TMI Blog1963 (10) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... the Indian company in respect of the shares held by it. For the assessment year 1949-50 corresponding to the previous year ending June 30, 1948, the Income Tax Officer, First Circle Madras, called upon the Indian company as agents of the London company to submit a return of the latters income. A return was submitted by the Indian company on September 1, 1950, setting out the details of income. It was then claimed that the London company was a non-resident as the income arising outside India exceeded the income arising within the territory. This claim was based on section 4A(c) of the Indian Income Tax Act which reads, a company is resident in the taxable territories in any year (a) if the control and management of its affairs is situated wholly in the taxable territories in that year, or (b) if its income arising in the taxable territories in that year exceeds its income arising without the taxable territories in that year, account not being taken in either case of income chargeable under the head capital gain. 3. The department, however, appears to have initially resisted the claim of the London company as being non-resident in status not on the ground that the control an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and would not mean notional income computed for Income Tax purposes. On this basis, there was a fresh computation of income in respect of the assessment year 1949-50 and it was pointed out that the income which accrued or arose in India was the net dividend of ₹ 2,09,250, that the income outside India amounted only to ₹ 1,90,733 and that, therefore, the Indian income exceeded the foreign income and the assessee would be a resident . A reply was sent by the company on November 21, 1961, stating that the computation made by the officer was not correct, that there was no justification for reducing foreign income by deducting items disallowed and added back by the United Kingdom Income Tax authorities, that the reason for such disallowance was due to certain statutory provision in the United Kingdom, and that, in any event, it would not be proper to take steps under section 34(1)(a) of the Indian Income Tax Act to cancel the original assessment made on the footing of resident and to make a reassessment on the basis of resident . But the Income Tax Officer was apparently not satisfied with this reply and has now actually commenced proceedings under section 34(1)(a) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt to disclosure within the meaning of this section. 7. Now, this provision is intended to catch fraudulent assessees who have avoided their full measure of tax liability. They can be assessed or reassessed provided the conditions mentioned in the section are present. In the present case, the department does not contend that section 34(1)(b) is applicable for the obvious reason that a notice in terms of that provision would be time-barred, four years having elapsed from the end of the relevant assessment year (1949-50). The question is whether section 34(1)(a) read with the proviso, clause (ii), can be called in aid. To attract the applicability of section 34(1)(a) there must be omission or failure to make a return of income, or to disclose fully and truly all materials facts necessary for assessment. But, if the evasion by way of escapement of tax or under-assessment or a levy at too low a rate, or other circumstances mentioned amounts to more than one lakh of rupees there is no time-limit within which the department should initiate proceedings. The default to make a return, or the concealment of income which is what is denoted by failure to disclose fully and truly all mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant material and leaving the officer to his wits and to delve into the matter to arrive at the proper assessment. The assessee is of course not bound to lend his assistance to the officer to discharge his duties, but should plainly indicate all his claims. For example, if he claims that a particular amount is not income he must put forward the claim instead of being silent about it. If, later on, the assessment is reopened on the ground that it has escaped assessment, it is no answer for the assessee to say that the books of accounts already produced would show the receipt of the amounts. As was held in Seth Kalekhan Mahomed Hanif v. Commissioner of Income Tax, mere production of account books at the time of the first assessment containing cash credits would not prevent the department from treating the cash credits as concealed income and absolve the assessee from the charge of failure to make a full and true disclosure. 11. The Supreme Court has now considered the bearing of the Explanation on the assessees duty in the matter of disclosure in the decision in Calcutta Discount Co. Ltd. v. Income Tax Officer, Calcutta. Their Lordship observed : It postulates a duty on every ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the department it would be dangerous and certainly illegal to impute default on the part of the assessee in the matter of making a full and true disclosure of material facts merely from the non-performance or improper performance of the official duties by the assessing officer. 13. Mr. S. Ranganathan, learned counsel for the department, referred us to the report of the Income Tax Officer to the Commissioner as a result of which the necessary sanction to initiate proceedings under section 34 was obtained. In that report the officer has charged the petitioners with various misleading acts, statements and assertions committed and made by and on behalf of the assessee during the previous assessment. The relevant portion of that report is as follows : The following are some instances to the point : (a) In the original return only the Indian income was admitted and thus a misleading impression was created that it was a non-resident. (b) The degree of residence was deliberately omitted to be stated in the original return. (c) Along with the return, the assessee submitted an application for double Income Tax relief under section 49, although, under the law, on it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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