FALSHAW J. - These are three petitions filed under article 226 of the Constitution by a company, the Maharaja Shri Umaid Mills Ltd., in which the respondents in different petitions include the Income-tax Officer, Central Circle IV, New Delhi, the Central Board or Revenue, New Delhi, the Commissioner of Income-tax and the Collector of Delhi.
The registered office of the petitioner company is at Pali in the former State of Jodhpur, now part of Rajasthan, and the petitions relate to the assessment of the company to income-tax for the years 1944-45, 1045-46 and 1946-47 (Petition No. 4D of 1958), 1947-48 (Petition No. 445D of 1958) and 1948-49 and 1949-50 (Petition No. 5D of 1958), and although in all the petitions the reassessment of the companys income under section 34(1)(a) of the Indian Income-tax Act is challenged, the position is somewhat different regarding the different assessment years.
Three of the years, covering the period 1944-47, fall into one group. Assessments were presumably carried out in the ordinary way some years ago and reassessment was carried out by the Income-tax Officer, A Ward, Jodhpur, after notice under section 34(1)(a), the date of these assessment orders being January 18, 1954. It may here be mentioned that up to the assessment year 1950-51 the position of the company was recognized by the income-tax authorities as non-resident in British India, and although in these assessment orders it was mentioned that a considerable income had accrued to the company from sales to the Government of India and other parties in British India, the income of these sales was held not to be taxable in Jodhpur and the figures relating to these sales to British India were only taken consideration for fixing the total world income of the company for the purpose of determining the rate of taxation.
The company file appeals against the assessments made on January 18, 1954, but while these appeals were pending the Commissioner of Income-tax for Delhi, Ajmer, Rajasthan and Madhya Bharat, issued a notice to the company on January 9, 1956, under section 33B of the Act and after hearing the objections of the company passed an order on January 17, 1956, canceling the assessments and directing the Income-tax Officer to make fresh assessments. It is clear from the order of the Income-tax Appellate Tribunal (copy annexure 4 to the petition) dismissing the appeals filed by the company against this order of the Commissioner, that the ground on which the Commissioner issued the notice under section 33B and cancelled the assessments was that in the light of the decision of the Supreme Court in Commissioner of Income-tax v. Ogale Glass Works Ltd. he was of the opinion that the receipts from British India were liable to tax. The ratio of the decision of the Supreme Court in that case was, as a matter of fact, that when the cheques sent in payment for the goods sold in British India were posted in British India this amounted to payment in British India.
However, instead of the Income-tax Officer at Jodhpur carrying out fresh assessments in pursuance of the order of the Commissioner of Income-tax, notices were issued afresh under 34(1)(a) by the Income-tax Officer, Central Circle IV, the common respondent in all the petitions. The validity of these notices and any proceedings taken in consequence of them are challenged in Civil Writ No. 4D of 1958 filed in January, 1958, a stay order being obtained on January 7, 1958, when the petition was admitted.
The position as regards assessment year 1947-48, the subject of Civil Writ No. 445D of 1959, is follows. The same Income-tax Officer, Jodhpur, passed his assessment orders for this year as well as for the two subsequent years on May 3, 1954. Appeals were filed, and again the Commissioner of Income-tax issued notices under 33B on May 30, 1956, but in these cases the proceedings on the notices were dropped and no order cancelling the assessment and ordering fresh assessment was passed as in the case of the three earlier years. However, on December 17, 1956, the Income-tax Officer, Central Circle IV, issued notices to the company under 34(1)(a). The proceedings under the notice relating to the assessment year 1947-48 continued and after an assessment had been made by the Income-tax Officer an appeal was filed to the Appellate Assistant Commissioner. That appeal was decided some time in the first half of 1960 and now an appeal by the company is said to be pending before the Income-tax Appellate Tribunal, though at the stage when the petition was filed in this court in September, 1959, the appeal was pending before the Appellate Assistant Commissioner.
In the case of the final assessment years 1948-49 and 1949-50 the petition was filed in January, 1958, and the stay of proceedings was ordered with the result that the assessment by the Income-tax Officer (respondent) under section 34(1)(a) for these years has not yet been carried out.
In the petition although the jurisdiction of the Income-tax Officer, Jodhpur, who carried out the assessments under section 34(1)(a) in 1954 has been challenged, this plea has not been pressed, and the principal argument advanced on behalf of the company has been that the necessary circumstances did not exist to give the Income-tax Officer (respondent) jurisdiction to proceed on notices under section 34(1)(a). This section reads :
'34. Income escaping assessment. - (1) If -
(a) the Income-tax Officer has reason to believe that by reason of the omission or failure on the part of an assessee to make a return of his income under section 22 for any year or to disclose fully and truly all material facts necessary for his assessment for that year, income, profits or gains chargeable to income-tax have escaped assessment for that year, or have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under the Act, or excessive loss or depreciation allowance has been computed, or
(b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income, profits or gains chargeable to income-tax have escaped assessment for any year, or have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under this Act, or that excessive loss or depreciation allowance has been computed,
he may in cases falling under clause (a) at any time and in cases falling under clause (b) at any time within four years of the end of that year, serve on the assessee, or, if the assessee is a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 22 and may proceed to assess or reassess such income, profits or gains or recompute the loss or depreciation allowance; and the provisions of this Act shall so far as may be, apply accordingly as if the notice were a notice issued that sub-section :
Provided that the Income-tax Officer shall not issue a notice under clause (a) of sub-section (1) -
(i) for any year prior to the year ending on the 31st day of March, 1941;
(ii) for any year, if eight years have elapsed after the expiry of that year, unless the income, profits or gains chargeable to income-tax which have escaped assessment or have been under-assessed or assessed at too low a rate or have been made the subject of excessive relief under this Act, or the loss or depreciation allowance which has been computed in excess, amount to, or are likely to amount to, one lakh of rupees or more in the aggregate, either for that year, or for that year and any other year or years after which or after each of which eight years have elapsed, not being a year or years ending before the 31st day of March, 1941;
(iii) for any year, unless he has recorded his reasons for doing so, and, in any case falling under clause (ii), unless the Central Board of revenue, and, in any other case, the Commissioner, is satisfied on such reasons recorded that it is a fit case for the issue of such notice :
Provided further that the Income-tax Officer shall not issue a notice under this sub-section for any year, after the expiry of two years from that year, if the person on whom the assessment or reassessment is to be made in pursuance of the notice is a person deemed to be the agent of a non-resident person under section 43 :
Provided further that the tax shall be chargeable at the rate at which it would have been charged had the income, profits or gains not escaped assessment or full assessment, as the case may be :
Explanation. - Production before the Income-tax Officer of account books or other evidence from which material facts could with due diligence have been discovered by the Income-tax Officer will not necessarily amount to disclosure within the meaning of this section.
It is contended on behalf of the company that in order to invoke the provisions of section 34(1)(a) it was necessary that any under-assessment of taxable income for the years in question should be the result of some omission or failure on the part of the company to disclose fully and truly all material facts necessary for the assessment for the years in question, whereas in the present case the facts regarding the companys income from sales in British territory during the years in question were placed before the Income-tax Officer at Jodhpur who carried out the earlier assessments under section 34(1)(a), and it was due to the view regarding the law which was prevalent at the time that the profits or gains from these sales were not held liable to taxation, and not to any omission or failure on the part of the company. The suggestion is that the income-tax authorities are trying to misuse section 34(1)(a) for the purpose of taking advantage of the decision of the Supreme Court in the Ogale Glass Works Ltd. case which in fact was delivered about the time of the assessments in question, and which reversed earlier decisions.
In support of his contentions the learned counsel for the company has relied strongly on the decision of the Supreme Court in Calcutta Discount Co. Ltd. v. Income-tax Officer, Companies District I, Calcutta. In that case two of the learned judges, Hidayatullah J. and Shah J., dissented, but the decision of the court is the decision of the majority S. K. Das, K. C. Das Gupta and N. Rajagopala Ayyangar JJ.
The facts in that case were that the assessments of the appellant company for the years 1942-43, 1943-44 and 1944-45 were made by orders passed in 1944 and 1945 and the taxes assessed were duly paid up, but on March 28, 1951, the Income-tax Officer issued notices with regard to those years under section 34 of the Act calling on the company to submit fresh returns. After complying with the notices by furnishing return the company filed a petition under article 226 of the Constitution in the High Court at Calcutta challenging the validity of the notices and the proceedings being taken upon them, chiefly on the ground that the notices were issued without the existence of the necessary conditions precedent which conferred jurisdiction under section 34 but also on the ground that the amendment to section 34 made in 1948 was not retrospective.
The learned single judge who heard the petition held that the first ground was not made out but, that the amending Act of 1948 was not retrospective and on this ground he passed an order prohibiting the Income-tax Officer from continuing the proceedings. In appeal under clause 10 of the Letters Patent it was held that the objection on the ground of limitation must also fail and the petition under article 226 was dismissed. The appeal of the company was, however, accepted by the learned judges of the Supreme Court, who went very exhaustively into the question whether the first ground regarding conditions precedent to a notice under section 34 existed, or, in other words, whether the Income-tax Officer had reason to believe that there had been some omission or failure to disclose fully and truly all material facts necessary for the assessment. It appears that the report on which the Income-tax Officer obtained the sanction of the Commissioner to initiate proceedings was disclosed to the court and it read :
'Profits of Rs. 5,48,002 on sale of shares and securities escaped assessment altogether.
'At the time of the original assessment the then Income-tax Officer merely accepted the companys version that the sales of shares were casual transactions and were in the nature of mere change of investments. Now the result of the companys trading from year to year show that the company has really been systematically carrying out a trade in the sale of investments. As such the company had failed to disclose the true intention behind the sale of the shares and as such section 34(1)(a) may be attracted.'
The principle to be followed in these matters was laid down in the following passages :
'Before we proceed to consider the materials on record to see whether the appellant has succeeded in showing that the Income-tax Officer could have no reason, on the materials before him, to believe that there had been any omission to disclose material facts, as mentioned in the section, it is necessary to examine the precise scope of disclosure which the section demands. The words used are omission or failure to disclose fully and truly all material facts necessary for his assessment for that year. It postulates 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 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.
'There can be no doubt that the duty of disclosing all the primary facts relevant to the decision of the question before the assessing authority lies on the assessee. To meet the possible contention that when some account books or other evidence has been produced, there is no duty on the assessee to disclose further facts, which on due diligence, the Income-tax Officer might have discovered, the legislature has put in the Explanation, which has been set out above. In view of the Explanation, it will not be open to the assessee to say, for example - I have produced the account books and the documents. You, the assessing officer, examine them, and find out the facts necessary for your purpose. My duty is done with disclosing these account books and the documents. His omission to bring to the assessing authoritys attention those particular items in the account books, or the particular portions of the documents, which are relevant, will amount to omission to disclose fully and truly all material facts necessary for his assessment. Nor will he be able to contend successfully that by disclosing certain evidence, he should be deemed to have disclose other evidence, which might have been discovered by the assessing authority if he had pursued investigation on the basis of what has been disclosed. The Explanation to the section gives a quietus to all such contentions; and the position remains that so far as primary facts are concerned, it is the assessees duty to disclose all of them - including particular entries in account books, particular portions of documents, and documents and other evidence which could have been discovered by the assessing authority, from the documents and other evidence disclosed.
'Dose the duty, however, extend beyond the full and truthful disclosure of all primary facts In our opinion, the answer to this question must be in the negative. Once all the primary facts are before the assessing authority, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else - far less the assessee - to tell the assessing authority what inferences, whether of facts or law, should be drawn. Indeed, when it is remembered that people often differ as regards what inferences should be drawn from given facts, it will be meaningless to demand that the assessee must disclose what inferences - whether of facts or law - he would draw from the primary facts.
'If from primary facts more inferences than one could be drawn, it would not be possible to say that the assessee should have drawn any particular inference and communicated it to the assessing authority. How could an assessee be charged with failure to communicate an inference, which he might or might nor have drawn ?
'It may be pointed out that the Explanation to the sub-section has nothing to do with inferences and deals only with the question whether primary material facts not disclosed could still be said to be constructively disclosed on the ground that with due diligence the Income-tax Officer could have discovered them from the facts actually disclosed. The Explanation has not the effect of enlarging the section, by casting a duty on the assessee to disclose inferences - to draw the proper inferences being the duty imposed on the Income-tax Officer.
'We have, therefore, come to the conclusion that while the duty of the assessee is to disclose fully and truly all primary relevant facts, it dose not extend beyond this.'
The learned judges then went on to consider the facts of the case in light of this legal proposition and came to the conclusion that the company had disclosed all material facts to the Income-tax Officer regarding the sales and purchases of shares and securities, and incidentally it appears that this was one of the kinds of business which the company was authorised to carry on in the memorandum of association, and held that it was the business of the Income-tax Officer to draw the proper inference from the particulars supplied as to whether these were trading transactions or not. It was also held that no duty lay on the company to admit that these transactions, were by way of trade, and the fact that on behalf of the company a representation had been made that the company was not a dealer in shares and securities did not amount to an omission to disclose fully and truly any material fact. It was consequently held that the Income-tax Officer who issued the notices had not before him any non-disclosure of a material fact and so he could have no material before him for believing that there had been any material non-disclosure by reason of which an under-assessment had taken place.
Incidentally the point was also raised that the question whether the Income-tax Officer had reason to believe that an under-assessment had occurred by reason of non-disclosure of material facts should not be investigated by the courts in an application under article 226, but this contention was rejected and, since the company had challenged the jurisdiction of the Income-tax Officer to proceed under section 34 at an early stage, it was held to be quite a proper case for relief under article 226.
As far as the facts go it seems to me that the case of the present assessee company is stronger and more meritorious than the case of the company referred to in the decision of the Supreme Court, since in that case when the particulars of the transactions in shares and securities were disclosed to the Income-tax Officer at the time of the original assessments, what was considered by the authorities subsequently to be a false assertion regarding the nature of the transactions had been made, whereas in the present case at the time of the assessments, in 1954, under section 34(1)(a) the figures relating to the extent of the receipts from sales in British India were revealed and the Income-tax Officer had taken them into account for the purpose of determining the rate on which tax was payable on the taxable income, and the profits or gains of these receipts were not held to be taxable because of the view of law which prevailed at that time.
At my instance the hearing of these petitions was adjourned for the purpose of furnishing the reasons given by the Income-tax Officer for obtaining sanction to proceed under section 34(1)(a) from the Central Board of Revenue under the provisions of section 34(1)(iii). The reasons given regarding the assessments for the period from 1944-47 are as follows :
'1. The case of Maharaja Shri Umaid Mills Ltd., Pali, is that of a public limited company having its registered office at Pali in the erstwhile Jodhpur State. The company runs a textile mill at Pali.
'2. During the previous years relevant to the assessment years 1944-45 to 1946-47 the assessee had income from dividends, interest on securities, share dealings and sale of cloth to the then British Indian parties (including the Government of India), which far exceeded rupees one lakh in each year. Income from the above sources is clearly tax-able under the Indian Income-tax Act.
'3. As the original assessments made by the Income-tax Officer, Ajmer, have been vacated by the Commissioner of income-tax, Delhi, under section 33B of the Income-tax Act and since the jurisdiction on the case at present vests with me under item 78A of C. B. R.s notification dated the 24th of January, 1955, the present proceedings are being started under section 34(1)(a) of the Income-tax Act to tax the aforesaid income.
'4. As the income from all the sources mentioned above which has escaped assessment works out to be more than one lakh of rupees in the aggregate, the Central Board of Revenue is requested to accord the necessary sanction for starting proceedings under section 34(1)(a) for the assessment years 1944-45 to 1946-47.'
The reasons given in relation to the three later years read :
'Sales of cloth and yarn and waste effected in Part A and C States amount to rupees ten lakhs. Particulars have not so far been furnished by the mill. Profits are deemed to have accrued or arisen to the assessee as a result of purchases or sales effected in Part A and C States. As the element of profit (sic) within the two operations income estimated at rupees one lakh requires assessment in the hands of the assessee as a Part A State income.'
It does not seem to me that either of these statements of reasons contains any indication that the Income-tax Officer had reason to believe that by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, profits or gains chargeable to income-tax had escaped assessment. There is no such suggestion at all in the first statement relating to the period 1944-47, and the only approach to any such suggestion in the second statement is that exact particulars had not been furnished regarding sales and purchases in Part A and C States. It may in a sense be correct that the full details were not supplied by the company regarding the receipts from British India when the assessments were being carried out under section 34(1)(a) in 1954, but, even if this is the case, it would appear to be due to the fact that no importance was being attached to these details in those assessments on account of the fact that the profits or gains from these transactions were then deemed to have been received at Jodhpur and not to be taxable. In other words at the time when those assessments were made the details of the receipts from the sales in British India were not regarded as material facts, and the only material facts were the total figures. As has been pointed out by the Supreme Court, two elements must be present to justify action under section 34(1)(a), namely, that there must have been an under-assessment, and that this under-assessment must have been a direct consequence of a failure or omission on the part of the assessee to disclose all material facts necessary for his assessment, and to my mind it is clear that the under-assessment of the income of the petitioner company for the years in question, if in fact it was under-assessed, was not due to any failure or omission on the part of the company to disclose material facts, but to the legal view which prevailed until the decision of the Supreme Court in the Ogale Glass Works Ltd. case that the income derived from the sales in British India was not liable to tax in the hands of a non-resident company.
One point raised by Mr. Hardy on behalf of the income-tax authorities related only to the assessment year 1947-48. This point was that since the fresh assessment under section 34(1)(a) was carried out there had been an appeal to the Appellate Assistant Commissioner in which the points raised in these petitions regarding the jurisdiction of the Income-tax Officer to proceed under section 34(1)(a) had been raised, and now, since the dismissal of the appeal by the Appellate Assistant Commissioner, an appeal by the company was pending before the Income-tax Appellate Tribunal in which the same points were agitated. It was thus suggested that I should not decide these matters and should leave the decision thereon to the Income-tax Appellate Tribunal from which in due course a reference could come to this court under section 66 of the Act. The state of affairs, however, only exists in relation to that particular assessment year, and I should still have to deal with the points raised in relation to the other years covered by these petitions, and in the circumstance there appears to be no point at all in refraining from giving my decision in all the cases now before me.
Another point raised by Mr. Hardy related to the three earliest assessments for the period from 1944-47. It was pointed out that under section 34(1)(a), although so far the discussion had centred on the alleged failure of the assessee to disclose fully and truly all material facts, reassessment can be ordered in the case of an under-assessment on the ground of omission or failure on the part of an assessee to make a return of his income under section 22. It was stated that when the company was originally assessed for these years no returns had been filed by the company. This fact is not apparent from any of the documents filed in this court, but in the absence of any contradiction I may presume it to be correct. The argument advanced was that since the assessments carried out in January, 1954, regarding these three years had been set aside under section 33B by the Commissioner, those assessments and the proceedings which led out to them, including the filing of returns, by the company had become a nullity and had been wiped out altogether, and thus the position with regard to those three years when the fresh notices under section 34(1)(a) which are now impugned were issued was as if only the original assessments, made on the basis of no returns, existed.
This raises a rather a difficult question but I am by no means convinced that the contention should prevail. The Commissioner undoubtedly by his order dated January 17, 1956, under section 33Bcancelled the assessment orders of the Income-tax Officer for the years in question, but it does not seem to me that his order in any way had the effect of quashing the proceedings. What the Commissioner did was to cancel the assessment orders but at the same time to direct the Income-tax Officer to make fresh assessments in the light of the decision in the Ogale Glass Works case. The company had furnished returns before the cancelled assessment orders were made and the proceedings were not quashed but merely remanded for fresh assessment, and I do not consider that the fact that the income-tax authorities did not go on with those proceedings after the companys appeal against the order of the Commissioner had been dismissed in January, 1957, but instead chose to initiate fresh proceedings under section 34(1)(a) through a different Income-tax Officer, had the effect of making the original proceedings as a whole a nullity.
It may be mentioned that this point was raised for the first time at the stage of arguments by the learned counsel for the respondents and it is not even taken in the rejoinder furnished by the Income-tax Officer in the form of an affidavit, although the terms of this rejoinder are not by any means confined to statements of fact but raise points of law. It seems clear from the material on the file that the plea that the fresh proceedings on notices under section 34(1)(a) were lawfully initiated on the ground that the original assessments for the years 1944-47 had been on the basis of no returns by the assessee company was brought out for the first time by Mr. Hardy in the course of arguments. This becomes particularly apparent from the terms of the statement of reasons submitted by the Income-tax Officer, which I have set out above, for the purpose of obtaining the sanction of the Central Board of Revenue for initiating the proceedings. In that statement not only is there no allegation that the companys income for the years in question had been under-assessed because of any failure on their part to disclose the material facts, but also there is no point taken that the companys original assessments had been made without their filing returns under section 22. I am therefore of the opinion that this contention should not prevail.
The result is that I hold that the necessary circumstances did not exist which would give the Income-tax Officer jurisdiction to issue the impugned notices under section 34(1)(a), and accepting the petitions, order that the proceedings taken on these notices be not continued. The respondents will pay the costs of the petitioner. Counsels fee Rs. 150 in each petition.