GROVER, - (1.) THE Judgment of the court was delivered by
(2.) THIS is an appeal by special leave from a Judgment of theCalcutta High court in an Income-tax Reference. The asscssee during the material time was a Hindu Undivided Familyconsisting of the six members. In the original assessment for the assessmentyear 1946-47 the year of account being from 14/04/1945, to Ap 13/04/1946,the Income-tax Officer determined the total income of the assessee at Rs. 35,741.00accruing from the business and other sources such as sale proceeds offorest produce, fisheries, etc. Following demonetization of High DenominationNotes in January 1946 the assessee encashed such notes of the value ofRs. 19,00000. The five members of the family named below also encashednotes of the value shown against each of them, the total value of the notes so encashed being Rs. 1,10,000.00 : JUDGEMENT_780_1_1970Html1.htm The Income-tax Officer reopened the assessments of the Hindu Undivided Family and of the five membprs for the assessment year 1946-47. He included Rs. 19,000.00 in the total income of the family and the amounts whichhad been separately encashed by the five members were included in the reassessments of their respective individual income. This reassessment was completedon 31/01/1955. Two days later, i.e. 2/02/1955 tlif Income-tax782Officer issued another notice under Section 34 of the Income-tax Act, 1922to the family seeking to include in the income of the family the amount of theHigh Denomination notes of the total value of Rs. 1,10,000.00 which had beenencashed separately by the five members. On behalf of the asscssee it wasexplained that each of the five members was in receipt of the pocket allowancevarying from Rs. 100.00 to Rs. 150.00 per month and also received cash andjewellery as gifts from his relations ; therefore the amounts encashed by suchmembers belonged to them individually. The Income-tax Officer was notsatisfied with the explanation. He included the sum of Rs. 1,10,000.00 in thetotal income of the family. The Appellate Assistant Commissioner, on appeal,held that the second notice under Section 34 issued to the family on 2/02/1955 was incompetent. He annulled the reassessment made pursuance thereto.The Appellate tribunal, however, held on appeal by the department that thenotice issued under Section 34 was valid. The tribunal called for a reportfrom the Appellate Assistant Commissioner on merits. In his report theAssistant Commissioner agreed with the view of the Income-tax Officer. TheTribunal was finally satisfied that the amounts of the High Denominationnotes which had been encashed in the name of the five members individuallybelonged to the Hindu Undivided Family. The following questions of lawwere referred by the tribunal for the decision of the High court : (1) "Whether, on the facts and in the circumstances of the case, theassessment made upon the assessee Hindu Undivided family pursuant to anotice under Section 34 of the Indian Income-tax Act issued on the 2/02/1955 was in accordance with law. (2) Whether on the facts and in the circumstance of the case, thesum of Rs. 1,10,000.00 was rightly included in the assessment of the HinduUndivided family". The High court held that the second notice issued under Section 34 of the Act on 2/02/1955 could not have been issued by the Income-tax Officer tothe Hindu Undivided Family. It was found that when the first reassessmentwas made the primary facts necessary for reassessment of the family were inthe possession of the Income-tax Officer. These facts came into possessionnot by virtue of disclosure made by the family but were discovered by himotherwise. At the time of the first reopening of the assessment of the HinduUndivided Family and of the individual members the question of assessmentof the entire amount represented by the High Denomination Notes was underdirect consideration. It was open to the Income-tax Officer to assess the wholeamount of Rs. 19,000.00 and Rs. 1,10,000.00 in the hands of the Hindu Undivi-ded Family at that stage. The escapement, if any, therefore took place byreason of the failure of the Income-tax Officer to assess the family with respectto the sum of Rs. 1,10,000.00 when he was in full possession of all the materialfacts. The answer to the first question was given by the High court in thenegative. On the second question it was considered that the answer would bemerely academic but in spite of this the High court proceeded to express itsagreement with the finding of the tribunal on the point.
(3.) SECTION 34 of the Act has been amended from time to time. In tin-present case this SECTION, as amended in 1948, would be applicable by reasonof SECTION 31 of the Income-tax Amendment Act, 1953. We are concernedwith SECTION 34(l)(a). If the present case could be brought under that provision the second notice which was issued in February 1955 would not be barredby time. But if actiuii could not be taken under it there could be no mannerof doubt that the notices which were issued and the reassessment which was783made would be beyond the period prescribed. SECTION 34 (1) (a) is in theFollowing terms : "Income escaping assessment.-(1) If- (a) the Income-tax Officer has reason to believe that by reason ofthe omission or failure on the part of an assessee' to make areturn of his income under SECTION 22 for any year or todisclose fully and truly all material facts necessary for hisassessment for that year, income, profits or gains charge-able to income-tax have escaped assessment for thatyear, or have been under-assessed, or assessed at toolow a rate, or have been made the subject of excessiverelief under the Act, or excessive loss or depreciationallowance has been computed, or" What has to be seen is whether the Income-tax Officer could havereason to believe that omission or failure on the part of the assessee to disclosefully and truly all material facts necessary for his assessment there had beenescapement of income ? The High court rightly relied on the observations inthe majority Judgment in Calcutta Discount Co. Ltd. v. Income-tax Officer, Compa-nies District I Calcutta and Another that in every assessment proceedings theassessing authority will, for the purpose of computing or determining the propertax) require to know all the facts which help him in coming to the correctconclusion. From the primary facts in his possession whether on disclosureby the assessee or discovered by him on the basis of facts disclosed or otherwisethe assessing authority has to draw inferences as regards certain other factsand ultimately from the primary facts and the further facts inferred from themthe authority has to draw the proper legal inferences. Therefore, the duty ofdisclosing all the primary facts lies on the assessee. The primary facts wereadmittedly within the knowledge of the Income-tax Officer at the time whenhe completed the first reassessment under Section 34. This is clear from theorder of the Appellate Assistant Commissioner to whom the Income-tax Officerreported that in the course of reassessment under Section 34 in respect ofindividual members it became apparent that "they acted as merely namelenders of the Hindu Undivided Family and that the total sum of Rs. 1,10,000.00encashed by them actually belonged to the Hindu Undivided Family". Whenthe Income-tax Officer was in possession of all these facts and he proceeded tomake the reassessment of the individual members by including the amounts inquestion in their individual accounts he could not a few days later merelychange his opinion and issue the notices under Section 34 to the Hindu Undi-vided Family. In this situation it could hardly be said that the requirementsof Section 34(1)(a) were satisfied. The escapement had taken place by reasonof the failure of the Income-tax Officer to include the sum of Rs. 1,10,000.00 inthe assessment of the Hindu Undivided Family wlien he was in full possessionof all the necessary and material facts. We have no doubt that the High courtreturned the correct answer to the first question. Evidently the second ques-tion need not be answered as it becomes plirf'ly academic when answer to thefirst question is in favour of the assessee.;