C.M. Lodha, C.J.
1. This is a reference under Section 66(1) of the Indian Income-tax Act, 1922 (hereinafter to be referred to as 'the Act of 1922') by the Income-tax Appellate Tribunal, Delhi Bench ' B ', at the instance of the CIT, Rajasthan, Jaipur. The question referred to us for answer is as follows:
'Whether, on the facts and in the circumstances of the case, the provisions of Section 34(1)(a) of the Indian Income-tax Act, 1922, were rightly held to be not attracted to the case ?'
2. There is no dispute regarding the main facts of the case which we propose to state as under:
The assessee is a public limited company running a textile mill at Pali. The matter pertains to the assessment year 1955-56. The assessee, it appears, has considerable income from dividends. The dividend income for the relevant year was shown by the assessee as Rs. 2,74,281. The ITO found that out of Rs. 2,74,281 a sum of Rs 18,742 related to the assessment year 1954-55. The assessee returned a dividend income of Rs. 25,952 for the next assessment year 1956-57. The assessment for the year in question i.e., 1955-56, was completed on March 28, 1960, whereas the assessment for the assessment year 1956-57 was taken up later and completed on March 27, 1961. The amount of Rs. 25,952 shown as dividend income for assessment year 1956-57, was not included in the assessee's income and of course it could not be included for the year 1955-56, as neither the assessee had shown it in the return for 1955-56, nor the ITO had included this amount for that year. However, on July 19, 1961, notice under Section 34(1)(a) was issued to the assessee and the same was served on July 28, 1961. In compliance with the said notice, the assessee, no doubt, filed a revised return, but contended that no dividend income for that year had escaped assessment on account of the omission or failure on the part of the assessee to disclose truly and fully the material facts necessary for assessment in that year and that consequently, the case did not fall under Section 34(1)(a) of the Act of 1922. The assessee, therefore, prayed that the proceedings initiated by the ITO under Section 34 of the Act of 1922, be dropped. The ITO, however, overruled the assessee's contention and held that the dividend income amounting to Rs. 25,952 should have been included in the assessment year 1955-56, but admittedly, it was not shown in the return and this amounted to an omission on the part of the assessee to disclose fully and truly the material facts necessary for assessment. He further held that the fact that the assessee had shown this income in the return filed for the assessment year 1956-57, did not exonerate it of the liability under Section 34(1)(a) of the Act of 1922, in respect of the assessment year 1955-56. In this view of the matter, he included the net dividend income of Rs. 25,952 for the assessment year 1955-56.
3. Aggrieved by the order of the ITO, the assessee filed an appeal before the AAC, who, by his order dated October 28, 1964, allowed the appeal and deleted the amount of Rs. 25,952 from the assessee's income, but gave a direction to the ITO to tax the said income in the assessment year 1956-57, on the basis of the assessee's declaration in that year.
4. Dissatisfied with the order of the AAC, the department preferred an appeal to the Tribunal. The Tribunal also upheld the assessee's contention and rejected the department's appeal by its order dated June 17, 1966. Thereupon, the department made an application under Section 66(1) of the Act of 1922, requiring the Tribunal to refer to this court a question of law arising out of the order of the Tribunal. The Tribunal allowed the department's application and has referred the question of law arising out of its order already extracted in the earlier part of this judgment.
5. Learned counsel for the department has strenuously urged that according to the finding arrived at by the Tribunal, there has been escapement of income and that the assessee had not disclosed the dividend income of Rs. 25,952 during the relevant year. It has been urged that the mere fact that the assessee had shown that income for the succeeding assessment year, i.e., 1956-57, is no ground for holding that there was no omission or failure on the part of the assessee in not disclosing this income for the relevant year. In this connection, it has been argued that the Tribunal's view that the ITO should have looked into the assessment records for the year 1956-57, is not correct. The argument appears to be attractive but, as we shall presently show, it is devoid of substance.
6. On the other hand, Shri Choudhary, learned counsel for the assessee,has contended that, in the first place, the dividend income of-Rs. 25,952,which had been received by the assessee during the year 1956-57, hadrightly been returned in the year 1956-57. The assessee was not bound toreturn this income in the year 1955-56, during which year only this incomehad been declared, as, according to the learned counsel, a mere declarationof dividend is not to be regarded as payment within Section 16(2) of the Act of1922. He has submitted that the finding of the Tribunal, in this respect,is incorrect, and the assessee is entitled to challenge the same in thisreference. In the alternative, the learned counsel has also argued thatthere has been no escapement of income by reason of any failure or omission on the part of the assessee to disclose the true and material factsnecessary for assessment.
7. The Tribunal has observed in para. 10 of its order dated June 17, 1966, as follows :
'The dividend in question had admittedly been declared in theprevious year relevant to the assessment year 1955-56, at the generalmeeting of the shareholders and it is nobody's case that such declarationwas in any way contingent. On the contrary, the case proceeded evenbefore the departmental authorities on the footing that it was a final andunconditional declaration of the dividend. Under those circumstances, itcan only be held that the said dividend was an income of the year in whichit was declared. It was as good as having been paid, credited or distributedto the assessee-shareholders. Under those circumstances that income rightlyfell to be assessed in the assessment year 1955-56. '
8. In support of the aforesaid finding, the Tribunal has also referred to a decision by the Supreme Court in J. Dalmia v. CIT : 53ITR83(SC) . However, it has not dilated on this aspect of the case, as, in its view, the main question to be decided in the case was not as to the year in which the particular income fell to be assessed but whether the assessee had failed to disclose fully and truly all material facts necessary for its assessment.
9. Learned counsel for the assessee has challenged the finding by the Tribunal extracted above and has contended that in the facts and circumstances of the present case, the assessee was justified in including the dividend income in question in the return for the assessment, year 1956-57, during which the dividend could be said to have been paid within the meaning of Section 16(2) of the Act of 1922. In support of this contention, he has placed strong reliance on CIT v. Bikaner Trading Co. Ltd. : 78ITR12(SC) . We may, however, observe that we do not feel inclined to go into this controversy. The assessee did not make any request, to the Tribunal to get this question referred to us, namely, whether the dividend income in question was rightly returned by the assessee in the assessment year 1956-57 and did not fall to be assessed in the assessment year 1955-56, It is sufficient to point out that the High Court exercises only advisory jurisdiction under Section 66(1) of the Act of 1922 and is not supposed to discharge the functions of an appellate court, Since no question has been referred to us on the point whether the dividend income in question rightly fell to be assessed in the assessment year 1955-56, we refrain from dealing with it.
10. The only point falling for our determination is,--whether, in the facts and circumstances of the case, the provisions of Section 34(1)(a) of the Act are attracted In other words, whether the ITO had reason to believe that by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts for its assessment for the year in question (sic)? According to the Tribunal, this income should have been returned in the assessment year 1955-56 and, therefore, there is no escape from the conclusion that the income in question has escaped assessment during the relevent assessment year. So one essential ingredient of Section 34(1)(a) is satisfied. The other important ingredient of the section is that the escapement must have been due to omission or failure on the part of the assessee to disclose fully and truly the material facts. The findings of the Tribunal, on this point are as follows:
'In the instant case, undoubtedly, the Income-tax Officer knew that the assessee had dividend income from the shares held by it in various companies. He also knew that in all the past years the assessee's system of accounting for the dividend income was to treat it as its income only when the dividend warrants had been encashed. The Income-tax Officer further knew that the same method had been followed by the assessee in respect of its dividend income for the assessment year in question as also for the succeeding assessment year. As a matter of fact, while making the original assessment for the assessment year 1955-56 the Income-tax Officer had himself left out dividend income amounting to Rs. 18,742 out of the declared dividend income of Rs. 2,74,281 on the ground that the former related to the earlier year. It would thus be only logical to say that the Income-tax Officer was fully conscious of the fact that in view of the system of accountaing followed by the assessee in respect of its dividend income, some part of the dividend income as would rightly fall to be assessed in the assessment year 1955-56, was not included in the return for the year in question but would have been included in the return for the year in which the assessee had encashed the dividend warrants. As stated above, the assessee's return for the assessment year next succeeding was also present before the Income-tax Officer at the time when he was making the original assessment for the assessment year 1955-56. It would have required just a little diligence on his part to get such dividend income, which, though included in the later year's return yet legally fell to be assessed in the relevant year, shifted and added to the relevant year's return. So far as the assessee was concerned, all its cards relating to the dividend income were squarely before the Income-tax Officer and the Income-tax Officer was fully conscious of the method followed by the assessee in so far as its income from dividend was concerned. Now, merely because the assessee following its accepted method of accounting returned dividend income assessable for the year in question in another assessment year, it cannot be understood as an omission or failure on the part of the assessee to disclose fully and truly the material facts necessary for its assessment for that year. The facts were all present and it was only the conclusion which the Income-tax Officer had to draw. So far as the assessee was concerned, it had returned its dividend income according to its same method of accounting which was being accepted by the department in the previous years. Now, if the Income-tax Officer thought that such method of accounting was not proper and legal so far as income from dividend was concerned, it was open to him to take that conclusion and assess the assessee accordingly. Once again, we refer to the observations of their Lordships of the Supreme Court in the case of Calcutta Discount Co. Ltd. v. ITO : 41ITR191(SC) wherein their Lordships have categorically observed that (at p. 201): '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.'
11. Now, there is no dispute that the assessee had been continuously following a system of accounting with regard to its dividend income, which according to it, was included in the year in which the assessee had actually encashed the dividend warrants and not in the year in which the dividend was declared. This system of accounting, it cannot be gainsaid, was known to the ITO. There is nothing on the record to show that in any of the assessment years preceding the relevant assessment year, the assessee had returned dividend income on declaration basis. On the other hand, the finding by the Tribunal is that the dividend income had been always returned by the assessee on receipt basis and this fact was known to the ITO at the time of original assessment. In these circumstances, the Tribunal came to the conclusion that there was no omission on the part of the assessee to disclose fully and truly the material facts necessary for assessment.
12. The net result of the primary facts found by the Tribunal is that the dividend income in question no doubt escaped assessment in the relevant assessment year but the escapement was due not on account of the failure on the part of the assessee to disclose fully and truly the material facts, but on account of the system of accounting adopted by the assessee, and allowed by the department. The ITO was aware of the fact that the dividend income was being declared by the assessee not on the basis of declaration of the said income, but on receipt basis. It appears to us that if the ITO had taken note of the fact during the assessment proceedings for the relevant assessment year that the system adopted by the assessee of showing the dividend income on receipt basis, was not correct, the income would not have escaped assessment. Thus, the present is a case where the escapement has been due to circumstances other than the alleged omission or failure on the part of the assessee to disclose the material facts. Put in other words, in the facts and circumstances, the escapement of income cannot be said to be due to failure or omission on the part of the assessee to return the dividend income in question for the relevant assessment year. In this view of the matter, we answer the question in the affirmative and hold that, in the facts and circumstances of the case, the provision of Section 34(1)(a) of the Indian I.T. Act, 1922, were rightly held to be not attracted to the case.
13. The answer is returned accordingly. There will be no order as to costs.