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Kanji Ranchhod Vs. Commissioner of Income-tax, Gujarat - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberIncome-tax Reference No. 3 of 1965
Judge
Reported in[1966]61ITR339(Guj)
ActsIncome Tax Act, 1922 - Sections 34 and 34(1)
AppellantKanji Ranchhod
RespondentCommissioner of Income-tax, Gujarat
Appellant Advocate K.H. Kaji, Adv.
Respondent Advocate J.M. Thakore, Adv.
Cases ReferredGordon Woodroffe and Co. Ltd. v. Income
Excerpt:
direct taxation - non-disclosure of fact - sections 34 and 34 (1) of income tax act 1922 - whether on facts and circumstances of case proceedings under section 34 (1) (a) validly initiated - in case where initiation of proceedings under section 34 (1) (a) challenged department to establish that there was non-assessment resulting from non-disclosure of facts - court to decide whether such conditions co-exist - fact that income tax officer (ito) saying that he had reason to believe such non-disclosure on part of assessee not enough - ito must show that there was some material for such reason to believe - no ground or material which can give rise to reason to believe on part of ito that there was non-assessment as result of non-disclosure - action of ito in initiating proceedings under.....shelat, c.j.1. this reference arise out of reassessment proceedings under section 34(1)(a) of the income-tax act, 1922, of a hindu undivided family carrying on business in motor spare parts and cigarettes. the proceedings were in respect of the assessment year 1953-1954 of which the corresponding year of account was samvat year 2008. 2. the original assessment for the assessment years 1953-54 was completed on august 2, 1957, the total income then assessed being rs. 14,868 consisting of the profit and income from business, interest and property. on an appeal by the assessee, the appellate assistant commissioner by his order dated january 31, 1958, reduced it to rs. 14,420. it is an admitted fact that the assessee had produced the books of account pertaining to both the business, but had.....
Judgment:

Shelat, C.J.

1. This reference arise out of reassessment proceedings under section 34(1)(a) of the Income-tax Act, 1922, of a Hindu undivided family carrying on business in motor spare parts and cigarettes. The proceedings were in respect of the assessment year 1953-1954 of which the corresponding year of account was Samvat year 2008.

2. The Original assessment for the assessment years 1953-54 was completed on August 2, 1957, the total income then assessed being RS. 14,868 consisting of the profit and income from business, interest and property. On an appeal by the assessee, the Appellate Assistant commissioner by his order dated January 31, 1958, reduced it to Rs. 14,420. It is an admitted fact that the assessee had produced the books of account pertaining to both the business, but had not produced along with those books the balance-sheets. At a later date, which is not quite clear from the statement of the case, the Income-tax Officer learnt that an amount of Rs. 21,352 was lying deposited with the Morvi Mercantile Bank Ltd., Morvi, in the name of the assessee. The Income-tax Officer, therefore, decided to initiate proceedings under section 34(1)(a) and sought permission therefor from the Commissioner of Income-tax. The permission was sought for on the ground that :

'The assessee deposited the amount of Rs. 21,352 in Morvi Mercantile Bank Ltd., Morvi in Samvat year 2008. The assessee has not been able to prove satisfactorily the source of this deposit. Hence, action under section 34(1)(a) is proposed to tax this amount which has escaped assessment.'

3. It is clear according to the Income-tax Officer that the deposit of Rs. 21,352 was made in Samvat year 2008, the relevant account year, that that amount had escaped assessment, and that the case fell under clause (a) of section 34(1). It would also seem from the application by the Income-tax Officer that he asked for an explanation but that the explanation given by the assessee was not satisfactory to the Income-tax Officer, On these averments, the Commissioner granted permission by his order dated February 20, 1962, and thereupon, the Income-tax Officer issued a notice on February 22, 1962, which was served on the assessee on that very day. The assessment was completed on October 26, 1962, on the total amount of Rs. 27,720. During these reassessment proceedings, the assessee could satisfy the Income-tax Officer that the deposit of Rs. 21,352 was not made during Samvat year 2008 but that that amount was carried forword from an earlier year and, therefore, was not assessable income for the relevant assessment year 1953-54. This is clear from the account of the Morvi Bank for Samvat year 2008 in the books of account of account maintained by the assessee and admittedly produced during the original assessment proceedings and which is part of the statement of the case. This account shows that the entry for Rs, 21,352 represent the credit balance brought forward from the earlier year and at the end of Samvat year 2008 was again carried carried forward to the next year's account, i.e., of Samvat year 2009 Clearly, therefore, the amount of Rs. 21,352 was not deposited during the relevant year of account, namely, Samvat year 2008, and, therefore, the statement of the Income-tax Officer in his application for the Commissioner's permission that this amount was deposit in Samvat year 2008 and had escaped assessment was not correct. On these facts, the Income-tax Officer did not add this amount to the assessment but added another amount of Rs. 13,300 being the total of cash credits standing to the credit of one Navalben Purshottam, a member of the assessee-Hindu undivided family and brought in the assessee's book of account during the period between December 2, 1952, to March 20, 1953. The Income-tax Officer, finding the explanation given by the assessee unsatisfactory, treated the various cash credit aggrregating Rs. 13,300 a income from undisclosed sources. Since he treated this amount as escaped income from undislosed sources, the mount would fall within the financial year 1952-53, that being the year of account relevant to the assessment year 1953-54. But he added the amount of Rs. 13,300 in the assessment for the assessment year 1954-55 which he had reopened earlier. During the reassessment proceedings in question. i.e., for the assessment year 1953-54. He presumably noticed this mistake and, therefore, added this amount in the assessment and that was how he assessed tax on a total income of i Rs. 27,720 comprised of the original assessed income of Rs. 14,420 and Rs. 13,300. The amount of Rs. 13,300 was thus added for both the assessment year 1953-54 and 1954-55.

4. The assessee filed appeals against both these orders before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner deleted the amount of Rs. 13,300 from the assessment for the assessment year 1954-55 but retained the addition of this amount in the assessment for the assessment year 1953-54. Before the Appellate Assistant Commissioner, the assessee raised four contentions :

(1) that the reason given by the Income-tax Officer for reopening was that the assessee had deposited in Samvat year 2008 the said amount of Rs. 21,352 and that that amount had escaped assessment. That reason having been found to be incorrect the very basis and purpose for which notice under section 34 was issued stood extinguished, that therefore, the notice itself stood extinguished, that therefore, the notice itself stood canceled and consequently another item of income, named, Rs. 13,300, could not be added :

(2) that the assessee having disclosed the books of account at the time of the original assessment which showed the said cash credit, no new information can be said to have come into the possession of the Income-tax Officer and therefore he had power to act under section 34;

(3) that the Income-tax Officer having already assessed the amount of Rs. 13,300 in the reopening proceedings for the assessment year 1954-55 by his order dated October 21, 1961, he had no powers to add that amount once again in the assessment for the assessment year 1953-54; and

(4) that the amount of Rs. 13,300 stood in the name of Navalben Purshpttam and belonged to her and the assessee-Hindu undivided family had no concern with it and, therefore, should not have been added to the assessment.

5. These contentions were rejected by the Appellate Assistant Commissioner but, as aforesaid, he deleted the amount of Rs. 13,300 from the assessment for the year 1954-55 and retained it in the assessment for the year 1953-54. We are not concerned in this reference with the merits of the question as to the amount of Rs. 13,300 as that is not the subject matter of the question referred to us. We are concerned only with the question whether the Income-tax Officer valid invoked section 34(1)(a) and initiated proceedings thereunder. On that question, the view of the Appellate Assistant Commissioner was as follows :

'The first question that has to be decided is, therefore, whether the notice issued under section 34 was valid or not. I do not know how the appellant came to know as for what particular item the satisfaction of the Commissioner was obtained for the issue of the notice under section 34. Be that as it may and taking for granted that the satisfaction of the Commissioner of Income-tax was obtained to assessee only one item of escaped income, namely, the deposit of Rs. 21,352........ the Income-tax Officer who submitted the proposals to the Commissioner of Income-tax was under a bona fide and genuine belift that the it was this amount of Rs. 21,352 that had escaped assessment.'

6. He stated that as the assessee had not filed the balance-sheet at the time of the original assessment, the Income-tax Officer had no information that this amount was a credit palace brought forward from the preceding year and was not a deposit made in the year of account. 'Thus, the action under section 34 when it was initiated was perfectly legal and the notice issued under section 34 and the proceeding s in pursuance thereof were perfectly valid.' Before the Tribunal, the contention urged was that the proceedings under section 34(1)(a) were not validity initiated and that, since it was found in the course of the reassessment proceedings that the sum of Rs. 21,352 which was the basis so the initiation of the action under section 34(1)(a) was not the amount which had escaped assessment it was not open to the Income-tax Officer to include Rs. 13,300 which sum was not be basis for the initiation of proceedings under section 34(1)(a). The Tribunal rejected that contention and held that the proceedings were validly initiated because at the time when the Income-tax Officer initiated them he had in the circumstances of the case reason to believe that the assessee had made deposit with the Morvi Bank which had not been disclosed in the course of the original assessment.

7. The question referred to us is :

'Whether, on the facts and in the circumstances of the case, the proceeding under section 34(1)(a) of the Indian Income-tax Act, 1922, for the assessment year 1953-54 were validly initiated ?'

8. So far as it is relevant for the purposes of this reference, section 34 provides :

'(1) If -

(a) the Income-tax Officer has reason to believe that by reason of the ommission or failure on the part of an assessee..... to disclose fully and truly all material facts necessary for his assessment for that year, income, profits or gains chargeable to income-tax had escaped assessment for that year........

he may in case 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........ a notice....... and may proceed to assessee or reassess such income,. profits or gains........'

9. The Explanation to sub-section (1) provides that production before the Income-tax Officer of account books which material facts could not due diligence have been discovered by the Income-tax Officer will not necessarily amount to disclosure within the meaning of this section.

10. The contentions of Mr. Kaji were :

(1) that to confer Jurisdiction to initiate proceeding under section 34(1)(a), there must be for the Income-tax Officer reasons to believe that income had escaped assessment a a consequence of non-disclosure of primary fact which had a material bearing on the question of non-assessment;

(2) that non-disclosure which results in escarpment must be in regard to a fact which is relevant to or has a bearing on the assessment;

(3) that if non-disclosure is as regards a fact which has no bearing on the assessment, e.g., an items which is not assessable, such non-disclosure cannot confer powers to initate proceedings under this sub-section;

(4) that the reasonable belief on which the jurisdiction rest is not related to the question whether a fact not disclosed is material or primary fact or whether there has been non-disclosure of such a fact but is confined only to the question whether such non-disclosure resulted in non-assessment;

(5) therefore, the question (a) whether there is non-disclosure and (b) whether such non disclosure is of a primary fact having a bearing on the assessment are question relating to objective facts which the court can go into and without the existence of which there can be no reason to believe that non-disclosure has resulted in non-assessment Mr. Kaji argued, therefore, that since the amount of Rs, 21,352 was not item assessable to tax in the relevant year of account, it was not a fact which the assessee was bound to disclose as it had no bearing on and was not material to the assessment for that year and, therefore, there being no non-disclosure as contemplated by clause (a) of section 34(1), there could be no reason to believe that there was non-assessment on account of any non-disclosure. Mr. Kaji placed considerable reliance on the Supreme Court decision in Calcutta Discount Co's case. especially on certain observations made therein which he said supported his analysis of section 34(1)(a).

11. The learned Advocate-General, on the other hand, argued that the decision in the case of Calcutta Discount Co. did not lay down what Mr. Kaji contended, for the only proposition that it laid down was that the duty of an assessee is to disclose all relevant facts which have a bearing on the assessment and which would assist the taxing officer to properly assessee, but that it did not lay down the converse proposition that if there was no non-disclosure of a relevant or a primary fact, the Income-tax Officer would have necessarily no jurisdiction to act under the section. He urged that the assessee no doubt had produced the books of account of both the business but had admittedly not produced balance-sheet. But under the Explanation to section 34(1), production of books would not necessarily mean that there was disclosure. As the assessee had not specifically drawn the attention of the Income-tax Officer who made the original assessment to the account of the bank in the assessee's books, production of the books by itself was not sufficient and the failure to point out to him the account of the bank amount to non-disclosure. The next step in his argument was that because of that non-disclosure, the Income-tax Officer who initiated the reassessment proceedings could not know that the entry regarding Rs. 21,352 was an entry of a credit balance carried forward at the beginning of samvat year 2008 from the preceding year and, therefore, took that entry as relating to a deposit made during Samvat year 2008. The Income-tax officer thus had reason to believer (i) that there was non-assessment, and (ii) that such non-assessment was on account of non-disclosure. The contention of the learned Advocate General was that it was sufficient that the Income-tax Officer had reason to believe that there was non-assessment and that such non-assessment had occurred as a result of non-disclosure on the part of the assessee and that even if it was subsequently found that such a belief was ill-founded because the fact would not matter. According to him, the only thing necessary to confer jurisdiction on him is the existence of reason to believe that there was non-assessment on account of non-disclosure in the part of the assessee. The reasonable belief necessary under the section is that of the Income-tax Officer and not of the court and, therefore, the court has no power to the Income-tax Officer to initiate proceedings under the section rested on having reason to believe, (1) that there was non-assessment, and (2) that such non-assessment was due to an omissioner failure to disclose all material facts. If it turned out later on that such reason to believe was on a fact which was non-existent or in correct if proceedings. He argued that if that was not so, the scopes of section 34 would be trusted and it would have to be held that he must know all the fact before he initiates the proceedings, which is not what the section enacts. Both Mr. Kaji and the learned Advocate General relied on the Calcutta Discount Co's case Mr. Kaji relying on it show that the fact of non-disclosure is an objective fact which must per-exist and which the court can enquiry into and that the only thing that rest on the reasonable on account of an omission or failure to disclose and the learned Advocate General relying on the decision to show that both omission of failure to disclose and the consequent non-assessment were matters of reasonable belief of the Income-tax Officer. There being thus divergent views as to what the Supreme Court has laid down in that case, it will be necessary to consider what precisely has been held there.

12. In that case, the report of the Income-tax Officer who proposed to initiate proceedings under section 34 was that profits realised by the company by sales of shares were not assessed to tax in the original assessment as at that time the company had represented that the sales were causal transaction and in the nature of change of investments. But the result of the company's trading from year to year showed that the company systematically carrying on a trade in the sale of investments. The contention was that the company s had filed to disclose the true intention behind the sales of shares. The Income-tax Officer issued notice under section 34 which was challenged by the company by a writ petition under article 226 of the Constitution. The supreme Court held that the question whether the sales were by way of changing the investment or by way of trading depended on a construction of different circumstances including the frequency of the sales, the nature of the shares sold, the price received as compared with the cost price and several other relevant facts. The Super Court laid down that it was the duty of the assessee company to disclose all the facts which had a bearing on the question, but whether the company had the intention to make a business profit or the intention to change the form of investment to make a business profits or the intention to change the form of investment, was really a matter of inference to be drawn by the assessing authority from the material facts and the law did not require the assessee to state the conclusion which could be drawn from primary facts. The Supreme Court further held that the company having disclosed all the primary facts and there being no duty on it to disclose the inferential facts. The Supreme Court further held that the company having disposed all the primary facts and there being no duty on it to disclose the inferential fact flowing therefrom, there was no material non-disclosure by reason of which an under assessment had taken place, and therefore, the Income-tax Officer had no jurisdiction to initiate the proceedings. After citing section 34, the Supreme Court at page 199 stated that to cover jurisdiction on the Income-tax Officer to issue the notice, two conditions have to be satisfied, (1) that he must have reason to believe that income, profits or gains have been under assessed, and (2) that he have also reason to believe that such under assessment has occurred by reason of ommission or failure on the part of the assessee to make a return or ommission or failure on his part to disclose all material facts necessary for this assessment for that year. It also held that both these condition were conditions precedent to be satisfied before the Income-tax Officer could have jurisdiction to initiate proceeding under section 34(1)(a). At page 201, the Supreme court framed its conclusion on the scope of section 34(1)(a) in the following passage :

'The position, therefore, is that if there were in fact some reasonable ground for thinking that there had been non-disclosure as regard any primary fact which could have a material bearing on the question of `under assessment', that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notices under section 34. Whether these grounds were adequate or not for arriving act the conclusion that there was a non-disclosure of material facts would not be open for the court's investigation. In other words, all that is necessary to give this special jurisdiction is that the Income-tax Officer had when he assumed jurisdiction some prima facie ground for thing that there had seen some non-discolore of material facts.'

13. The Supreme Court also observed that it is the duty of the assessee who wants the court to hold that jurisdiction was lacking, to establish that the Income-tax Officer had no material at all before him for believing that there had been such non-disclosure. Though the court cannot investigate into the adequacy or otherwise of the grounds on which the reason to believe on the part of the Income-tax Officer rests, the assessee is entitled to show that there was no material at all on which the Income-tax Officer could found such belief, that is, have reason for such belief. If therefore an assessee its in a position to show that he had disclosed at the time of the original assessment all that he was bound to disclose, i.e., all the primary facts relevant to and having a bearing on his assessment, there would be no ground for the Income-tax Officer to have reason to belief that there was any omission or failure on the asessee's part to disclose. Similarly, if an assessee can show that, though there was omission or failure to disclose on his part, such failure or omission had not resulted in any non-assessment etc., surely there would be no ground for the Income-tax Office to have reason to believe that there was any non-assessment or under assessment etc., consequent upon such mission or failure. It would, therefore, follow that primary facts necessary for a proper assessment are objective facts, the existence or the non-existence of which is not a matter of reasonable belief on the part of an Income-tax Officer. An Income-tax Officer cannot say that had reason to believe that a certain fact which was relevant for assessment and therefore a primary fact existed and that it was not disclosed by an assessee if such a fact did not factually exist. Can an Income-tax Officer, for instance, say that the has reason to believe that the assessee had failed or omitted to submit his return under section 22 and can he issue on the that ground a valid notice under section 34(1)(a) when the assessee shows that he had in fact filed the return Similarly, can an Income-tax Officer say that he had reason to believe that the assessee had failed or omitted to disclose a material fact when the assessee shows either that such a fact In either of these two cases, it would seem that the court can investigate and come to the conclusion that the Income-tax Officer had no reason to believe and could not have any reason to believe that the assessee had failed to file his return or had failed to disclose a material fact necessary for his assessment. In such a case, the fact whether the return was filed or not or the fact of the existence or not of a thing not disclosed are objective facts and cannot depend on the reasonable belief of the taxing officer. If it was otherwise, an Income-tax Officer can initate proceedings by merely saying that he had reason to believe that the assessee had omitted or failed to file his return or had omitted or failed to disclose a material fact though in one case the assessee had in fact field his return and in the other case he had in fact disclosed and all material facts or the fact which the Income-tax Officer says was not disclosed, did not in fact exist. The existence of a primary fact is therefore an objective fact which the court can investiager, but once that fact is found to exist, if the Income-tax Officer reasonably believes that there was non-assessment, etc., the court cannot investigate into the adequacy or otherwise of his reason to come to that belief and the initiation in such cases would be valid. On the other hand, if there was in fact nomination or failure to file a return or no omission or failure to disclose a primary fact necessary for a proper assessment, there would be no ground or material for the taxing officer to have reason to believe the assessee had failed to omitted to file a return or had failed or omitted to disclose any material fact and the officer in such a case would not satisfy the conditions laid down in the Calcutta Discount Co's case and the initiation of proceeding by him would be bad. This conclusion is supported by the fact that it is consistent with the object of section 34(1)(a). The object clearly is to rope in income which has escaped tax or which has been under assessed, etc., in consequence of a default on the part of an assessee amongst other thing to disclose all the necessary facts. Ordinarily, once an assessment is made, it is final and the assessee has a know that his liability is crystallized. Such an assessment can be reopended under sub-section (1) for a period of 8 years on the two grounds set out in it, namely, ommission of failure to file a return, or ommission or failure to disclose truly and fully all relevant facts resulting in non-assessment, under-assessment, etc. There is therefore an element of deliberate or willful default on the part of an assessee and therefore a ledge period than the one in clause (b) has been provided enabling the taxing authorities to reopen his assessment. If either of these two grounds exists, classed (a) sub-section (1) empowers the taxing authority to reopen the assessment and rope in the income which has escaped tax or in respect of which there is under assessment etc. But that does not mean that a taxing officer can say that he has reason to believe that either of these two ground s exists when in fact it does not.

14. We are supported in this view by certain obvservation made by the Madras High Court in E.M. Muthappa Chettiar v. Commissioner of Income-tax, where, after considering the Supreme Court decision in Calcutta Discount Co's case, the learned judges stated :

'It is the duty of the assessee to reveal the major facts which have a bearing on the assessment to be made. He must of course make a clean rest of all the sources of his income and the income derived therefrom. He must not hide any books of account or documents which would help the computation of the income. He is not expected to do more than this. He cannot delve into the mind of the Income-tax Officer and try to fathom it and predictor what are material facts in the view of the officer. The facts must be such that if taken into account, they would have an adverse effect on the assessee by the passing of a greater assessment than the one actually made. The rule of full and true disclosure of material and necessary facts should not be fastifiously construed as would enable the department to say that non-disclosure of a fact which may have a remote bearing on the assessment attracts the section, as the assessing officer would have material use of it to charge the assessee more than what he did. The Income-tax officer cannot certainly fall back on the section to make good his deficiencies in the first completed assessment. Cases sought to be brought with in section 34(1)(a) should strictly fall within that provision and it is for the department to show that the necessary conditions for the exercise of jurisdiction are fully present. The department is not at liberty to take hold of any and every circumstance, call it non-disclosure of material facts and set the machinery of the reassessment in motion. If this were to be permitted there is every danger of this provision of law being used as an instrument of person against the assessee. The true position is that if the Income-tax Officer was left in the dark in respect of basic and crucial facts, relevant to the assessment, he jurisdiction to reopen the assessment and pass orders of reassessment.'

15. These observation clearly show what we have already said that whether a fact, non-disclosure of which is sought to be relied on, is a material fact or, as the Supreme Court called, is a primary fact reluctant to the assessment is an objective fact and does not depend merely on the taxing officer's reason to believe such a fact, according to this decision, must be such that it would adversely affect the original assessment by the passing of an assessment higher then the original assessment. That being the position, of it is found that the reason to believe that there was non-assessment on account of any non-existent fact to a fact found to be incorrect, there would be no material or ground for such a belief and the initiation of proceedings consequently would be contrary to the provisions of clause (a) of sub-section (1). In a case where initiation of proceeding under clause (a) are challenged, it is for the department to establish that the two conditions laid down by the Supreme Court in Calcutta Discount Co's case are satisfied, namely, (1) that the Income-tax Officer had reason to believe that there was non-assessment; and (2) that he had also reason to believe that such non-assessment resulted from non-discolor of material facts. In such a case the question that the court has to decide would be, did these two conditions co-exist, i.e., did the Income-tax Officer have reason to believe the two facts, non-assessment and such non-assessment having resulted from non-assessment and such non-assessment having resulted from non-disclosure of material facts. It follows that the mere fact of the Income-tax Officer saying that he had reason to belief is not enough. He must shown that there was some material for such reason to believe i.e., non disclosure of material facts. Therefore, if there is no non-disclosure of a material fact or if the material fact exist and about which there was consequently non-disclosure, there can obviously be no ground or material on which his reason to believe can be rested.

16. The conclusion to which we are inclinded to come is to certain extent borne out also by another decision of the Madras High Court in Gordon Woodreffee and Co. Ltd. v. Income-tax Officer Madras. In that case, a company incorporated in the United Kingdom and having its registered officer in London owned shares in an Indian company but had no business activity in India. For the assessment year 1949-1950, the Indian company was called upon to file a return of the income for the London company as its agent. The Indian company thereupon filed a return and after considering all the material place before him, the Income-tax Officer decided that the London company was a non-resident company under section 4A(c) of the Income-tax Act, 1922, as more than fifty per cent. of it income arose outside Indian and made an assessment on its Indian income. Subsequently, the Income-tax officer initiated proceeding under section 34(1)(a) for reassessment of the London company on the ground that the income of the London company outside India had been wrongly computed to be less than the Indian Income and that he London company was really a resident company. The case of the department was that (1) there was default in sub-mitting the return as the Indian company was not entitled to make a return as the agent of a resident company and (2) that there was mis-statement and non-disclosure of material facts. The High Court negatived these contentions and held that the Income-tax Officer had no jurisdiction to initiate the proceedings on a mere assumption on his part that the real status of the assessee was that of a resident and then deduce that the return was not proper. At page 17 of the report, the High court observed that if the argument of the revenue was correct and the London company was resident, the return filed by the Indian Company would be valid in law and, therefore, there would be no return at all. But the validity of the return depended upon the real status of the London company which was in controversy and the Income-tax Officer ultimately had himself held that the London company was non-resident. The High Court, therefore, held that there having been a factual return and also a valid return consistent with its declared status as non-resident, the revenue could not contend that there was default in submitting a return or that there was any default in disclosing material fact. The facts on this case were somewhat on lines similar to the one before us. The Income-tax Officer who initiate the proceedings believed that the income of the London company was greater than its income from outside the taxable territories and on that belief he came to the conclusion that the London company was a resident and not a non-resident and, therefore, the Indian company could not valid submit return as the agent of the London company and, therefore, there was both a failure to submit return and a failure to disclose material fact. If the learned Advocate-General's contention before us were to be correct, were to be correct, the Income-tax Officer in the Madras case had a reasonable belief that the London company was resident and on that belief he would, have jurisdiction to initiate proceedings. But the decision shows that, though the Income-tax Officer believed that the London company was a resident, there was no ground or material for such a belief as that belief was found on an incorrect fact that its income was large from the taxable territories. It was on this basis that the High Court came to the conclusion that the taxing officer had no jurisdiction to initiate the proceedings under section 34(1)(a).

17. The learned Advocated-General, however, strongly relied on another Madras decision in Sankaralinga Nadar v. Commissioner of Income-tax where jagdisan and Srinivasan JJ. held that an Income-tax Officer 34(1)(b) if he has, in consequence of particular information in his possession, reason to believer that income had escaped assessment and might, even if the particular information proved to be ill-founded at the conclusion of the enquiry, yet being to tax such escaped income as came to light as a result of the enquiry. The learned judges have also observed that the non-existence of the original ground which led the officer to believe that income had escaped assessment was not a bar to reassessment of escaped income and did not visa such reassessment and that the statutory requirement of reasonable belief rooted in information in the possession of the officer was to safeguard the assessee from vexatious proceedings and was not a mantle of protection against taxation of income found to have escaped assessment. The learned Advocate-General argued that this decision was a direct authority supporting his contention that the reasonable belief of the Income-tax Officer that there was escarpment on account of non-disclosure were on enquiry subsequently to turn out to be unfounded. We do not thinks that the learned Advocate-General can find assistance for his contention in this decision. This decision at best is an authority for a case falling under cause (b) of section 34(1) but not in in respect of a case arising under clause (a), for the condition precedent in cases arising under the two clauses are different. Under clause (b) the requirement is a reasonable belief on the part of the taxing offer that there was non-assessment, under-assessment, etc., in consequence of some information that comes in his possession. In a case falling under clause (b), though the question whether the officer had reason to believe may not be be a question into which the court can go in exercise of its jurisdiction under section 66 of the Act, yet it would be open to an assessee to challenge to jurisdiction of the office on the ground that he had no information upon which he could come to a reasonable belief that income had escaped. Therefore, even under clause (b) the question whether he has information is a question as to an objective fact and if there is complete absence of information, such absence would knock the bottom out of the jurisdiction of the officer. It will be noticed that clause (b) commences with the words 'notwithstanding that there has been no ommission or failure as mentioned in clause (a) on the part of the assessee.' These words show that omission and failure are not matters of reasonable belief but are objective facts and such ommission or failure are omission or failure to submit a return orto disclose a material fact necessary for assessment, both of which are objective facts. Furthermore, whether a fact not disclosed is a primary fact is matter not depending on reason to believe but a matter which is to be investigated by the court. In our view the decision which applies to a case arising under clause (a) is the decision in Gordon Woodroffe and Co. Ltd. v. Income-tax Officer, Madras and not this decision.

18. The position in the instant case is that the deposit of Rs. 21,352 not made in Samvat year 2008, which was the relevant year of account, and entry for the amount was a carry forward entry showing that the deposit was made in the bank in the earlier year. Obviously, therefore, the amount could not be brought to tax in the assessment for the assessment year 1953-54, and, therefore, there was not and could not be any escarpment of assessment so far as the assessment year 1953-54 was concerned. It is true that though the books of account for the relevant year of account were produced, that was not enough by reason of the Explanation to section 34(1), for attention was not drawn specifically to the account of the bank in the assessee's books. That may amount for non-disclosure but the question is, was there any non-disclosure of material fact necessary for a proper assessment on which the Income-tax Officer could have reason to believe that there was escapement. It is true that the court acting under its advosry jurisdiction may not have jurisdiction to inquire into the adequacy or otherwise of a reason to believe but that it is not the question before us. The question is, was there non disclosure of material fact which had a bearing on the assessment, which if, disclosed, would adversely result in a higher assessment. In other words, was it incumbent on the assessee to disclose to carry forwards entry in respect of the amount of Rs. 21,352 from the book of Samvat year 2008.

19. As laid down in Calcutta Discount Co.'s case, the duty of an assessee ends as son as he reveals to the Income-tax Officer all the primary relevant facts. The primary fact in the present case would be the deposit of the Rs. 21,352 during the relevant previous year. But there was in fact no deposit during that year. The disclosure of that account would obviously have been disclosure, not of the deposit for there was none, but disclosure of the fact that there was an entry carrying forward the amount from the preceding year. If the learned Advocate-General were to be right in his contention, it would mean that an assessee is bound is disclose not only facts which help the Income-tax Officer to tax but he would also be bound, to disclose facts which have no bearing on the assessment. In other words, there would be negative burden non the assessee to disclose non-relevant there would be a negative burden on the assessee to disclose non-relevant facts. That cannot be the correct interpretation of clause (a) of section 34(1). A reason to believe that there was escarpment of assessment founded on a fact which is not a primary fact, which did not actually exist and in consequence of which there was actually no escapement cannot confer jurisdiction for invoking the provisions of clause (a). In such a case there is no ground or material which can give raise to reason to believe on the part of the Income-tax Officer that there was non-assessment as a result of non-disclosure

20. In the view we take of clause (a) of section 34(1) we must come to the conclusion that the action of the Income-tax Officer in intiating the proceedings under clause (a) was without jurisdiction and was, therefore, bad in law. Accordingly, out answer is in the negative. The Commissioner will pay to the assessee the costs of this reference.

21. Question answered in the negative.


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