Commissioner Of Income-Tax, West Bengal Calcutta & Anr v. Hemchandra Kar & Ors

A COMMISSIONER OF INCOME-TAX, WEsr CALCUTTA & ANR. BENGAL HEMCHANDRA KAR & ORS. April 16, 1970 [J.C. SHAH, K. S. HEGDE AND A. N, GROVER, JJ.] Indian lncomt•tax Acr (11 of 1922), s. 34 and Indian Income-tax Amendment Act, 1953, s. '31-Scope of. The anessee was a Hindu undivided family. The Income-tax Ofllcer determined the total Income. of the assessee at a certain figure. Foliowlna c demonetization of blah denomination notes the anmee encashed notes of the value of Rs. f9,000 and each of five members of the family en· cashed certain notes, the total encaslied by all the five members belna 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 appli-cable 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 had been sepa· D ratelv encashed by the five members were included in the reassessments of their respectiYe individual incomes. On February 2, 1955, he issued another notice under s. 34 and after hearing the assessee, included the •um 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-E 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 l\CCessary for his assessment there had been escapement of income. From 'the primary facts disclosed by the assessee or discovered by the authoritl', 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 he completed the first reassessment. When he was in possession of all facts F and proceeded to make the reassessment by including the. amount in the individual accounts of the members of the family, the escapement h"' 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 day~ later, merely changed his opinion and issue the second notice under s. 34 to the family. [286 F-H; 287 A-CJ Majority opinion in Calcutta Co. Ltd. v. lnccme-tax Of!icer, Companies G Pistl'ict l Calcutta & Anr, 41 1,T.R. 191. followed. C1v1L APPELLATE JUR1soicti6N : Civil Appeal No 2273 o{ . 1%6. Appeal from the judgment and order dated February 12, 1964 of the Calcutta High Court in Income-tax Reference No. 84 of H 1960. . S. C. Manchanda, R N. Sachthey and B. D. Sharma, for the appellants. 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 i<n an Income ta" Ref~rence. The assessee during the material time was a Hindu Undivided Family consisting of the six memb.:rs. In the original assessment the original assessment for the assessment year 1946-4 7 the year of account being from April 14, 1945 to April 13, 1946, the Income tax Officer deter-mmed 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 demQnetization of High Deno-mination Notes in January 1946 the assessee encashed such notes of the value of Rs. 19,000. The five membP·~ 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: In the original assessment the original assessment accruing Rs. 26,000/-. Rs. 24,000/- 1. Hen1 Chandra Kar 2. Jatindra Nath !<." Rs. 23,000/-Rs. 21,000/-Rs. 16,0CO/- 3. Atul Chandra Kar 4. Narendra Nath J<,ar 5. Bishnt.ram ¥.ar MaKe Aged, saat Ata, HaHa ale cH weyTATA/ CAAT BIT TT Hey (The Commissioner of Income-tax, West Bengal,|Calcutta and Another| Hemchandra Kar and Others).(16 sa, 1970) (Fao Ho Ato AM, Fo Wao FTES AIC Vo Vato Maz) ;gfrsaq genn fea tae,1922 (1922 et 11) —aTT 34 —(atfor geHR seq THOSE VA, 1953 Bl AT 31)—VTA AAA H TNT TT TAHT frat gree fare frrertieettat ora at ore & fag fete fear wat aut ye Aaa are"gat fretted at ora % go tet aferai, fears are A arrazara & oat at afrera alas a, ssa gu wrear garefrat wats fer oroee afieardt A agett are Frater featar siege aay Taeove Vet alt ara ates ot fares oarsOt Tar AT Br gatratenfar ay, at seer BT Marae areHTafar at aeat & aftoracaeq feat war aaa: aTTETaferert gre ge feat ® are are 34 F Mela QaAT TTfeat stat fafaeaa aeat é| faatfectt fig afauat Hera at) alone afeardt 3 fare atest % arene ae faatfedd at ge ara ar aaa feat| THTee atwe Atel H faqdtacr F choad frattat #19,000 waa % eqale Bare We FaraH qeH Tae A HB ale 1900Seaaw errata facia afer [1974] 3 THe fo Go aang; vat gael A aT Ale Aare A, TAHT FA art 1,10,000 wtatrat aT| arate afeard & efeert gwar daa Vaz, 1922 (star feag 19489 aaifira far war ar att sepa daa Huse Vaz, 1953 aTart 31 % are ary fear mar ar) at ere 34 F welts Gaiafrat ate 31 sarah, 1955 at faaicr ger wz fearsat gee aTHa arr F 19,000 wad at wHa aifra at ae HerT F aT waent Farararam fart atrey aT AATAT ar, Bat Her TAT BY SA TaCAT HY SATmam ata % gafaaten Hwa ana arise He fear Tar| gat 2 Bra,1955 FY qe 34% welts cH cal aaa are a ate fraifeat argrag BWA HR ara 1,10,000 waa a us Hera st Fa aT Fanfaa at att ga atta Faseq fears@, ae az g fe gadAT TY TaAAT TTA HY TE Al, FM ae TAA Jatta Tea HW FT,.atafaatita—ay ara cara 2a a1 2, ae ae e fH aa araHrafaara % qa ag farara Hey ar areT a awa at fH Fraifeal Ffaaton & fru araaaa wat aifeas seat BY Ge axe B ate TUTE Faa THe BLA H Gast Aa BT aT A AAHeAA H AIM, AA aTfaator Ae & we wary seat fai a Haare F fase He arasifrardt ofaa ax at HTTaT TAU HAH TT FH fae WFaa aeal et aaa at star aor fad oa adl froag famed 4aaraar frat a| sas are aT A ger gem at, aea ea faatfadtgre sae fia a gt, at fe saa cam st cae fame goat FH aMATKqt at Wea Tar aa faa sy,saa, faaten wea are cifsara atfeetwer aeatS aracq Hate wea H yeT geal gar Ua wey aay& ft ot fe sat Fran one, ofaa fate frond Grarat AFF1 a:eat Fer geal Hy THeHeaBr Ta Faaifeat ar gat ztsa fH araHTaferare % are 34% ate czar gafaaten qe fear at, sa war< AH ATTBer cer, eA HaAT:A Ae MA TelTH Aga aterF area& equa %, fra ore arene afard A ag fee astat fe ataaT eeal FaragFT gra 34 -F ala gafrater F aha we easeet rarfae a feez afaasHera Hara ara F eraareY ah ag fHseit 1,10,000 wat F Ht ate qare4, vast go uf Wh fersafraaa Hera at at |” qe araHr afrard F ora awl aa ahiza ae saa al aaeat & Sarat A seava weal H arfia we, wa aaa Tachgataaten aay & arart % ardardt at at,agge fer & ara dt aedt us al aca aaa at att ferg afavadpera AY ore 34H aes aaare ae aMl He THAT aT| ge feata¥ ag vet wer oT aaHat at fe aT 34(1)(q) et atenst at afer a7S it1ferg afanaa gata % faateor F 1,10,000 wad at Ufa atarfra eet F aaaet afta at aaHAA F TTL Vat TT aTfagizn Aava sar tw] wa at wa fe Gas TA a aay Tatara wer Ate J1 (Fa4) aqatca fra [1961]41 ao do MITo 191: waa feats weal feats gary arraHt wferare,aeqate fefezae I, HAUT AT TH eT (Calcutta Discount Co. Ltd. Vs. The Income-tax.Officer,Companies,District I, CalcuttaandAnother).|4. -fafaa aitet afrerfcat: 1966 at fafa acter Aeat 2273. 1960 & armaz fade dea 84 ¥ sama sea araaT ® arte 12 Grae, 1964 ae favre aie mea F fares qatar | meat eaea eaeaTAA Uo Ulo AAA, WITo Uowae ate Sto So saatwaa Tea 2 St WTSaqat to ®o aa ATT So WA saree at facia arrafrafa to Ute Tat A fear|varatfrata atat—: yada waar faer F aorwer Tea -araraa F fare FfaresTATAAH HIT Al TE g I a fraffedt arftas ana & dha fez afrnaa sera at frat The Income tax Officer reopened the assessments of the H:1ndu Undivided Family and of the five members for the assessment year J 946•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 res·-pective individual income. This reasses~ment 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 an.d 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 )n-cluded the sum of Rs. l, 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 pursuatit A thereto. The Appellate Tribunal, however, held on appeal by the department that tile notice issued under s. · 34 was valid. The Tribunal called for a re1>9rt from the Appellate Assistant Commis-sioner on meritf."' In his repQrt the Assistant Commi~ioner agreed with the view of the Income tax Officer. The Tribunal was finally satisfied that the amounts of the High Denomination notes which B had been encashed in the name of the five members individually belonged to the Hindu Undivided Family. The following questions of law were referred by the Tribunal for the decision of the Highl Court: · (I ) "Whether, on the facts and in the circumstances of the case, the assessment made upon the asses-c see Hindu Unidivided family pursuant to a notice under section 34 of the Indian Iiricome 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. l, l 0,000 was rightly D included in the assessment of the Hindu Un-divided family". The High Court held that the seccf!l.4 notice issued under s. 34 cf the Act on February 2, 1955 could not have been issued by the Income tax Officer to the Hindu Undivided Family. It was E found that wli.en 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 ctherwise. At the time of the first reopening of the assessment of !he Hindu Undivided Family and of the individual members the question of assessment of the entire amount represented by the F High. Denomination Notes was under direct consideration. It was cpen to the Income tax Officer to assess the whole amoll(llt of Rs. 19,000 and Rs. 1,10,000 in the hands of the Hindu Undivid-ed Family at that stage. The escapement, i{ 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. l, I0,000 when he was in G fu]] possession of al! th!-~· 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 1>9int. 6 aaea1 1946-47 ara frateo ag % far far ae qa frat F,,fa War-ag 14 aia, 1945 F 13 Ia, 1946 gH ar, Fafry aAHT 1902 aferardt + fretfedt at ger arr 35,741 wat waenfea at, aT Ge oteBTTATT AT sa-TearTe, Ata-aa aris & eu farmers FB ser adi Bmay et a| waa,19468 seq qea-at & wtetately Ffaysiren % afaraeaeq fratfedl + 19,000 wae % ara ® ateqTaad faary| Feta Te FH yer ote F aaeal ale AAT;st wt, fae Ra THT ara J Ay qa feua ex ael & satdn Har ¥yer110,000 et ar—: 1. GH Ax RT reesesree 26,000 erat 2. Haz ara BTT 24,000 Bat 3. AGA Az AX rteseseeres 23,000 ert 4. AVE ATT FIZ 21,000 eae Ua BZ 16,000 aaa - 5, fro 3. qrrart aferaret 4 1946-47 are fauter ag & fe fers afraaa gera Fak ata aaeat ar gafsater fear) var gargat ga ata 4 19,000 wat anfaa ax far aar cia aeeat&F atWe Tat a qT 9, We sas aar-xaT aa % gafaate Faifna at frat)31 saat,1955 at gafzater ga gar ara fedl & az aaiq 2 wrard, 1995 at ara afeard F aftersgra 7a Qaz,1922 at are34 % ade gad quar artHM BT Va Hera Fl Tara st gaat A fe aE 1,10,000 way& HA Wee F Ye yea-ay Foe ael Hl wae,feet oia ace+ aa T TATA A, Hera Ht oy FH anfaa Hea wea &1 faetfedtBl aea ag eaeciawy fear. vor fe cia aeeat A gta A of ara100 eat & THT 150 WA HT at a Sa-ag feaa & ake we aaMeare J ara eaeq ate arya wt fas 4, zafae te acedt a faa-Atel Bt Aaa at, Gaal He cafsara wT R saat a1 araatafeard a ga eredtaer & aarara vel gar Baa era st Ha mT¥ 1,10,000 eat at afer after Ht ot1 oriter wey Tt Teas aTAaA(attr) 4 ag. afafratfea fra fe 2 mrad, 1955 at gare F maUT 34 F ett Ht aaaT are at et, ae aa wal ay at THT aTBar sat ore FH FE ae fraten a age at fearfg ata.afracn a fear aro ate faq at qiagafafretfeafear feare 34% ala ore al we Aaa fafeare Fafa F aaray aga atte & gorgeB arere ae Fens Hinarg| aeraH argaT AardtfeartéXH araae afeard F afeatn & agafa coat at |afer BT aed Fae TATA Vl Tal fH Sea Aeq-at H Sq ardaratSade at fH ca weet F aa & gat-aaT yng av Y, fegafanad gerg BY Aafsaen a see araraa & fatreaa & fare fate& farafafar saa fateve farg :-—, “(1) ag fe way F aeat F arent we ae saatafefeafaat[H,][ 2][ axa,][ 1955][ at aftsaq][ gna][ cag][ ae][ at]are 34 & areter ore AY Te aa FH agree A fratfed faeryafrata Feta at TT fratert fear mar ar, var ag fates|[ayATT][ aT?] (2) ag fe at arma % aeal F qrecat ate seayafefeafaat¥, 1,10,000 way at ua fag afawat gera Ffaatzor % Ste ate & arfra at ag ft?” sae a ag afafaatica frat fe araax afaard afafraa aare 34% areita fare afanat sera ay 2 Beret, 1955 avait gaaaaa aT aval HC aHaT aTae frews faaren war fH oa saRgafrateo few ae 8,at ararnx aferard & Te Fetagahrateyfuoraeaacer atgeFFacer Hera ara faq Ww WRHTTMTT TX BA SteT aT ge a afew Gat gaat ate AAT FT ATwaft Trg afsmat gera aay sete sata at aT aT Eat aTgafaater frat war ar aa Vea Gea-ay HB Ael sy HET wHA F,Frater srsetsera: faareita at1 araat afereret FY agafireix sma at fe ag va san B fag afawad Hera H ara 419,000wit at 110,000 ea aat weoa fruit“et.aa:afe1,10,000 waat uft Fade A set Hers,Frater Hz F te Tat aT, wa fH vas Ta atl aifeas aeq alae a,at ag maat afaard at aerncar oferaeaer gy at| sasaTaa FTAA Tet HT VAT HTH feat1 TAT TRA H ATHF AZfaaix feat wa fe set Baa azifas dar fg sat aaa ataoarare & ee gee arary FH afirwen % frowe 3 faaa aente aaa TT|o 1904seaaH Faratea farcry afam = [1974] 3 TAO fto qo Section 34 of the Act has been amended from time· to time. H In the present case this section, as amended in 1948, would be applicable by reason of s. 31 of the Income tax Alm!ndment Act 1953. We are concerned withs. 34(l)(a). If t!le present case 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 no 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 tenns : "Income escaping assessment.-(!) I.f- ( a) the Income tax Officer bas reason to believe that by reason of the omission or failure on the part of an assessee to make a return of his income under section 22 for any year or to disclose fully and truly all material facts necessary for his as-sessment for that year, income, profits or gains chargeable to income-tax have escaped assess-ment f<fr that year, or have been um!er-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under the Act, or excessive Joss 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 omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment there had been esc'apement of in-come ? The High Court rightly relied on the observations in the majority judgment in Calcutta Discoun,t Co. Ltd. v. Income tttx Officer, Companles District I Calcutta & Another(') 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 Ot!l. disclosure by · the assessee or discovered by him on the basis of facts disclosed or otherwise the assessing authority has to draw in.ferences as re-gards 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 reassessmaiit under s. 34. This is clear from the order of the Appellate Assistant Comm :ssioner to whom the Income tax Officer reported that in the course of reassessment under s. 34 in respect of individual members it be-came 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 Family". When the Income tax Officer was in possession of all these facts and he proceeded to make the reassessment of the in-dividual members by including the amounts in question in their individual accounts he could mot a few days later merely change his opinion and issue the notices under s. 34 to the Hindu Un-divided Family. In this situation it could hardly be said that the B 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. l, 10,000 in the assessment of the Hindu Undivided Family when he was in full possession of an the neces· sary and material facts. We have no doubt that the High Court returned the correct answer to the first question. Evidently the c second question need not be answered as it becomes purely acade-mic when answer to the first question is in favour of the assessee. The appeal fails and it is dismissed with cost~. V.P.S. Appeal dismissed. 4. afafram at are 34 ar dalet oaeaaa oe fer mate1adart rae H, star fr 1948 FH ge are ar aates Pear Tar aT, aegeq caq meostor ar,1953st are 3 F aren ary shiteT aay ye34(1)(u) AS afe adam amy A vasrarq at oftfs &ahare fear ar amar ar at Heat, 1955 F atRa FAT aT st ae at ag anz-aina ad aitfag afeoe Haast HY Tear ofefer& atae al war at awar ar at gaartaTH arg WY ate aet at anat fe MY gaat ard at ae Hak gatratey frat war at, & fafer arerafy-e ot ati are 34(1)(&) farrafafar eq t ¥— “ema St fratcn & we we I—(1) afe— () ‘arar afrard & qe ag farsa Het ar arm 8fa fret at % fae fratfedt are are 22 % adie act areal faqzot sega ty Far ga ag 8 aracdt vad frat &fag areas at atfan veal A ge ae BF aa wears FB araTheama,matratter HUA ara Tee atefer afrara aT mg, at ar aaHaAsa aga ae a AtH FIM,fag az frater ara a faraifea FF wa farfae sas azs, §, aat fafa & ata aaa cagiea & eae ar far av ezar aeatan ofa at at qaeraa-ate AY aaoar at Te 8, aT” *sist Fag eat cat F— “Income escaping assessment— (1) If— (a) the Income-taxOfficerhas reason tobelievethatbyreasonof the omission or failure on the part of anassessee tomakeareturnofhisincomeundersection 22 for any year or to disclose fully andtruely allmaterial facts necessary for his assessment forthatyear,income, profits or gainschargeabletoincome-taxhaveescaped assessment forthat year,or have been under-assessed, or assessed at too low arate,or have been .made the subject of excessiverelief under the- Act, orexcessiveloss.ordepreciationallowarice‘has~ been’computed or”°.DomeseG cL.. Wee sat at at Sag age fH sar qmsr vfs% oa aefara FY sr aay a anar arf faatfeat & faater & faaaa al afeanaval at gat awe a Me GearsFH ara HeweHF saat We Fer at al aagaa F Frew, arr a faafarara FW Tar| Teaa A ReHaT fears wratt sary aasTafeartt, areata fefeage y, HorHAT ATUS Wea ay ATAA FH aeTTfay#4 sqaq fe qe aa aT sta,ate a at aaa fearfe setafrac a} araaret F faster wey aver sifsardt sfaa az al SaatAT FAM HU H AtTT F fry VI aa geal at sag BT ater Harfara ca vel frag fraraa % aaraat faadt ati gaa ora at ttyer aaal, we 4 oem fasifadtara sae feo ae a, ar fe saacaggt sme ferme qeat F arere Te ar aera Tat aa fea a,sae fratcoy Hwy area sofa ay faedt wer qearl FH aracy F atxHea H yer aay aarda a aa aeat & at ay fe saa fast are,fasag ofa fafrs front frarat atafi aa: adt gear ail ayarewae 34 wetter Sala are gear fraifedt gafsater er tare. ge fara, maf va aHT sew array afrard at FT GET afaaaq edtert: or saatTF afearet1 ae Ha 3 aeraH ae fete ayaawit wits tt fe H aaT-aaAT areaa eque qecat Z,ara A qr 34% seta gataatey F cha ag ara eave a agft fig 8 farg afauaa Hera } are-arst B Baar a ate ae PHI1,106,000 eat % at ae yay 4, vast go ue A fag afrwaaaeraat ft 1” ga araaz afaaret B gre at aea age & ale gatwat aaeal F aral F gett THR anfaa BH, Ga TaT-aAAT areal& gafaaton & araca F ardardl ath, at ag gu fea Fae A aaua aa aeet aH at ate ferg afaaat Hera BY gt 34 F elgare a1 rel BU AHA aT ze feafe A ae ad wer aT aTAT aTfe ara 34(1) (u)at ater at ofa at ne ol1 feeg afaaae -gra F frafer F1,10,000 waa at uf at aifha we FH araHeafrard a garaar e aw, saa aa aT sa aay frater aa a 1906:Teaam varareta fitvin afer [1974] 3. TH Fro Fo aaTT ga araMT, tafe & arg sas Wt dee Ta ad al 2 saga fe sea corsa aa aftaw A cea ger oe algeTTT |Sat feat AT| MIST: TAL MSIBT TAT AA Bl HraRTHaTTel @, salferae TA ate& Sarhas ver te TAT ewe fe Tee TAT eT TTT—fratfedt& oer # fear mar atY5. attr same selx ate sa ae afer ariesFrat ara g |atta aftaat Te 1 afto