Commissioner of Income-Tax, West
Bengalcalcutta & ANR Vs. Hemchandra Kar & Ors  INSC 91 (16 April
16/04/1970 GROVER, A.N.
CITATION: 1971 AIR 2331 1971 SCR (1) 283
Indian Income-tax Act,, (11 of 1922), s. 34
and Indian Income-tax Amendment Act, 1953, s. 31-Scope of.
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 encashed 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
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 FH; 287 A-C]
Majority opinion in Calcutta Co. Ltd. v. income-tax Officer, Companies District
I Calcutta & Anr. 41 I.T.R. 191, followed.,
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
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 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
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 make 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 assessment for that year, or have been underassessed,
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
V.P.S. Appeal dismissed.