(1.) THE facts in this case are shortly as follows : One Hazi Poonoomiah, since deceased, was a wealthy Muslim inhabitant of Gazipur in U.P. He had a son, Hazi Saffiullah. Saffiullah had seven sons, Md. Shamsul Haque, Md. Ibrahim, Md. Jalil, Md. Sagir (since deceased), Md. Vakil, Md. Khalil and Md. Bashir, the petitioner in this case. THE other applications are by some of the persons above mentioned. THE Matter No. 210 of 1960 is by Md. Vakil. THE Matter No. 213 of 1960 is by Md. Khalil and the Matter No. 214 of 1960 is by Md. Jalil. THE facts and the law involved in these applications are similar and they have been heard together. THE brothers carried on and still carry on business in partnership under the name and style of M/s Shamsul Haque and Bros. For the assessment year 1946-47 the firm of M/s Shamsul Haque and Bros., Bander bazar, Sylhet, described as an unregistered firm, was assessed by the ITO, Sylhet, in Pakistan, on or about 29th Feb., 1948. THEre was a similar assessment for the asst. yr. 1947-48. For the year 1947-48 the firm of Shamsul Haque and Bros., P. 31, Ganesh Chandra Avenue, Calcutta, described as an unregistered firm was assessed by the ITO, Calcutta, District III(I) on or about 18th April 1949. THEre was a similar assessment for the year 1948-49, on the year 19th Feb., 1948. THE assessment order at Calcutta for the year 1947-48 states that the firm had so long been assessed by the ITO, Sylhet, but since the assessment for the year 1947-48 was not made prior to the date of partition, i.e., 15th Aug., 1947, the firm should have been assessed in India with regard to the income from the properties situated in India. A notice under s. 34 was, therefore, issued and thereafter return was filed and assessment made. It is mentioned in the assessment order that the firm had a stationery shop (wholesale and retail) at Sylhet. THE income of the Sylhet business was assessed by estimation for rate purposes. A similar assessment was made for the year 1948-49. In Jan., 1946, the petitioner encashed in Calcutta, through the Habib Bank, a sum of Rs. 1,10,000 in high denomination notes, presumably under the Denomination Ordinance, under which high denomination notes were abolished and they could be encashed only within a specified time. Similarly, Md. Vakil encashed notes for Rs. 95,000, Md. Khalil encashed notes for Rs. 3,10,000 and Md. Jalil encashed notes for Rs. 1,18,000. In the declaration form necessary for encashment, it was stated that the money represented the life's saving of the brothers. In March, 1951, a notice was issued under s. 34 of the Indian IT Act upon the petitioner by the ITO, District III(I), Calcutta, asking the petitioner to submit a return for the asst. yr. 1946-47. It must be remembered that this notice was served and the assessment sought to be made, not of the firm, but of the petitioner individually. Similar notices were served on the petitioners in the other cases. THE assessees refused to file a return on the ground that the notice was invalid. Although they filed no return, some of them attended at the hearing and on the 20th March, 1952, an assessment was made by which this sum of Rs. 1,10,000 encashed by the petitioner was held to be his income from an undisclosed source. From this order of assessment the petitioner preferred an appeal on the 8th April, 1952, before the AAC. By his order dt. 24th Jan., 1956, the AAC rejected the contention that the ITO, District (III) (I) had no jurisdiction to issue the notice under s. 34 or to make the assessment. THE AAC, however, considered certain facts that should be investigated and he remanded the case to the ITO to report his finding within three months from the date of the receipt of the order. THE facts are the same in the other cases, where also the notes encashed have been held to be income of the brothers from undisclosed sources and assessments made accordingly. THEreafter, certificate proceedings were taken and this rule was issued on the 6th Sept., 1960, upon the respondents to show causes why a writ in the nature of certiorari should not be issued quashing and/or setting aside the assessment order dt. 20th March, 1952, and the order of the AAC dt. 24th Jan., 1956, and why a writ in the nature of mandamus should not be issued restraining the respondents from taking any further steps in the said income-tax proceedings or for the recovery of the said tax. Similar rules have been issued in the other applications.
(2.) IN order to understand the order of remand, it is necessary to go into certain facts. Although no return was filed and the assessment was a best judgment assessment, the petitioner attended the assessment proceedings. Apart from the question of jurisdiction, the explanation that he purported to give was as follows : He said that his grandfather, Hazi Poonoomiah, was a wealthy Muslim inhabitant of Gazipur in U.P. On or about 4th Jan., 1930, he executed a Wasiatnama whereby he gave to his grandsons 2,630 tolas of gold, 4,675 sovereigns, 2,425 gold mohurs, gold ornaments weighing 1107.15 tolas and notes and cash worth Rs. 47,890. This was handed over to their father, Hazi Safiullah in trust. It was, however, not distributed by Hazi Safiullah for thirteen years. IN 1943, these movables were handed over to the sons by their father. After that, a joint account was kept and various properties in Calcutta were purchased. It is stated that this encashment of high denomination notes for Rs. 1,10,000 and the other amounts were out of the said wealth left by their grandfather, which was transformed into high denomination notes. The ITO went into this aspect of the matter and, for several reasons given in his assessment order, held that the story of the Wasiatnama and the source of the high denomination notes should not be believed. The reasons are set out in the assessment order and summarised in the order of the AAC. The following are some of the conclusions reached by the ITO :
Firstly, he noticed that the Wasiatnama was not a registered document and, therefore, the date of execution could not be precisely fixed. The stamp affixed to the deed was not purchased by the person writing the deed. It was then pointed out, by giving a summary of the income of Hazi Poonoomiah from 1934 to 1935, of which there is record with the ITO, that the income made by him could not possibly account for such large accumulation of wealth. Next he noticed that although the alleged gift is said to have been made in 1930, it was not distributed until 1943. There was nothing to show how the beneficiaries maintained themselves for these many years. Then again, the brothers made contradictory statements as to the place where the alleged wealth was kept and with whom it was kept. When it came to the declaration required for the encashment of the high denomination notes, nothing was mentioned about the Wasiatnama. It was stated that the notes constituted the brothers' life's savings. The Appellate Asstt. CIT considered these pointed and rightly thought that these disputed questions of fact should be further investigated. He, therefore, directed that, before arriving at a finding, certain facts should be further investigated. For example, the authenticity or otherwise of an alleged endorsement by the Collector dt. 16th Dec., 1922, on the Wasiatnama should be inquired into and Md. Hanif, who had purchased the stamp paper on which the Wasiatnama is executed, should be examined. Hazi Saffiullah should also be examined, particularly on the question as to why the money received by him in 1930 was not disbursed until 1943. Further investigation was also directed upon the question as to where the wealth was kept and in whose custody it was kept. Before this enquiry could be completed, these applications were made and the rules taken out on the 6th Sept., 1960, calling upon the respondents to show cause why a writ in the nature of certiorari should not be issued quashing, cancelling or setting aside the assessment order dt. 20th March , 1952, against the petitioner and the order of the AAC dt. 24th Jan., 1956, and why a writ in the nature of mandamus should not be issued restraining them from taking any further steps in the income-tax proceedings or for the recovery thereof. There was an interim stay order so that the certificate proceedings have been stayed. Similar rules have been issued in the other applications.
The first point taken is that the notice under s. 34 and the assessment made thereunder against the petitioners were incompetent because there never had been an assessment against the petitioners for the asst. yr. 1946-47; so there could not be a reassessment. Reliance is placed on a decision of Rankin C.J. in In re Lachhiram Basantlal (1931) ILR 58 Cal 909 AIR 1931 Cal 545. The learned Chief Justice stated as follows :
"In my opinion, the assessment is valid. Sec. 34 deals with income which has escaped assessment and it may be, though it is not necessary for the present purpose to decide it, that that income cannot be said to have escaped assessment except in the case where an assessment has been made which does not include the income. I do not proceed upon that footing, because it is unnecessary for the purpose of the present case. At all events, income has not escaped assessment if there are pending at the time proceedings for the assessment of the assessee's income which have not yet terminated in a final assessment thereof."
This observation is obviously an obiter. But although obiter, this opinion of the learned Chief Justice was approved by the Privy Council and by the Supreme Court in Maharaj Kumar Kamal Singh vs. CIT (1959) 35 ITR (1959) Suppl 1 SCR 10. Gajendragadkar J. stated as follows :
"In this connection it may be relevant to refer to the decision of the Calcutta High Court in In re Lachhiram Basantlal (supra) because, as we have already pointed out, the statement of the law made by Chief Justice Rankin in regard to the effect of s. 34 of the Act in this case has been expressly approved by the Privy Council in the case of Rajendranath Mukherjee vs. CIT (1934) 2 ITR 71. While dealing with the assessee's argument that the order of assessment was invalid since it had been passed more than one year after the expiry of the relevant financial year and that the ITO might have acted under s. 34, Chief Justice Rankin stated that income cannot be said to have escaped assessment except in the case where an assessment has been made which does not include the income. It is true that this observation is obiter but it is fully consistent with the subsequent statement of the law made by the learned Chief Justice which has received the approval of the Privy Council."
(3.) IT is argued that Rankin C.J. has definitely laid down the law, namely, that no reassessment under s. 34 may be done unless there has been a prior assessment in the normal way and that this view has been accepted by the Privy Council and the Supreme Court. In my opinion, this is an over-simplification of the legal position, which will have to be further investigated. The first thing to be remembered is that the decision of Rankin C.J., which has certainly found support from the Privy Council and the Supreme Court, was made under s. 34 as it stood before the amendment of 1939 and 1948. Before the amending Act of 1948, s. 34 did not contain the equivalent of s. 34(1) (a). Sec. 34 as it stood before the amendment of 1939 was as follows :
"34. If for any reason, income, profits or gains chargeable to income-tax has escaped assessment in any year or has been assessed at too low a rate the ITO may, at any time within one year of the end of that year, serve on the person liable to pay tax on such income, profits or gains, or, in the case of a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under sub-s. (2) of s. 22, and may proceed to assess or reassess such income, profits or gains, and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section..."
The section as it stands now was substituted by the IT and Business Profits Tax (Amendment) Act, 1948. Clause (a) of sub- s. (1) of s. 34 speaks about the situation when, by reason of the omission or failure on the part of an assessee to make a return of his income or to disclose fully or truly all material facts necessary for the assessment for that year, income, profits or gains chargeable to income-tax have escaped assessment or have been under-assessed or assessed at too low a rate, etc. Clause (b) however, applies, where there is no omission or failure as mentioned in cl. (a) on the part of an assessee, and yet the ITO has, in consequence of information in his possession, reason to believe that such income, etc., has escaped assessment or have been under- assessed or assessed at too low a rate, etc., Chief Justice Rankin's observation was under s. 34, when it did not contain cl. (a) of sub-s. (1). It is, therefore, understandable, that if the only contingency contemplated is escape of assessment, then it might well be said that the assessment cannot be said to have "escaped" assessment if there has not been a prior assessment. Now, however, the escape of assessment for omission or failure to make a return or disclose the correct income is a contingency which has been expressly included within the scope of s. 34. It can therefore no longer be said that there cannot be a reassessment without a prior assessment. This position seems to have been clearly understood in the Supreme Court case mentioned above. Gajendragadkar J. stated as follows :
"Sec. 34 of the Act has been amended in 1939 and in 1948. It is conceded by Mr. Viswanatha Sastri, for the appellant, that the present case is governed by the section as it was amended in 1948. This amended s. 34, sub-s. (1), deals with cases of income escaping assessment in two clauses. Clause (a) covers cases where income has escaped assessment by reason of the omission or failure on the part of the assessee to make a return of his income under s. 22. We are not concerned with this clause."
Thus, it was clearly stated that the decision was not concerned with the contingency contemplated under cl. (a) of sub s. (1). In the present case, we are concerned with cl. (a) of sub-s. (1) of s. 34. Therefore, the observation of Rankin C.J. does not stand in the way.;