Somnath Lyer, J.
1. An assessee under the Income-tax Act is the petitioner before us and he asks us to quash the proceedings by which the Income-tax Officer of Central Circle II, Bangalore, proposed to assessee escaped income in respect of the assessment year 1960-61. A notice for that purpose was sent to the assessee by the Income-tax Officer under section 148 of the Income-tax Act, 1961.
2. The assessee is a private company called Bedi & Co.(P.) Ltd., which engaged itself in the activity of promoting the formation of a public company called the Mandya National Paper Mills Ltd. In that context this private company arranged for the purchase of machinery required for the public company from a company in Canada called Parsons and Wittemore Company Ltd.
3. In the assessment proceedings the assesses-company stated that during the negotiations for that purchase, a sum of Rs. 32,58,500 was advanced by the Canada company to the assesses-company to purchase shares of that value in the paper mills.
4. In the record of the reason made by the Income-tax Officer under section 148 of the Income-tax Act, 1961, which he incorporates in a communication which he addressed to the commissioner of income-tax on September 12, 1966, for the Commissioner's sanction for initiation of proceedings under section 147(a) for reassessment he stated that what was described as a loan by the assesses-company was in truth commission paid by the Canada company for having arranged the purchased of the machinery by the paper mills. In the record which he so made the Income-tax Officer what was stated to be loan was in truth commission received by the assessee. He alluded to the fact that there had been no repayment of the loan that ther was no security for such repayment that the purchase made by the paper mills was not supported by any original invoices and that no detailed specifications of the machinery were available. In the counter-affidavit produced in this writ petition the Income-tax Officer also referred to a statement made by the assessee's representative Anup Singh Bedi on the 12th September 1966, in which he stated that the machinery supplied by the Canada company was of sub-standard quality.
5. In the concluding part of the communication addressed by the Income-tax Officer to the Commissioner, he summed up the position thus :
'The close linking of the agreement, absence of any security and non-repayment so far will also indicate the bogus nature do the loan. The above amount is, therefore, assessable in the hands of the assessee as commission for the assessment year 1960-61.'
6. Three submissions were made by Mr. Srinivasan on behalf of the assessee in challenge of the initiation of the impugned proceedings. The assessment of escaped income in certain circumstances had no application to the case before us. The second was that the Income-tax Officer had no reasons to believe that any income had escaped assessment. The third was that, in any event, no proceeding could be commenced under section 148 of the new At in respect of income which had escaped assessment in respect of the assessment year 1960-61.
7. In support of the first contention, it was maintained that an assessment of escaped income if possible under section 147(a) which is the relevant provision only if the assessee had failed to disclose fully and truly the material facts necessary for the assessment, and that there was no such non-disclosure by the assessee, who, it was asserted, concealed no material fact at any stage.
8. In Calcutta Discount Company Limited v. Income-tax Officer, the Supreme Court made the elucidation that the material facts to which section 147(a) refers are primary facts whose disclosure is imperative as contrasted with subsidiary facts which the assessing authority is under a duty to deduce from the stated primary facts and that if the stated primary facts are true, there could be no power for the assessment of any escaped income.
9. Mr. Srinivasan's submission that no material fact was suppressed an be accepted only if the assesses-company borrowed a debt, but not if it received a commission.
10. Section 147(a) in effect states that what empowers a proceeding under its provisions is the concealment of a material fact which is foundational to an assessment. So, if the assesses-company received a commission but stated that it was a loan, the disclosure of the receipt which is of course a material fact, affords no protection if its charter, which is another equally material fact, was not truly stated. If a commission was received the fact that it was so received is as material to the assessment as the facts that there was a loan if there was one. Both these fats are material facts for the reason that commission is taxable income, while a loan is not. And, if what the assesses-company stated was not true, and what is true was not stated, there was an obvious concealment of a material fact necessary for the assessment. And, it cannot with reason maintain that it made a full and true disclosure of a material fact.
11. The pronouncement of the Supreme Court in Calcutta Discount company's case, makes it unnecessary for us to discuss the other decisions cited before us.
12. The argument that there were no reasons which could induce the belief in the mind of the Income-tax Officer has to be considered in the context of the pronouncement of the Supreme Court in S. Narayanappa v. Commissioner of Income-tax, that the sufficiency of the grounds which induced that belief in the mind of the Income-tax Officer is not a justiciable issue, although it is open to the assessee to contend that the Income-tax Officer did not in truth entertain the belief that there had been any non-disclosure such as the one to which section 147(a) refers. The elucidation made by the Supreme Court was that whereas it is open to the assessee to contend that no such belief was entertained by the Income-tax Officer, he could not discuss the sufficiency of the reasons, if there had been one. It was explained by the Supreme Court in treat case that the expression 'reason to believe' occurring in section 34 of the Indian Income-tax Act, 1922, which contains words similar to those words in section 147(a) of the new Act, do not refer to a purely subjective satisfaction on the part of the Income-tax Officer, and that the belief must be held fin good faith and cannot be merely a pretense, though it was pointed out that the court has the power to examine whether the reasons for the belief have a rational connection or a relevant bearing to the formation of the belief or whether they are extraneous or irrelevant.
13. Now the grounds, on which the Income-tax Officer entertained the belief that there was non-disclosure which resulted in the escape of income from the assessment, were fully set out by him in the record which he made under section 148 of the new Act. He set out the entire chronology of events and pointed out how circumstances such as the non-payment of a loan for a sufficiently long time, the absence of any provision for security for re-payment of the large sum of money paid by the Canada company to the assessee, the absence of original invoices, vouchers, and detailed specifications with respect to the machinery purchased by the paper mills, could, in his opinion, induce the belief that what was desired as a 'loan' was a 'bogus' transaction, and that it was, instead, commission received by the assessee.
14. We are not concerned with the sufficiency of these grounds, as we are with the question whether the Income-tax Officer did really entertain that belief to which section 147(a) refers. It is clear that he honestly entertained that belief, and, when we examine the grounds on which that belief was founded, we find that it is safely possible for us to say that the reasons assigned by the Income-tax Officer for thinking that the transaction which was described as a loan was a make-believe transaction designed to conceal the payment of a commission, are either extraneous or irrelevant. Where those reasons an properly induce a finding that what was paid was commission, is not a question into which we an make an investigation at this stage. That is a matter pertaining to the sphere of sufficiency of evidence with which we are not concerned. But there an be little doubt that the features, such as those to which the Income-tax Officer referred, cannot be characterised as irrelevant or extraneous to the formation of the belief which is enjoined by section 147(a).
15. We now proceed to consider the question whether the assessment of escaped income, if it was otherwise possible, could be made under the provisions of the new Act. In support of the argument that that was not possible, Mr. Srinivasan asked attention to the language of clause (a) of section 147 of the Act, which reads :
'147. 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 make a return under section 139 for any assessment year to the Income-tax Officer or the disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or................ he may, subject to the provisions of sections 148 to 153, assess or re-assess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereinafter in sections 148 to 153 referred to as the relevant assessment year).'
16. Now the new Act came into fore on the 1st of April, 1962, and Mr. Srinivasan maintained that the earliest assessment year in respect of which there could be an assessment or reassessment of escaped income under the new Act is the assessment year 1962-63. He argued that in respect of the assessment or reassessment could be made only under section 34 of the old Act. Sustenance for this submission was sought to be drawn from the provisions in clause (a) of section 147 of the new Act which says that what authorises the commencement of a proceeding under that section is the failure to make a return under section 139 or the new Act which says that what authorises the commencement of a proceeding under that section is the failure to make a return under section 139 or to make a true and full disclosure of the material facts with respect to that assessment year. It is pointed out that a return under section 139 of the new Act is possible only in respect of the assessment year 1962-63 and subsequent periods and that no return could be made under the provisions of that section in respect of antecedent periods. The argument which was constructed on that hypothesis was that the assessment year, to which section 147(a) refers either in the context of the failure to make a return or the failure to make a full and true disclosure of material facts, is the assessment year which cannot be earlier than 1962-63 and that that is the meaning which we should give to the expression 'for any assessment year' occurring in the earlier part of clause (a) of section 147 and 'assessment for the year' occurring in the concluding part of it.
17. There can be doubt that the words 'for any assessment year' occurring in the earlier part of clause (a) refer to assessment years which commence with the assessment year 1962-63, and not those proceeding it. It is equally clear that what entails the commencement of a proceeding for non-disclosure of material facts is such non-disclosure with respect to those assessment years, in others words, it is only a case where there is a failure to make a return in respect of the assessment year 1962-63 and later assessment years or there is a failure to make a full and true disclosure of material fats with respect to those assessment years that a proceeding under section 147(a) read with section 148 could be commenced and not otherwise. That would be the position if section 147(a) is regarded as an exhaustive and complete statutory provision with respect to assessment or reassessment of escaped income under the new Act.
18. But section 297(2)(d)(ii) makes it clear that the operation of section 147(a) cannot be restarted in that way. That clause reads :
'297. (2) Notwithstanding the repeal of the Indian Income-tax Act, 1922 (11 of 1922) (hereinafter referred to as the repealed Act),--.......
(d) Where in respect of any assessment year after the year ending on the 31st Day of March, 1940, -.................. (ii) any income chargeable to tax had escaped assessment within the meaning of that expression in section 147 and no prodding's under section 34 of the repealed Act in respect of any such income are pending at the commencement of this Act, a notice under section 148 may, subject to the provisions contained in section 149 or section 150, be issued with respect to that assessment year and all the provisions of this Act shall apply accordingly.'
19. It is clear from this sub-clause that even in a case where income has escaped assessment with respect to a period antecedent to the assessment year 1962-63 to which section 147(a) expressly refers, a proceeding for the assessment or re-assessment of such escaped income could be commenced under section 147 in a case where no proceeding under section 34 of the old Act was still pending on the date on which the new Act came into operation, provided, of course, the assessment year is not earlier than the year ending on March 31, 1940.
20. It is undisputed that no proceeding under section 34 of the old Act had been commenced or was pending on the date on which the new Act came into operation, provided, of course, the assessment year is not earlier than the year ending on March 31, 1940.
21. It is undisputed that no proceeding under section 34 of the old Act had been commenced or was pending when the new At commenced to operate.
22. So, section 147(a), when read with section 297(2)(d)(ii), negatives the argument that the provision so the new Act are not applicable to the case before us.
23. In that view of the matter, the decision of this court in S. C. Magavi, Haveri v. Commissioner of Income-tax can have to application since that was a case which related to the imposition of the penalty under section 271 and, therefore, has no resemblance to the provisions of clause (g) of section 297(2) can have no relevance.
24. So, we do not find it possible to accept the contention that the Income-tax Officer had no jurisdiction or power to commence the impugned proceedings.
25. But, Mr. Srinivasan at a very late stage during the argument raised the contention that sine in the note submitted by the Income-tax Officer to the Commissioner there is a statement that the advance by the Canada company was made to the assessee on December 15, 1958, and what is now stated to be income of the assessee is the income from undisclosed sources, that income would be assessed only during the relevant financial year beginning on April 1, 1959, that is, in respect of the assessment year 1959-60 and not for the assessment year 1960-61, as the Income-tax Officer now proposes to do, and, in support of this contention he depended upon the elucidation made by the Supreme Court in Civil Appeals Nos. 863 and 864 of 1966 . But, that question is not before us in this writ petition in which it is not raised. That being so and since it is clear that the assessee is even now at liberty to urge this contention before the Income-tax Officer, we say nothing about it.
26. We dismiss this writ petition.
27. No costs.
28. Petition dismissed.