Full Judgment Text
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PETITIONER:
COMMISSIONER OF INCOME-TAX, WEST BENGALCALCUTTA & ANR.
Vs.
RESPONDENT:
HEMCHANDRA KAR & ORS.
DATE OF JUDGMENT:
16/04/1970
BENCH:
GROVER, A.N.
BENCH:
GROVER, A.N.
SHAH, J.C.
HEGDE, K.S.
CITATION:
1971 AIR 2331 1971 SCR (1) 283
ACT:
Indian Income-tax Act,, (11 of 1922), s. 34 and Indian
Income-tax Amendment Act, 1953, s. 31-Scope of.
HEADNOTE:
The assessee was a Hindu undivided family. The income-tax
Officer determined the total income, of the assessee at a
certain figure. Following demonetization of high
denomination notes the assessed encashed notes of the value
of Rs. 19,000 and each of five members of the family en-
cashed certain notes, the total encashed by all the five
members being Rs. 1,10,000. The Income-tax Officer reopened
the assessments under s. 34 of the Income-tax Act, 1922 (as
amended in 1948 and made applicable by reason of s. 31 of
the Income-tax Amendment Act, 1953) and completed the
reassessment on January 31,,1955. He included Rs. 19,000 in
the total income of the family and the ’amounts which bad
been separately encashed by the five members were included
in the reassessments of their respective individual incomes.
on February 2, 1955, he issued another notice under s. 34
and after bearing the assessee, included the sum of Rs.
1,10,000 in the total income of the family.
On the, question, whether the second notice was competent.
HELD : Under s. 34, as it stood at the relevant time, what
the Income-tax Officer has to see is if by reason of
omission or failure on the part of the assessee to disclose
fully and truly all material facts necessary for his
assessment there had been escapement of income. From the
primary facts disclosed by the assessee or discovered by the
authority, the authority has to draw inferences as regards
other facts and ultimately draw the proper legal inferences.
In the present case, the primary facts were within the
knowledge of the Income-tax Officer at the time when be
completed the first reassessment. When he was in possession
of all facts and proceeded to make the reassessment by
including the, amount in the individual accounts of the
members of the family, the escapement has occurred by
reason, of the failure of the officer to include the total
sum in the assessment of the family. He could not
therefore, a few days later, merely changed his opinion and
issue the second notice under s. 34 to the family. [286 F-
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H; 287 A-C]
Majority opinion in Calcutta Co. Ltd. v. income-tax Officer,
Companies District I Calcutta & Anr. 41 I.T.R. 191,
followed.,
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2273 of
1966.
Appeal from the judgment and order dated February 12, 1964
of the Calcutta High Court in Income-tax Reference No. 84 of
1960.
S. C. Manchanda, R. N. Sachthey and B. D. Sharma, for the
appellants.
284
A . K. Sen and D. N. Mukherjee, for the respondent No. 2.
The Judgment of the Court was delivered by
Grover, J.-This is an appeal by certificate from a judgment
of the Calcutta High Court in an Income tax Reference.
The assessee during the material time was a Hindu Undivided
Family consisting of the six members. In the original
assessment for the assessment year 1946-47 the year of
account being from April 14, 1945 to April 13, 1946, the
Income tax Officer determined the total income of the
assessee at Rs. 35,741 accruing from the business and other
sources such, as sale proceeds of forest produce, fisheries
etc. Following demonetization of High Denomination Notes in
January 1946 the assessee encashed such notes of the value
of Rs. 19,000. The five members of the family named below
also encashed notes of the value, shown against each of
them, the total value of the notes so encashed being Rs.
1,10,000
1. Hem Chandra Kar Rs. 26,000/-
2. Jatindra Nath Kar Rs. 24,000/-
3. Atul Chandra Kar Rs. 23,000/-
4. Narendra Nath Kar Rs. 21,000/-
5. Bishnuram Kar Rs. 16,000/-
The Income tax Officer reopened the assessments of the Hindu
Undivided Family and of the five members for the assessment
year 1946-47. He included Rs. 19,000 in the total income of
the family and the amounts which had been separately
encashed by the five members were included in the
reassessments of their respective individual income. This
reassessment was completed on January 31, 1955. Two days
later i.e. February 2, 1955 the income tax Officer issued
another notice under s. 34 of the Income tax Act 1922 to the
family seeking to include in the income of the family the
amount of the High Denomination notes of the total value of
Rs. 1,10,000 which had been encashed separately by the five
members. On behalf of the assessee it was explained that
each of the five members was in receipt of the pocket
allowance varying from Rs. 100 to Rs. 150 per month and also
received cash and jewellery as gifts from his relations;
therefore the amounts encashed by such members belonged to
them individually. The Income tax Officer was not satisfied
with the explanation. He included the sum of Rs., 1,10,000
in the total income of the family. The Appellate Assistant
Commissioner, on appeal’, held that the second notice under
S. 34 issued to the family on February 2, 1955 was
incompetent. He annulled the reassessment made pursuant
285
thereto. The Appellate Tribunal, however, held on appeal by
the department that the notice issued under s. 34 was valid.
The Tribunal called for a report from the Appellate
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Assistant Commissioner on merits. In his report the
Assistant Commissioner agreed with the view of the Income
tax Officer. The Tribunal was finally satisfied that the
amounts of the High Denomination notes which. had been
encashed in the name of the five member’s individually
belonged to the Hindu Undivided Family. The following
questions of law were referred by the Tribunal for the
decision of the High Court
(1) "Whether, on the facts and, in the
circumstances of the case, the assessment made
upon the assessee Hindu Undivided family
pursuant to a notice under section 34 of the
Indian Income-tax Act issued on the 2nd
February, 1955 was in accordance with law.
(2) Whether on the facts and in the
circumstances of the case, the sum of Rs.
1,10,000 was rightly included in the
assessment of the Hindu Undivided family".
The High Court held that the second notice issued under s.
34 of the Act on February 2, 1955 could not have been
issued, by the Income tax Officer to the Hindu Undivided
Family. It was found that when the first reassessment was
made the primary facts necessary for reassessment of the
family were in the possession of the Income tax Officer.
These facts came into possession not by virtue of disclosure
made by the family but were discovered by him otherwise. At
the time of the first reopening of the assessment of the
Hindu Undivided Family and of the individual members the
question of assessment of the entire amount represented by
the High Denomination Notes was under direct consideration.
It was open to the Income tax Officer to assess the whole
amount of Rs. 19,000 and Rs. 1,10,000 in the hands of the
Hindu Undivided Family at that stage. The escapement, if
any, therefore took place by reason of the failure of the
Income tax Officer to assess the family with respect to the
sum of Rs. 1,10,000 when he was in full possession of all
the material facts. The answer to the first question was
given by the High Court, in the (negative. ’On the second
question it was considered that the answer would be merely
academic but in spite of this the High Court proceeded to
express, its agreement with the finding of the Tribunal on
the point.
Section 34 of the Act has been ’amended from time to time.
In the present case this section, as amended in 1948, would
be applicable by reason of s. 31 of the Income tax Amendment
Act 1953. We are concerned with s. 34(1) (a). If the
present case
286
could be brought under that provision the second notice
which was issued in February 1955 would not be barred by
time. But if action ,could not be taken under it there
could be do manner of doubt that the notices which were
issued and the reassessment which was ,made would be beyond
the period prescribed. Section 34 (1) (a) is in the
following terms :
"Income escaping assessment.-(4) if
(a) the Income tax Officer has reason to
believe that ’by reason of the omission or
failure on the part of an assessee to maker a
return of his income under section 22 for an
’year of to disclose fully and truly all
material facts necessary for his assessment
for that year, ;income, profits or gains
chargeable to income-tax have escaped assess-
ment for that year, or have been under-
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assessed, or assessed at too low a rate, or
have been made the subject of excessive relief
under the Act, or excessive loss or
depreciation allowance has been computed or"
What has to be seen is whether the Income tax Officer could
have reason to believe that by reason of commissioner or
failure on the part of the assessee to disclose fully and
truly all material facts ,necessary for his assessment there
had been escapement of in-come ? The High Court rightly
relied on the observations in the majority judgment in
Calcutta Discount Co. Ltd. v. Income tax Officer, Companies
District 1 Calcutta & Another(1) that in every assessment
proceeding the assessing ’,authority will, for the purpose
of computing or determining the proper tax, 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 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. Therefore, the duty of disclosing
all ,the primary facts lies’ on the assessee. The primary
facts were admittedly within the knowledge of the Income tax
Officer at the time when he completed the first reassessment
under S. 34. This is clear from the order of the Appellate
Assistant Commissioner to whom the Income tax Officer
reported that in the course of reassessment under s. 34 in
respect of individual members it became apparent that "they
acted as merely name lenders of the "Hindu Undivided Family
and that the total, sum of Rs. 1,10,000 encashed by them
actually belonged to the Hindu Undivided
(1) 41 I.T.R. 191.
287
Family". When the Income tax Officer was in possession of
all these facts and he proceeded to make the reassessment of
the individual members by including the amounts in question
in their individual accounts he could not a few days later
merely change his opinion and issue the notices under s. 34
to the Hindu Undivided Family. In this situation it could
hardly be said that the requirements of s., 34(1) (a) were
satisfied. The escapement had taken place by reason of the
failure of the Income tax Officer to include the sum of Rs.
1,10,000 in the assessment of the Hindu Undivided Family
when he was in full possession of all the necessary and
material facts. We have no doubt that the High Court
returned the correct answer to the first question.
Evidently the second question need not be answered as it
becomes purely academic when answer to the first question is
in favour of the assessee.
The appeal fails and it is dismissed with costs.
V.P.S. Appeal dismissed.
288