1. This is a reference under Section 66(1) of the Income-tax Act,1922, hereinafter referred to as ' the Act '. The facts as appearing in thethe case are as follows:
The assessee, Kamal Singh Rampuria, was born in December, 1935. His mother died within a week after his birth. Before her death she had executed a will, by which she disposed of Rs. 5,00,000 received by her as a gift previously from her husband, Hulash Chand Rampuria.. She bequeathed by this will Rs. 1,00,000 to her daughter, Rs. 1,00,000 made up of various sums to charity, and the balance of Rs. 3,00,000 was bequeathed to her son the assessee. This sum of Rs. 3,00,000 was invested in the firm of Messrs. Hazari-mal Hiralal and earned interest. Besides, the deceased owned one-sixth share in the firm of Messrs. Bikanir Trading Co., and this also came to the assessee. In the several returns made during his minority by his father, the said Hulash Chand Rampuria, since deceased, showed the income from the firm till 1944-45 in his son's account. The interest payments to the assessee, although shown in his son's account, were, however, assessed against the father under Section 16(3)(a)(i) of the Act. The said Hulash Chand Rampuria was dissatisfied with the order of the Income-tax Officer in dealing with, the interest income under the aforesaid section in respect of the year 1940-41 and referred this matter to the High Court under Section 66(1). In respect of the assessment year, which is 1945-40, the return of the income of the minor assessee submitted by his father included the share income from Messrs. Bikanir Trading Company but the interest income as aforesaid was shown in the account of the father. The share income alone was therefore, assessed on February 28, 1950.
2. This court decided in the said reference that the interest income could not be taxed in the hands of the father under Section 16(3) in the year 1952. In view of this the Income-tax Officer issued notice under Section 34 of the Act to the assessee in March, 1954, by which time the assessee had attained majority on the ground that the said interest income escaped assessment. The assess ment however, was completed on March 25, 1955.
3. The assessee appealed in the Appellate Assistant Commissioner who found that the decision made by the Income-tax Officer was correct. On appeal to the Tribunal it was contended that the Income-tax Officer was wrong in repelling the contention of the assessee that there was no material for initiating Section 34 proceedings, as the Income-tax Officer had chosen to treat the interest income received from Hazarimal Hiralal as income of the father under Section 16(3) of the Act. When the High Court decided the reference in 1952, and even before that the Income-tax Officer knew that the income belonged to the minor, the assessee, but had chosen, nevertheless, to assess it in the hands of the father and, having done so, it was not open to him, when the High Court decision was passed, to initiate proceedings under Section 34. The Tribunal, for the reasons given in its judgment, held that though there had been laches on the part of the department in taking action under Section 34, the assessee had not discharged his duty to return his income at the proper time, and so the assessment came within the ambit of Section 34(1)(a) of the Act.
4. On these facts, the following question of law has arisen for opinion by this court :
' Whether, on the facts and in the circumstances of the case, the assessment made under Section 34(1)(a) of the Income-tax Act was justified in law?'
5. Mr. Tarun Basu, the learned counsel appearing for the assessee, contends that, although the interest income was all along shown up to 1944-45 as the income of the son, it was treated as the income of the father under Section 16(3) and, in such circumstances, if the return regarding the interest income was filed by the father for the assessment year 1945-46 as his own income, it cannot be said that there has been no disclosure as to material facts. Further, it is argued that these facts were already known to Income-tax Officer and all the materials being present for his consideration, the provisions of Section 34 (1)(a) ought not to have been invoked by the Income-tax Officer.
6. The relevant ingredients of Section 34(1)(a), for the purpose of deciding this case, are as follows :
(a) Income, profits or gains chargeable to income-tax should have escaped assessment for the relevant year.
(b) The Income-tax Officer should have reason to believe that income has escaped assessment or full assessment, by reason of the omission or failure on the part of the assessee-
(1) to make a return of his income under Section 22, or
(2) to disclose fully and truly all necessary facts for the year.
7. The scope of this section has been discussed fully in the recent Supreme Court decision in the case of Calcutta Discount Co. Ltd. v. Income-tax Officer, Companies District I, Calcutta, : 41ITR191(SC) . The relevant portions of the judgment, which have been relied upon by the learned counsel of both sides, are quoted below : Their Lordships have observed at page 199 as follows:
' 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.'
8. Mr. Balai Pal, the learned counsel appearing on behalf of the department, contends that the principle decided in the aforesaid case has to be applied with reference to the facts of each particular case. In the instant case the Income-tax Officer could not have knowledge of the past affairs regarding the returns of the income and he was justified in taking recourse to Section 34(1) (a) as soon as he was appraised of the decision of the High Court. As soon as the decision was passed, the Income-tax Officer found that the interest income-had escaped assessment and therefore resort to the provisions of Section 34(1)(a) of the Act was justifiable.
9. Prima facie this argument made by Mr. Balai Pal appears to be correct. But this reference has to be decided on the facts as disclosed before the taxing officer, and it must have to be found whether the Income-tax Officer could not have reason, on the materials before him, to believe that there had been any omission to disclose material facts. It will appear from page 5 top of the paper book that the Tribunal made the following finding of fact:
' For the assessment year 1945-46 with which we are now concerned, the old procedure of returning the income from the Bikanir Trading Company only was followed and assessment was completed on April 30, 1946, the interest income being included in the hands of the father on February 28, 1950.' The Appellate Assistant Commissioner also made a finding of fact which has not, however, been reversed by the Tribunal by its judgment, as appearing in the paper book at page 4. It appears from page 11 of the paper book that the Appellate Assistant Commissioner made the following finding : 'The Income-tax Officer might have known at the time that the minor had interest income and also that such income was being assessed in the father's hands under Section 16(3)...The question as to who could be rightly assessed on the income had not been' considered at the stage when the minor was assessed in April, 1946, and ultimately in the assessment of the father the amount could be expected to be included or not included according to what facts would be available at the time of making that assessment irrespective of the treatment in the earlier years. The amount was actually included in the father's assessment with the observation that the interest was on disguised capital account of Hulash Chand.'
10. Further, it is found that the Income-tax Officer was within his power to take action for assessing a particular amount in somebody's hands if he is satisfied that such amount is his income, even though it is within his knowledge that the amount has been included in somebody else's assessment.
11. On a consideration of this finding we are of opinion that the Appellate Assistant Commissioner proceeded on the footing that the Income-tax Officer had knowledge at the time of assessment for 1945-46 that the interest income should be assessed in the hands of the father and the amount was actually assessed in his account, still according to the Appellate Assistant Commissioner, the Income-tax Officer was justified in proceeding under Section 34(1)(a). We are of opinion that when the Incom-tax Officer had the aforesaid prima facie facts and materials before him it was for him to decide that such a state of affairs did not justify him to proceed under Section 34(1)(a), specially when the finding of the Appellate Assistant Commissioner was that the interest income was assessed as belonging to the assessee's father. Accordingly, it appears to us 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 stated before.
12. The Appellate Tribunal was not also oblivious of this fact and its finding runs as follows :
'No doubt at the inception the Income-tax Officer had put the assessee's guardian on the wrong end by taxing incorrectly interest income in his hands. So, to an extent, the assessee was justified in not returning this income, but in so far as the father had not chosen to take the assessment made on him under Section 16(3) but was contesting it by taking proceedings under Section 66(1), he hoped that the assessment made on him would be cancelled. At any rate, when the reference application was made to the High Court, then at least a duty lay upon him as gurdian of the minor to return the income from Hazarimal Hiralal in the return of the assessee. Not having done so, he must be said to have deliberately kept back the sources of income from the department.'
13. From the above it appears that the Tribunal cast a duty upon the assessee's father for disclosing the assessee's interest income in the return of his son and, as this was not done in the relevant assessment year, it smacked of a mala fide conduct on his part. It appears to us that he (the assessee's father) showed the interest income for the first time in his return as he had always been proceeded against under Section 16(3), in spite of his showing the income in the return of his son. Although at his instance reference under Section 66(1) was made to the High Court against the assessment order under Section 16(3) in the assessment year 1940-41, he could not have foreseen in 1946 as to what the decision of the High Court would be, and as such he had compelling reasons to show the interest income as his own in the relevant year of assessment. These facts, in our opinion, do not warrant the inference that the conduct of the assessee was mala fide, and it was the duty of the assessee to show the income in the assessment year in his son's return.
14. On the background of the facts stated above, we are of opinion that the finding made by the Tribunal in this regard was not justifiable. It is undoubtedly true that the finding of fact made by the Tribunal cannot be interfered with by this court, but we consider that a finding on question of fact regarding the aforesaid matter is open to attack under Section 66 of the Act as erroneous in law, as we find that there is no evidence to support it, and it is perverse as it has been reached without due consideration of the several matters discussed above for such a determination.
15. We are therefore of opinion that there was no non-disclosure of material facts truly and fully as contended on behalf of the department and therefore the question must be answered in the negative.
16. The respondent will pay costs to the applicant. Certified for counsel.
Sankar Prasad Mitra, J.
17. I agree.