Decided on September 12,1963


Cited Judgements :-



SEN, J. - (1.): This is a reference under s. 66(1) of the IT Act, 1922, hereinafter referred to as "the Act". The facts as appearing in the case are as follows :
(2.)THE assessee, Kamal Singh Rampuria, was born in December, 1935. His mother died within a week after his birth. Before her death she had executed a will, by which she disposed of Rs. 5,00,000 received by her as a gift previously from her husband, Hulash Chand Rampuria. She bequeathed by this will Rs. 1,00,000 to her daughter, Rs. 1,00,000 made up of various sums to charity, and the balance of Rs. 3,00,000 was bequeathed to her son, the assessee. This sum of Rs. 3,00,000 was invested in the firm of Hazarimal Hiralal and earned interest. Besides, the deceased owned one-sixth share in the firm of Bikanir Trading Co., and this also came to the assessee. In the several returns made during his minority by his father, the said Hulash Chand Rampuria, since deceased, showed the income from the firm till 1944-45 in his son's account. THE interest payments to the assessee, although shown in his son's account, were, however, assessed against the father under s. 16(3)(a)(i) of the Act. THE said Hulash Chand Rampuria was dissatisfied with the order of the ITO in dealing with the interest income under the aforesaid section in respect of the year 1940-41 and referred this matter to the High Court under s. 66(1). In respect of the assessment year, which is 1945-46, the return of the income of the minor assessee submitted by his father included the share income from Bikanir Trading Company but the interest income as aforesaid was shown in the account of the father. THE share income alone was therefore, assessed on 28th Feb., 1950.
This Court decided in the said reference that the interest income could not be taxed in the hands of the father under s. 16(3) in the year 1952. In view of this the ITO issued notice under s. 34 of the Act to the assessee in March, 1954, by which time the assessee had attained majority on the ground that the said interest income escaped assessment. The assessment however, was completed on 25th March, 1955.

The assessee appealed in the AAC who found that the decision made by the ITO was correct. On appeal to the Tribunal it was contended that the ITO was wrong in repelling the contention of the assessee that there was no material for initiating s. 34 proceedings, as the ITO had chosen to treat the interest income received from Hazarimal Hiralal as income of the father under s. 16(3) of the Act. When the High Court decided the reference in 1952, and even before that the ITO knew that the income belonged to the minor, the assessee, but had chosen, nevertheless, to assess it in the hands of the father and, having done so, it was not open to him, when the High Court decision was passed, to initiate proceedings under s. 34. The Tribunal, for the reasons given in its judgment, held that though there had been laches on the part of the Department in taking action under s. 34, the assessee had not discharged his duty to return his income at the proper time, and so the assessment came within the ambit of s. 34(1)(a) of the Act. On these facts, the following question of law has arisen for opinion by this Court : "Whether, on the facts and in the circumstances of the case, the assessment made under s. 34(1) (a) of the IT Act was justified in law?"

(3.)MR. Tarun Basu, the learned counsel appearing for the assessee, contends that, although the interest income was all along shown up to 1944-45 as the income of the son, it was treated as the income of the father under s. 16(3) and, in such circumstances, if the return regarding the interest income was filed by the father for the asst. yr. 1945-46 as his own income, it cannot be said that there has been no disclosure as to material facts. Further, it is argued that these facts were already known to ITO and all the materials being present for his consideration, the provisions of s. 34 (1) (a) ought not to have been invoked by the ITO. The relevant ingredients of s. 34(1)(a), for the purpose of deciding this case, are as follows : (a) Income, profits or gains chargeable to income-tax should have escaped assessment for the relevant year. (b) The ITO should have reason to believe that income has escaped assessment or full assessment, by reason of the omission or failure on the part of the assessee-- (1) to make a return of his income under s. 22, or (2) to disclose fully and truly all necessary facts for the year.
The scope of this section has been discussed fully in the recent Supreme Court decision in the case of Calcutta Discount Co. Ltd. vs. ITO (1961) 41 ITR 191 (SC) : TC 51R.779. The relevant portions of the judgment, which have been relied upon by the learned counsel of both sides, are quoted below : Their Lordships have observed at p. 199 as follows : "Before we proceed to consider the materials on record to see whether the appellant has succeeded in showing that the ITO 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."

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