Wp/8059/2021 Of Azim Premji Trustee Company Pvt Ltd v. Principal Commissioner Of Income Tax-2

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 21[st] DAY OF APRIL 2022 BEFORE THE HON'BLE MR.JUSTICE S.R.KRISHNA KUMAR -WRIT PETITION No.8059/2021 (TIT) BETWEEN: AZIM PREMJI TRUSTEE COMPANY PVT. LTD., #134, DODDAKANNELLI, SARJAPUR ROAD NEXT TO WIPRO CORPORATE OFFICE BANGALORE-560 035 REPRESENTED HEREIN BY ITS DIRECTOR MR.AZIM HASHAM PREMJI (BY SRI S.GANESH, SENIOR ADVOCATE FOR SRI. SANDEEP HUILGOL, ADVOCATE) …PETITIONER AND: 1. PRINCIPAL COMMISSIONER OF INCOME-TAX-2, BANGALORE BMTC BUILDING, 80 FEET ROAD 6 BLOCK, NEAR KHB GAMES VILLAGE KORAMANGALA, BENGALURU-560 095 INCOME-TAX-2, BANGALORE BMTC BUILDING, 80 FEET ROAD 6 BLOCK, NEAR KHB GAMES VILLAGE KORAMANGALA, BENGALURU-560 095 2. DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE 4(1)(1), BANGALORE BMTC BUILDING, 80 FEET ROAD 6 BLOCK, NEAR KHB GAMES VILLAGE KORAMANGALA, BENGALURU-560 095 3. CENTRAL BOARD OF DIRECT TAXES DEPARTMENT OF REVENUE, MINISTRY OF FINANCE, GOVERNMENT OF INDIA NORTH BLOCK, NEW DELHI-110 002 REPRESENTED HEREIN BY ITS CHAIRPERSON DEPARTMENT OF REVENUE, MINISTRY OF FINANCE, GOVERNMENT OF INDIA NORTH BLOCK, NEW DELHI-110 002 REPRESENTED HEREIN BY ITS CHAIRPERSON (BY SRI.K.V.ARAVIND, ADVOCATE) …RESPONDENTS THIS W.P. IS FILED UNDER ARTICLE 226 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE IMPUGNED NOTICE DATED 31.03.2021 ISSUED BY THE R2 U/S 148 OF THE INCOME-TAX ACT, 1961 ANNEXURE-A AND QUASH THE IMPUGNED CIRCULAR DATED 03.08.2012 ISSUED BY THE R3 ANNEXURE-B AND QUASH THE IMPUGNED CIRCULAR DATED 31.12.2018 ISSUED BY THE R3 ANNEXURE-C AND ETC. THIS W.P. IS BEING HEARD AND RESERVED ON 18.12.2021, COMING ON FOR PRONOUNCEMENT OF ORDERS THIS DAY, THE COURT MADE THE FOLLOWING:- ORDER In this petition, petitioner has sought for the following reliefs:- “ (i) Quashing the impugned notice dated 31.03.2021 bearing No.ITBA/AST/S/148/2020-21/ 1032116338 (1) issued by the 2[nd] Respondent under Section 148 of the Income-tax Act, 1961 (Annexure ‘A’). (ii) Quashing the impugned Circular dated 03.08.2012 bearing No.6/2012 (F.No.133/44/2012-SO (TPL)} issued by the 3[rd] Respondent (Annexure - ‘B’) (iii) Quashing the impugned Circular dated 31.12.2018 bearing No.10/2018 [F.No.173/626/2018-ITA.I] issued by the 3[rd]Respondent (Annexure - ‘C’) (iv) Declaring that the impugned proceedings initiated by the 2[nd] Respondent under Sections 147 and 148 of the Income-tax Act, 1961, are wholly without jurisdiction, barred by limitation and, therefore, without the authority of law; (v) Declaring that Section 56(2)(vii)(c) of the Income-tax Act, 1961, has no application to the gift of shares of Wipro Ltd. Received by the Petitioner in the previous year relevant to the Assessment year 2013-14, and (vi) Pass such other or further orders as this Hon’ble Court may deem fit in the facts and circumstances of the case, and in the interests of justice and equity”. 2.Briefly stated, the various contentions urged by the petitioner are as under:- (i) The petitioner is a private limited company and is the sole Trustee of a private discretionary Trust called “Azim Premji Trust” (for short ‘the APT’). As per the trust deed of APT, there are three settler partnership firms and three settlor companies. The settlor firms, the settler companies, the petitioner and the beneficiary companies are all part of the promoter group of Wipro Ltd., of which, Mr.Azim Hasham Premji is the promoter. As a part of an inter se transfer within the promoter group, the APT received certain securities being listed shares of Wipro Ltd., from the settlor firms in financial year 2012-13 and the settlor companies in financial year 2010-11 as a gift to be held as the corpus of APT and these transactions were duly disclosed contemporaneously to the stock exchanges and this information was also disseminated to the public at large. It is contended that the aforesaid gifts were duly disclosed in the audited financial statements of APT for the respective financial years. held as the corpus of APT and these transactions were duly disclosed contemporaneously to the stock exchanges and this information was also disseminated to the public at large. It is contended that the aforesaid gifts were duly disclosed in the audited financial statements of APT for the respective financial years. (ii) It is contended that thereafter, pursuant to a thorough examination and verification of all the material placed on record by the petitioner which clearly constituted the true and full disclosure on its part of all the material information sought and required for the purpose of its assessment under the Act, an assessment order came to be passed in the case of the petitioner under Section 143(3) of the Income Tax Act, 1961 (for short ‘the I.T.Act’) for Assessment Year 2013-14, in which the returned income was accepted. (iii) It is further contended that thereafter, i.e., on 31.03.2021, which is well beyond the stipulated period of four years from the end of Assessment Year 2013-14, the 2[nd ]respondent issued the impugned notice under Section 148 of the I.T.Act after obtaining the sanction of respondent No.1 stating that there were reasons to believe that APT’s income chargeable to tax for the said Assessment Year had escaped assessment and proposing to re-assess its income. In response, the petitioner requested for the reasons for reopening APT’s assessment. Acceding to its request, the 2[nd ]respondent furnished the purported reasons for re-opening the assessment for Assessment Year 2013-14. (iv) Petitioner has contended that the impugned notice is based on a patent error of law because it equates a private limited company with an individual and on that erroneous basis, records the reason to believe that the provisions of Section 56(2)(vii)(c) of the I.T.Act are applicable to the petitioner in respect of the gift of Wipro Ltd.’s shares received by it. Consequently, the so-called “reason to believe” that its income has escaped assessment is completely baseless and non-est. It is further contended that in the recorded reasons, extensive reliance has been placed upon the two impugned Board Circulars of 2012 and 2018 despite them being directly contrary to the provisions of Sections 2(31) and 56(2)(vii)(c) of the I.T.Act. (v) It is contended that in any event, there is no failure or omission whatsoever on the part of the petitioner to disclose any material facts necessary for its assessment for Assessment Year 2013-14. The impugned Section 148 Notice is therefore patently time barred and without jurisdiction; the statutorily required sanction under section 151 has been granted by the 1[st] respondent without any application of mind and without any consideration of the materials on record relating to the Petitioner’s assessment for assessment year 2013-14. (vi) Alternatively, it is contended that Section 56(2) (vii) (c) of the I.T. Act provided that where an individual or Hindu Undivided Family receives any movable property in any year during the period 01.10.2009 to 01.04.2017 with a fair market value of more than Rs.50,000/- for a consideration which is less than the fair market value , the same shall be treated as the income of the recipient. The proviso to Section 56(2)(vii)(c) of the I.T.Act provides that this clause shall not apply to any property received from any relative as defined or on the occasion of the marriage of the individual. The term “relative” is defined in Explanation (e) to Section 56(2)(vii) in terms (of brother, sister, spouse etc.) which make it absolutely clear that individual means only a natural person and not a corporate entity. (vi) Alternatively, it is contended that Section 56(2) (vii) (c) of the I.T. Act provided that where an individual or Hindu Undivided Family receives any movable property in any year during the period 01.10.2009 to 01.04.2017 with a fair market value of more than Rs.50,000/- for a consideration which is less than the fair market value , the same shall be treated as the income of the recipient. The proviso to Section 56(2)(vii)(c) of the I.T.Act provides that this clause shall not apply to any property received from any relative as defined or on the occasion of the marriage of the individual. The term “relative” is defined in Explanation (e) to Section 56(2)(vii) in terms (of brother, sister, spouse etc.) which make it absolutely clear that individual means only a natural person and not a corporate entity. (vii) During the year ending 31.03.2013, the petitioner received gift of Rs.29.55 crore number of WIPRO shares from 3 Premji Group firms. This gift was fully disclosed in the petitioner’s Balance Sheet for the financial year 2012-13, where the number of WIPRO shares received as gift, their face value and the market value of the shares at the date of the Balance Sheet were all disclosed. Indeed, there are no other details or particulars which could possibly be disclosed regarding the said WIPRO shares received as gifts. (viii) It is contended that during the regular assessment proceedings for A.Y 2013-14, the Assessing Officer (A.O) issued a notice under Section 142(1) asking, inter alia, for the complete list of donors, with address, PAN and amount donated. The Petitioner’s reply gave complete particulars of the donors, their PAN numbers and the number of WIPRO shares received as gifts and also the relevant demat statements. It is contended that an assessee is under a duty or obligation to disclose only the basic and primary facts relating to his assessment and thereafter, it is for the Assessing officer to make further enquires and draw inferences and if he does not do so for any reason, then the revenue cannot contend that there was any failure or omission on the part of the assessee. (ix) It is contended that despite being in possession of all the relevant facts relating to the gifts of shares received by the petitioner and the Trust Deed of Azim Premji Trust, the Assessing officer chose not to apply Section 56(2)(vii)(c) of the I.T.Act; instead, after the expiry of the period mentioned in the proviso to Section 147, the Assessing officer has taken a new view, which is not permissible under the proviso to Section 147 of the I.T. Act. (x) It is further contended that the Assessing officer passed the assessment order under Section 143(3) on 31.03.2016 recording that the petitioner’s authorized representatives had attended from time to time in connection with the assessment proceedings and had submitted the required details which were taken on record. The assessment was completed by accepting the income returned by the petitioner. It is contended that in a case of reopening covered by the proviso to Section 147, the reasons recorded must set out the exact particulars of the failure to disclose on the part of the assessee, on account of which the escapement of income has taken place and a ritual repetition of the proviso to Section 147 would not be sufficient. In the present case, the reasons recorded only state that though the number of WIPRO shares received as a gift were disclosed but neither the book value nor the market value of the shares was disclosed in the Balance Sheet. This is factually incorrect because the face value of the WIPRO shares (Rs.2/- per share) and also their market value as on 31.03.2013 are clearly disclosed. (xi) In any event, share of WIPRO is widely quoted and frequently traded and its market value from minute to minute is readily available. The petitioner cannot possibly be accused of failing to disclose information which is in the public domain and is continuously available to everybody. In any event, the reasons recorded do not even attempt to (xi) In any event, share of WIPRO is widely quoted and frequently traded and its market value from minute to minute is readily available. The petitioner cannot possibly be accused of failing to disclose information which is in the public domain and is continuously available to everybody. In any event, the reasons recorded do not even attempt to claim that the non-application of Section 56(2)(vii)(c) of the I.T.Act and the consequent alleged escapement of income was because the Assessing officer was allegedly unaware of the market price of WIPRO shares. For application of Section 56(2)(vii)(c) of the I.T.Act, even if a price as nominal as one paise is assigned to be the market value of each Wipro share received as a gift with the number of shares received as a gift being Rs.29.55 crores, the aggregate value would exceed the limit of Rs.50,000/- specified in Section 56(2)(vii)(c) of the I.T.Act. Thus, in the facts of the case, it is axiomatic that the Assessing officer considered Section 56(2)(vii)(c) of the I.T.Act not to be attracted at all rather than being unaware of the market price of WIPRO shares as alleged. The market price of these shares is irrelevant because in the reasons recorded, nowhere it is specifically allege and establish that the alleged escapement of income was by reason of the so-called non-disclosure of the share price. In any event, such an allegation, even if made, would be false because the Balance Sheet states the market value. It is contended that the jurisdictional condition precedent laid down under the proviso to Section 147 of the I.T.Act i.e., failure to disclose the material fact, which failure allegedly is the proximate cause of the escapement of income has not been fulfilled at all in the present case and the impugned Section 148 Notice requires to be struck down on that ground alone and by itself. (xii) Petitioner has also contended that the other jurisdictional condition precedent for re-opening i.e., escapement of income also does not exist in the present case. The contentions urged by the respondents that the income has escaped assessment because Section 56(2)(vii)(c) of the I.T. Act was wrongly not applied to the gifts of WIPRO shares received by the petitioner as can be seen from Annexure-M dated 09.04.2021 viz., the reasons recorded that the petitioner-limited company is an individual to whom Section 56(2)(vii)(c) of the I.T.Act applies is untenable and devoid of merit. It is therefore contended that on this distinct and independent ground also, the impugned Section 148 Notice requires to be struck down by this Hon’ble Court. 3. The respondents - Revenue have filed the statement of objections interalia contending that the petition is premature, since the petitioner – assessee is required to file return of income to the impugned assessment notice under Section 148 of the I.T.Act and seek reasons for reopening and file objections before the assessing officer, who is required to pass an order on the same and only upon the assessing officer passing such an order, the petitioner would be entitled to challenge the same in accordance with law. It is contended that since the petitioner has approached this Court without filing objections or the assessing officer passing orders, the present petition is not maintainable. 3.1 The respondents have further contended that the challenge to the impugned circulars dated 03.08.2012 and 31.12.2018 are also misconceived and devoid of merits and the same are liable to be rejected. It is contended that the challenge to the applicability of Section 56 (2) (vii) (c) of the I.T.Act is also not sustainable in view of the equally efficacious and alternative remedy available to the petitioner under the I.T.Act before the assessing officer and the higher authorities and as such, the petition is not maintainable on this ground also. 3.1 The respondents have further contended that the challenge to the impugned circulars dated 03.08.2012 and 31.12.2018 are also misconceived and devoid of merits and the same are liable to be rejected. It is contended that the challenge to the applicability of Section 56 (2) (vii) (c) of the I.T.Act is also not sustainable in view of the equally efficacious and alternative remedy available to the petitioner under the I.T.Act before the assessing officer and the higher authorities and as such, the petition is not maintainable on this ground also. 3.2 It is also contended that though the prescribed period of six years to reopen the assessment of the petitioner for the assessment year 2013-14 expired on 31.03.2020, in view of Section 3 of the Taxation and other Laws (relaxation and amendment of certain provisions) Act, 2020, the period of limitation was extended upto 31.12.2020 and thereafter, upto 31.03.2021 vide Notification dated 29.10.2020 issued by invoking the enabling powers under the said Section 3 of the said Act. It is therefore contended that the impugned notice dated 31.03.2021 is within the extended period of limitation and the contention of the petitioner that the impugned notice is beyond the period of limitation is liable to be rejected. 3.3 The respondents have contended that in the return of income filed by the petitioner for the assessment year 2013 – 14, the petitioner merely disclosed the receipt of gifts in the balance sheet as part of long term investments at NIL value and neither the book value nor the market value of the shares of Wipro Ltd., were disclosed by the petitioner. Further, in the notes to the accounts in the summary of the transactions with parties having substantial interest, the names of the settlors and only the number of shares of Wipro Ltd., gifted by them is mentioned and neither the book value nor market value of the shares were disclosed and as such, the return of income without disclosing the correct status and value of shares amounts to failure on the part of the petitioner to fully and truly disclose all material facts necessary for assessment for that assessment year. It is therefore contended that the assessing officer has correctly recorded that there are reasons to believe for reopening of assessment under Section 148 of the I.T.Act and the impugned notice seeking to re-open the assessment is in strict compliance and in conformity with the provisions of the I.T.Act and several decisions of the Apex Court including the decision in the case of Assistant Commissioner of Income Tax vs. Rajesh Jhavri Stock Brokers Ltd., - (2007) 291 ITR 500 (SC). It is also contended that for the purpose of issuance of the notice of reassessment, only a prima faciesatisfaction is required on the part of the assessing officer and a detailed enquiry is neither required nor warranted at that stage and on this ground also, the impugned notice is correct and proper. Putting forth these contentions and denying the various contentions urged by the petitioner, respondents have sought for dismissal of the petition. 4. I have heard Sri.S.Ganesh, learned Senior counsel appearing for Sri.Sandeep Huilgol for the petitioner and Sri.K.V.Aravind, learned counsel for the respondents and perused the material on record. 5. The material on record discloses that undisputedly, during the financial year 2012-13, which corresponds to assessment year 2013-14, the petitioner received equity shares of Wipro Ltd., from 3 donors. The petitioner filed its returns which are produced along with the auditor’s report as Annexure-F to the petition. The said gift transactions were disclosed in the audited financial statements for the year ending 31.03.2013. 6. On 09.06.2015, the Income tax officer issued a Notice to the petitioner under Section 142(1) of the I.T.Act calling upon the petitioner to furnish details regarding 4. I have heard Sri.S.Ganesh, learned Senior counsel appearing for Sri.Sandeep Huilgol for the petitioner and Sri.K.V.Aravind, learned counsel for the respondents and perused the material on record. 5. The material on record discloses that undisputedly, during the financial year 2012-13, which corresponds to assessment year 2013-14, the petitioner received equity shares of Wipro Ltd., from 3 donors. The petitioner filed its returns which are produced along with the auditor’s report as Annexure-F to the petition. The said gift transactions were disclosed in the audited financial statements for the year ending 31.03.2013. 6. On 09.06.2015, the Income tax officer issued a Notice to the petitioner under Section 142(1) of the I.T.Act calling upon the petitioner to furnish details regarding assessment proceedings. In the said notice, petitioner was called upon to produce complete list of donors with address, PAN and the amount donated. The petitioner issued a reply dated 22.06.2015 furnishing all the details sought for by the respondents, pursuant to which, the respondents passed an assessment order dated 31.03.2016 accepting the returns submitted by the petitioner. 7. Subsequently, on 11.03.2020, the respondents issued a notice under Section 133(6) of the I.T. Act calling upon the petitioner to provide information relevant for the proceedings in relation to financial year 2016-17; in the said notice, it was stated that the petitioner – assessee had been filing returns as “AOP / BOI” and in view of the decision of the Delhi High Court, the petitioner is to be assessed as an individual and reasons for filing the returns of income in the status of AOP / BOI is to be furnished by the petitioner to the respondents. 8. The petitioner submitted a reply dated 19.03.2020 explaining in detail to the respondents that apart from the fact that the decision of the Delhi High Court was not applicable to the petitioner, the income tax returns and assessments made by the respondents categorizing the petitioner as a company was correct and proper and that the petitioner cannot be assessed in the status of an individual. 9. It is relevant to state that subsequent to the aforesaid reply submitted by the petitioner, the respondents did not proceed further in the matter; instead, the respondents issued the impugned Notice dated 31.03.2021 after more than one year proposing to reopen the assessment which has been impugned in the present petition. 10. The first question that arises for consideration is, whether on 31.03.2021, the respondents were entitled to reopen the assessment proceedings of the petitioner for the assessment year 2012-13 after the expiry of four years as contemplated in Section 147 of the I.T.Act; in this context, reliance is placed upon the proviso to Section 147 of the I.T.Act by the respondents in order to contend that the respondents had a valid reason to believe that the undisclosed income had escaped assessment on account of the petitioner – assessee not disclosing fully and truly all material facts during the course of the original assessment. 11. The power / jurisdiction of the respondents – revenue to reopen assessments under Section 147 of the I.T.Act 1961, beyond the prescribed period of limitation on the ground that there were “income had escaped assessment due to failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment” came up for consideration before the Apex Court while dealing with identical provisions in Section 34 of the I.T.Act, 1922, in the case of Calcutta Discount Company Limited vs. Income Tax Officer – AIR 1961 SC 372, wherein it was held as under:- respondents had a valid reason to believe that the undisclosed income had escaped assessment on account of the petitioner – assessee not disclosing fully and truly all material facts during the course of the original assessment. 11. The power / jurisdiction of the respondents – revenue to reopen assessments under Section 147 of the I.T.Act 1961, beyond the prescribed period of limitation on the ground that there were “income had escaped assessment due to failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment” came up for consideration before the Apex Court while dealing with identical provisions in Section 34 of the I.T.Act, 1922, in the case of Calcutta Discount Company Limited vs. Income Tax Officer – AIR 1961 SC 372, wherein it was held as under:- 6. To confer jurisdiction under this section to issue notice in respect of assessments beyond the period of four years, but within a period of eight years, from the end of the relevant year two conditions have therefore to be satisfied. The first is that the Income Tax Officer must have reason to believe that income, profits or gains chargeable to income tax have been under-assessed. The second is that he must have also reason to believe that such “underassessment” has occurred by reason of either (i) omission or failure on the part of an assessee to make a return of his income under Section 22, or (ii) omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for that year. Both these conditions are conditions precedent to be satisfied before the Income Tax Officer could have jurisdiction to issue a notice for the assessment or reassessment beyond the period of four years but within the period of eight years, from the end of the year in question. 7. No dispute appears to have been raised at any stage in this case as regards the first condition not having been satisfied and we proceed on the basis that the Income Tax Officer had in fact reason to believe that there had been an under-assessment in each of the assessment years, 1942-43, 1943-44 and 1944-45. The appellant's case has all along been that the second condition was not satisfied. As admittedly the appellant had filed its return of income under Section 22, the Income Tax Officer could have no reason to believe that underassessment had resulted from the failure to make a return of income. The only question is whether the Income Tax Officer had reason to believe that “there had been some omission or failure to disclose fully and truly all material facts necessary for the assessment” for any of these years in consequence of which the under-assessment took place. 8. Before we proceed to consider the materials on record to see whether the appellant has succeeded in showing that the Income Tax Officer could have no reason, on the materials before him, to believe that there had been any omission to disclose material facts, as mentioned in the section, it is necessary to examine the precise scope of disclosure which the section demands. The words used are “omission or failure to disclose fully and truly all material facts necessary for his assessment for that year”. It postulates a duty on every assessee to disclose fully and truly all material facts necessary for his assessment. What facts are material, and necessary for assessment will differ from case to case. In every assessment proceeding, the assessing authority will, for the purpose of computing or determining the proper tax due from an assessee, 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 the 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, and ascertain on a correct interpretation of the taxing enactment, the proper tax leviable. Thus, when a question arises whether certain income received by an assessee is capital receipt, or revenue receipt, the assessing authority has to find out what primary facts have been proved, what other facts can be inferred from them, and taking all these together, to decide what the legal inference should be. 9. There can be no doubt that the duty of disclosing all the primary facts relevant to the decision of the question before the assessing authority lies on the assessee. To meet a possible contention that when some account books or other evidence has been produced, there is no duty on the assessee to disclose further facts, which on due diligence, the Income Tax Officer might have discovered, the legislature has put in the Explanation, which has been set out above. In view of the Explanation, it will not be open to the assessee to say, for example — “I have produced the account books and the documents: You, the assessing officer examine them, and find out the facts necessary for your purpose: My duty is done with disclosing these account-books and the documents”. His omission to bring to the assessing authority's attention these particular items in the account books, or the particular portions of the documents, which are relevant, amount to “omission to disclose fully and truly all material facts necessary for his assessment”. Nor will he be able to contend successfully that by disclosing certain evidence, he should be deemed to have disclosed other evidence, which might have been discovered by the assessing authority if he had pursued investigation on the basis of what has been disclosed. The Explanation to the section, gives a quietus to all such contentions; and the position remains that so far as primary facts are concerned, it is the assessee's duty to disclose all of them — including particular entries in account books, particular portions of documents and documents, and other evidence, which could have been discovered by the assessing authority, from the documents and other evidence disclosed. section, gives a quietus to all such contentions; and the position remains that so far as primary facts are concerned, it is the assessee's duty to disclose all of them — including particular entries in account books, particular portions of documents and documents, and other evidence, which could have been discovered by the assessing authority, from the documents and other evidence disclosed. 10. Does the duty however extend beyond the full and truthful disclosure of all primary facts? In our opinion, the answer to this question must be in the negative. Once all the primary facts are before the assessing authority, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else — far less the assessee — to tell the assessing authority what inferences whether of facts or — law should be drawn. Indeed, when it is remembered that people often differ as regards what inferences should be drawn from given facts, it will be meaningless to demand that the assessee must disclose what inferences — whether of facts or law he would draw from the primary facts. 11. If from primary facts more inferences than one could be drawn, it would not be possible to say that the assessee should have drawn any particular inference and communicated it to the assessing authority. How could an assessee be charged with failure to communicate an inference, which he might or might not have drawn? 12. It may be pointed out that the Explanation to the sub-section has nothing to do with “inferences” and deals only with the question whether primary material facts not disclosed could still be said to be constructively disclosed on the ground that with due diligence the Income Tax Officer could have discovered them from the facts actually disclosed. The Explanation has not the effect of enlarging the section, by casting a duty on the assessee to disclose “inferences” to draw the proper inferences being the duty imposed on the Income Tax Officer. 13. We have therefore come to the conclusion that while the duty of the assessee is to disclose fully and truly all primary relevant facts, it does not extend beyond this. 14. The position therefore is that if there were in fact some reasonable grounds for thinking that there had been any non-disclosure as regards any primary fact, which could have a material bearing on the question of “underassessment” that would be sufficient to give jurisdiction to the Income Tax Officer to issue the notices under Section 34. Whether these grounds were adequate or not for arriving at the conclusion that there was a non disclosure of material facts would not be open for the court's investigation. In other words, all that is necessary to give this special jurisdiction is that the Income Tax Officer had when he assumed jurisdiction some prima facie grounds for thinking that there had been some non-disclosure of material facts. 15. Clearly it is the duty of the assessee who wants the court to hold that jurisdiction was lacking, to establish that the Income Tax Officer had no material at all before him for believing that there had been such non disclosure. To establish this the company has relied on the statements in the assessment orders for the three years in question and on the statement of Kanakendra Narayan Banerjee in the report made by him to the Commissioner of Income Tax for the purpose of obtaining sanction to initiate proceedings under Section 34 and also on his statement in the affidavit on oath in reply to the writ petition. The report is in these words: “Profit of Rs 5,48,002 on sale of shares and securities escaped assessment altogether. 15. Clearly it is the duty of the assessee who wants the court to hold that jurisdiction was lacking, to establish that the Income Tax Officer had no material at all before him for believing that there had been such non disclosure. To establish this the company has relied on the statements in the assessment orders for the three years in question and on the statement of Kanakendra Narayan Banerjee in the report made by him to the Commissioner of Income Tax for the purpose of obtaining sanction to initiate proceedings under Section 34 and also on his statement in the affidavit on oath in reply to the writ petition. The report is in these words: “Profit of Rs 5,48,002 on sale of shares and securities escaped assessment altogether. At the time of the original assessment the then Income Tax Officer 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 Company has really been systematically carrying out a trade in the sale of investments. As such the Company had failed to disclose the true intention behind the sale of the shares and as such Section 34(1)(a) may be attracted.” 16. The only non-disclosure mentioned in the report is that the Company had failed to disclose “the true intention behind the sale of the shares”. Mr Choudhury contends that this is not an omission to disclose a material fact within the meaning of Section 34. The question whether sales of certain shares were by way of changing the investments or by way of trading in shares has to be decided on a consideration of different circumstances, including the frequency of the sales, the nature of the shares sold, the price received as compared with the cost price, and several other relevant facts. It is the duty of the assessee to disclose all the facts which have a bearing on the question; but whether the assessee had the intention to make a business profit as distinguished from the intention to change the form of the investments is really an inference to be drawn by the assessing authority from the material facts taken in conjunction with the surrounding circumstances. The law does not require the assessee to state the conclusion that could reasonably be drawn from the primary facts. The question of the assessee's intention is an inferential fact and so the assessee's omission to state his “true intentions behind the sale of shares” cannot by itself be considered to be a failure or omission to disclose any material fact within the meaning of Section 34. Indeed, an assessee whose contention is that the shares were sold to change the form of investment and not with the intention of making a business profit cannot be expected to say that his true intention was other than what he contended it to be. Dealing with this question the learned Chief Justice has said: “The expression that the respondent had failed to disclose ‘the true intention behind the sale of shares’ may lack directness, but that deficiency of language is not sufficient to enable the respondent to contend, in view of the circumstances alleged, that no failure to disclose facts was being complained of. On the facts as stated by the Income Tax Officer, it is clear that there had been a failure to disclose the fact that the respondent was a dealer in shares and what the Income Tax Officer meant by the language used by him was that the respondent had not disclosed that the sale of shares had been of the nature of a trading sale, made in pursuance of an intention to make a business profit, and not of the nature of a change of investment, made in pursuance of an intention to put certain capital assets into another form. If that be so, it is equally clear that the Income Tax Officer who, by the way, was a successor to the officers who had made the original assessments, was not merely changing his opinion as to facts previously known, but was taking notice of a new fact.” 17. The learned Chief Justice seems to have proceeded on the basis that when from certain facts inferences are to be drawn there is a duty on the assessee to state what the correct inference should be and if he has made a wrong statement as regards the inferences to be drawn that also is an “omission or failure to disclose a material fact”. For the reasons given earlier we do not think that this is the correct position in law. 18. It is clear therefore that if one looked at this report only it would not be possible to say that the Income Tax Officer had any non-disclosure of material facts by the assessee in mind when he assumed jurisdiction. It has to be remembered however that in sending a report to the Commissioner the Income Tax Officer might not fully set out what he thought amounted to a non-disclosure, because it is conceivable that the report may not be drawn up carefully and may not contain a reference to all the non-disclosures that operated on his mind. We have, however, on the record an affidavit sworn by the same Income Tax Officer who started the Section 34 proceedings. It is reasonable to expect that in this affidavit which was his opportunity to tell the court what non-disclosure he took into consideration he would state as clearly as possible the material facts in respect of which there had not been in his view a full and true disclosure. Mr Banerjee's statements in this matter are contained in paras 5, 6 and 7 of his affidavit. They are in these words: “5. With reference to paras 2 and 3 of the said petition, I crave reference to the assessment orders therein mentioned. The assessment order dated 15th February, 1945, was made by Sri Kali Das Banerjee now Income Tax Officer Companies District II and the other two assessment orders were made by L.D. Rozario who is now in the employment of M/s Lovelock & Lewes. I find from the notes made by me in the order sheet of the assessment year 1944-45 and my order dated 7th July, 1944 that Mr Smith of M/s Lovelock & Lewes attended before me and stated that the profits of the Company arising out of dealings in shares were not taxable as the Company was not a dealer in shares and securities. Subsequently on 18th August, 1944, M/s Lovelock & Lewes wrote a letter to me setting out the contentions of their clients and inter alia stated that throughout the whole history the Company bought no shares whatsoever. Sri K.D. Banerjee was accordingly led to believe that the dealings in shares were casual transactions and were in the nature of mere change in investments and the profits resulting therefrom were not taxable. The assessment orders were made on the basis that the petitioner did not carry on any business dealings in shares. A copy of the said letter dated 18th August, 1944, as also the relevant portion of the note sheet are included in the schedule hereto anefnexed and marked ‘A’. 6. In the assessments for 1945-46 and 1946-47, which were completed in April 1950, the profits on sale of shares were included in the total assessable income of the Company it having been then discovered that the petitioner was in fact carrying on business in shares contrary to its representation that it was not. The Company filed appeals before the Appellate Assistant Commissioner, which were rejected in September 1950, and the assessments were confirmed. The Company thereafter filed a second appeal before the Income Tax Tribunal which appeals are now pending. 6. In the assessments for 1945-46 and 1946-47, which were completed in April 1950, the profits on sale of shares were included in the total assessable income of the Company it having been then discovered that the petitioner was in fact carrying on business in shares contrary to its representation that it was not. The Company filed appeals before the Appellate Assistant Commissioner, which were rejected in September 1950, and the assessments were confirmed. The Company thereafter filed a second appeal before the Income Tax Tribunal which appeals are now pending. 7. With reference to para 5 of the said petition, I deny that I pretended to act under Section 34 of the Income Tax Act as alleged. I have reasons to believe that by reason of the omission or failure of the Company to disclose fully and truly all material facts necessary for its assessments, the income, profits and gains chargeable to income Tax had been under assessed. I recorded my reasons and made three reports one for each year) in the prescribed form and submitted them before the Commissioner of Income Tax and the latter was satisfied that it was a fit case for issue of a notice under Section 34 of the Income Tax Act. Thereafter I issued the prescribed notices under Section 34 of the Income Tax Act. The said reports were made and notices issued in respect of all the three years mentioned in the petition and copies of the report and notice for one of such years are included in the schedule hereto annexed and marked ‘A’. The report and notices for the two other years are exactly similar.” 19. It appears from this that the statements made by or on behalf of the Company which the assessing authority considered to amount to non-disclosure of material facts were these: (i) the Company was not a dealer in shares and securities, and (ii) throughout the whole of its history the Company bought no shares whatsoever. It has not been suggested before us that, in fact at any time up to the conclusion of the assessment proceedings for the years 1942-43, 1943-44 and 1944-45 the Company did in fact make a single purchase of shares. Clearly therefore the Income Tax Officer had no reasonable ground for thinking that anything as regards the purchase of shares had not been disclosed. The Company does not dispute that the statement was made on its behalf that it was not a “dealer” in shares and securities. It appears clear that the Income Tax Officers who made the assessments for the years 1942-43, 1943-44 and 1944-45 proceeded on the basis that this was an investment company and considered the question whether in spite of its being an investment company certain sales of shares wherefrom the Company made a profit were by way of trading in shares and not by way of changing the form of investment. Whether these sales by an investment company should in law be treated as trading transactions, and the profits made from the sales trading profits liable to tax, was the matter which it was the Income Tax Officer's task to decide. No duty lay on the Company to admit that these transactions were by way of trade. The fact that on behalf of the Company Mr Smith of Lovelock & Lewes stated that the Company was not a dealer in shares and securities does not therefore amount to an omission to disclose fully and truly any material fact. amount to an omission to disclose fully and truly any material fact. 20. To ascertain whether the Income Tax Officer could have had in mind any non-disclosure as a ground for thinking that by reason of such non-disclosure an underassessment had occurred — apart from what was mentioned in the affidavit — we enquired from respondent's counsel whether he could suggest any other non-disclosure that might have taken place. Mr Sastri suggested two. One is that the sales had not been disclosed; the other that the memorandum and articles of association of the Company had not been shown. This suggestion is against the record and we have no hesitation in repelling it. Not only is it not the ground set out by the Income Tax Officer at any stage not even in the affidavit in court, but the matters mentioned by the officer that the assessee had claimed that the profits realised were of a casual nature obviously indicate that the assessee disclosed that a surplus resulted from the sales which were also disclosed. 21. The assessment orders it is true do not mention the details of the sales. They state however that the audited accounts of the Company were furnished. The sales of shares were expressly mentioned in the report. In these circumstances it is reasonable to believe that as regards sale of shares full details were in fact disclosed. 22. Nor can we believe that the two Income Tax Officers L.D. Rozario and K.D. Banerjee concluded the proceedings without referring to the memorandum and articles of association of the company. These officers knew well that the Company was claiming to be an investment company only. They had to consider the question whether sales were of the nature of trade or of the nature of change of investment. It is unthinkable that they would not examine the memorandum of association. Besides, it is pertinent to note that in para 4 of his affidavit Kanakendra Narayan Banerjee refers to the memorandum and articles of association and states that “by its memorandum of association the Company has been authorise