Biswas, for the Assessee
Dr. Radha Binode Pal for the Commissioner.
COSTELLO, J. - On the 5th of December, 1934, a Rule was issued by Mr. Justice LORT-WILLIAMS and Mr. Justice JACK in the matter of an application under Section 66(3) of the Indian Income-tax Act, 1922 at the instance of Jawala Prasad Chobey calling upon the Commissioner of Income-Tax, Bengal, to show cause why he should not draw up a statement of the case mentioned in the petition on which the application was based and refer that statement of the case to this Court under Section 66(3) of the Indian Income Tax Act for its opinion on the questions of law referred to in the order made by this Court. Those questions of law were stated under three heads after the original questions given in the petition had been redrafted by Counsel on behalf of the petitioner at the suggestion of the Court. In their final shape the questions were as follows : (i) Whether, having regard to the fact that Section 34 of the Act requires 'particulars' to be stated in the notice and that the notice is the basis of the proceedings under the said section, the Income Tax Officer was competent in law to go behind the particulars as specified in the notice under Section 34 in the present case (ii) Whether in view of the fact that admittedly the previous assessment did not give the details of the estimate on which the assessment was made, and in view of the nature of the business carried on by the assessee, the Income Tax Officer was entitled to assume that income from dividends had not and could not have been included in the previous assessment or, was it not open to the assessee to rebut the said assumption by reference to his books of account and other evidence and claim to reopen the said previous assessment accordingly (iii) Whether or not in the circumstances of the case, the Income Tax Officer was justified in law in holding that he was precluded from entering into the merits of the former assessment ?' The Commissioner of Income Tax was required to show cause why he should not state a case raising those three questions for the opinion of this Court.
In the, proceedings now before us the Commissioner of Income Tax, Bengal, is showing cause why he should not be required to state a case. He has submitted a somewhat comprehensive statement to this Court and in paragraph 4 he says 'I presume I am required to show cause only in respect of the questions is formulated by the leave of the Court and in this connection I would respectfully urge that the first of the 3 questions thus formulated was never raised, at the stage when the matter was before the Assistant Commissioner or Commissioner. The second question also would appear to be new except for the last portion thereof which corresponds to some extent to question (D) of the applicants list, while question No. III would also appear to be new in form and in substance'.
In order to appreciate how the questions which were formulated on behalf of the petitioner can in any way be material it is necessary that I should recapitulate the history of this matter. The petitioner originally submitted a return of his income under the provisions of Section 22(2) of the Income Tax Act on the 3rd of June, 1929 and in that return he showed his income under the heading 'Business, trade, commerce, manufacture, or dealing in property, shares or securities' that is to say, heading 5 as being the sum Rs. 9,412-10-0, that is to say, he gave that figure as the amount of profits or gains or income during the previous year under the heading of 'business'. A week or two later that is to say, on the 27th of June, 1929, the present petitioner submitted a revised return as he was entitled to do under the provisions of Section 22(3) and in that revised return the statements in the column heading 'amount of profits or gains or income during the previous year' were amended. Under heading 1 'Salaries' he put the word 'nil'; under heading 1-B 'the interest accruing to the account mentioned in 1-A which is not exempt for income tax' ditto; under heading 3 'Interest on Securities of the Government of India or of local Government declared to be income-tax free' - ditto; under heading 5 'Business' he stated the amount to be 11,752; under heading 6 'Profession' he put the word 'nil' under heading 7 'Dividends from companies' ditto; and under heading 8 'Interest on mortgages, loans, fixed deposits, current accounts etc.' ditto; the total being stated to be 11,752. It has thus to be seen that in the revised return which was made on the 27th of June, 1929, the assessee had put the return in such a form as would indicate that he had given close attention to the various headings under which he might be chargeable to income tax. The importance of this returns is that against heading 7 'Dividends' he had put 'nil'. The Income Tax Officer was then of opinion that even this second return did not properly or fully disclose the whole of the taxable income of the assessee and accordingly the Income Tax Officer served a notice upon the assessee under the provisions of Section 22(4) and 23(2) calling upon him to furnish such evidence as was available to substantiate the return which he had made and also calling upon to produce accounts and other documents in support of it. In pursuance of that notice the assessee did produce certain accounts in the form of a 'daily purchases and sales book' sowda book, and as a result of the enquiry that ensued, on the 10th of December, 1929, an assessment was made under the provisions of Section 23(3) of the Act which provides that 'the Income Tax Officer after hearing such evidence as such person, i.e., the assessee 'may produce and such other evidence as the Income Tax Officer may require on specified points shall, by an order in writing, assess the total income of the assessee and determine the sum payable by him on the basis of such assessment.'
The assessment made on the 10th of December, 1929, was on the basis of a total income of Rs. 38,000 of which Rs. 28,000 was in respect of 'business' and Rs. 10,000 in respect of 'interest'. Some months after it came to the knowledge of the income tax authorities that the assessee had a business in Agra and he had been assessed in Agra in respect of the business. Accordingly on the 21st of March, 1930 a notice was served under the provisions of Section 34 of the Income Tax Act which provides 'If for any reason income, profits and gains chargeable to income tax has escaped assessment in any year, or has been assessed at too low a rate, the Income Tax Officer may, at any time within one year of the end of that year, serve on the person liable to pay tax on such income, profits or gains, or, in the case of 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, and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section.' That means of course that where a notice is served under Section 34 the Income Tax Officer may again require a production of accounts or other evidence bearing on either of the two points on which the notice may be, that is to say, their come which has escaped assessment or the income on which tax has been charged at too low a rate. This notice of the 21st of March was directed to the second part of Section 34 and was intended to enable the income tax authorities to amalgamate the original assessment on the Calcutta business Rs. 38,000 with the assessment on the Agra business which was to the amount of Rs. 12,000. At that time no question had arisen as to the escape of any income from assessment and, therefore, the Income Tax Officer at that time did not require a production of any further account or documents or other evidence. As a result of the issue of that notice a return was submitted on the 25th of April, 1930, again duly signed by the assessee in which he stated that the income of the Calcutta business was Rs. 38,000 and the income of the Agra business Rs. 12,000 making a total of Rs. 50,000. A month later, on the 21st of May, 1930, an assessment was duly made upon the basis of that return with the addition of a sum of Rs. 100 on account of certain house property owned by the assessee in Agra whereby the total income was brought up to a sum of Rs. 50,100. The assessment was in these terms. 'In this case notice under Section 22(2) read with Section 34 was issued as per orders dated 20th March 1930. The assessees filed a duly verified return on 23rd April, 1930. They have failed to comply with the terms of the notice under Section 23(2). It has been alleged that no accounts are kept by them. This is unthinkable. A business firm like theirs cannot do without accounts and I am of opinion that the books are being intentionally withheld. They are thus liable for assessment under Section 23(4). I assess them accordingly under Section 23(4) for 1929-30 read with Section 34 on a total income of Rs. 50,100. Income tax now due Rs. 1,156-4-0.'
After that there was an interval of some five months and on the 9th of October, 1930 a second notice under the provisions of Section 34 was served on the assessee and in that notice it was averred that 'income from dividends etc., has partially escaped assessment.' So, that was a notice under the first part of the provisions of Section 34. Pursuant to that notice a return was submitted in which it was stated that the assessee had no income from dividends apart from the income disclosed under the heading 'business'. That return is somewhat illuminating. It is dated the 27th of November, 1930, and in it the assessee once more revised the amount of his income under the heading of 'business.' I emphasize again that originally it was stated by him to be Rs. 9,000, it was then stated by him to be Rs. 11,000 odd; and it was ultimately assessed at Rs. 38,000. When the second notice under Section 34 was served and the return of the 27th of November, 1930, was made in consequence of that notice the assessee thought fit to reduce the assessable income under the heading 'business' to the figure of Rs. 5,544 and he stated that the tax already charged on the income was Rs. 8,457-11-9. But the really significant part of this return is a sort of postcript added to the foot of the first page of the return in these terms : 'The assessee has no income from dividends as contemplated in the notice under Section 34 distinct from his income from dealing shares. Income from dividends accrues to him as part of his business income and passes through the revenue account.' One can only say - it seems somewhat curious, to say the least of it, that the first effect of the income-tax authorities saying that a part of the assessees income had escaped assessment was for the assessee to contend that he had already been assessed at too high a figure under the heading 'business'. It is not surprising however that in those circumstances the income tax authorities were not content with that return; and on the 8th of May, 1931, fresh notices under Section 23(2) and Section 22(4) were issued calling upon the assessee to produce accounts for the year 1982-83, to 1984-85, i.e., corresponding to 1925-26 to 1927-28. After receipt of those notices on the 18th of May, 1931, the assessee did produce certain books - Khata books, rokurs, delivery book, Bank pass books, sowda books, share stock books, share security books and some others and the accounts disclosed in these documents were under examination by the income-tax authorities for a considerable period of time; and ultimately on the 28th of April, 1933, an assessment was made which is the assessment now called in question in these proceedings. The relevant part of the order of the 28th of April, 1933 is in these terms : I compute assessees income as under :-
'Property at Agra ...
Business at Calcutta and Agra ...
There may or may not have been a loss as disclosed by the books, but I am precluded from entering into the merits of the former assessment made on Rs. 50,000 for business as I am of opinion that no income from business escaped assessment.' Then comes the heading 'Dividends.'
Rs. 81,758 plus
That added to 50,100 made a grand total Rs. 1,40,315. Then follows a calculation for super-tax.
Super-tax on Rs. 50,000 @ 0-1-0 ...
on Rs. 15,315 @ 0-1-6 ...
The order of the Income Tax Officer when that assessment was made contained a statement of his reasons for arriving at that assessment which is very material for our present purpose. He said this : 'It is not likely that any dividend receipts are in the figure of Rs. 28,000 estimated after local enquiry, as, if dividend receipts were also to be shown they would necessarily have had to be shown under a separate head. In that case the use of the word 'partial escape' in the notice under Section 34 has no meaning. It seems to me it is not a case whether the income partially or wholly escaped but if it escaped or not. Dividends have to be separately assessed and as this has not been done, they are liable for assessment now. Regarding the amount, pleader again urges that as the word 'partial' was used, part of the dividend must have been assessed in the original assessment and that I should determine the portion escaped. This cannot be the case. If dividend income had been included in the original estimate, it could no have been taxed there again, as that in itself would have been tantamount to double taxation.' Then he said - and this is of very great importance, 'Having decided the above facts I compute assessees income.' Having made the assessment the Income Tax Officer then proceeded to discuss the question as to whether or not a penalty ought to be imposed under Section 28 of the Income Tax Act for deliberate concealment of the dividend income and in the course of the discussion on that point the Income Tax Officer said 'It is certain, therefore that dividends were not shown in the original return and even in the return filed under Section 34, assessees showed Rs. 12,000, Agra income and 38,000 for Calcutta (which figure did not include dividends).'
Against the order or the Income Tax Officer which I have just quoted there was an appeal to the Assistant Commissioner of Income Tax and the Assistant Commissioner after reciting the history of the matter and calling attention to the note to which I have already referred, the note which appears on the return dated the 27th of November, 1930, said :- 'The learned Advocate for the appellant has urged that the Income Tax Officer is wrong in having assessed income from dividends only under Section 34 and that he should have determined all the sources of income for which he gave notice and that the Income Tax Officer assessed all the dividends but he should have assessed part of them only as in the notice under Section 34 it was said that dividends partially escaped assessment. It has also been urged that the income from business is intermixed with income from dividends and that the Income Tax Officer should have considered the business loss shown in the return last submitted.' We have also been referred to the order dated the 26th of May, 1932, in which the Income Tax Officer said as follows :-
'No income excepting dividends appears to have escaped assessment. The proceedings under Section 34 will be disposed of afterwards.'
From the above order of the Income Tax Officer the learned Advocate wants me to hold that the findings above have been arrived at after the Income Tax Officer had examined the accounts in respect of all the sources of income and that he should therefore have made the assessment of all the sources. It is also urged that having issued the notice saying 'dividends etc.', the Income Tax Officer must have to assess all the sources other than dividends as well as dividends. Then comes this finding : From the recital of the facts above it will be clear that gradually things began to come to light. In this case from the solemn declaration of the assessee in the return dated 23rd April, 1930 it was found that they had business income of Rs. 50,000; 38,000 at Calcutta and 12,000 at Agra. The Income Tax Officer assessed only that income which escaped assessment which really is the scope of Section 34. Further, if as is claimed now, the income returned in the previous returns included dividend income, the assessees would certainly have objected to assessment to tax of that income if it really included dividend, for the same has been taxed at source already. On the admitted statement of the assessee the business income as distinct from dividends was a sum of Rs. 50,000/-. In the case of T.S.T.S. Chettiar Firm it has been held that it was not incumbent on the Income Tax Officer to reopen the assessment as a whole and to ascertain do novo the whole assessable income and that the Income Tax Officer was authorised and bound to assess only the income, profits and gains that had escaped assessment.
In the circumstances I think there is no reason to interfere with the assessment'. So that the appeal from the assessment dated the 28th of February, 1933 was dismissed.
Thereupon the assessee moved the Commissioner of Income Tax to state a case to this Court. That the Commissioner of Income Tax declined to do and he gave reasons for his decision in his order dated the 15th February, 1934. In that order the history of the case is once more set out and the Commissioner points out that after the return showing a profit of Rs. 11,752/- had been made, the assessee, when called upon to produce accounts simply produced his daily purchases and sales book and alleged that no other books were kept. In connection with the proceedings under Section 34 designed to bring in the amount of profits of the Agra business the Commissioner makes this comment : 'In these proceedings the assessee submitted a return showing an income of Rs. 38,000 from Calcutta and Rs. 12,000 in Agra and when called upon to substantiate his return by evidence his representative, a lawyer, Babu H.L. Banerji, appeared and stated that no accounts were kept. The Income Tax Officer refused to believe this allegation and accordingly made as assessment under S. 23(4) though on the figure of income returned by the assessee adding merely Rs. 100 as his value of his property in Agra. Later again it came to the notice of the Income Tax Officer that the assessee had a substantial income from dividends the actual amount of dividends received in the year of account being Rs. 90,215, a sum which is not questioned by the assessee; I underline that last sentence and on receipt of information to this effect of Income Tax Officer issued another notice under S. 34 calling for return of income and in compliance with that notice the assessee submitted a return showing profits of Rs. 5,544 under the head business and against that item a sum of Rs. 8,457.11.0 tax already charged. Then the Commissioner makes reference to the foot-note in the return dated the 27th of November, 1930, and with regard to it he says 'The Income Tax Officer refused to accept this contention and on the ground that this income from dividends had escaped assessment, he again made an assessment under S. 34 adding to the income originally assessed the sum of Rs. 90,215.' Then he proceeds to discuss the contentions of the assessee and the reasons put forward why the Commissioner should state a case for the opinion of this Court. I need only refer to one passage which is in these terms : 'I have already stated that in the first assessment of all, the assessee merely produced a sales book purporting to show his total transactions while in the course of his second assessment he alleged that he kept no accounts at all. In the third assessment, that is, the second under S. 34, he produced detailed accounts from which he claimed that his real profits of the year were Rs. 5,544, after passing the dividends through his general revenue account and treating them as receipts from business. How can I be asked to accept the position that because the assessee at this late stage produced certain accounts the existence of which he denied in the earlier assessments, the Income Tax Officer who made the earlier assessments must be presumed to have accepted the position reflected by those accounts.' Then he refers to the 4 questions of law which the assessee desired to put forward for consideration of this Court. Nothing need be said with regard to the first three of those questions and with regard to the 4th the Commissioner accepts the assessees contention with regard to the pure question of law. The question was then put in this form : 'Were not the assessees entitled in terms of the notice under Section 34 to show in any way they could that the income alleged to have partially escaped assessment has not in truth and in fact escaped assessment and for this purpose income, profits and gains have not necessarily escaped assessment because they had not been assessed under the right head ?' That proposition of law is really accepted by the learned Commissioner. He says with regard to it 'my answer to that question would be in the affirmative in accordance with the decision of the Calcutta High Court in case of Satyendra Mohun Roy Chowdhury & Others v. Commissioner of Income Tax, Bengal (4 I.T.C. 447)'. Then he adds this : 'But that as a matter of fact the assessee in this case did not and could not show that the income which was allege to have escaped assessment was in the previous assessment assessed by the Income Tax Officer under the head business. The learned Commissioner accordingly records that 'No reference will be made to the High Court and this application is disposed of accordingly'.
The latter part of this order seems to be a finding of fact and Mr. Biswas was also disposed to agree that if that is so, then he cannot ask this Court to require the learned Commissioner to state a case. A mentioned at the outset the three questions which at the suggestion or with the assistance of the Court were finally put forward in the application for the Rule. Mr. Biswas has not seriously argued with regard to the first two of those questions. The first question deals with the form of notice. It is admitted that notice under Section 34 is not to be in any prescribed or any statutory form. Therefore, so long as it brings to the attention of the person to whom it is served the matters required to be answered or dealt with or the things required to be furnished it is sufficient. The second question as finally settled is very much the same as question 3, only in a different form. Put quite shortly, the whole matter resolves itself into this -whether in the circumstances it was incumbent on the Income Tax Officer to reopen not only the assessment which had been made after service of the first notice under Section 34, but even the assessment which had originally been made as a result of the return submitted by the assessee himself. I am of opinion that the view taken by the learned Commissioner of Income Tax as regards the question of law was correct. There is no doubt that if a notice is served under Section 34 saying that income has wholly or partially escaped assessment it is only right and proper that the assessee should be entitled to show, if he can, that the income which is said to have escaped assessment was in fact included in any sum stated in the return even though that sum was stated under some other head and in this particular instance if the matter had been res integra, if I may use the expression, no doubt when the second notice was served under Section 34 it would have been open to the assessee in the normal way to show that the dividends which were alleged to have escaped assessment had been in some form or other included in the item put against the head 'business'. But one must consider the matter as a whole and in the light of the circumstances of the case. The question whether the dividends were included in the amount of Rs. 9,000, in the amount of Rs. 11,000 odd or in she amount of Rs. 38,000, odd or even in the amount of Rs. 5,514 is purely a question of fact and I am satisfied after a very careful scrutiny of what was stated by the Income Tax Officer in his order of the 28th April, 1933, that in effect he did come to a definite finding of fact that these dividends which amounted to no less than a sum of Rs. 90,215 had not been brought into account in arriving at the figure of Rs. 38,000; in other words, a sum which ought to have been stated as against heading 7 had not been given under heading 5 by inclusion in the sum said to be earned from business. I have already quoted a passage in the order of the Income Tax Officer of the 28th of April, 1933, which in my opinion makes that quite clear. That order as I have stated, was confirmed on appeal by the Assistant Commissioner of Income Tax after he had carefully considered the whole matter. The question was again considered the whole matter. The question was again considered by the Commissioner of Income Tax himself when an application was made to him to state a case to this Court and in my judgment the passage which I have already read, the passage which is in these terms : 'The assessee in this case did not and could not show that the income which was alleged to have escaped assessment was in the previous assessment assessed by the Income Tax Officer under the head business amounts to a clear finding of fact. In the course of the very lengthy investigation which took place after those various books which I have enumerated were produced, it must have been made clear that the sum chargeable under the head dividends had not been included in the sum chargeable under the head business. The reason given is that that examination and investigation into the accounts must have been sufficient to have disclosed these dividends, if in fact they were included in business and if the dividends had then come to light the result would have been that the assessee would have been required to amend his return so as to put the dividends under the proper head. As that has not been done it must be assumed that the investigation did not disclose the fact that the assessee had received this large sum of Rs. 90,215 as dividends on securities. In my judgment the findings of fact of the income-tax authorities are such as would preclude the necessity for discussion of any point of law in this matter. On this point further it is quite clear that the assessee, first by implication and then expressly, declared that he had no income properly described or described at all as dividends. He made a categorical declaration to that effect and persisted in it.
Moreover, it is clear from the various facts to which I have alluded that there was from first to last a deliberate attempt on the part of this assessee to withhold information from the income tax authorities and an intentional failure on his part to produce proper accounts. Taking those facts together I am of opinion that on principles analogous to the principle of estoppel, this assessee cannot now be heard to say that the sum assessable as dividends was in any sense included or taken into account in the sum assessable as profits of business.
In my opinion, therefore, this rule should be discharged. The applicant must pay the costs of the other side - such counsels fees as he will have to pay to his counsel (we allow cost of two counsel) and a sum of seven gold mohurs for other expenses.
DERBYSHIRE, C.J. - I agree.