Calcutta Discount Company Limited v. Income-Tax Officer, Companies District, I And Another

Section: CONCLUSION 2 S.C.R. SUPREME COURT REPORTS CALCUTTA DISCOUNT COMPANY LIMITED v. INCOME-TAX OFFICER, COMPANIES DISTRICT, I AND ANOTHER. (S. K. Das, M. HrnAYATULLAH, K. C. DAs GUPTA, J.C. SHAH and N. RAJAGOPALA AYYANGAR, JJ.) Income-tax-Income escaping assessment-Non-disclosure of material facts by assessee-" Material facts", meaning of-Indian Income Tax Act, z922 (II of z922), as amended in z948, s. 34(1)(a), Explanation-Constitution of India, Art. 226. The appellant, a private limited company, was assessed to income tax for the assessment years 1942-43, 1943-44 and 1944-45 by three separate orders dated January 26, 1944, February 12, 1944, and February 15, 1945, under s. 23(3) of the Indian Income Tax Act on returns filed by it with statements of account. On March 28, 1951, three notices under s. 34 of the Act were issued calling upon it to s.ubmit fresh returns for the said assessment years. The appellant filed the returns but thereafter applied to the High Court under Art. 226 of the Constitution for writs restraining the Income-tax Officer from initiating assessment proceedings on the basis of the said notices on the ground, inter alia, that he had no jurisdiction to issue the said notices. In' his report to the Commissioner of Income-tax for obtaining sanction to initiate the said proceedings the Income-tax Officer had stated as follows:- "Profit of Rs. 5.46,002 on sale of shares and securities escaped assessment altogether. At the time of the original assessment the then I. T. 0. merely accepted the company's version that the sale of shares were casual transactions and were in the nature of mere change of investments. Now the results of the company's trading from year to year show that the com-pany has really been systematically carrying out a trade in the sale of .investments. As such the company had failed to disclose the true in~ention behind the sale of the shares as such s. 34(1)(a) may be attracted". The question for determination was whether in the circum-stance the Income-tax Officer was right in issuing notices on ,l;e assessee under s. 34(1)(a) of the Act. Held, (per S. K. Das, K. C. Das Gupta and N. R. Ayyan-gar, JJ.), that before the Income-tax Officer could issue a notice under s. 34(!)(a) of the Indian Income-tax Act, two conditions precedent must co-exist, namely, that he must have reason to believe (1) that income, profits or gains had been under-assessed and (2) that such under-assessment was due to non-disclosure of material facts by the assessee. November r. r960 Although what facts would be necessary and material for the assessment in a particular case must depend on the facts of Calcutta Discou11t that case, there could be no doubt that the burden of disclosing Company Limit'd all the primary facts must invariably be on the assessee. v. The Explanation to s. 34(1) made it clear that that burden Income-tax Office" could not be fully discharged by simply producing the account Coinpanies books and other documents, but the assessee must also disclose Disfrict, I such specific items or portions thereof as are relevant to the 0-- Another assessment. But once he has done so, it is for the Income-tax Officer to draw the proper inferences of fact and law therefrom and the assessee cannot further be called upon to do so for him. The Explanation does not enlarge the scope of the section so as to include "the disclosure" of such inferences. The question whether by the sale of shares the assessee in the instant case intended to change the form of investment or to make a business profit was one of an inferential fact and the failure to disclose such intention could not by itself amount to a failure or omission to disclose a material fact within the mean-ing of s. 34(1)(a) of the Act. 241 31 242 Where, however, the Income-tax Officer has prima facie reasonable grounds for believing that there has been a non-disclosure of a primary material fact, that by itself gives him the jurisdiction to issue a notice under s. 34 of the Act, and the adequacy or otherwise of the grounds of such belief is not open to investigation by the Court. It is for the assessee who wants to challenge such jurisdiction to establish that the Income-tax Officer had no material for such belief. Since, in the instant case, there was no non-disclosure of a primary material fact which the assessee was bound to disclose under s. 34(1)(a) of the Act, the Income-tax Officer had no juris-diction to issue the notices in question. It is incorrect to say that the question of under-assessment by reason of non-disclosure of a material fact was relevant only for the purpose of applying either the longer or the shorter period of limitation prescribed by the section and not for juris-diction and, therefore, not a proper matter for investigation under Art. 226 of the Constitution. The High Courts have ample powers under Art. 226 of the Constitution, and are in duty bound thereunder, to issue such appropriate orders or directions as are necessary in order to prevent persons from being subjected to lengthy proceedings and unnecessary harassments by an executive authority acting without jurisdiction. Alternative remedies such as are provided by the Income-tax Act cannot always be a sufficient reason for refusing quick relief in a fit and proper case. Per Hidayatullah, J.-The Explanation to s. 24(1) of the Indian Income-tax Act clearly indicates that the duty of the assessee thereunder does not end by merely producing evidence or disclosing the primary facts, but also extends to the disclosure of such other facts relating to status, agency, benami nature of i960 the transaction, the nature of the trading and the like, which he knows but do not appear from the evidence, and which may Calcutta Discount be necessar:• for interpreting the evideni:e.. If the evidence Company Limited produced hides nothing and discloses everything, the assessee v. cannot be subjected to s. 34 merely because the Income-tax Income-ta" Officer, Officer misinterprets such evidence. But it is otherwise if the Companies assessee raises a contention that is contrary to fact and·, requires District, I the Income-tax Officer to discover the truth for himself for that & Another would be to suppress a material fact that would attract the section. Since, in the present case, an investment company dealing in stocks and shares, not only knowingly suppressed that fact but contended otherwise, there was non-disclosure of a material fact necessary for its assessment, and sufficient to attracts. 34(1) (a) of the Act. Per Shah, ].-The expression "has reason to believe " in s. 34(1)(a) of the Indian Income-tax Act does not mean a purely subjective satisfaction of the Income-tax Officer but predicates the existence of reasons on which such belief has to be founded. That belief, therefore, cannot be founded-on mere suspicion and must be based on evidence and any question as to the adequacy of such evidence is wholly immaterial at that stage. Whether all the material facts necessary for the assessment had or had not been fully and truly disclosed in a particular case has to be examined, in the light of the Explanation to s. 34(1)(a). If there is disclosure of some facts but not all, a tax payer cannot resist reassessment on the plea that such non-disclosure was due to the negligence or inadvertence on the part of the Income-tax Officer to scrutinise the materials before him. 243 1961 ] 244 1960. 1 Where the existence of reasonable 'belief that there had been under-assessment due to non-disclosure by the assessee, which is a condition precedent to exerci~ of the power under s. 34(1)(a) is asserted by the assessing authority and the record prima Jacie supports its existence, any enquiry as to whether the authority could reasonably hold the belief that the under-assessment was due to non-di5closure by the assessee of material facts necessary for the assesment must, be barre~. JURISDICTION: Civil Appeal CIVIL APPELLATE No. 197 of 1954. Appeal from the Judgment and Order dated the 25th March, 1953, of the Calcutta High Court in Appeal from Original Order No. 54 of 1953. Sachin Chaudhury, Sukumar Mitter, 8. N. Mukher-jee and D. N. Ghosh, for the appellant. K. N. Rajagopal Sastri and D. Gupta, for the res-pond en ts. I96o Calcutta Disco1t11t Company Limited 1960. November I. The Judgment of S. K. Das, v. K. C. Das. Gupta and N. Rajagopala Ayyangar, JJ., Income-tax Officer, was delivered by K. C. Das Gupta,. J. M. Hidaya-Co111panies District, 1 tullah, J. an d J . . C Sh h a , ., e 1vered separate J udg-J d ) ' & Anotltet ments. DAS GUPTA J.-This appeal is against an appellate decision of a Bench of the Calcutta High Court by which in reversal of the order made by the Trial Judge the Bench rejected the present appellant's application under Art. 226 of the Constitution. The appellant is a private limited company incorporated under the Indian Company's Act and has its registered office in Calcutta. It was assessed to income-tax for the assessment years, 1942 43, 1943.44 and 1944-45 by three separate orders dated January 26, 1944, February 12, 1944, and February 15, 1945, respec-tively. These assessments were made under s. 23(3) of the Indian Income-tax Act upon returns filed by it accompanied by statements of account. The first two assessments were made by Mr. L. D. Rozario the then Income-tax Officer and t.he last one by Mr. K. D. Baner-jee. The taxes assessed were duly paid up. On March 28, 1951, three notices purporting to be under s. 34 of the Indian Income-tax Act, 1922, were issued by the Income-tax Officer calling upon the company to sub-mit fresh returns of its total income and the total world income assessable for the three accounting years relating to the three assessment years, 1942-43 1943-44 and 1944-45. The appellant company furnished re-turns in compliance with the notices but on September 18, 1951, applied to the High Court of Calcutta for issue under Art. 226 of the Constitution of appropriate writs or orders directing the Income-tax Officer not to proceed to assess it on the basis of these notices. The first ground on which this prayer was based watt mentioned in the petition in these terms:-" The said pretended notice was issued without the existence of the necessary conditions precedent which confers jurisdiction under section 34 aforementioned, whether Das Gupta]. 245 246 [ 1961 ] 247 249 before or after the amendment in 1948 ". The other 1960 ground urged was • that the amendment to s. 34 of . the c a. 1 culta --D. tscount Income-tax Act m 1948 was not retrospective and Company Limited that the assessment for the years 1942-43, 1943-44 v. and 1944-45 became barred long before March 1951. Income-tax Officer, The Trial Judge held that the first ground was not Comp~nies made out but being of opinion that the amending Act District, r of 1948 wa;.; not retrospective, he held that the notices & Another issued were without jurisdiction. Accordingly be Das Gupta J. made an order prohibiting the Income-tax Officer from continuing the assessment proceedings on the basis of the impugned notices. --D. tscount The learned Judges who heard the appeal agreed V'ith the Trial Judge that the first ground had not been made out. They held however that in consequ-ence of the amendment of s. 34 in 1948 the objection on the ground of limitation must also fail. A point of constitutional law which appears to have been raised before the appeal court was also rejected. The appeal was allowed and the company's application under Art. 226 was dismissed with costs. The Company has preferred the present appeal on the strength of a certificate issued by the High Court under Art. 133(l)(a) of the Constitution. The only point raised before us is that the courts below were wr9ng in holding that the first ground that the notices were issued without the existence of the necessary conditions precedent which confers jurisdiction under s. 34 bad not ·been made out. As it is no longer disputed that s. 34 as amended in 1948 applies to the present case we have to consider the section as it stood aft