TMI Blog1966 (2) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... sferred to Porbandar. The assessee had also a current account with a firm called Messrs. Shamji Kalidas Company, Bombay, and in this account Messrs. Shamji Kalidas Company paid interest to the assessee. The assessee being a non-resident, tax at the maximum rate was deducted by Messrs. Shamji Kalidas Company in respect of interest paid to the assessee under section 18(3A). These facts were pointed out by the assessee to the Income-tax Officer and the assessee contended that since the assessee had no business in the taxable territories and there were certificates showing deduction of tax at the maximum rate on interest received by the assessee in the account of Messrs. Shamji Kalidas Company, the assessment proceedings initiated by the Income-tax Officer should be discharged. The Income-tax Officer accepted this contention of the assessee and made an order dated 30th December, 1948, for the assessment years 1946-47, 1947-48 and 1948-49 observing: " As there is no source of income taxable in British India, I drop the proceedings already started." So far as the assessment for the assessment year 1949-50 was concerned, the order made by the Income-tax Officer was dated 16th Augu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in each of these assessment years was computed at a large figure and was assessed on the basis that the sale proceeds of ghee credited in the current accounts of the assessee with the Bank of India Ltd., Bombay, and Messrs. Shamji Kalidas Company were received by the assessee in the taxable territories and the profit embedded in these sale proceeds was, therefore, liable to tax under section 4(1)(a) of the Indian Income-tax Act. The assessee was also charged penal interest under section 18A(8) in the assessment for the assessment year 1948-49, on the view that the assessee had failed to make payment of advance tax under section 18A(3). Now the assessment in respect of the assessment years 1947-48 and 1948-49 was made by the Income-tax Officer, Porbandar, under section 23(4) and the assessee, therefore, applied to the Income-tax Officer, Porbandar, under section 27 to cancel the assessment and to make fresh assessments in accordance with the provisions of section 23. There were two applications, one in respect of each assessment year, and both the applications were rejected by the Income-tax Officer, Porbandar. The assessee thereupon preferred appeals to the Appellate Assistant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uly, 1952, and not by entry 78 in the said notification ; (2) the proceedings under section 34(1)(a) were bad since all the basic material facts necessary for its assessment had been disclosed by the assessee at the time of the original assessments and the only ground on which the assessments were really sought to be reoponed was that the Income-tax Officer, Porbandar, entertained a different opinion from his predecessor as regards the inferences to be drawn from those facts ; and (3) penal interest charged by the Income-tax Officer under section 18A(3) in the assessment for the assessment year 1948-49 was illegal and unjustified since the assessee had not committed a breach of section 18A(3). All the three grounds were rejected by the Tribunal. So far as the first ground was concerned, the Tribunal took the view that the objection, though styled as an objection to the jurisdiction of the Income-tax Officer, Porbandar, was in reality and substance an objection as to the place of assessment and was, therefore, covered by section 64(3) and since the question raised by the objection was referred by the Income-tax Officer to the Commissioner and was determined by the Commissioner under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n was decided against the assessee. We will, therefore, first proceed to examine the third question and see how it should be answered, in favour of the assessee or against it. The third question raises the point as regards the validity of the proceedings under section 34(1)(a). Now it is clear on a plain reading of section 34(1)(a) that to confer jurisdiction under that section 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, profits or gains chargeable to income-tax have escaped assessment. The second is that he must have also reason to believe that such escapement has taken place by reason of either (i) omission or failure on the part of an assessee to make a return of his income under section 22, or (ii) omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for that year. Both these conditions are conditions precedent to be satisfied before the Income-tax Officer could have jurisdiction to issue a n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uty 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. . . . 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 nega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat primary facts satisfy this requirement must necessarily depend upon the facts of each case. As observed by the Supreme Court in Calcutta Discount Company's case : " What facts are material and necessary for assessment will differ from case to case ". We must, therefore, proceed to examine what were the primary material or relevant facts in the case of the assessment of the assessee in the present case and whether there was any omission or failure on the part of the assessee to disclose any of them in consequence of which income of the assessee escaped assessment. Let us first of all see what facts were disclosed by the assessee at the time of the original assessment. We will for the time being confine our attention to the assessment years 1947-48 and 1948-49, for the position in regard to the assessment year 1949-50 is factually slightly different and merits separate consideration. It is clear from the statement of the case that the only facts disclosed by the assessee in the assessment for the assessment years 1947-48 and 1948-49 were those set out in the assessment orders for those assessment years. The assessment orders show that the facts disclosed were these : the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount Company's case. Before we deal with the positive aspect of the argument of the assessee it would be convenient to dispose of what may be termed the negative aspect of the argument concerning the validity of the decision of the Tribunal. We are describing the latter as the negative aspect of the argument, for, even if that aspect of the argument is well-founded and the reasoning behind the decision of the Tribunal is erroneous, the assessee would still have to make good the positive aspect of the argument and show that on the facts the Income-tax Officer could have no reason to believe that there was any omission or failure on the part of the assessee to disclose fully and truly all material facts. The negative aspect of the argument calls for an examination of the basis of the decision of the Tribunal. The first thing that strikes immediately on a mere reading of the order is that in holding that there was omission or failure on the part of the assessee to make a full and true disclosure of material facts the Tribunal did not make any distinction between the account of the assessee with the Bank of India Ltd., and the account of the assessee with Messrs. Shamji Kalidas and Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in these accounts, the Tribunal took the view that there was omission or failure on the part of the assessee to disclose truly and fully all material facts in respect of both accounts, since the assessee had omitted or failed to draw the pointed attention of the Income-tax Officer to the fact that sale proceeds received by the assessee in these accounts were received in British India and the assessee was, therefore, liable to be taxed in respect of profits embedded in such sale proceeds and had bypassed or side-tracked the question of receipt of sale proceeds in British India by an over-emphasis on facts showing that there was no accrual in British India and, so far as the account with Messrs. Shamji Kalidas and Company was concerned, interest at the maximum rate was paid by the assessee. The Tribunal then referring to the argument of the assessee that no primary relevant facts had been suppressed, observed : " The argument for the appellant was that nothing was suppressed. The proper view, however, would be that nothing much was stated, and that whatever was stated was calculated to side-track the main issue. In any case, all the statements taken together contain such a meagre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ention of the Income-tax Officer was diverted from the correct principle of chargeability so that he failed to apply it in assessing the income of the assessee. The decision of the Tribunal cannot, therefore, be sustained on the ground on which it is based but the question would still remain whether the assessee is right in the positive aspect of his argument, namely, that all the primary relevant facts were disclosed by the assessee and the Income-tax Officer could, therefore, have no reason to believe that there was any omission or failure on the part of the assessee to disclose fully and truly all material facts, for it is only if this positive aspect of the argument is made good by the assessee that we can answer the present question in favour of the assessee. The learned Advocate-General on behalf of the revenue contended that all the primary relevant facts had not been disclosed by the assessee at the time of the original assessment. He urged that the primary relevant facts were that the sale proceeds were received by the assessee in the accounts with the Bank of India Ltd. and Messrs. Shamji Kalidas Company and, though out of these primary relevant facts the fact that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e conditions is not satisfied, the Income-tax Officer would not be entitled to reopen the assessment of the assessee under section 34(1)(a) and in the present case both these conditions were not satisfied. In the first place, the fact that sale proceeds were received in the account with Messrs. Shamji Kalidas and Company was not a primary fact relevant to the decision of the question before the Income-tax Officer and was, therefore, not a material fact and, secondly, in any event, it could not be said that the profits embedded in the sale proceeds credited in the account with Messrs. Shamji Kalidas and Company had escaped assessment by reason of non-disclosure of this fact. It was common ground between the parties that it was disclosed by the assessee at the time of the original assessment that sale proceeds were received by the assessee in the account with the Bank of India Ltd. But, it is clear from the order of the Income-tax Officer that he took the view that the receipt of sale proceeds in British India did not attract chargeability and he, therefore, held that the assessee had no income taxable in British India. The Income-tax Officer did not go into the question as to how ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ji Kalidas and Company would have been material and necessary for the assessment of the assessee. But on the view taken by the Income-tax Officer that the receipt of sale proceeds in British India was not sufficient to attract chargeability, it was immaterial to know how much sale proceeds were received in British India---whether in one account or in several accounts. It was immaterial whether the sale proceeds received in British India were A or A plus B when the view taken was that they did not attract chargeability. The fact that there were sale proceeds received in British India in the account with Messrs. Shamji Kalidas and Company had, therefore, no bearing on the assessment in the view taken by the Income-tax Officer and it was not a primary fact material or necessary for the assessment or relevant to the decision of the question before the Income-tax Officer. This fact would have become material or relevant if the Income-tax Officer had taken the view that the receipt of sale proceeds in British India attracted chargeability, for, then, it would have become material to know, for the purpose of quantification of the liability, how many accounts were there in which sale proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so far as the assessment made by the Income-tax Officer was concerned. On the view taken by the Income-tax Officer it was entirely immaterial whether any sale proceeds were received in the account with Messrs. Shamji Kalidas and Company. It is, therefore, not possible to say that the profit embedded in the sale proceeds received in the account with Messrs. Shamji Kalidas and Company escaped assessment by reason of non-disclosure of the fact that there were sale proceeds received in that account. The revenue, however, contended that there was non-disclosure of the sale proceeds received in the account with Messrs. Shamji Kalidas and Company and it must, therefore, follow as a necessary corollary that the escapement of the profit embedded in the sale proceeds from assessment was by reason of such non-disclosure. The argument was stressed in the form of an interrogation: how could the Income-tax Officer assess the profit embedded in the sale proceeds when the sale proceeds were not disclosed by the assessment and " no assessment ", it was argued, must, therefore, be held to be the direct consequence of non-disclosure. It was urged that when the sale proceeds received in the account w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chargeability to tax was concerned. It is, therefore, not possible to accede to the argument of the revenue that the profit embedded in the sale proceeds received in the account with Messrs. Shamji Kalidas Company escaped assessment by reason of non-disclosure of the fact that there were sale proceeds received in that account. In this view of the matter it must be held that section 34(1)(a) was not attracted and the Income-tax Officer had no jurisdiction to reopen the assessments of the assessee by issuing notices under that section. This disposes of the question of validity of the notices in so far as the assessment years 1947-48 and 1948-49 are concerned. That leaves only the question of validity of the notice in regard to the assessment year 1949-50. The position in regard to the assessment year 1949-50 is, as pointed out above, slightly different from that in regard to the assessment years 1947-48 and 1948-49, but this difference is not relevant to the determination of the main question in controversy between the parties and the ultimate conclusion would have to be the same in the case of this assessment year too. When notice for the assessment year 1949-50 was issued by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the Income-tax Officer had jurisdiction to reopen the assessments of the assessee for the three assessment years 1947-48, 1948-49 and 1949-50, the Income-tax Officer was not entitled to bring to tax in the course of the reassessment proceedings the profit embedded in the sale proceeds received in the account with the Bank of India Ltd. in all the three assessment years, since that item of income was already processed at the time of the original assessment and was held to be not taxable. We may, however, point out that this particular contention would not be included within the question referred to us since it relates not to the validity of the action taken by the Income-tax Officer under section 34(1)(a) but to the provenance of the assessment which can be made under a validly initiated action under section 34(1)(a). Question No. 4 also becomes unnecessary to consider since the levy of penal interest, must fall along with the reassessment if, as held by us, the action of the Income-tax Officer in initiating proceedings for reassessment under section 34(1)(a) was invalid. We would, therefore, answer the questions referred by the Tribunal as follows: Questions Nos. 1 and 2 not pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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