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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