was nothing on record of the case before their Lordships to show that the Income-tax Officer, who conducted the assessment, had not noticed that document. It is in these circumstances that it was held that it was not possible to accept that there was any failure on the part of the assessee to disclose fully and truly all facts. That decision also has no application to the facts of the present case.

20. Turning to the last primary fact that large amounts were borrowed by the firm on the credit of the Hindu undivided family, Mr. Palkhivala's contention is that it could easily have been discovered from the books of accounts of the Hindu undivided family, and, admittedly, they were in the records the assessment. It cannot be assumed that the Income-tax Officer had not even scrutinised the books of accounts of the assessee-family before completing the assessment of the assessee-family. We must confess that we are unable to appreciate how, from the scrutiny of the books of the assessee-family, it is possible to ascertain that the firm had borrowed large amounts on the credit of the family. The guarantee furnished by the assessee-family cannot be said to be such transactions which would necessarily require any entries to be made in the books of account of the assessee-family. At any rate, it has not been shown that any such entries are there in the books of accounts of the assessee-family. The Income-tax Officer came to know this fact only when he proceeded to deal with the assessment of the firm and it is an admitted position that the firm's assessment was completed after the assessment of the family was completed. There cannot be any dispute that on the credit of the assessee-family large amounts were borrowed by the firm. This fact has a very material bearing and great significance in indicating that it was really the Hindu undivided family which was a partner in the firm with two of its members representing it. There can hardly be any doubt that this fact had not been disclosed and could not be said to have been disclosed by the assessee-family in its assessment. In our opinion, therefore, the Tribunal was right in holding that the action taken under section 34(I)(a) of the Act was legally valid. The question referred to us will therefore have to be answered against the assessee.

21. We answer the question in the affirmative. The assessee shall pay the costs of the department. No order on the notice of motion.

22. Question answered in the affirmative.


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