1. This petition is directed against a notice dated 28th March, 1969, issued by the Income-tax Officer, Circle II, ward C. Ahmedabad, against the petitioner under section 148 of the Income-tax Act, 1961, seeking to reopen the assessment of the petitioner for the assessment year 1960-61. In or about 1930, the petitioner purchased the entire areas forming the village of Sahijpur-Bogha in the District of Ahmedabad. The total area purchased by the petitioner comprised 1,332 acres. Out of this petitioner set apart 266 acres for building sites and divided it into 1,000 plots after laying to roads and providing other amenities. The petitioner thereafter started selling these plots from time to time and the sales effected by the petitioner went on for a number of years. In Samvat year 1991, being year of account corresponding to the assessment year 1936-37, the petitioner sold 208 plots and, as a result of the sales, he realised an agreegate sum of Rs. 65,870. The Income-tax Officer assessing th petitioner for the assessment year 1936-37 included in the total income of the petitioner a sum of Rs. 56,980 on account of profit earned by him from the sale of 208 plots after giving him credit for the expenditure incurred by him and taxed him on the basis of such profit. The petitioner carried the matter in appeal to the Appellate Assistant Commissioner but the view taken by the Income-tax Officer as regards the taxability of the amount of profit was confirmed by the Appellate Assistant Commissioner and the only relief granted to the petitioner was that the amount of profit was reduced from Rs. 56,980 to Rs. 47,533. The petitioner thereupon asked for a reference and the following question of law, namely :
'Whether there is any evidence to support the finding of the Assistant Commissioner that the said amount of Rs. 47,533 is profit earned by the assessee in the business of purchasing, developing and selling land, carried on by him ?'
was referred to the Bombay high Court. The reference came to be heard by a Division Bench consisting of Be amount C.J. and Kania J. and, in the course of the judgment, certain observations were made by both the learned judges which seemed to indicate that in their opinion the purchase and sale of the area comprised in village Sahijpur Bogha was an adventure in the nature of trade and being a single venture :
'............... the question of assessing the profits arose when the venture came to an end, i.e., when the goods purchased were all sold.'
2. The learned judges, however, found themselves unable on the material before them to state whether there way any profits and, if so, whether the amount of Rs. 47,533 stated in the question referred represented profit. This decision given by the learned judges is In re K. H. Mody.
3. The question of assessing profits in respect of sale of plots effected by the petitioner during the subsequent years arose in the course of the assessment of the petitioner for each subsequent year. The stand taken up by the petitioner was that in view of the decision of the Bombay High court in In re K. H. Mody the profits arising from the venture of purchase and sale of the area comprised in village Sahijpur Bogha could be assessed only when the sale of all the plots were completed and, since all the plots were not sold, there was no question of assessing the petitioner in respect of the profits alleged to arise from the sales of the plots effected during the relevant years of account. This contention of the petitioner was accepted by the Income-tax Officer and no amount was included in the total income of the petitioner in respect of profits arising on the sales of plots effected by the petitioner. The same story repeated itself in the assessment year 1960-61 for which the relevant year of account was Samvat year 2015. The petitioner, while disclosing that an aggregate sum of Rs. 44,333 represented the sale proceeds of the plots sold by him during the relevant year of account, stated in a note attached to the statement of income filed along with the return :
'We have been doing sale of land which has been purchased since long as mentioned in the last assessment order. The profits is to be taken when all the land in business is sole. This has been held by the High Court, in our case, as such. We promise to show our profit no sooner than the whole transaction is completed.'
4. The Income-tax Officer, accepting this contention of the petitioner, passed an assessment order dated 18th August, 1961, excluding the profit embodied in the sale proceeds of the plots from computation of the total income of the petitioner, for the following reasons :
'This year the family has received Rs. 44,330, on account of sale of land. However, it was decided by the High Court earlier that the profit from land transactions should be taken on the final disposal of all the plots. Therefore, the profits from this is not considered here as the complete sales of all the lands have not been effected so far.'
5. Nothing transpired thereafter for a period of about 7 1/2 years until 28th March, 1969, when the Income-tax officer issued a notice dated 28th March, 1969, against the petitioner under section 148 seeking to reopen the assessment of the petitioner for the assessment year 1960-61. The petitioner immediately filed the present petition challenging the validity of this notice issued by the Income-tax Officer.
6. Now, it is obvious that since the impugned notice has been issued by the Income-tax Officer after the expiration of four years but before the expiration of eight years from the end of the assessment year 1960-61, it can be justified only under section 147(a) and the claim of the revenue to issue it was also, therefore, naturally based on that provision. It is clear on a plain reading of section 147(a) that to confer jurisdiction under that provision to issue notice in respect of assessments beyond the period of four years but within a period of eight years from the end of the relevant year, two conditions have to be satisfied. The first is that the Income-tax Officer must have reason to believe that income chargeable to tax has escaped assessment. The second is that he must have also reason to believe that such escarpment has taken place by reason of either -
(i) omission or failure on the part of the assessee to make a return of his income under section 139; or
(ii) omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year.
7. Both these conditions are conditions precedent to be satisfied before the Income-tax Officer could have jurisdiction to issue notice for assessment or reassessment beyond the period of four years but within the period of eight years from the end of the year in question. Now, no dispute was raised before us on behalf of the petitioner that the first condition was not satisfied and we will, therefore, for the purpose of the present petition, proceed for the basis that the Income-tax Officer had reason to believe that the income of the assessee had escaped assessment for the assessment year 1960-61. The dispute between the parties centered round the fulfillment of the second condition. The petitioner contended that the second condition was not satisfied whereas the revenue contended to the contrary and, of the two grounds set out in the second condition, the revenue relied on the second ground and urged that the Income-tax Officer had reason to believe that there had been omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, for the relevant assessment year in consequence of which there was escarpment of income from assessment. On this contention the only question which arises for consideration is whether the Income-tax Officer had reason to believe that there was some omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment and that by reason of such omission or failure, income of the assessee escaped assessment for the assessment year in question.
8. Before we proceed to consider whether the petitioner has succeeded in showing that on the material on record the Income-tax Officer could have no reason to believe that there was any omission or failure on the part of the petitioner to disclose material facts necessary for his assessment resulting in income escaping assessment, it is necessary to understand what is meant by the expression 'material facts' which it is the duty of the assessee to disclose before the Income-tax Officer at the time of the assessment. The Supreme Court has occasion to consider the scope and meaning of this expression in Calcutta Discount Co. Ltd. v. Income-tax Officer, Calcutta, where Das Gupta J., speaking on behalf of the majority, said :
'............. 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 years'. 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 inference 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........
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.........
Does 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 ways disclosure. It is for him to decide what inference of facts can be reasonably drawn and what legal inference have ultimately to be drawn. It is not for somebody else - far less the assessee - to tell the assessing authority what inferences, whether of fact or law, should be drawn........
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 does not extend beyond this.'
9. The 'material facts' which are required to be disclosed by an assessee at the time of his assessment are, therefore, primary facts material and necessary for the purpose of his assessment. The duty of the assessee is to disclose only primary facts and it is for the assessing authority to decide what inferences of facts can be reasonably drawn from the primary facts and what legal inferences must ultimately be drawn from the primary facts and the other facts inferred from them. The assessee is not bound to tell the assessing authority what inferences, whether of fact or of law, should be drawn and his failure to communicate to the assessing authority the proper and correct inferences to be drawn from the primary facts cannot be regarded as a failure to disclose 'material facts'. The effect of accepting the contrary view would be to impose an intolerable burden on the assessee and to compel him to argue against himself which would be neither just nor reasonable. We must, therefore, inquire whether in the present case any primary facts material and necessary for the purpose of the assessment were omitted to be disclosed by the petitioner at the time of the original assessment.
10. Two primary facts, according to the revenue, were not disclosed by the petitioner at the time of the original assessment and they were : (i) the true ratio of the judgment of the Bombay High Court in In re K. H. Mody; and (ii) the fact that before the relevant year of account the petitioner had already recouped out of the sale proceeds of the plots the whole of the amount laid out by him in the purchase and development of the entire piece of land and the non-disclosure of these two facts, said the revenue, had resulted in the escarpment of the amount of profit earned during the relevant year of account from tax. Now, so far as the first fact alleged by the revenue is concerned, it is difficult to see how it can possibly be regarded as a primary fact. What is the correct ratio of the judgment of the Bombay High Court in In re K. H. Mody would be a matter to be decided on reading the judgment. The petitioner, in the note filed by him along with the return, put forward his contention in regard to the true ration of the judgment and urged that, having regard to what in his submission was the correct ratio, no part of the profit embedded in the sale proceeds of the plots was liable to be assessed during the relevant assessment year. It was for the Income-tax Officer to decide whether the interpretation of the judgment contended for on behalf of the petitioner was the correct interpretation or whether the judgment laid down a different ratio. The Income-tax Officer accepted the interpretation canvassed on behalf of the petitioner and held that the true ratio of the judgment was that the profit arising to the petitioner from the sales of the plots was assessable only after all the plots were sold and the venture was finally completed. There was no obligation on the petitioner to argue against himself and to concede an interpretation contrary to his won case. He was entitled to suit what in his opinion was the correct ratio of the judgment and, in doing so, there was no omission or failure on his part to disclose any primary fact to the Income-tax Officer. It is no doubt true that the second fact pointed out by the revenue was a primary fact which might have had a bearing on the assessment of the petitioner. But it is not possible to say that the escapement of the amount of profit from tax was in consequence of the non-disclosure of such fact. The amount of profit embedded in the sale proceeds of the plots escaped tax because of the erroneous view taken by the Income-tax Office that no part of it was taxable until all the sale were completed and the venture had finally come to an end. On this view taken by the Income-tax Officer, it was entirely immaterial whether the whole of the cost of purchase and development of the entire piece of land had been recouped by the petitioner out of the sale proceeds of the plots sold prior to the relevant year of account. Even if this fact had been disclosed, it would have had no consequence, since, despite the disclosure of this fact, the amount of profit would still have been not taxable in the view of the law taken by the Income-tax Officer. It is, therefore, not possible to accede to the argument of the revenue that the profit embedded in the sale proceeds of the plots sold in the relevant year of account escaped tax by reason of non-disclosure of this particular fact by the petitioner. We must, in this view of the matter, reach the conclusion that the Income-tax Officer could have no reason to believe that by reason of any omission or failure on the part of the petitioner to disclose any material facts necessary for the purpose of assessment for the assessment year 1960-61, income of the petitioner chargeable to tax had escaped assessment. The second condition limiting the exercise of the power under section 147(a) was, therefore, not satisfied and the Income-tax Officer had no jurisdiction to reopen the assessment of the petitioner by issuing the impugned notice.
11. We, therefore, allow the petition and make the rule absolute by issuing a writ of mandamus quashing and setting aside the notice dated 28th March, 1969, issued by the Income-tax Officer under section 148 of the Income-tax Act, 1961. The respondent will pay the costs of the petition to the petitioner.