TMI Blog1962 (7) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... nding business it lent a sum of ₹ 51,315 to one Swaleh Khan. The debtor was a landlord within the meaning of the U.P. Encumbered Estates Act. A decree against the landlord-debtor was passed in favour of the assessee on September 29, 1943, for a sum of ₹ 1,09,500 which included both principal and the accumulated interest. In due course, in pursuance of the decree the Collector gave an award on March 29, 1945, offering to the assessee transferable U.P. Government Encumbered Estates bonds of the face value of the decretal amount, in lieu of cash in full settlement of the assessee's claim against the landlord-debtor. These bonds were accepted by the assessee on March 16, 1946, that is, within the accounting period relevant to the assessment year in question. Out of these bonds, on March 26, 1946, that is, still within the accounting period, the assessee sold bonds worth ₹ 80,000 for a sum of ₹ 79,228. The assessee credited the sale proceeds in his account books in the account of Mohammad Swaleh as follows: Rs . Towards principal 51,315 Towards interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as upheld in appeal by the Appellate Assistant Commissioner and in further appeal by the Income-tax Appellate Tribunal. Thereafter, the assessee asked for the statement of a case to this court and the case has accordingly been stated as mentioned above. The first argument which learned counsel has addressed to us on this reference is that there was no omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment and as such action under section 34(1)(a) was not justified. It is clear that in view of the facts and the circumstances of this case there is no force at all in this submission. The assessee omitted to make an entry with regard to the total value of the bonds received by him in full settlement of the debt As seen above he omitted the mention of the total value of the bonds in its investment account or in the ledger account of this particular debtor or in its interest account. Mention of the difference between ₹ 1,09,500, the full value of the bonds, and ₹ 80,000, the value of the bonds which were sold, was also omitted from the suspense account, the capital account and the balance-sheet. All the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disclosure within the meaning of this section. Prior, however, to the addition of this Explanation the position had always been understood to be the same as it is under the Explanation. In other words the addition of the Explanation has not made any change in the law. In view of what has been stated above it is quite clear that there was omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for its assessment for the year in question. It follows that the action taken under section 34(1) was perfectly valid and the second question referred to this court must, therefore, be answered in the affirmative and against the assessee. The other question which now remains to be answered in this reference is whether the receipt of the bonds amounted to receipt of interest on the date when the bonds were received. This very question came up for consideration before this court in Commissioner of Income-tax v. Maheshwari Saran Singh [1951] 19 I.T.R. 83, where it was held that the bonds being transferable, their receipt amounted to receipt of money's worth. Accordingly if in the value of the bonds any amount was included on account of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds received by the assessee were not cash. Bonds of the face value of ₹ 29,500 were sold only on April 17, 1946, that is to say, in the succeeding accounting period relevant to the next assessment year, namely, 1947-48, and not the assessment year in question. Cash was received only by sale. Therefore, the amount of ₹ 29,365 was properly assessable only in the assessment year 1947-48 and not in the assessment year in question under section 34. The computation of income of an assessee has to be made on the basis of the system of accounting regularly employed by him. In this case the system of accounting being the cash basis, and cash having been received only in the succeeding year, the assessment of the amount in this year was illegal. This argument is based upon a misunderstanding of what is meant by the cash basis system of accounting as distinguished from the mercantile system of accounting. All that the cash basis means is that it is only actual receipts and disbursements that are brought into account. The distinction between this basis and the mercantile basis is that in accounts on the latter basis actual receipts and disbursements are not necessary. It is suff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n valuation he is estopped from contending either that the property or benefit has no value, or that its value is less than that what it is computed to be. For the purpose of the Income-tax Act he is deemed to have received ₹ 100 in cash and to have invested it in the purchase of the property or benefit. The law makes no distinction between his receiving the property or benefit direct from the debtor and his receiving ₹ 100 from him and then investing it in the purchase of the property for benefit. But the same cannot be said in respect of his receiving Encumbered Estates bonds. He does not accept them voluntarily is certain and is not estopped from contending that his receiving them does not amount to his receiving in cash a certain amount and that their market value is not the same as their face value. The legal fiction, to which I have referred above, cannot be applied in this case. This aspect of the matter has not been considered at all by the learned judges who decided the case of Maheshwari Saran Singh [1951] 19 I.T.R. 83. They have placed Encumbered Estates Act Bonds in the same class as negotiable bonds but without considering whether the facts that they are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es with it and I individually cannot disagree with it and cannot refer it to a larger Bench. I am, therefore, compelled to agree to the answer proposed by my learned brother. There is no substance in the contention advanced on behalf of the assessee that since he adopts cash system, and not mercantile system, of accounting he cannot be deemed to have realised the interest so long as he has not cashed the bonds. The essence of the cash system of accounting is not that income becomes assessable only when it is reduced to cash. If a payment is received in kind, it is income even though it remains in kind and is not converted into cash; the cash system of accounting does not require that it will not be treated as income so long as the payment remains in kind. In the mercantile or accrual system of accounting, income is deemed to have been received, even though in fact it has not been received, if it has accrued or becomes due. This applies to payment in cash as well as to payment in kind. Had the assessee voluntarily accepted the bonds in lieu of the interest due to him or if he could realise the full value in cash at once from the Government, which had issued them, he would undoubt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is not in dispute that the Income-tax Officer did believe that the income had escaped assessment and, therefore, issued a notice contemplated by section 34. Thus the second requirement also existed. The third and last requirement is that the Income-tax Officer's belief must have arisen from information in his possession. It is settled that the information contemplated by section 34 is not confined to information about the facts and includes information about the law. It is also settled that the information need not be received from another person. It can be received from a document, and that the information need not be oral and can be written. The information may be possessed not only by the Income-tax Officer, who had passed the original order of assessment, in which he had failed to tax the income in question but also by his successor. Anything that informs or brings to notice or enlightens is information. That a certain view taken of the facts or of the law applicable to them is erroneous is information and this information can be received either by the Income-tax Officer, who had passed the original assessment order, or his successor, either from the Supreme Court or fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ists and can certainly obtain information of its existence later. It is, therefore, not correct to say that an Income-tax Officer cannot act on a fact if it had existed before he passed the original assessment order; if he had no knowledge of it when he passed it, he can certainly proceed under section 34(1)(b) on subsequently getting information of it. Therefore, even if the decision in Maheshwari Saran Singh's case [1951] 19 I.T.R. 83 existed at the time when the original assessment order was passed, if the Income-tax Officer was not aware of it when he passed it and became aware of it later and realised that certain income had escaped assessment, he could proceed under section 34(1)(b). The law that receipt of the Encumbered Estates Act Bonds in lieu of interest is actual receipt of interest existed when the original assessment order was passed, but the Income-tax Officer was not aware of it and he did not assess this income. When he or his successor later came to know of the decision, it amounts to his receiving information in possession; when he read it or was told about it by some one, he became acquainted with the fact that the income was assessable. It did not amount to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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