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Commissioner of Income-tax Vs. A.i. Rahimtulla - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 111 of 1975
Judge
Reported in(1986)50CTR(Bom)322; [1986]160ITR784(Bom); [1986]26TAXMAN614(Bom)
ActsIncome Tax Act, 1961 - Sections 2(45), 5, 139, 147, 148 and 271
AppellantCommissioner of Income-tax
RespondentA.i. Rahimtulla
Excerpt:
direct taxation - income escaping assessment - sections 2 (45), 5, 139, 147, 148 and 271 of income tax act, 1961 - whether tribunal justified in holding that proceeding for reassessment initiated under section 147 (a) not valid - tribunal had found as a fact that income tax officer was at time of original assessment ignorant of section 2 (6a) (e) - this is not a finding of fact - issue decided in favour of revenue - tribunal directed to decide whether loan to assessee was made by company in ordinary course of business - tribunal shall decide whether loan amount can be treated as deemed dividend under section 2 (6a) (e). - - it was submitted on behalf of the assessee's brother that the disclosure made at the time of the original assessment was full and true and that there had been no.....bharucha, j.1. this is a reference under section 256(1) of the income-tax act, 1961, made at the instance of the revenue. the question posed to us read thus :'whether, on the facts and in the circumstances of the case, the tribunal was justified in holding that the proceedings for reassessment initiated under section 147(a) of the income-tax act, 1961, were not validly initiated ?'2. the assessee was assessed as a non-resident individual. the assessment year is 1955-56. the original assessment for that year was completed on october 17, 1955, on a total income of rs. 44,503. the assessee held 565 shares in fazalbhoy ibrahim & co. ltd. (hereinafter referred to as 'the company'). subsequent to the assessment, the income-tax officer, upon scrutiny of the assessee's accounts with the company.....
Judgment:

Bharucha, J.

1. This is a reference under section 256(1) of the Income-tax Act, 1961, made at the instance of the Revenue. The question posed to us read thus :

'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the proceedings for reassessment initiated under section 147(a) of the Income-tax Act, 1961, were not validly initiated ?'

2. The assessee was assessed as a non-resident individual. The assessment year is 1955-56. The original assessment for that year was completed on October 17, 1955, on a total income of Rs. 44,503. The assessee held 565 shares in Fazalbhoy Ibrahim & Co. Ltd. (hereinafter referred to as 'the company'). Subsequent to the assessment, the Income-tax Officer, upon scrutiny of the assessee's accounts with the company and its balancesheet, found that the assessee had obtained a loan from the company and on March 31, 1955, owed a sum of Rs. 4,28,190 on that account. The company's balance-sheet showed that it had a reserve of Rs. 5,45,550 out of accumulated profits. The Income-tax Officer, therefore, found that the amount of Rs. 4,28,190 was a dividend taxable under section 2(6A)(e) read with section 12(1B) of the Indian Income-tax Act, 1922. With the previous approval of the Commissioner of Income-tax, therefore, he reopened the assessment of the assessee under section 147 of the Income-tax Act, 1961.

3. Pursuant to the notice in that behalf dated March 24, 1964, the assessee filed a return declaring an income of Rs. 44,503. He submitted that inasmuch as he had disclosed all primary facts necessary for the assessment at the time of the original assessment, the reopening of the assessment proceedings was invalid. He also submitted that the provisions of section 2(6A)(e) were not applicable as one of the objects of the company was to lend moneys.

4. By his order dated March 27, 1968, the Income-tax Officer stated thus :

'The assessee who is a shareholder of M/s. Fazalbhoy Ibrahim & Co. Ltd. owns 565 shares of Rs. 1,000 each of the said Ltd. Co. His account in the books of the Ltd. Co. shows that he had borrowed huge amounts from the Co. from time to time which have remained unpaid. The scrutiny of his account in the books of the Ltd. Co. for the year ending March 30, 1955, shows that he had to pay a sum of Rs. 4,28,190 as on March 31, 1955. Balance-sheets of the company show that it had a reserve of Rs. 5,45,550 out of accumulated profits for each of the years ending on March 31, 1954, and March 31, 1955. Therefore, there was reason to believe that the loan of Rs. 4,28,190 outstanding on March 31, 1955, is dividend taxable under the provisions of section 2(6A)(e) read with section 12 (1B) of the Indian Income-tax Act, 1922, and as such with the previous approval of the Commissioner of Income-tax, Bombay City II, Bombay, a notice under section 148 was issued and served on the assessee on March 24, 1964.'

5. The Income-tax Officer also noted that the assessee had at the time of the original assessment submitted only a copy of his loan account with the company and had claimed interest on the loan as a deduction from his other income. No copy of the balance-sheet of the company or a list of its shareholders had been furnished by the assessee so as to enable him (the Income-tax Officer) to determine whether the company was one in which the public was substantially interested and the extent of its accumulated profits and thereby to decide whether section 2(6A)(e) of the Indian Income-tax Act, 1922, applied. The Income-tax Officer found upon this basis that all facts necessary for the assessment had not been disclosed by the assessee at the time of the original assessment and that, in the circumstances, reassessment proceedings had been validly initiated. The Income-tax Officer rejected the contention of the assessee on merits and brought to tax the loan amount of Rs. 4,28,190 as dividend under section 2(6A)(e) read with section 12(1B) of the Indian Income-tax Act, 1922.

6. The assessee appealed. The Appellate Assistant Commissioner following the decision of the Income-tax Tribunal in the case of the assessee's brother, Habib Rahimtulla, given on facts almost identical to the facts relating to the assessee, held that the assessee had made a full and true disclosure of all material facts at the time of the original assessment and that the Income-tax Officer had had no jurisdiction to initiate reassessment proceedings.

7. The Revenue carried the matter to the Tribunal. Both parties were agreed that the facts were similar to the facts involved in the case of the assessee' s brother. The Tribunal, following its judgment in the case Of the assessee's brother, confirmed the order of the Appellate Assistant Commissioner and dismissed the appeal.

8. It is necessary to see what was contended before the Tribunal in the case of the assessee's brother and the findings of the Tribunal thereon. It was submitted on behalf of the assessee's brother that the disclosure made at the time of the original assessment was full and true and that there had been no omission or failure on his part. It was accordingly submitted that the Income-tax Officer had no jurisdiction to reopen the assessment. The Tribunal found that the assessee's brother had disclosed that he was a shareholder of the company and that he had taken a loan from it. This was sufficient to keep the Income-tax Officer on the track to find out whether the provisions of section 2(6A)(e) of the Indian Income-tax Act, 1922, were attracted. The disclosure made by the assessee's brother at the time of the original assessment was, therefore, a full and true disclosure of all material facts necessary for his assessment. So far as the disclosure regarding accumulated profits was concerned, the Tribunal opined that there was no obligation on the part of the assessee's brother to disclose the same because it did not relate to his assessment; that it was not a matter wholly in the exclusive knowledge of the assessee's brother as the Income-tax Officer could have had access to it; that it was not a primary fact; and that it did not appear from the record that the Income-tax Officer had been misled in the absence of this fact when he made the original assessment. The Tribunal observed that it got the impression after going through the records that the Income-tax Officer was at the time of the original assessment himself not aware of the provisions of section 2(6A)(e) which had been newly introduced in the Indian Income-tax Act, 1922. The Tribunal accepted the submission of the assessee's brother that he had made a full and true disclosure of all material facts at the time of the original assessment and that the Income-tax Officer had no jurisdiction to initiate reassessment proceedings. In view of this conclusion, the Tribunal noted, it was not necessary to consider the argument on merits.

9. Two submissions in the nature of preliminary objections have been made before us by learned counsel for the assessee. These we will consider first.

10. It was submitted that the burden lay on the Revenue to establish that the notice issued under section 147(a) of the Income-tax Act, 1961, had beer issued with jurisdiction by producing the reasons recorded at the time of obtaining the sanction of the Commissioner for its issue. It was urged that that burden had not been met by the Revenue and that, therefore, the proceedings under section 147(a) must be found bad.

11. Great reliance was placed upon the judgment of this court in S. P. Divekar and A. P. Divekar v. CIT : [1986]157ITR629(Bom) . The facts of this case need to be set out in some detail. The original assessment was reopened by a notice served upon the assessee under section 34(1A) of the Indian Income-tax Act, 1922, by the Income-tax Officer, Central, Bombay. In the reassessment order that followed, he recorded that, subsequent to the original assessment, information was received that there had been an escapement of income and action under section 34(1A) was taken with the previous sanction of the Commissioner of Income-tax, Central. He brought to tax an investment of Rs. 3,00,000 made in the name of the assessee's father-in-law on the basis that it was a benami transaction in which there had been a deliberate attempt to conceal. The assessee appealed and contended before the Appellate Assistant Commissioner that the proceedings under section 34(1A) were not validly initiated. He also raised a contention on merits. The Appellate Assistant Commissioner rejected both contentions. The assessee went in second appeal to the Tribunal and again contended that the Income-tax Officer had erred in starting action under section 34(1A) and that his notice in that behalf was bad in law and without proper authority. He also raised a contention on merits. The Tribunal called for a remand report. While its order set out both the assessee's contentions, the remand report was required only with regard to the merits. After receipt of the remand report, the Tribunal dealt with the appeal, but its order did not consider the contention regarding the validity of the action under section 34(1A). In the reference that was made, the question on this aspect that was originally raised was whether the Tribunal had erred in law or exercised its discretion un judicially in not deciding the assessee's first submission, namely, that the Income-tax Officer was not justified in taking action under section 34(1A). When the reference reached hearing, this court reframed the question so that it now queried whether the Income-tax Officer was justified in initiating the reassessment proceedings under section 34(1A). The matter was returned to the Tribunal to give a decision upon the question as reframed. The court's order clarified that the Tribunal should allow the concerned parties to bring to its notice all such material as was available to the Income-tax Officer at the time when action under section34(1A) was taken. Pursuant to the court's directions, the Tribunal prepared a supplemental statement of the case in which it noted that the departmental representative had been unable to produce before it the records relating to the matter because they could not be traced. The Tribunal felt obliged to consider the materials placed before it at the time of hearing of the appeal to carry out the court's directions. The Tribunal, inter alia, said that it appeared that the Income-tax Officer had come to know about the income concerned therein after the assessment, but did not state whether the Income-tax Officer, who so came to know was the Income-tax Officer, Central, who had issued the notice under section 34(1A), or the Income-tax Officer, Kolaba, who dealt with the assessments of the alleged benamidar. In these circumstances, the court observed (at pp. 636 and 637 of Vol. 157) :

'The assessee took before the Appellate Assistant Commissioner the plea that the proceedings under section 34(1A) of the Indian Income-tax Act, 1922, had not been validly initiated. He reiterated the plea at least in his memo of appeal to the Tribunal. Neither before the Appellate Assistant Commissioner nor before the Tribunal did the Income-tax Officer (Central) produce the memorandum recording his reasons for reopening the assessment and seeking the Commissioner's sanction to do so. This memorandum is obligatory under the first proviso to section 34(1A). It is the primary evidence of the reasons which led the Income-tax Officer (Central) to form the belief that the assessee's income had escaped assessment and it must necessarily indicate the material upon which he had come to form such belief. Even after we sent the matter back to the Tribunal, the Revenue did not produce this memorandum. Nowhere upon the record is there even so much as a statement of the Income-tax Officer (Central) indicating the reasons for and the materials upon which he formed the belief that the assessee's income had escaped assessment.

In the absence of the memorandum, and even of such a statement, we do not know for what reasons and upon what material the Income-tax Officer (Central) formed such belief. Hence, we are unable to decide whether he could reasonably have entertained it. We are, therefore, not satisfied that the Income-tax Officer (Central) had reason to believe that the assessee's income had escaped assessment and that the proceedings under section 34(1A) of the Indian Income-tax Act, 1922, were validly initiated.'

12. In the instant case, the Revenue was not called upon to discharge the burden that the notice under section 147(a) of the Income-tax Act, 1961, had been issued with jurisdiction by producing the reasons recorded at the time the Income-tax Officer sought the Commissioner's sanction for issuing it until the hearing of the reference before us. In Divekar's case : [1986]157ITR629(Bom) , this point had been taken in the appeal before the Appellate Assistant Commissioner and in the appeal before the Tribunal. The Tribunal had remanded the matter on merits and on receipt of the remand report had passed an order which did not deal with the contention about the jurisdiction. In the circumstances, the court remanded the matter to the Tribunal. Even at this stage, the reasons were not produced. The doubt as to whether the information which had been collected by the Income-tax Officer, Kolaba, had been before the Income-tax Officer, Central, at the time he issued the reassessment orders, therefore, persisted. The reasoning of Divekar s judgment : [1986]157ITR629(Bom) , cannot be applied to a case such as the present one where the only ground urged in the appeals was that the Income-tax Officer had no jurisdiction to reopen the assessment under section 147(a) because all material facts had been fully and truly disclosed by the assessee at the time of the original assessment.

13. Further, in the instant case, the Income-tax Officer, as we have recited, noted in his reassessment order the reasons for reopening and set out the fact, which is not disputed, that no copy of the balance-sheet of the company had been furnished by the assessee to him at the time of the original assessment on the basis of which he could have considered the applicability of section 2(6A)(e) of the Indian Income-tax Act, 1922.

14. In the circumstances, we find no merit in the first preliminary objection.

15. It was next contended by counsel on behalf of the assessee that whether or not the assessee had disclosed fully and truly all materials necessary for his assessment was a question of fact, that the Tribunal was the sole judge on questions of fact and that the Tribunal's order in this regard had not been challenged as being perverse.

16. Reliance was placed upon a decision of the Supreme Court in CIT v. Lakhiram Ramdas : [1962]44ITR726(SC) . This was a case in which there was a dispute as to the material which was disclosed by the assessee to the Income-tax Officer at the time of the assessment. The Tribunal settled this issue by holding that there was no omission or failure to disclose all material facts. The Supreme Court observed (at p. 731) that in its opinion 'in the circumstances of this case, the question whether the assessee had or had not failed to disclose fully and truly all material facts necessary for his assessment was a question of fact' and the Tribunal's decision concluded it. In the case before us there is no dispute as to the material that was placed by the assessee before the Income-tax Officer. It is an admitted position that the balance-sheet of the company was not placed before the Income-tax Officer. The question, in the circumstances, is whether, given the material placed before the Income-tax Officer, there was a failure on the part of the assessee to disclose fully and truly all facts relevant to the assessment. This is a question not of fact but of law.

17. Reliance was also placed upon a judgment of the Supreme Court in CIT v. Kamal Singh Rampuria : [1970]75ITR157(SC) . The assessee was a minor. Returns of income were being filed by his father. The minor had a share of income from a firm and income by way of interest from another firm in which moneys bequeathed to him by his mother had been invested. These moneys had originated from the minor's father. In the minor's return, the father showed only his share income. The interest income was shown in the father's return. The minor was assessed only on the share income. A reference for an earlier year was decided subsequent to the assessment and it was held that the interest income could not be assessed in the hands of the father. The Income-tax Officer thereafter issued a notice under section 34 of the Indian Income-tax Act, 1922, to the minor, who had by then become a major and made a reassessment by including the interest income. An appeal was filed before the Appellate Assistant Commissioner and then the Tribunal and it was contended that the Income-tax Officer knew that the income belonged to the minor but had chosen nevertheless to assess it in the hands of the father and, having done so. it was not open to him to initiate the reassessment proceedings. The Tribunal held, on facts, that the father must be said to have deliberately kept back the interest income from the Income-tax Officer. A reference was made to the High Court as to whether the assessment made under section 34(1A) of the Indian Income-tax Act, 1922, was justified in law. The High Court, in the background of the facts, was of opinion that the finding made by the Tribunal was not justifiable, for there was no evidence to support it and it was perverse as it had been reached without due consideration of several matters. In the appeal to the Supreme Court, it was argued that in the absence of a question as to whether the finding of the Tribunal was based on no evidence or was perverse, the High Court had exceeded its jurisdiction in examining for itself the materials in support of the Tribunal's finding and acting as a court of appeal. The Supreme Court upheld this submission and reiterated the position that in a reference the High Court must accept the findings of fact reached by the Tribunal.

18. It will be noted that the High Court had in the aforesaid case upset the finding of the Tribunal on facts. Before us, there is no dispute as to the facts, namely, that no copy of the balance-sheet was furnished by the assessee to the Income-tax Officer at the time of the original assessment. In the circumstances, the question before us, as we have said earlier, is one of law.

19. This brings us to the principal question : were the materials disclosed by the assessee full and true for the purposes of the original assessment or was he obliged to disclose the balance-sheet of the company so that the Income-tax Officer could determine whether it had accumulated profits ?

20. It is necessary for the purposes of understanding the respective contentions to set out the provisions of sections 2(6A)(e) and 12(1B) of the Indian Income-tax Act, 1922. The said section provided as follows :

'2. (6A) 'dividend' includes - ...

(e) any payment by a company, not being a company, in which the public are substantially interested within the meaning of section 23A, of any sum (whether as representing a part : of the assets of the company or otherwise) by way of advance or loan to a shareholder or any payment by any such company on behalf, or for the individual benefit, of a shareholder, to the extent to which the company in either case possesses accumulated profits.

12. Other sources. - ......

(1B) Any payment by a company to a shareholder by way of advance or loan which would have been treated as a dividend within the meaning of clause (e) of sub-section (6A) of section 2 in any previous year relevant to any assessment year prior to the assessment year ending on the 31st day of March, 1956, had that clause been in force in that year, shall be treated as a dividend received by him in the previous year relevant to the assessment year ending on the 31st day of March, 1956, if such loan or advance remained outstanding on the first day of such previous year.'

21. Mr. Jetly, learned counsel for the Revenue, submitted that inasmuch as the assessee had not placed before the Income-tax Officer at the time of the original assessment any details as to the company's accumulated profits, the Income-tax Officer could not decide whether the provisions of section 2(6A)(e) read with section 12(1B) of the Indian Income-tax Act, 1922, were applicable. In his submission, therefore, a primary fact was not disclosed by the assessee and there was an omission or failure to disclose fully and truly all material facts necessary for the assessment.

22. Great reliance was placed by Mr. Jetly upon the decision of a Bench of five learned judges of the Supreme Court in Calcutta Discount Co. Ltd. v. ITO : [1961]41ITR191(SC) . The Supreme Court held (at p. 200) that the words 'omission or failure to disclose fully and truly all material facts necessary for his assessment for that year' in section 34 of the Indian Income-tax Act, 1922 (which words are also used in section 147 of the Income-tax Act, 1961), postulated 'a duty on every assessee to disclose fully and truly all material facts necessary for his assessment. What facts are material and necessary for assessment will differ from case to case. In every assessment proceeding, the assessing authority will, for the purpose of computing or determining the proper tax due from an assessee, require to know all the facts which could help him in coming to the correct conclusion. From the primary facts in his possession, whether on disclosure by the assessee, or discovered by him on the basis of the facts disclosed, or otherwise, the assessing authority has to draw inferences as regards certain other facts; and ultimately, from the primary facts and the further facts inferred from them, the authority has to draw the proper legal inferences and ascertain on a correct interpretation of the taxing enactment, the proper tax leviable. Thus, when a question arises whether certain income received by an assessee is capital receipt or revenue receipt, the assessing authority has to find out what primary facts have been proved, what other facts can be inferred from them, and, taking all these together, to decide what the legal inference should be'. The assessee's duty did not extend beyond the full and truthful disclosure of all primary facts. If there were in fact some reasonable grounds for thinking that there had been any non-disclosure as regards any primary fact, which could have a material bearing on the question of 'underassessment', that would be sufficient to give jurisdiction to the Income-tax Officer to issue reassessment notices.

23. The decision in Calcutta Discount Company's case : [1961]41ITR191(SC) , has been referred to and cited with approval in numerous subsequent decisions of the Supreme Court. It is unnecessary to refer to all but one of them which has carried the principle a little further. In Malegaon Electricity Co. P. Ltd. v. CIT : [1970]78ITR466(SC) , the Supreme Court observed (at p. 471) that in the case before them it could be said that the Income-tax Officer, if he had been diligent, could have got all the necessary information from his records, but that was not the same thing as saying that the assessee had placed before the Income-tax Officer fully and truly all material facts necessary for the purpose of assessment.

24. It was contended by counsel on behalf of the assessee that the decision applicable to the facts of this case was that of three learned judges of the Supreme Court in V. D. M. Rm. M. Rm. Muthiah Ckettiar v. ClT : [1969]74ITR183(SC) . The assessment concerned therein was that of one Muthiah who had three minor sons who were his partners (represented by their mother and guardian) in a business concern. Muthiah furnished in the applicable portion of his return the information that these three partners were minors. The Income-tax Officer did not, in making the assessment of Muthiah, include the shares of the minors from the partnership under section 16(3)(a)(ii) of the Indian Income-tax Act, 1922. Thereafter he issued notices of reassessment under section 34(1A) of the said Act on Muthiah. Muthiah filed returns under protest declaring the same income as was originally assessed. The Income-tax Officer held that Muthiah's information was not full in the sense that he had not stated that his minor sons were partners. He brought the shares of the minors to tax in Muthiah's hands. The Appellate Assistant Commissioner confirmed the order, as did the Tribunal. A reference was made to the High Court, and from the order of the High Court an appeal was preferred to the Supreme Court. The Supreme Court noted that rule 19 framed under section 59 of the Indian Income-tax Act, 1922, required the assessee to make a return in the forms prescribed thereunder and, in the applicable form, there was no clause which required the disclosure of income of any person other than the assessee. The Act and rules were accordingly found to impose no obligation upon the assessee to disclose to the Income tax Officer in his return information relating to the income of any other person by law taxable in his hands. The assessee was bound to disclose under section 22(5) of the said Act the names and addresses of his partners but was not required in making his return to disclose that any income was received by his wife or minor child admitted to the benefits of a partnership of which he was a partner. Section 16(3) of the said Act imposed upon the Income-tax Officer an obligation to compute the total income of an individual for the purpose of assessment by including the items of income set out in clauses (a)(i) to (iv) and (b), but thereby no obligation was imposed upon the taxpayer to disclose the income liable to be included in his assessment under section 16(3) of the said Act. For failing or omitting to disclose that income, proceedings for reassessment could not be commenced under section 34(1A) of the said Act.

25. Mr. Sonde, learned counsel for the assessee, very fairly drew our attention to the judgment of two-judge Bench of the Supreme Court in CIT v. Smt. P. K. Kochammu Amma, Peroke : [1980]125ITR624(SC) . In this judgment, the two learned judges observed that they did not think, for the reasons they stated, that the decision in Muthiah Chettiar's case : [1969]74ITR183(SC) laid down the correct law on the subject. The judges noted that Muthiah Chettiar's case : [1969]74ITR183(SC) was directly in point and concluded the determination of the question before them. But before referring to that case, they examined the question on principle. They noted that section 271, sub-section (1), clause (c) of the Income-tax Act, 1961, provided for the imposition of a penalty on an assessee if it was found, inter alia, that he had concealed the particulars of 'his income'. The question then was : What was the scope and content of the words 'his income' The answer obviously depended on what was the income which the assessee was liable to disclose for the purposes of assessment. Section 139 of the Income-tax Act, 1961, provided for the filing of a return of income by an assessee and sub-section (1) laid down that the return should be furnished in the prescribed form, verified in the prescribed manner, and setting forth such other particulars as may be prescribed. The return of income was required to be filed in order to enable the authorities to make a proper assessment of tax on the assessee. It followed therefore, that the assessee was obliged to disclose in the return every item of income which was liable to be taxed in his hands as part of his total income. The definition of 'total income' in section 2(45) of the Indian Income-tax Act, 1961, referred to section 5 which laid down that all income, profits and gains accruing to the assessee or received by or on behalf of the assessee would be liable to be included in his total income, but this provision was subject to the other provisions of the Act. Therefore, if the income of any other person was declared by any provision of the Act to be includible in computing the total income of the assessee, such income would form part of his total income exigible to tax under section 4 of the Indian Income-tax Act, 1922. It was clear from section 64 of the said Act that though the share of the spouse or minor child in the profits of a partnership firm in which the assessee was a partner was not the income of the assessee but was the income of such spouse or minor child, it was liable to be included in computing the total income of the assessee and it would be assessable to tax in the hands of the assessee. If this was the correct legal position, there was no doubt that the assessee must disclose in the return submitted by him all amounts representing the shares of his spouse and minor child in the profits of the partnership of which he was a partner and these would have to be shown in the return of income filed by him. But, the learned judges said, the decision in Muthiah Chettiar's case : [1969]74ITR183(SC) was of a Bench of three Judges and was binding upon them. For the reasons that are set out above, they did not think that Muthiah Chettiar's case : [1969]74ITR183(SC) laid down the correct law on the subject. They added that had it not been for the fact that the form of return had been amended so as to provide for the inclusion of income arising to a spouse or minor child, they would have referred the case before them to a larger Bench.

26. Neither in Muthiah Chettiar's case : [1969]74ITR183(SC) nor in Kochammu Amma's case : [1980]125ITR624(SC) is the Calcutta Discount Company judgment : [1961]41ITR191(SC) referred to.

27. Section 16(3) of the Indian Income-tax Act, 1922, provides that in computing the total income of any individual for the purpose of assessment, there shall be included the income of a wife or a minor child from a partnership in which the assessee is a partner. The phraseology of section 12(1B) of the said Act is somewhat different in that it prescribes that any payment by a company to a shareholder by way of advance or loan which would have been treated as a dividend within the meaning of clause (e) of sub-section (6A) of section 2 of the said Act in any previous year relevant to any assessment year prior to the assessment year ending on the 31st day of March, 1956, had that clause been in force in that year, shall be treated as a dividend received by him in the previous year relevant to the assessment year ending on the 31st day of March, 1956, if such loan or advance remained outstanding on the first day of such previous year. In other words, under section 16(3) of the Indian Income-tax Act, 1922, (a) the income is receivable by the assessee's spouse or minor child, and (b) is to be included in the income of the assessee in computing his total income; whereas under section 12(1B) of the said Act, the advance or loan (a) received by the assessee himself is (b) to be treated as a dividend received by him.

28. These distinguishing features apart, we must found our conclusion upon the decision of the five learned Judges of the Supreme Court in the Calcutta Discount Company's case : [1961]41ITR191(SC) . It is squarely applicable to the facts before us. It emphasised the duty cast on every assessee to disclose fully and truly all material facts necessary for his assessment. For the purposes of assessment of the income of the assessee before us, it was necessary for the assessing authority to consider whether or not the loan advanced to him by the company fell within the four corners of section 12(1B) read with section 2(6A)(e) of the Indian Income-tax Act, 1922. To enable the assessing authority to do this, it was necessary that it should know, inter alia, whether or not the company had accumulated profits, for the loan had to be treated under section 2(6A)(e) as a dividend to the extent to which the company possessed accumulated profits. Whether or not the company had accumulated profits was, therefore, a fact material for the assessment of the assessee's income. It was his duty to fully and truly disclose this fact. He did not do so. To use the words of the Calcutta Discount Company's case : [1961]41ITR191(SC) , there was, therefore, reasonable ground for the Income-tax Officer to think that there had been non-disclosure of a primary fact which had a material bearing on the question of underassessment and that was sufficient to give him jurisdiction to issue the notice of reassessment under section 34 of the Indian Income-tax Act, 1922.

29. Our attention was drawn by counsel for the assessee to the fact that the balance-sheet of the company was dated the very day upon which the assessment was completed. This does not appear to us to make any difference. It is the assessee's duty to disclose all relevant facts of which he can reasonably have knowledge to the assessing authority. In the present case, the assessee could have stated in his return that he would make the disclosure about accumulated profits when he got the company's balancesheet in his hands.

30. Emphasis was laid on behalf of the assessee upon a circular issued by the Central Board of Revenue on May 10, 1955 in regard to the introduction of section 2(6A)(e) and section 12 in the Indian Income-tax Act, 1922. After explaining the objective of the amended provisions, the circular informed the assessing authorities that the Minister for Revenue and Civil Expenditure had given an assurance in Parliament that outstanding loans and advances which were otherwise liable to be taxed as dividends would not be subjected to tax if they were refunded to the companies before June 30, 1955. As it was likely that some of the companies and their shareholders who had entered into genuine transactions of loans and who would be affected by the new provisions might not be aware of the assurance given by the Minister, the Income-tax Officers were asked to invite the attention of all the companies assessed by them to the new provisions and to the assurance of the Minister.

31. Based upon this circular, it was contended that it was the obligation of the Income-tax Officer to treat a loan as a deemed dividend under section 2(6A)(e) read with section 12(1B) of the Indian Income-tax Act, 1922, and that where income was deemed to be such by reason of such a fiction, no obligation lay on the assessee to disclose it.

32. As we have pointed out, the duty cast on the assessee is to disclose fully and truly all material facts necessary for his assessment. As to whether or not the company had accumulated profits was a material fact necessary for the assessment. The assessee was, therefore, under a duty to make a full and true disclosure to the Income-tax Officer in this behalf. Reference may again be made to the decision of the Supreme Court in Malegaon Electricity Company's case : [1970]78ITR466(SC) , where the Supreme Court has noted that if there is a duty on the assessee to disclose fully and truly all material facts necessary for the purpose of assessment, it is not relevant that, had the Income-tax Officer been diligent, he could have got all necessary information for the purpose of assessment.

33. The decision in Gemini Leather Stores v. ITO : [1975]100ITR1(SC) , was also cited on behalf of the assessee in support of the submission that where there has been an oversight on the part of the Income-tax Officer, he cannot take recourse to the reassessment procedure. In that case, the assessee had not disclosed certain transactions to the Income-tax Officer. The Income-tax Officer discovered them for himself. After his discovery, the Income-tax Officer had in his possession all the primary facts but he did not make the necessary enquiries or draw the proper inferences. In the circumstances, the Supreme Court held that this was plainly a case of oversight and it could not be said that the income chargeable to tax had escaped assessment by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts.

34. The facts in Gemini Leather Stores' case : [1975]100ITR1(SC) , are entirely different from the facts before us. There is nothing to suggest that the Income-tax Officer was aware before he issued notices under section 34 of the Indian Income-tax Act, 1922, of the position as to the accumulated profits of the company.

35. Our attention was drawn to this sentence in the order of the Tribunal in the assessee's brother's case : 'The impression we get after going through all the records of the case is that the Income-tax Officer at the time of the original assessment was himself not aware of the provisions of new section 2(6A)(e) of the Act of 1922 and as, according to us, the assessee had disclosed all the material facts necessary for the assessment at the time of the original assessment, the Income-tax Officer could not take proceedings under section 147(a) of the Act of 1961'. It was submitted that the Tribunal had found as a fact that the Income-tax Officer was at the time of the original assessment ignorant of the provisions of section 2(6A)(e) of the Indian Income-tax Act, 1922. We cannot agree. Clearly, this is no finding of fact but, to use the Tribunal's own word, an 'impression'.

36. In this view of the matter, we answer the question posed to us in the negative and in favour of the Revenue.

37. The Tribunal shall now decide upon the merits of the case, namely, whether the loan to the assessee was made by the company in the ordinary course of business; whether the company was carrying on money-lending business; and if so, whether it constituted a substantial part of its business income. The Tribunal shall then decide whether the loan amount or any part thereof can be treated as a deemed dividend under section 2(6A) (e) read with section 12(1B) of the Indian Income-tax Act, 1922. The Tribunal shall also be free to consider all other submissions in this behalf that are made on behalf of the assessee and the Revenue.

38. There shall be no order as to costs.


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